Independence Realty Trust, Inc. (IRT) September 2026 Conference Transcript

Good morning, ladies and gentlemen. Welcome to the Independence Realty Trust and Center Space joint conference call to discuss the announced merger of the two companies. During today's call, management will make prepared remarks, after which we will open the line for questions. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this conference is being recorded. Your host for today's call is Stephanie Crewson-Kelley, Senior Vice President of Investor Relations and Capital Markets at IRT. You may begin.

Good morning, and thank you for joining us on short notice. On the call today are Scott Schaefer, Chairman and Chief Executive Officer of Independence Realty Trust, Ann Olson, President and Chief Executive Officer of CenterSpace, Jim Sebra, President and CFO of Independence Realty Trust, and Jason Lynch, Senior Vice President of Investments at Independence Realty Trust. Earlier this morning, IRT and CenterSpace issued a joint press release announcing that the two companies have entered into a definitive merger agreement. That release and and an investor presentation filed 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 securities laws and are made in good faith pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. Forward-looking statements are based on the current beliefs, expectations and assumptions of IRTs and center spaces management and are subject to business, economic, competitive risks and uncertainties, many of which are difficult to predict and outside of either company's control. Neither IRT nor center space undertakes any obligation to update or supplement any forward looking statement, except as required by law. Today's discussion also includes non-GAAP financial measures, including FFO, core FFO, EBITDA, adjusted EBITDA, 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 GAAP measures are available on each company's SEC filings. With that, I'll turn the call over to Scott Schaefer.

Thank you, Stephanie, and good morning, everyone. This morning, Independence Realty Trust and CenterSpace announced the definitive agreement to combine in an all-stock merger, creating a leading middle-market multifamily REIT with a total enterprise value of approximately $8.1 billion and more than 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. Anne 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 constructive, 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 multifamily, 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, our 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 Sunbelt-weighted company. The Sunbelt 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 the U.S. average with less volatility. Over the period from 2017 through 2025, IRT and CenterSpace 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 a narrower band of outcomes through the cycle. This is the case for a better risk-adjusted portfolio, a high-growth Sunbelt core paired with lower 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 rent growth turning positive this year. Deliveries in the Denver front range are expected to fall from 6.7 percent of inventory in 2024 to approximately 2.8 percent by 2027, against population growth that is projected to be twice the national average over the next five years. Minneapolis has one of the lowest supplied pipelines of any market we track, with deliveries expected to fall from 3.8 percent in 2024 to 1.3 percent 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 runway for the two internal growth engines we have built, namely our value-add 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 have 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 a cash and stock transaction that added scale across our regional sunbelt markets then in 2021 we more than doubled the size of this company through the Steadfast Department REIT merger. We integrated into a single operating platform within months of closing, and we exceeded the synergy and accretion targets that we had set at announcement. This is the same management team running the same playbook, and this transaction is roughly a quarter of our current size rather than doubling it. Our track record of successfully integrating 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 Siebel 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 the Independence Realty Trust name and will continue to trade on the New York Stock Exchange under the ticker IRT. We will have more to say on organizational structure as we work through the integration planning between now and closing. With that, I'll turn the call over to Anne.

Thank you, Scott, and good morning, everyone. Our board and 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 in strong growing markets while seeking enhancement to our balance sheet. This merger significantly advances that strategy. The company will now have scale and benefits that benefits the 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 CenterSpace team. I'm very proud of what our team has accomplished, and I'm confident that IRT's leadership will further our commitment to providing great homes for our residents, opportunities for our team members, and returns for our shareholders. With that, Jim is ready to walk through the financial impacts.

