Cottonwood Communities, RealSource Properties Enter Into Merger Agreement

Cottonwood Communities Inc., a multifamily sector-focused $2.3 billion real estate investment trust, and RealSource Properties Inc., a private owner of multifamily properties, have announced a private merger transaction that will result in a combined company with estimated gross assets of $2.8 billion.

Under the terms of the just-signed merger agreement, RealSource, which has a $500 million portfolio comprised of, among other assets, 11 multifamily properties consisting of 3,565 units in six states, will merge into a wholly owned subsidiary of Cottonwood. In addition, RealSource Properties Operating Partnership LP, or RSOP, will merge with Cottonwood Residential Operating Partnership LP, or CROP, with CROP surviving the merger.

Following the merger, Cottonwood projects it will own 48 multifamily communities, consisting of 11,037 units spread across 13 states, expanding Cottonwood’s footprint into Ohio, Colorado and Kentucky and bolstering its presence in Texas, North Carolina, and Georgia. In connection with the merger, Cottonwood is to acquire third-party property management contracts on seven additional properties totaling 1,353 units.

At the effective time of the merger, each issued and outstanding share of RealSource common stock that is not cancelled and retired under the merger agreement will be converted into the right to receive 0.8893 shares of Cottonwood Class I common stock, and each issued and outstanding RSOP common unit that is not cancelled and retired under the merger agreement will be converted into the right to receive 0.8893 CROP common units. The 0.8893 exchange ratio is subject to adjustment both prior to and after completion of the merger as described in the merger agreement. Accordingly, security holders of RealSource and RSOP may receive less than or more than 0.8993 shares or units of Cottonwood or CROP, as applicable.

The merger agreement was unanimously approved by the boards of both companies and is expected to close at the end of the third quarter or early fourth quarter of 2025. This is pending lender approvals, approval of the transaction by RealSource stockholders and limited partners, as well as other closing conditions.

“We believe this merger strengthens our platform through increased scale and diversification, positioning us to realize cost efficiencies and drive incremental revenue growth, as well as creating a pipeline of meaningful value-add opportunities,” said Daniel Shaeffer, chief executive officer of Cottonwood. “We appreciate the continued trust and confidence of our equity holders and believe that the combined platform is well-positioned to deliver enhanced value, long-term growth, and strategic benefits moving forward.”

In connection with the closing of the merger, Cottonwood’s adviser intends to reduce its asset management fee from 1.5% of net asset value to 1.25% of NAV and Cottonwood executives plan to make an aggregate investment in Cottonwood of $3 million divided equally between the Class I common stock and Series A convertible preferred stock.

Additionally, the board of directors of Cottonwood Communities intends to implement a phased adjustment to Cottonwood Communities’ annualized distribution rate on all classes of its common stock from $0.73 per share to $0.68 per share over the course of the next several months to align with the anticipated closing of the merger, beginning with the July 31, 2025, record date for distributions.

“We are proud of our long-term track record at RealSource and are pleased to transition stewardship of the RealSource properties into the very capable hands of the team at Cottonwood Communities. We believe Cottonwood Communities’ operating and investment capabilities will provide long-term value growth and enhanced liquidity options for our equity holders in a tax-efficient manner,” said Nate Hanks, CEO of RealSource.

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