Independence Realty Trust (IRT) M&A call, September 8, 2026 transcript

Good morning, and thank you for joining us on short notice. On the call today are Scott Shaper, Chairman and Chief Executive Officer of Independence Realty Trust, Ann Olson, President and Chief Executive Officer of Center Space, Jim Seabro, President and CFO of Independence Realty Trust, and Jason Lynch, Senior Vice President of Investment at Independence Realty Trust. Earlier this morning, IRT and Center Space issued a joint press release announcing that the two companies have entered into a definitive merger agreement.

That release and an investor presentation filled with the SEC are available in the investors section of IRT's website, IRTliving. com, and on Center Space's website at centerspacehomes. com. A replay of this call will be available on both websites shortly after we conclude. Before we begin, I would like to remind everyone that statements made on this call may constitute forward-looking statements within the meaning of the federal security flaws and are made in good faith pursuant to the state's carbon provisions of the Private Security's Litigation Reform Act of 1995.

Forward-looking statements are based on the current release expectations and assumptions of IRTs and Center Space's management and are subject to business, economic, competitiveness, and uncertainties, many of which are difficult to predict and outside of other companies' control. Neither IRT nor Center Space undertakes any obligation to update or supplement any forward-looking statement except it's required by law. Today's discussion also includes non-gats and actual measures, including FSO, core FSO, EVTA, adjusted EVTA, and net operating income.

Definitions of these measures are included in the appendix to today's presentation and the press release and reconciliations to the most directly comparable GAT measures are available on each company's SEC fighting.

With that, I'll turn the call over to Scott Shaper.

Thank you, Stephanie, and good morning, everyone. This morning, Independence Realty Trust and Center Space announced a definitive agreement to combine in an all-stock merger creating a leading middle-market multi-family read with a total enterprise value of approximately $8.1 billion and within 44,000 apartment homes across 17 states.

Before I discuss the strategic logic, let me say how pleased I am to be joined this morning by Ann Olson and her team have built an excellent portfolio at Center Space. And just as importantly, they have built a culture and operating philosophy much like our own. The conversations that brought us here were direct and constructed and they were grounded in a shared view of where value gets created in this business.

Let me frame why we are doing this and why now in five points. First, scale matters in multi-family and it matters more every year. The combined company will own 163 communities and over 44,000 units in predominantly non-gateway markets across 17 states. Scale improves our access to the capital markets and over time or cost of capital. Just as importantly, it lets us spread our institutional operating platform across a much larger base of units. This is how a bigger company becomes a better company rather than simply a larger one.

Second, we achieve better growth without changing who we are. I want to be clear on this point because I expect it to be the first question we get. IRT is and will remain a Sun Belt Weighted Company. The Sun Belt represents 58% of pro-forma NOI and remains our largest exposure and our primary growth engine. Center Space's portfolio increases IRT's concentrations in the Midwest and Mountain West regions to 27% and 15% of pro-forma NOI respectively. The Midwest and Mountain West markets have historically delivered NOI growth above US average with less volatility.

Over the period from 2017 through 2025, IRT and center space together delivered weighted average same-store NOI growth of 5.7% a year above both our non-gateway peers at 4.2% and gateway peers at 2.3%. And it did so with the narrower band of outcomes through the cycle. This is the case for a better risk adjusted portfolio, a high growth Sun Belt core compared to the slower volatility Midwest and Mountain West markets. Roughly 80% of our pro-forma NOI comes from markets that rank in the top quartile for projected population growth. And no single market accounts for more than 11% of our pro-forma NOI.

Third, the supply picture is turning in our favor. Across the combined footprint, new deliveries are set to decline through 2029 while population growth continues to outpace the national average. In the greater Denver MSA, costar projects rank growth turning positive this year. Deliveries in the Denver Front Range are expected to fall from 6.7% of inventory in 2024 to approximately 2.8% by 2027. I guess population growth that has projected to be twice the national average over the next five years.

Minneapolis has one of the lowest supply pipelines of any market we track with deliveries expected to fall from 3.8% in 2024 to 1.3% in 2027. Much like Denver, Minneapolis's population growth is expected to be almost twice the national average over the next five years. We are not underwriting recovery that has to be imagined. We are seeing it in the data today.

Fourth, we gain a bigger opportunity set for our proven platform. The near-term synergies from this merger are tangible. The reason this combination improves our long-term growth rate rather than just their size is because it provides a longer, broader one way. For the two internal growth engines we have built, namely our value ad renovation program and our other income initiatives, including our community Wi-Fi program that we began implementing this year. Both drivers are scalable, are funded with free cash flow and now has several thousand additional units to work with. Jim will take you through the economic shortly.

