Independence Realty Trust, Inc. (IRT) is a self-administered and self-managed real estate investment trust (REIT) that specializes in the ownership, operation, management, and acquisition of multifamily apartment communities across non-gateway U.S. markets. The company has strategically positioned itself to capitalize on the growing demand for rental housing, particularly in suburban and secondary markets that offer a higher quality of life and affordability compared to gateway cities.
Business Overview and History: Incorporated on March 26, 2009, as a Maryland real estate investment trust, IRT has evolved into a leading multifamily REIT with a diverse portfolio of 110 properties and 32,670 units across 12 states as of September 30, 2024. The company's portfolio is concentrated in high-growth, amenity-rich submarkets within non-gateway cities, including Atlanta, Dallas, Denver, Houston, Indianapolis, Nashville, and Raleigh-Durham, among others.
In its early years, IRT focused on building a portfolio of multifamily properties across the southeastern United States. By 2014, the company owned and operated 40 multifamily apartment communities containing over 11,000 apartment units. Growth continued over the next several years through acquisitions, with the company's portfolio expanding to 73 properties and over 20,000 units by 2019.
A significant milestone in IRT's history came in 2021 when the company merged with Steadfast Apartment REIT. This strategic move expanded IRT's footprint to 110 multifamily apartment properties containing over 32,000 units across 12 states, including key markets such as Dallas, Atlanta, Columbus, and Denver. The merger also brought two development projects in Denver onto IRT's balance sheet.
Throughout its growth, IRT has faced and overcome various challenges. In 2020, the company navigated the impacts of the COVID-19 pandemic, including increased bad debt expenses and lower collections. IRT has also dealt with a series of natural disasters, including hurricanes and winter storms, which resulted in casualty losses that exceeded insurance coverage limits at times. To mitigate these challenges, the company implemented operational changes and invested in upgrades to enhance the resilience of its properties.
IRT's investment strategy has been focused on gaining scale in these target markets, where it sees strong fundamentals driven by favorable demographic trends, including population growth, job creation, and rising demand for rental housing. The company has also leveraged its expertise in value-add initiatives, completing renovations on over 9,050 units since 2018 and generating an average return on investment of 16.9%.
Financials: In the first nine months of 2024, IRT reported total revenue of $479.07 million, a 3.0% decrease compared to the same period in 2023. This decline was primarily attributable to the sale of 10 properties as part of the company's Portfolio Optimization and Deleveraging Strategy. However, the company's same-store portfolio demonstrated resilience, with a 2.5% increase in rental and other property revenue during the same period.
IRT's same-store net operating income (NOI) grew by 2.5% in the first nine months of 2024, driven by a 1.4% increase in average effective monthly rents and a 110-basis point improvement in average occupancy to 95.1%. The company's core funds from operations (Core FFO) for the first nine months of 2024 was $191.87 million, or $0.83 per share, compared to $195.18 million, or $0.85 per share, in the same period of 2023.
For the full fiscal year 2023, IRT reported revenue of $660.98 million, net income of -$17.23 million, operating cash flow (OCF) of $262.17 million, and free cash flow (FCF) of $115.54 million. In the most recent quarter (Q3 2024), the company reported revenue of $159.86 million, net income of $12.62 million, OCF of $196.32 million, and FCF of $170.94 million. Year-over-year, revenue decreased 5.1% while net income increased 216.6%, driven by lower property operating expenses and interest expense.
Liquidity: As of September 30, 2024, IRT had a strong liquidity position of $722 million, which included $18 million in unrestricted cash, $308 million available on its line of credit, $150 million available under its private placement bonds, and $246 million available under its forward equity agreements. The company's net debt to adjusted EBITDA ratio stood at 6.3x, down from 7.0x a year ago, reflecting its continued focus on deleveraging and improving its balance sheet.
IRT's cash and cash equivalents totaled $17.61 million, with an additional $30.63 million in restricted cash as of September 30, 2024. The company has a $500 million unsecured revolving credit facility, of which $191.48 million was outstanding. Additionally, IRT has $600 million of unsecured term loans and $885.87 million of secured mortgage debt. The debt-to-equity ratio was 0.68 as of September 30, 2024.