Thank you, Annie. 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 in 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 78% of the combined company, and center-based shareholders will own approximately 22%. The transaction is expected to qualify as a tax-free reorganization for U.S. federal income tax purposes. Pro forma, 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 FFO 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 overlaps. 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 One data point that frames the efficiency game, on a pro forma basis, G&A 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 REIT sector average of 61 basis points and in line with some of our larger multifamily peers. When we merged with Steadfast back in 2021 and TradeStreet in 2015, we established synergy targets at announcement and ultimately exceeded them both of those transactions. 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 our balance sheet, we expect the combined company to maintain our current BBB investment grade rating from both Fitch and S&P, with a well-laddered maturity profile and minimal near-term maturities. In connection with closing, we plan to repay Center Space's outstanding unsecured notes and to assume secured debt of approximately 500 million dollars. The average interest rate on this debt is 3.5 percent. Center Space does have one mortgage maturing on January 1st of 2027 and we are not anticipating it will be assumed and instead expected to be repaid on or before closing. The average remaining term of the planned assumptions is 10 years. To delever 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 cap rate. IRT expects to maintain its quarterly dividend of $0.18 per share following closing. CenterSpace will continue to pay its regularly quarterly dividends of $0.77 per share, except in the quarter which the closing occurs, in which CenterSpace will declare and pay a stubbed cash dividend of $0.09 per share per ring for the number of days 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 free cash flow. First is the value add. We have renovated approximately 12,500 units to date at IRT, generating a return on investment of 16%. 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 undersupplied markets where rent growth is inflecting, which is precisely the environment in which renovation capital is 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 launched 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 recurring, high-margin, other property revenue is also better for residents, managed, both delivered internet at a lower cost than they can buy individually. Looking ahead to future Wi-Fi rollouts, the additional runway is now approximately 25,000 units, roughly 15,000 units from the legacy IRG 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 as early as the end of the fourth quarter of 2026, subject to show-in approval, timing of some lender consents, 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 leverage-neutral basis while preserving balance sheet strength. Since our IPO, IRT's total shareholder return has outperformed our non-gateway peers. We did not get here by growing for growth's sake. We got here by owning the right assets in the right submarkets 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.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eric Wolf with Citi. Your line is open, Eric. Please go ahead.

Thanks. It's Nick Joseph here with Eric. We talked about my sale matters. Do you have a sense for how much of the portfolio you could ultimately end up selling? I think you'll have 22% of your NOI across 15 markets, around 30 markets in total. So what do you think that looks like in two to three years? And you touched on this with Bantam. Why does it make sense to lower your Sunbelt market exposure at a time when these markets are starting to recover? Hey, Nick, I think that you're right. 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 belts uh re-inflecting versus the midwest is that right yeah just how much total you may sell and then um and then the strategic rationale of why lower the exposure to the sunbelt right now and to start to see this and collect more positively okay um again nick it's really hard to hear you but the ultimately here's what i'll here's what I'll say. Scott had mentioned in his prepared remarks regarding the strategic rationale, and Scott, maybe you'll want to kind of chime in again on that. You know, obviously, the portfolio of center space is located primarily in Minneapolis and Denver. You know, those markets, especially Minneapolis, have been very kind of stable and low volatility and rent growth. And if you look at kind of the data sources, there's actually a fairly robust, you know, 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 from both value-add and Wi-Fi, you know, continues to provide, you know, that earnings growth trajectory down the future and only enhances the overall growth that's going to be flowing off the Sunbelt portfolio in the next few years. But Scott, feel free to chime in.

No, I think you covered it, Jim.

Great. Hey, this is Eric. Just follow up on Nick's question. I guess how much of the, are you assuming this sold to get to the 5% accretion estimate? I know you mentioned $140 million in your prepared remarks and then also in the presentation, but I guess if you end up selling more than that, and I think Center Space was playing on selling more than that based on the sort of most recent presentations, I guess could that eat into that 5% accretion estimate? Are you confident that you're only going to sell, say, around $140 million or something around there? Yeah, we're very confident that 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 an earnings neutral slash earnings accretive situation. And if we do decide to sell other assets down the road, which currently are not planned for, we think it will only be beneficial to the combined portfolio down the road. Okay, thank you.

Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open, Jamie. Please go ahead.

Great, thanks for taking the question. Can you talk a little bit more about your experience with FedFest and TradeStreet? You know, I think some of the incoming commentary from the street is just concerns about integration risk and execution risk on this transaction. Maybe talk more about what does give you the confidence that you know you'll be able to stick the landing and things will go smoothly? Sure thanks for the question.

This is Scott Schaefer. 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 we're going to continue with the combined portfolio. The situation here is much different. First of all, center space 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 office systems rather than people. And the integration of the people is where you end up having most friction.