Fifth, we have done this before. In 2015, we acquired trade trade residential and cash and stock transaction that added scale across our regional sundell markets. Then in 2021, we more than double the size of this company through the steadfast department of re-emerging. We integrated into a single operating platform within months of closing, and we exceeded the synergy and accretion targets that we had set at announcing.

This is the same management team running the same playbook, and this transaction is roughly a quarter of our current size, rather than double minimum. Our track record of successfully integrated companies does not eliminate execution risk, but it does mean we know the cadence of how and what to do. Upon closing, I will continue as Chairman and Chief Executive Officer and Jim Seaver will serve as President and Chief Financial Officer. Our board will expand to 11 directors, nine from IRT and two from center space. The combined company will retain independence, really trust name, and will continue to trade on New York Stock Exchange under the ticker IRT. We will have more to say on organizational structure as we work through the integration plan between now and closing.

With that, I'll turn the call over to Ann.

Thank you, Scott, and good morning, everyone. Our board management team are pleased to be working with IRT on this transformative transaction that is in the best interest of all of our stakeholders. At center space, we've worked to scale our business and strong growing markets while seeking enhancement to our balance sheet. This merger significantly advances that strategy. The company will now have scale and benefits, the benefits operating platform and the cost of capital, will further diversify the market exposure and will have an improved leverage profile.

I'm confident that IRT's commitment to residents and stakeholders reflects our own. I want to give a special thanks to the center space team. I'm very proud of what our team has accomplished and confident that IRT's leadership will further our commitment to providing great homes from residents, opportunities for our team members, and returns for our shareholders.

With that, Jim is ready to walk through the financial impacts.

Thank you, Ann. Good morning, everyone. I'm going to go over the structure and consideration of this transaction, the earnings impact and synergies, the balance sheet, and lastly, the growth upside beyond the near-term synergies. Center space will combine with IRT and a 100% stock-for-stock merger. Each center space, common share, and limited operating partnership unit will convert into 3.8 shares or units of IRT, resulting in the issuance of approximately 67.6 million IRT shares in OP units.

On a fully diluted basis, IRT shareholders will own approximately 70% of the combined company, and center-based shareholders will own approximately 22%.

The transaction is expected to qualify as a tax-free reorganization for US federal income tax purposes. Proforma, the combined company, will have an equity market capitalization of approximately 5 billion, and a total enterprise value of approximately 8.1 billion.

On earnings and synergies, we expect the transaction to be approximately 5% accretive to 2027 core FFFO per share on a leveraged neutral basis.

Supporting our accretion is approximately 24 million of identified annualized synergies. Roughly 19 million of that come from corporate, general, and administrative overlap. The remaining synergies come from property level and platform efficiencies, as we move on to a single operating system and near-term incremental revenue opportunities.

The vast majority of these synergies will be achieved within the first 12 months of closing. One data point that frames the efficiency gain on a proforma basis, GNA load as a percentage of assets, falls to 37 basis points for the combined company. That is a 24% reduction versus IRT standalone, and a 57% reduction versus center space standalone.

It places the combined company well below the reach sector average of 61 basis points, and in line with some of our larger multifamily peers. When we merged the FAS back in 2021 and straight street in 2015, we established synergy targets at announcement, and ultimately exceeded them both of those transactions.

We have used the same ground up approach here, and as always, we will work to capture additional synergies and efficiencies beyond those announced as the integration process develops. Regarding a balance sheet, we expect the combined company to maintain our current triple B investment grade rating from both Stitch and S&P, with a well-mattered maturity profile and minimal near-term maturity.

In connection with closing, we plan to repay center spaces outstanding unsecured notes, and to assume secure debt of approximately $500 million. The average interest rate on this debt is 3.5%. Center space does have one mortgage maturing on January 1st in 2027, and we are not anticipating it will be assumed and instead expect to be repaid on or before closing.

The average remaining term of the planned assumptions is 10 years. To deliver the combined balance sheet and have the transaction be leveraged neutral, we are planning to sell approximately $140 million of assets and have modeled the dispositions at a 5.75% economic tap rate.

IRT expects to maintain its quarterly dividend of $0.19 per share following closing. Center space will continue to pay its regularly quoted dividends of $0.77 per share, except in the quarter which the closing occurs, in which center space will declare and pay a stopped cash dividend of $0.09 per share per ring for the number of gains elapsed in the quarter prior to closing.

Before handing the call back to Scott, let me discuss the growth upside beyond the immediate synergies. The 24 million of synergies is the near term highly visible piece of the story. It is not the whole story. The reason we can say that this transaction improves our growth profile is what the larger platform does for two internal growth engines that we can fund out of three cash flow. First is the value match.

