NOTE 3: TSRE Merger

As previously discussed in Note 1, the TSRE merger closed on September 17, 2015. During the fourth quarter of 2015, we received additional information regarding estimates we had made for certain receivables and other assets and accrued expenses. This information led to an increase in fair value of the net assets we acquired of $592. The estimated fair value of the assets and liabilities acquired on acquired on September 17, 2015 was as follows:

Investments in real estate	$	682,237
Cash assumed		2,685
Accounts receivable and other assets		6,513
Intangible assets		7,471
Indebtedness		(359,495	)
Accounts payable and accrued expenses		(7,379	)
Accrued interest payable		(130	)
Other liabilities		(3,662	)
Net assets acquired	$	328,240

The fair value of the consideration transferred on September 17, 2015 was as follows:

Cash consideration for TSRE merger	$	139,781
Equity consideration for TSRE merger		123,855
Total	$	263,636

The fair value of the equity consideration transferred was comprised of $109,857 of common shares and $13,998 of IRT OP units. The fair value was based on the price of our common shares upon completion of the merger.

As the fair value of the net assets acquired exceeded the fair value of the consideration transferred, we recognized a gain from a bargain purchase of $64,604. In determining whether a gain from a bargain purchase was appropriate, we reassessed whether we correctly identified all of the assets acquired and all of the liabilities assumed from TSRE. We determined that we correctly identified all of the assets acquired and all of the liabilities assumed from TSRE and, as a result, a gain from a bargain purchase was appropriate.

The gain from a bargain purchase was a result of the following: (i) the fair value of IRT’s common stock at closing was lower than the negotiated price pursuant to the TSRE merger Agreement (resulting in approximately $34 million of the gain), and (ii), the fair value of the 19 TSRE properties acquired, which was supported by appraisals and broker opinions of value received, was higher than the expectation that served as a basis for the negotiated purchase price (resulting in approximately $31 million of the gain, primarily due to the use of current, market-based capitalization rates).

The $359,495 of indebtedness acquired was comprised of $237,610 of indebtedness that we paid off at the closing of the TSRE merger and $121,885 of indebtedness that remained on our balance sheet, which was recognized at its fair value.

As part of the TSRE merger, we have incurred $12,906 of acquisition expenses, which were recognized in earnings immediately. During the fourth quarter of 2015, we received additional information regarding estimates we had made for certain expenses, which led to an increase in our TSRE acquisition expenses of $376. We also incurred $23,219 of expenses associated with extinguishing financing arrangements and $4,289 of expenses associated with employee separations.

The initial purchase accounting is based on our preliminary assessment, which may differ when final information becomes available. Items where we may receive final information that differs from our current estimates may include certain receivables and other assets and accrued expenses. We believe that the information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. We have received appraisals or broker opinions of value for all of the properties acquired and have performed fair value analyses for the liabilities assumed. We expect to complete the purchase accounting process as soon as practicable, but no later than one year from the date of acquisition. As of December 31, 2015, we were awaiting the outcome of certain real estate tax appeals that TSRE initiated.

Unaudited pro forma financial information relating to the 19 TSRE properties acquired on September 17, 2015 has been included in Note 4: Investments in Real Estate.