There are lots of ways to make money by investing in real estate. One tried-and-true method is making value-add investments. Another is focusing on the fastest-growing locations. Real estate investment trust (REIT) Independence Realty Trust (NYSE: IRT) does both.
Here's a closer look at the company's strategy.
Independence Realty Trust company profile
Independence Realty is a residential REIT focused on owning multifamily apartment properties in non-gateway U.S. markets. As of the end of 2021's second quarter, the company owned 58 communities with 16,261 units across 12 states, focusing on metro areas in the country's Southeast, Midwest, and Central regions.
The REIT agreed to acquire Steadfast Apartment REIT (STAR) in July 2021, significantly expanding its portfolio. Steadfast is a non-traded REIT that owns 70 communities with 21,841 units across 14 states, predominantly in the Sun Belt region.
The merged entity -- which will retain the Independence Realty Trust name -- will own 128 communities with 38,102 units across 16 states. Of that total, 82 communities with 25,991 units will be in the Sun Belt region, contributing 69% of the REIT's net operating income (NOI).
The combined REIT's top 10 markets will include:
- Atlanta: 17% of NOI.
- Dallas-Fort Worth, Texas: 11% of NOI.
- Denver: 8% of NOI.
- Oklahoma City: 6% of NOI.
- Louisville, Kentucky: 6% of NOI.
- Columbus, Ohio: 6% of NOI.
- Indianapolis: 5% of NOI.
- Raleigh/Durham, North Carolina: 5% of NOI.
- Houston: 5% of NOI.
- Memphis, Tennessee: 4% of NOI.
Overall, its top 10 markets will supply 72% of its NOI. These are primarily high-growth metro areas benefiting from strong population and employment growth trends.
Another key aspect of Independence Realty's strategy is making value-add investments. The REIT's portfolio includes several older Class B properties that it has been steadily renovating. These projects have historically yielded a 17.1% return on investment across the 4,000 units the company has renovated over the years, allowing it to capture an average monthly rental rate increase of 18.9%.
Independence Realty has identified nearly 8,000 units across its existing portfolio and another 12,000 in the STAR portfolio that it can renovate in the future. These investments should drive outsized rental growth rates, enabling the REIT to continue expanding its NOI.
Independence Realty Trust news
The big news for Independence Realty is its merger with STAR. The all-stock deal will create a $7 billion REIT with roughly 130 communities and 38,000 apartment units, predominantly in the Sun Belt region. Overall, it will be the third-largest multifamily REIT focused on that fast-growing region.
The deal will increase Independence Realty's exposure to some of its core markets, like Atlanta and Dallas, while adding attractive new ones such as Denver and Nashville, Tennessee. The company also enhanced its value-add renovation investment pipeline. The merger should close by the end of 2021.
In addition to that headlining deal, Independence Realty has completed several other smaller transactions as part of its capital recycling program. It's selling properties in less attractive markets and using the proceeds to establish and grow its presence in cities where it sees more long-term potential.
In Q2 2021, Independence Realty sold a community in St. Louis. The company also acquired newly constructed communities in Dallas and Charlotte, North Carolina, while forming a joint venture to build a new community in Richmond, Virginia. Meanwhile, in Q4 2020, the REIT bought a community in Huntsville, Alabama, and sold communities in Chattanooga, Tennessee, and Baton Rouge, Louisiana, exiting those two markets.
The company's strategy of focusing on growth markets and making value-add investments paid dividends during the first half of 2021. Rental and other property revenue was up 7.1% during the first six months, driven by occupancy increasing to 95.7%, which helped propel a 7.5% increase in NOI. That strong showing led the REIT to boost its full-year guidance ranges.
Independence Realty Trust stock price
Independence Realty's strategy has paid off for its investors in recent years.