Okay. And then you'll have a lot of markets that are kind of three, four percent or less. I think it's almost like two-thirds of the portfolio spread pretty widely across the country. I mean, just in terms of like operations, post transactions, you know, how do you plan to manage that? Do you think you're going to want to beef up any of your markets to have more scale or are you happy with like this three to four percent in a lot of markets type portfolio and just, you know, you said it's a people business, but that's a lot of people in a lot of places. Can you just talk more about that? Sure.

We're happy with three to 4%. You know, we, as we talked about this and we had in our prepared remarks that no market is more than 11%, which is, you know, good diversification. But even at three 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, you know, going forward. But at this point, we're happy with the markets and we're happy with the communities and we think that, you know, post-integration, the accretion targets are well within reach. Okay, thank you.

Your next question comes from the line of John Palowski with Green Street. Your line is open, John. Please go ahead.

Hey, good morning. Jim, are you able to put some brackets around the upfront transaction costs we should expect you guys to incur?

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

Okay. And then just curious for high-level thoughts how you guys got comfortable with some of these, I guess, more secondary or tertiary markets in Montana, North Dakota, even some assets well outside of Denver.

Are you concerned that these markets will just run at a little bit of a lower long-term growth rate that's going to dilute the long-term organic growth profile of IRT's portfolio? no actually um and it's a great question because it was something uh you know that we looked at um very very very early on in this process uh and 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 you know 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 Anne, please feel free to jump in. 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 billings but even you know we are public you could look at the history there you know in those markets we have seen steady growth and particularly through these times where there have been significant supply influxes across the sunbelt and in markets like denver and even on the coast you know markets like north dakota have been consistently growing you know five to seven percent so and we see that in the good times but we also see that hold so i do think that the combination of this portfolio, which will have, you know, the very strong growth narrative and the fundamentals with the Sunbelt markets and Denver turning the corner, you know, 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.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Your line is open, Rich. Please go ahead.

Thank you. Good morning. So when I started reading the press release, I saw synergies and it started to read a little bit like a merger of equals. I know it's not, but, you know, center space has been through its process and landed on the asset sales, you know, in June, and now we're here i'm wondering if if i were to write the proxy for you um you know did eqr avalon bay you know give you any cues into how to make this combination work um and you know how did how did it come to fruition after you know csr went through its process now now this this merger happens i'm just curious if the the chapter two of the conversation came with a few hints from eqr avalon bay yeah um rich this is jim c robinson nice to meet you um and uh we appreciate your

time and certainly and of scott feel free to chime in but you know when it comes to like the background of the merger you know we will be filing an s4 proxy you know most likely later this month and that will detail all those all those points that i'll provide a lot more color in terms of the background of the transaction and kind of where it came from okay fair enough and And then on the asset sales, are there any exit markets?

You might have said if I did, if you did, I apologize. Are there any exit markets in that 140? And as a subset to that question, you know, what do you mean by complementary markets? When you say we're Sunbelt, they're Midwest, Mountain West, you know, what defines complementary to you? Just the fact that you don't have overlap? Is that what you mean by that?

Yes, generally, and that the Midwest is much more stable and less volatility, while the Sunbelt, you know, 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 IRT portfolio.

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

Okay. Thanks very much.

Your next question comes from the line of Amy Probant with UBS. Your line is open. Amy, please go ahead.

Morning. Thank you. Do you still expect to be paying a special dividend to distribute proceeds from the Center State Strategic Review?

Thanks, Amy. Great to chat with you. And Anne, feel free to kind of chime in. But I think what I would say is that the center space process around kind of identifying retaxable income, estimating it 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 with shareholders on the third quarter call the expectation. But Anne, feel free to chime in.

No, I think that covers it, Amy. we you know we had some expectations of the requirement and um 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 uh and we'll obviously update as we have more information got it thank Thank you.

And maybe I'll ask Rich's question.

Amy, you cut out.

Amy has cut out. We will move up to the next question from the line of Alexander Goldfarb with Piper Sandler. Your line is open, Alexander. Please go ahead.

