Independence Realty Trust, Inc. (IRT) is a self-administered and self-managed real estate investment trust (REIT) that primarily focuses on the ownership, operation, management, and acquisition of multifamily apartment communities in non-gateway markets. As of March 31, 2024, the company owned and operated 111 multifamily apartment properties containing an aggregate of 32,877 units across various markets, including Atlanta, Columbus, Dallas, Denver, Houston, Indianapolis, Nashville, Oklahoma City, Raleigh-Durham, and Tampa.
Business Overview
IRT's primary business objective is to maximize shareholder value through diligent portfolio management, strong operational performance, and a consistent return of capital through distributions and capital appreciation. The company's investment strategy is centered on gaining scale within key amenity-rich submarkets of non-gateway cities, increasing cash flows at its existing apartment properties through prudent property management and strategic renovation projects, and acquiring and developing additional properties with strong and stable occupancies or the potential for repositioning.In the first quarter of 2024, IRT made notable progress on its initiatives to grow occupancy, increase resident retention, execute its portfolio optimization and deleveraging strategy, and deliver on its planned value-add improvements. The company reported a 120 basis point increase in average occupancy to 94.4%, a lease renewal rate of 65.4%, and a resident retention rate of 54.3%, all of which were above the first quarter of 2023 levels. These improvements, along with a 17.4% year-over-year increase in lead volume, have positioned IRT well to drive growth in the coming months and keep the company on track to deliver its full-year operating guidance.
Portfolio Optimization and Deleveraging Strategy
In October 2023, IRT's Board of Directors approved a portfolio optimization and deleveraging strategy, which targeted the sale of 10 non-core properties located in seven markets. As of April 30, 2024, the company had sold all 10 properties for a total gross sales price of $525.3 million, and the proceeds were used to repay $517.1 million of debt. This strategic initiative has allowed IRT to exit or reduce its presence in these markets while also deleveraging its balance sheet, with the company's net debt-to-EBITDA ratio expected to reach its target of 6x by the fourth quarter of 2024.In addition to the portfolio optimization strategy, IRT has also been actively engaged in capital recycling, which involves disposing of assets in markets where the company lacks scale and/or where management believes growth is slowing. During the first quarter of 2024, the company identified one asset in Birmingham, Alabama as held-for-sale and recognized a loss on impairment of $15.1 million. The proceeds from this sale may be used to acquire one of IRT's new construction joint venture assets in Nashville, Tennessee.
Value-Add Program
IRT's value-add program continues to be a key driver of growth, with the company completing renovations on 320 units during the first quarter of 2024 and achieving a weighted average return on investment of 18% when compared to unrenovated comparable units. The company expects to complete renovations on approximately 2,100 additional units throughout the rest of 2024, subject to resident retention. IRT currently owns over 12,000 additional units that are appropriate for renovation over the long term, and the company believes these efforts will help drive strong demand and attract value-driven residents seeking an effective alternative to newer Class A communities at a lower price point.Financial Performance
For the first quarter of 2024, IRT reported net income available to common shareholders of $17.6 million, up from $8.6 million in the first quarter of 2023. This increase was primarily due to gains on the sale of real estate during the quarter. Core Funds from Operations (Core FFO), a non-GAAP measure, was $61.5 million, or $0.27 per share, for the first quarter of 2024.IRT's same-store Net Operating Income (NOI) growth in the first quarter of 2024 was 2.4%, driven by a 3.4% increase in revenue. This growth was led by a 1.5% increase in average monthly rental rates to $1,551 per month and a 120 basis point increase in average occupancy to 94.4%, both as compared to the first quarter of 2023. On the expense side, IRT's same-store operating expenses increased 5% during the quarter, primarily due to higher property insurance, advertising, and personnel expenses.
As of March 31, 2024, IRT had a strong liquidity position, with $412 million in available liquidity, including $21 million in unrestricted cash and $391 million in available capacity through its unsecured credit facility. The company's leverage, as measured by net debt-to-adjusted EBITDA, was 6.7x as of the end of the first quarter, down from 7.3x in the first quarter of 2023, reflecting the impact of the portfolio optimization and deleveraging strategy.
Guidance and Outlook
For the full year 2024, IRT is reaffirming its previously provided guidance for Core FFO per share, which has a midpoint of $1.14. The company has updated its earnings per share (EPS) guidance range to $0.34 to $0.38 per share, primarily due to the planned sale of the Birmingham, Alabama asset and the associated impairment loss recorded in the first quarter of 2024.IRT's guidance range for same-store revenue growth in 2024 remains at 3% to 4.5%, while the guidance range for full-year 2024 total operating expense growth continues to be between 5.4% and 6.4%. As a result, the company expects that property NOI growth will be between 1% and 4%, or 2.5% at the midpoint.