Operational Highlights and Outlook: IRT's operational performance in the third quarter of 2024 demonstrated its ability to navigate a challenging macroeconomic environment. The company maintained a high average occupancy of 95.4%, up 90 basis points from the prior-year period, while achieving a blended rental rate growth of 0.8%, with new leases down 3.6% and renewals up 3.8%.
Looking ahead, IRT is focused on sustaining high occupancy levels while optimizing rental rate growth and effectively managing expenses. The company has updated its guidance for the full year 2024, with same-store revenue growth expected to be between 3% and 3.2%, a slight reduction of 5 basis points at the midpoint compared to prior guidance. Total operating expense growth guidance remains at 3% at the midpoint, while same-store property NOI growth guidance is maintained at 3.2% at the midpoint. Core FFO per share guidance has been increased by $0.01 per share at the midpoint.
For Q4 2024, IRT expects an average occupancy of 95.6% and blended rental rate growth of 50 basis points. The company also anticipates closing on $184 million of acquisitions in Q4 2024 at a stabilized economic cap rate of 6%.
IRT's recent investment-grade ratings from Fitch Ratings (BBB) and S&P Global Ratings (BBB) are expected to improve its cost of capital and provide access to additional capital sources to support its growth initiatives and portfolio enhancements. The company has also received a $3 million preferred return from the payoff of a joint venture investment, which will benefit 2024 core FFO.
Portfolio and Geographic Diversification: IRT owns and operates 110 multifamily apartment properties across 16 non-gateway markets in the U.S., including Dallas, Atlanta, Columbus, Tampa-St. Petersburg, Indianapolis, Oklahoma City, Denver, Nashville, Raleigh-Durham, Memphis, Houston, Huntsville, Louisville, Lexington, Charlotte, and Cincinnati. This diversification helps mitigate risks associated with any single market.
As of September 30, 2024, IRT's portfolio included 110 multifamily apartment properties, with one owned through a consolidated joint venture, containing an aggregate of 32,670 units. The properties are located in Alabama, Colorado, Florida, Georgia, Indiana, Kentucky, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, and Texas. Additionally, IRT owned and consolidated two investments in real estate under development in Colorado that will, upon completion, contain an aggregate of 621 units.
Acquisitions and Dispositions: In August 2024, IRT acquired a 288-unit multifamily property in Tampa, Florida for $82.0 million. During the nine months ended September 30, 2024, the company sold seven multifamily properties for an aggregate gross sales price of $395.4 million, demonstrating its active portfolio management strategy.
Investments in Unconsolidated Real Estate Entities: As of September 30, 2024, IRT had investments in four unconsolidated joint ventures, two that own and operate multifamily apartment communities and two that are developing multifamily apartment properties. The aggregate land, building, and construction in progress costs capitalized in these unconsolidated entities was $336.44 million, with aggregate construction debt of $216.55 million.
Risks and Challenges: Despite its strong performance, IRT faces several risks and challenges, including: 1. Competition from new supply in its target markets, which can pressure occupancy and rental rates. 2. Inflationary pressures that could lead to higher operating expenses, such as labor, utilities, and insurance costs. 3. Potential regulatory changes, such as rent control measures, that could impact the company's ability to adjust rents. 4. Exposure to natural disasters and other unforeseen events that could disrupt operations and result in uninsured losses.
Conclusion: IRT has established itself as a leading player in the multifamily REIT sector, capitalizing on favorable demographic trends and the growing demand for rental housing in non-gateway U.S. markets. With its strategic focus on high-growth, amenity-rich submarkets, value-add initiatives, and disciplined capital allocation, the company is well-positioned to continue delivering solid financial and operational performance. While navigating near-term challenges, IRT's long-term growth prospects remain promising as it strives to create value for its shareholders through its diversified portfolio, strong operational execution, and targeted growth strategies.