Independence Realty Trust (IRT 1.82%), a multifamily real estate investment trust (REIT), has been anxiously awaiting the approval of the merger with Steadfast Apartment REIT. The company announced the plan to combine portfolios with Steadfast REIT earlier this year, but the transaction needed the blessings of shareholders.

On Dec. 13, the acquisition was cleared at a special meeting of stockholders, with the closing on Dec. 16. The combination will double IRT's portfolio and give it significantly more exposure to the fast-growing Sun Belt market.

Brown and tan three-story apartment exterior.

Image source: Getty Images.

Why the merger means big growth

IRT is a relatively small player in the world of multifamily REITs, with a market cap of about $2.6 billion. It invests primarily in class B apartments in primary and secondary non-gateway markets. Before the merger, IRT had interest or ownership in 57 communities, for a total of 16,109 rental units in 11 states throughout the Southeast and Midwest including cities like Atlanta, Columbus, Ohio, Louisville, Kentucky, and Memphis, Tennessee.The merger will more than double IRT's portfolio, to 127 communities and 37,950 rental units across 16 states while adding major exposure to new markets in the Sun Belt.

Completion of the merger is expected to drive revenue for IRT as much as 11% while improving the company's liquidity, buying power, and operational synergies -- a notable bump on top of an already prosperous year.

New and renewal rental rates have climbed 15.2% year over year, while net operating income (NOI), revenues, and core funds from operations (FFO) have increased with it.

What's next for IRT?

About 106 million shares outstanding of Steadfast Apartment REIT will convert into 0.905 shares each of newly issued IRT common stock and cash in lieu of fractional shares. IRT will maintain its leadership role, with IRT's Scott Schaeffer holding the jobs of chairman and chief executive officer. The new board will now include 10 directors, half from IRT and half from Steadfast's previous board.

After the combination is complete, IRT will have to continue to drive revenue and deliver value to its shareholders. The company has identified roughly 20,000 units from its combined portfolios that would benefit from renovations and cosmetic improvements. In the past, such efforts have produced a 17.1% return on average, meaning there is definitely room for growth.

However, IRT first needs to address its mounting debt. The merger, along with other financing activities, has caused the ratio of debt to earnings before interest, taxes depreciation, and amortization (EBITDA) to climb to 9.7, an abnormally high level of debt in the REIT industry. IRT has a plan to tackle some of its debt during the next two years using profits from asset sales; however, driving down this number is something the REIT will need to stay on top of.

Share prices are down marginally, a little more than 2%,  during the past five days but still have registered big gains, rising 82% in the past 12 months. All in all, this merger is fantastic news for both companies but really gives IRT shareholders a big boost. I see the company growing significantly during the next few years, and investors who hold the shares now will benefit by having been onboard before IRT joins the big leagues among multifamily REITs.