Executive Summary / Key Takeaways

• Independence Realty Trust is strategically positioned in non-gateway Sunbelt and Midwest markets, poised to benefit from expected significant declines in new multifamily supply and continued favorable demographic trends.
• The company delivered solid Q1 2025 results with 2.7% same-store NOI growth, driven by strong occupancy gains and increasing average effective rents, and remains on track to meet full-year guidance.
• IRT has significantly strengthened its balance sheet, achieving investment-grade credit ratings and expanding its liquidity to nearly $750 million, providing ample capacity for accretive investments and value creation.
• The value-add renovation program continues to generate attractive returns (16.6% inception-to-date ROI) and is expected to accelerate in 2025, contributing to future NOI growth.
• Management anticipates exercising greater pricing power in the second half of 2025 and into 2026 as market fundamentals improve, while maintaining high occupancy levels.

The Foundation: Building Scale in High-Growth Non-Gateway Markets

Independence Realty Trust, Inc. (IRT), a self-administered and self-managed Maryland REIT established in 2009, has built its business around the ownership, operation, management, improvement, and acquisition of multifamily apartment communities. The company's strategic focus is squarely on non-gateway U.S. markets, targeting amenity-rich submarkets within cities like Atlanta, Dallas, Denver, and Tampa. This approach is designed to capitalize on areas characterized by strong population and employment growth, good school districts, and major employment centers, often with less exposure to the volatility and intense new construction seen in primary coastal markets. IRT operates primarily through its operating partnership, Independence Realty Operating Partnership, LP.

A pivotal moment in IRT's history was the merger with Steadfast Apartment REIT, Inc., completed following an agreement in July 2021. This transaction substantially increased IRT's scale and portfolio size but also brought with it assets in markets less aligned with IRT's long-term strategy. In response, IRT launched a comprehensive Portfolio Optimization and Deleveraging Strategy in late 2023, successfully completed in early 2024. This initiative involved the strategic disposition of ten properties, including exiting the Birmingham, Alabama market with the sale of the final asset there for $111 million in February 2025. The capital recycled from these sales is being strategically redeployed into acquisitions within IRT's target high-growth markets, enhancing portfolio quality and operational efficiency.

The broader multifamily industry landscape is currently undergoing a significant rebalancing. After a period of elevated new supply deliveries, particularly in Sunbelt markets, forecasts indicate a sharp decline in new construction. Across IRT's submarkets, new deliveries are expected to fall from approximately 79,000 units (6.1% of existing supply) in 2024 to an anticipated 32,000 units (2% of supply) in 2025 and just 24,000 units (1.5% of supply) in 2026. This represents a dramatic 60% decrease in 2025 alone. Concurrently, demand remains robust, supported by continued migration trends and persistent homeownership affordability challenges, with average homeownership costs in IRT's top 10 markets significantly higher than average monthly rents. While nationwide net absorption was negative in 2024, IRT's submarkets are forecast to see a strong rebound with positive net absorption of 8.5% in 2025. This improving supply-demand dynamic forms the core of IRT's optimistic outlook.

Competitive Positioning and Operational Edge

IRT operates within a competitive multifamily REIT landscape that includes larger national players like Equity Residential (EQR) and AvalonBay Communities (AVB), as well as regionally focused peers such as Camden Property Trust (CPT) and Essex Property Trust (ESS). While these competitors often target similar high-growth markets, IRT differentiates itself through its focused approach on specific amenity-rich submarkets within non-gateway cities and its emphasis on operational efficiency and value-add renovations.

Against larger peers like EQR and AVB, IRT's smaller scale (approximately 33,175 units owned and consolidated as of March 31, 2025) can present challenges in terms of brand recognition and access to the deepest pools of capital, although this latter point has been significantly mitigated by recent balance sheet improvements. However, IRT's targeted submarket expertise often translates into more granular market knowledge and potentially stronger local relationships, which can be advantageous in sourcing off-market or less broadly marketed deals. IRT's operational model emphasizes cost leadership within its chosen submarkets, aiming for efficient property management and maintenance to drive profitability.

In terms of technology, while some larger competitors like EQR and AVB are noted for integrating advanced digital leasing processes and smart building systems, IRT is also investing in technological solutions to enhance its operations. The company is currently piloting the use of AI to improve collections and reduce bad debt. This technology facilitates fast, effective two-way communication with residents regarding rent payments and account details, aiming to enhance the effectiveness of the centralized resident accounts team. Management has noted that initiatives to deal with fraud, potentially including this AI pilot, contributed to bad debt being roughly down 50 basis points year-over-year in Q1 2025. While specific quantitative metrics on the AI pilot's performance or comparative technological advantages over rivals are not extensively detailed, the strategic intent is clear: leverage technology to improve operational efficiency and protect revenue, particularly in areas like bad debt reduction, which directly impacts the bottom line.

IRT's value-add renovation program is a key operational differentiator. Since its inception in January 2018 through March 31, 2025, IRT has completed renovations on 9,717 units out of 14,593 units currently in the program. This program has consistently generated attractive returns on investment, achieving an average ROI of 16.6% overall and approximately 18.5% on the interior portion of renovation costs. In Q1 2025 alone, 275 units were renovated with an average ROI of 16.2%. This program allows IRT to increase cash flows at existing properties and capture rent premiums compared to unrenovated units, providing a tangible source of internal growth that complements external acquisitions. The company plans to accelerate this program in 2025, targeting the completion of 2,500 to 3,000 units, leveraging improving market conditions to maximize the return on this investment.