We have renovated approximately 12,500 units to date at IRT generating a return on investment of 60%. Coming into this transaction, our remaining identified pipeline within IRT is approximately 10,000 units. Center space brings approximately 3,200 more units, taking the combined runway to roughly 13,200 units. Those center space assets are predominantly in under-supplied markets where rent growth is inflecting, which is precisely the environment in which renovation capital is the most productive.

This incremental volume adds additional years to the existing value add runway at IRT. The second is our community Wi-Fi program. We lost our community Wi-Fi program this year, covering approximately 18,000 apartment units, which were on track to generate approximately $11 million of incremental annualized revenue in 2027. This returning, high margin, other property revenues was also better for residents, managed both delivered internet at a lower cost than they could buy individually.

Looking ahead, the future Wi-Fi rollout, the additional runway is now approximately 25,000 units, roughly 15,000 units from the legacy IRT portfolio, and now approximately 10,000 units from center space. Both the value added Wi-Fi opportunity will build over the next few years, and we expect it to enhance our returns over the longer term. Both are high return, low risk sources of growth, and they are funded entirely out of retained cash flow.

Both boards have unanimously approved the transaction. We expect to close this early at the end of the fourth quarter of 2026, subject to show approval, timing of some lender to send, and other customary closing conditions.

With that, Scott, I'll hand it back to you.

Thank you, Jim. This merger significantly enhances our scale and diversification and delivers immediate earnings accretion on a leveraged neutral basis while preserving balance sheet strength. Since our IPO, IRT's total shareholder return has outperformed our non-day way peers. We did not get here by growing for growth's sake. We got here by owning the right assets in the right sub-markets and running them well.

This transaction is consistent with our core strategy, and I believe it puts us in a stronger position to continue generating attractive risk adjusted returns for our shareholders. I want to thank Anne and the Center Space Team for their professionalism. They have brought to this process, and I want to thank our team for their continued hard work and dedication to our residents and shareholders.

With that operator, we are ready to take questions.

Hey, Nick, I think it's that you're right. If your voice is a little muffled, but if I can restate the question, you're basically asking us how much of the center space portfolio do you think will sell over the next few years because, again, the view of the Sun Belt's re-inflicting versus the Midwest. Is that right?

But ultimately, here's what I'll say. Scott had mentioned in his prepared remarks regarding the strategic rationale. And Scott, maybe you want to chime in again on that. Obviously, the portfolio of center space is located primarily in Minneapolis. And Denver, those markets, especially in Minneapolis, have been very kind of stable in low volatility and rent growth. And if you look at kind of the data sources, there's actually a fairly robust rent growth trajectory over the next few years, all at lower volatility.

And as we also mentioned in my prepared remarks, just that incremental growth in both value add and Wi-Fi continues to provide that earnings growth trajectory down to the data teacher, and only enhances the overall growth that's going to be flowing off the Sun Belt portfolio in the next few years. But Scott, feel free to chime in.

No, I think you covered it, Jim.

Yeah, we're very confident that we'll only be, we'll only sell the 140 million. Obviously, we've had a very robust and consistent capital recycling program at IRT for years. And we've always done it on earnings neutral slash earning a creative situation. And if we do decide to sell other assets down the road, which currently are not planned for, we think it'll only be beneficial to the combined portfolio down the road.

Sure. Thanks for the question. This is Scott Shaper. First of all, the steadfast merger integration was with a much larger company that also had tremendous overlap of the portfolio geography. That caused a little bit of friction at times because we were working through which employees and which markets were going to continue with the combined portfolio. The situation here is much different. First of all, center spaces is much smaller. It's about a quarter of our size rather than more than doubling it.

And the markets are completely independent other than some small overlap in Colorado. So the integration here will be more of back wall systems rather than people, and the integration of the people is where you end up having most friction.

OK.

Sure. We're happy with 3% to 4%. As we talked about this, and we had in our prepared marks that no market is more than 11%, which is good diversification. But even at 3% or 4%, there's enough concentration that we can keep good teams in place and manage the properties well. We are always looking to recycle when appropriate. So that's something that we've done in the past, and we will continue to look at that going forward.

But at this point, we're happy with the markets, and we're happy with the communities. And we think that post-integration, accretion targets are well within reach.

Yeah, right now it's modeled to be about 3.5% of the transaction value, which is just over $2 billion.

No, actually, and it's a great question because it was something that we looked at very, very, very early on in this process.