Hey, thank you. And good morning down there. Two questions. The first one is, you guys give a lot of praise to the Midwest. And for those of us who have covered center space for a while, it's been pretty clear that their markets were underappreciated. but you guys are hyping them in a way that's good to hear. And yet you're still saying that your focus is going to be more Sunbelt, which has been prone to a lot of supply and a lot more volatility. Why wouldn't you look to increase some of the Midwest or certainly look at other Midwestern markets that have low supply, good economic growth, more stability? Why wouldn't increasing some of that, I'm not saying overweight it, but why not increasing it? Why wouldn't that be a good thing?

Well, we are we are increasing our Midwest exposure with this transaction. You know, when you when you look at, you know, the results over an extended period of time, the Sunbelt has 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 Sun Belt will be, you know, 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, you know, above market growth. We're 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.

Okay. And then the second question is, on the 5% earnings accretion to core 27, you mentioned, you know, center space, which has really low cost of debt, 3.6%. Is that 5% adjusted for gap mark to market of debt and everything else? or is that sort of a cash 5%, whereas the gap number would be different?

Yeah, that's a cash 5%. The gap number, again, because interest rates today are higher, would actually be a lower accretion. What we did with the Steadfast merger many years ago, it was actually the opposite, right, where the cash interest or the cash accretion was lower and the gap accretion was more. From an FFO and Corfifo perspective, we focus on the cash accretion.

But you think it – is it still accretive on a gap basis? It is, yes. Okay.

Your next question comes from the line of Peter Abramowitz with Deutsche Bank. Your line is open, Peter. Please go ahead.

Thank you for taking the questions. Just in terms of the cost synergies that you've talked about, could you talk about the timing of when they're all expected to be in place?

Sure. Hey, Peter. So, as I mentioned in my comparison, obviously, there's some initial kind of G&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, like 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 renter's insurance and other things that takes a little bit of time just as the leases roll, but they're relatively small pieces of the overall synergy number.

Okay.

I appreciate that.

And then I know you included, I think, a footnote or something in the earnings release that there is some small opportunity for for synergies on the revenue side um could you talk about maybe some of the opportunities there if there's upside down the road um and then also in terms of the the value add um pipeline you know are there any efficiencies in terms of uh the opportunity to enhance returns or anything like that well i think you know i'll take the second piece first right certainly on the on the value add side you know there's always opportunities to get better what we do and here at irc we and I believe center space is the same way, we've always tried to do that.

So, sure, we'll always look at, you know, again, we're able to buy, you know, instead of, you know, appliances across 32,000 units or 34,000, we'll be able to buy across 44,000 units. So, we think that will certainly provide, you know, a little bit lower cost and enhanced returns. I think on the other revenue sides and the synergies, again, you know, 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. You know, 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 kind of increases. We think there's that opportunity. You know, 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, you know, being able to capture as much of these synergies and efficiencies as we can.

All right. Appreciate it.

Your next question comes from the line of Michael Gorman with U.S. Bancorp BTIG. Your line is open, Michael. Please go ahead.

Yeah, thanks. Good morning. Jim, maybe just a quick cleanup question. I thought I heard you say in the prepared remarks that you're going to repay the unsecured notes for CSR upon closing. And so, did I hear that correctly? And if so, I'm kind of curious about the thought process there, given that it's a relatively low coupon set of notes that are outstanding for 2030.

Yeah, we expect, again, because of the transaction, you know, we expect they will be, you know, I wouldn't say put to us, but we expect that the transaction will require them to be paid off. That's why we model them. Certainly, if we're able to keep them outstanding such that, you know, we can lower our overall cost of debt, for sure, but we will still do it on a leverage neutral basis.

Okay, that's helpful. And then maybe just looking at the synergies, if I'm doing my math right, the synergy target is kind of 6.5%, 7% of 2026 consensus. So when you think about getting from there to the 5% accretion in 2027, is that primarily just going towards the timing of those synergies coming online in 2027?

Or are there other headwinds there that may bring that back to 5%? yeah sure no great question um a couple things one you know we've modeled it uh if you look at 2026 obviously you know center space has had some assets outstanding that they've owned throughout the earlier part of the year that they sold and obviously uh uh it's you know kind of increasing their current earnings this year that won't be there next year so you got to remove that um 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 an 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, you know, more accretion from just a logical percentage perspective.

Got it. That's very helpful. Thank you.

Your next question comes from the line of Wes Galladay with Baird. Your line is open, Wes. Please go ahead.