Financial Performance and Balance Sheet Strength

IRT's financial performance in the first quarter of 2025 reflected the ongoing execution of its strategy amidst the market's transition. Core FFO per share was $0.27, flat compared to the prior year period, a result management attributed to the final stages of the portfolio optimization and deleveraging strategy completed in early 2024.

Same-store operational performance remained solid, with NOI growing 2.7% in Q1 2025 compared to Q1 2024. This growth was underpinned by a 2.3% increase in same-store revenue and controlled 1.6% growth in operating expenses. The revenue increase was primarily driven by a 100-basis-point increase in average occupancy (to 95.4%) and a 90-basis-point increase in average effective monthly rents (to $1,568). Expense growth was managed below inflation levels, benefiting from lower repair and maintenance, turnover, and property insurance costs, despite increases in controllable expenses like contract services and advertising.

The company's balance sheet has been a major focus, culminating in the achievement of investment-grade credit ratings (BBB flat with stable outlook) from both Fitch (early 2024) and S&P (late 2024). This is a significant milestone that enhances financial flexibility, provides access to new capital sources like the public debt markets, and has already reduced the interest rate on unsecured bank borrowings. Further bolstering liquidity, IRT expanded its unsecured revolving credit facility from $500 million to $750 million in January 2025, extending its maturity to January 2029. As of March 31, 2025, IRT commanded nearly $750 million in liquidity, comprising cash, available revolver capacity, and proceeds from forward equity agreements. The company's debt maturity profile is favorable, with only 17% of total debt maturing between March 31, 2025, and year-end 2027, noted as one of the lowest among public multifamily peers. Additionally, IRT has effectively hedged its floating rate exposure, with 100% of debt fixed and/or hedged as of Q1 2025.

Capital allocation remains active. In Q1 2025, IRT physically settled 2.65 million shares from a September 2024 forward sale agreement, generating $50.1 million in proceeds used for acquisitions. As of March 31, 2025, an additional 5.60 million shares remained to be settled from this agreement, expected to yield approximately $105.8 million. Furthermore, forward sales for 2.68 million shares were entered into under the ATM program in Q1 2025, expected to provide about $55.9 million upon settlement by March 31, 2026. These proceeds are earmarked for potential acquisitions, investments, or general corporate purposes, including reducing revolver borrowings. Recent acquisition activity includes the purchase of Autumn Breeze in Indianapolis for $59.5 million in February 2025 and properties under contract in Orlando and Colorado Springs for approximately $155 million, expected to close in Q2/Q3 2025. IRT is also utilizing joint ventures for development, such as the Nexton Pine Hollow project in Charleston, SC, committing $28.6 million, while strategically exiting certain unconsolidated JV properties like Metropolis at Innsbrook and Views of Music City II.

Outlook and Risks

Management's outlook for 2025 remains confident, asserting that the year is unfolding largely as anticipated despite broader macroeconomic uncertainties. The company is on track to achieve its full-year same-store NOI and core FFO per share guidance. The core assumption underpinning this outlook is the expected improvement in market fundamentals driven by the significant decline in new supply deliveries and sustained demand.

Based on this, IRT's 2025 plan assumes ongoing rental rate gains without sacrificing the high occupancy levels achieved. Management sees pricing power "in front of us" in their submarkets and expects this dynamic to accelerate in the second half of 2025 and into 2026. The target is to maintain average occupancy around 95.5% for the year. The value-add program is expected to contribute to revenue growth as renovated units command higher rents. On the expense side, management anticipates continued diligent control, although acknowledging potential inflationary pressures. The strengthened balance sheet and ample liquidity provide the flexibility to fund strategic initiatives and capitalize on investment opportunities. The company targets achieving a net debt-to-adjusted EBITDA ratio in the mid-5s by year-end 2025.

Despite the positive outlook, IRT faces certain risks. The company is a defendant in a putative class action lawsuit alleging conspiracy to fix rent prices, the outcome and potential loss of which are uncertain at this early stage. Fluctuations in the cost and availability of materials, potentially exacerbated by tariffs, could impact the cost and timing of value-add projects and capital improvements. While management has not yet seen significant effects from tariffs, they are monitoring the situation closely. Broader economic slowdowns, while not currently expected to derail market fundamentals in IRT's specific submarkets, could still impact tenant demand and rent growth trajectory.

Conclusion

Independence Realty Trust is executing a clear strategy focused on maximizing value in high-growth non-gateway multifamily markets. The successful completion of its portfolio optimization and deleveraging strategy, culminating in investment-grade credit ratings and enhanced liquidity, provides a robust financial foundation. Operational performance, highlighted by solid Q1 2025 same-store NOI growth driven by strong occupancy and rent gains, demonstrates the effectiveness of its management approach and value-add program.

As the multifamily market enters a phase of significantly reduced new supply deliveries, particularly in IRT's core Sunbelt and Midwest regions, the company is well-positioned to capitalize on improving supply-demand dynamics. Management's expectation of increasing pricing power in the latter half of 2025 and into 2026, coupled with the ability to accelerate accretive value-add renovations and strategic acquisitions funded by a flexible balance sheet, supports a compelling investment thesis. While risks such as litigation and potential cost pressures exist, IRT's focused market strategy, operational discipline, and strengthened financial position provide a solid platform for potential growth and shareholder value creation in the coming years.