And the way we got comfortable was is that all of these markets are very, very low supply. There's just nothing being built. There's nothing being added while there is some population growth, which is what's going to drive good stable occupancy and ultimately rent growth. So while they may not be as dynamic as some other markets in the country, there's low volatility and really no additions to supply.

So these communities have performed well and will continue to perform well. And please feel free to jump in and you've managed these for years, so you may have some more calling.

Yeah, sure. I think some of these markets are small North Dakota buildings. But even we are public. You could look at the history there. In those markets, we have seen steady growth. And particularly through these times where there have been significant supply in fluxes across the Sunbelt and markets like Denver and even on the coast, markets like North Dakota have been consistently growing 5% to 7%. And we see that in the good times, but we also see that fold. So I do think that the combination of this portfolio, which will have the very strong growth narrative and fundamentals with the Sunbelt markets and Denver turning the corner coupled with this really steady pace of these lower volatility and lower supply markets, it's a very strong combination and should produce very good results for the shareholders.

Yeah, Rich, this is Jim C. Robbissie. Nice to meet you. And we appreciate your time. And certainly the end of Scott, so for you to chime in. But when it comes to the background of the merger, we will be filing an S4 proxy most likely later this month. And that will detail all those points that will provide a lot more color to the background of the transaction and kind of where it came from.

Yes, generally. And that the Midwest is much more stable and less volatility, while the Sunbelt seems to be higher growth, but also a little more volatile. So that's why they're complementary. It brings growth with additional stability to the existing IRG portfolio.

The exit market, we haven't announced anything specific on the actual assets to be sold. But we'll be working on that over the next few months as we kind of get ready for closing.

Thanks, Amy. Great to chat with you. And Anne, feel free to chime in. But I think what I would say is that the center-space process around kind of identifying retaps, one-come estimating of for the year, looking at the impact of this transaction on it, all of that is still kind of ongoing. And we'll be revisiting that as we get ready for closing. We'll be able to kind of announce and share the shareholders on the third call to call the expectation.

But Anne, feel free to chime in. And I think that covers it.

Amy, we had some expectations of the requirement and gave some estimates around that and held that cash on hand. But those estimates are still under review, what would be required or may not be required. And this merger and the impact of that certainly may impact it. So as Jim said, we'll be reviewing that and we'll obviously update as we have more information.

Well, we are increasing our Midwest exposure with this transaction. When you look at the results over an extended period of time, the sunbelt has consistently outperformed. And we expect it to outperform again in the future or going forward, I should say. We've come through a significant supply wave, and that has come to an end. And now the sunbelt will have much better supply demand dynamics. Strong population job growth with limited additions to supply over the next three to four years.

That's a great runway for above-market growth. We are hyping the Midwest, because the Midwest, first of all, we already have an exposure to the Midwest. It has performed very, very well with low volatility, and we expect it to continue to perform well with low volatility, but it will not be as the sunbelt going forward in order for you.

Yeah, that's a cash 5%. The gap number, again, because interest rates today are higher, we'd actually be a lower accretion. What we did with the steadfast merger many years ago, it was actually opposite it, right, with the cash interest, or the cash accretion was lower, and the gap accretion was more. From an ethyl foam core-to-flow perspective, we focus on the cash accretion.

It is, yes.

Sure. Hey, Peter, good morning. So as I mentioned in my prepared remarks, obviously, there's some initial kind of J&A synergies that really should be in place pretty quickly after closing. Again, it's a lot of the back office overlap, et cetera. There is certainly the operating synergies. Some of those synergies come from things that should be very easy to achieve.

Moving from one insurance policy to the other insurance policy, our procurement team, and how we do buy stuff, as well as, obviously, larger scale houses to buy things even cheaper. There's some incremental revenue opportunities on the renters insurance and other things that takes a little bit of time just as the lease is rolled. But they're relatively small pieces of the overall synergy number.

Well, I think the second piece first, right? Certainly on the value add side, there's always opportunity to get better at what we do. And here at IRT, we, in a belief center space the same way. We've always tried to do that. So sure, we'll always look at, again, we're able to buy instead of appliances across 32,000 years in the 34th, and it won't be able to buy plus 44,000 years. So we think that'll certainly provide a little bit lower cost and enhanced returns.

I think on the other revenue side of this energy, again, from the standpoint of that 5 million of operating synergies, the vast majority of those are primarily kind of on the expense side. There is a little bit of incremental revenue opportunities that we've modeled, things like I mentioned before, like renters, insurance, et cetera. We think there is certainly some additional upside.