Hey, good morning, everyone. Have you talked about how you got comfortable with taking up exposure to so many new markets? Were you looking at some of these markets already?

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 makeup of the portfolio. know the the market dynamics and uh you know the the good job that center space has done over you know uh you know a number of years of management and generating um uh you know noi growth so uh they are some of them are new markets for us but in many instances they're similar to markets we're already in uh just just in different parts of the country um there's there's good people in place uh on site we expect to keep um most if not all of them so we'll just be moving

forward as jim said with with the best of both companies processes uh and and uh strategies okay and maybe building upon that last point you talked about keeping a lot of the people so that doesn't seem to be an issue on the integration point can you maybe talk about how the operating platforms uh should they are they on similar platforms right now from the revenue management perspective uh so i mean they and certainly you know and you can certainly feel free to chime 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 rote processes um they do run obviously a revenue algorithm that will come over to you know our revenue algorithm upon the integration process uh but i would just say largely you know the real benefit to moving forward with the synergies is to kind of again get the both the best of both companies from the standpoint of the process and how we're structured we don't expect it 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 uh into their platform and really provide again that incremental outsized growth that we're talking about and when i speak about um employees or team members i'm

speaking about on-site people.

Okay, thank you. Thank you.

Your next question comes from the line of Jason Wayne with Barclays. Your line is open. Jason, please go ahead.

Hi, good morning. Thanks for the question. Just looking at the 6,000 units in the medium to long-term CSR Wi-Fi pipeline, can you just help quantify the earnings opportunity there and over what time frame those can be realized?

Yeah, we know that there's, of their 10,000 units today, there's, you know, plus or minus 3 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, 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 until they're within two years of the termination date. 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 and been performing at IRT, anywhere from $60 to $70 of incremental revenue per month per unit, and the cost to be somewhere in that kind of $25 to $35 per month.

Got it. And then just on the value add, so you mentioned that it's historically generated 16% returns, but those vary a bit by market and by project. So, on the 10,000 CSR units you identified for value-add, are there any meaningful differences from the IRT portfolio or anything different by market there?

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?

On value-add.

In terms of value-add.

That's right.

Yeah. No, I think generally speaking, again, a lot of their renovation programs are very similar to ours in terms of what they do and the returns they get, you know, there is the opportunity for us on a few of the ones that we've underwritten where the value add list from a cost perspective isn't 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, is 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.

That's helpful. Thank you.

The final question comes from the line of Jamie Feldman with Wells Fargo. Your line is open, Jamie. Please go ahead.

Great. Great. Thank you. Just a couple of cleanup questions. I guess going back to Alex's question on GAAP versus cash, can you, what is the GAAP, I assume that means FFO growth for GAAP, like what is the accretion expected on FFO or GAAP?

Well, again, the FFO, again, will be probably very similar to the GAAP number. I think it's, I'll get back to it, but I believe it's roughly 3% on a GAAP basis. 3% and that's with all the synergies you're talking about? That's all the synergies and just, again, basically market interest rates of all the debt that we're assuming.

Okay. Thank you for that. And then the $140 million, are those transactions in process? or are those earmarked for sale and going to be marketed soon? Are those transactions maybe CSR ahead in process? And then are they specific markets that you can talk about?

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 in a third quarter earnings call.

Okay. And then if I can just, it sounds like I'm last, if I could just sneak in another. So just, I think one of the first comments you made when the call started was just the relative growth rate, kind of pre and post, you know, with or without the transaction. Can you just give some color on, like, the same SurrentoI or even the blend outlook over the next 12 months for standalone IRT versus the combined entity?

So even if you want to go longer than 12 months? well uh you were limited to one question or one follow-up but there's not a third one in um no we unfortunately we're obviously in the process of uh doing our budgets for next year csr is beginning their budget process they haven't given guidance so uh no we're not prepared to you know talk on that at the very moment okay and then uh it's 45 million the break fee from document published this morning yes yeah the break fee is 45 million for center space and 60 million for irt okay all right great thank you appreciate it thank you we have reached the end of the q a

session i will now turn the call back to irt's chairman and ceo scott shaffer for closing remarks well thank you all for joining us this morning um 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.

This concludes today's call. Thank you for attending. You may now disconnect.