We've talked a lot about kind of our data science efforts earlier this year, and how that's kind of improving our renewal growth or renewal of kind of increases. We think there's that opportunity. The center space team has done a good job of managing the portfolio, and we're looking forward to just kind of bringing the best of both of our portfolios and processes together to really being the number of cash as much of these synergies and efficiencies we can.

Yeah, we expect, again, because of the transaction, you know, we expect they will be, you know, I would say put to us, but we expect that the transaction will require that we paid off. That's what we model. Certainly, if we're able to keep them outstanding so that we can lower our overall cost of debt, for sure. But we will still do it on a leverage neutral basis.

Yeah, sure. Great question. A couple of things. One, you know, we've modeled it. If you look at 2026, obviously, you know, center space has had some massive outstanding that they've owned throughout the whole year, that they've sold. And obviously, it's kind of increasing their call in earnings this year that won't be their next year. So you got to remove that.

Secondly, you know, certainly there's a timing element of the synergies. And when they come in, in terms of 2027. And in third, we've modeled that from a accretion perspective that the preferred shares are fully diluted. So we took a worst case scenario around them because those preferred shares can be put to us. You know, it's very low cost preferred. I think 3.8% or 3.9% cost. If they stay outstanding and they don't convert, then that'll be more accretion from just a logical percentage perspective.

So yes, we have been looking at some of them. But again, through this process, we were able to just get comfortable with the actual make-up of the portfolio, you know, the market dynamics.

And, you know, the good job that CenterSpace has done over, you know, a number of years have managed them in generating, you know, NOI growth. So they are, some of them are new markets for us. But in many instances, they're similar to markets we're already in, just in different parts of the country. There's good people in place on site. We expect to keep most, if not all of them. So we'll just be moving forward, as Jim said, with the best of both companies' processes and strategies.

So, I mean, they, and certainly, you know, and you certainly feel through each time in, you know, they run, they're called the operational platform, you know, relatively similar to us in terms of regional structures and district managers and, you know, a centralized, you know, support team on various kind of road processes. They do run, obviously, a revenue algorithm that will come over to, you know, our revenue algorithm upon the integration process.

But I would just say largely, you know, the real benefit to moving forward with the synergies is to kind of, again, get to both the best of both companies from the standpoint of the process and how we're structured. We don't expect that to really have any, you know, significant differences from our structure today, except that we'll be able to kind of bring a lot of the data science and analytic work that we've done to really help us into their platform and really provide, again, that's a nice growth that we're talking about. And when I speak about employees or team members, I'm speaking about onsite people.

Yeah, we know that there's of their 10,000 units today, there's, you know, plus or minus three to 4,000 that are available to kind of move into the Wi-Fi program immediately, because, again, the terms of the existing contracts with bulk internet are either out of contract or, you know, coming to a very close period of time. The 6,000, I believe, will start in the next few years. Once they, again, individual properties get to that window of time, generally speaking, the internet service providers won't really allow you to kind of amend the contract. It's all there within two years of determination data. So we have to get to that period of time. Now, again, we will obviously work with all the providers and et cetera, but largely speaking, we expect the revenue benefits to be very similar to what we've modeled in performing at RRT, anywhere from 60 to $70 of incremental revenue per month per unit and the cost to be somewhere and that's kind of $25 to $35 per month.

They're all hard to hear that, but I think your question was really, any differences between the center space kind of return versus ours?

Yeah, no, I think, Jen, you know, Jen was speaking again, a lot of their renovation programs are very similar to ours in terms of what they do and the returns again. You know, there is the opportunity for us on the field, the ones that we've underwritten, where the value add list will cost perspective is as great as what we've historically seen, which might provide a little more return.

But again, as we continue down the integration path, we'll be able to update the investors with all this information. Just as a clarity though, it's like the value add and the Wi-Fi is not in the 5% accretion. So that is upside growth on top of that baseline 5% accretion.

Well, again, the FFO, again, will be probably very similar to the GAP number. I think it's, I'll get back to it, I believe it's about mostly 3% credence on a GAP basis.

That's all the synergies and just, again, basically market interest rates of all the debt that we're assuming.

No, they're not in process. And again, as we provide, as we kind of nail it down and begin to communicate, we'll have more information specifically that they're called around it. Third quarter earnings fall.

You know, unfortunately, it's case that we're obviously in the process of doing our budgets for next year, CSR is beginning their budget process. They haven't given guidance. So no, we're not prepared to have, you know, talk on that at the very moment.

Yes. Yeah. The break fee is 45 million for center space and 60 million for IRT.

Well, thank you all for joining us this morning. We're excited about the future and look forward to working through the process and the integration. So I hope everyone has a good rest of the day. Thank you.