Innovative Industrial Properties (IIPR +0.45%) is one of the hottest growth stocks to invest in today. The real estate investment trust (REIT), which specializes in the ownership and leasing of industrial properties for medical marijuana, has performed incredibly well since its IPO in 2017, producing an impressive 71% annualized return in under five years. But today, share prices are on the expensive end, meaning some investors may have missed the boat when it comes to investing in IIPR.
Thankfully, there are plenty of other worthwhile investments to participate in, including Independence Realty Trust (IRT +0.37%), a multifamily REIT that shows promising growth opportunities over the next five years. Here's a closer look at Independence Realty Trust today and why this company is an excellent alternative to IIPR.
IRT today
Independence Realty Trust owns, operates, and leases class B multifamily properties in major cities like Atlanta, Denver, and Orlando and secondary markets like Huntsville, Alabama; Knoxville, Tennessee; and Greenville, South Carolina; among several others. At the end of 2021, IRT merged with Steadfast Apartment REIT, boosting IRT's portfolio to 127 communities across 16 states for a total of 37,950 rental units.
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Growth on the horizon
While IIPR and IRT specialize in entirely different markets within the real estate industry, they both benefit from significant growth potential. In regard to the latter, to start, multifamily is seeing a surge in demand as people relocate and reassess their living conditions as the work-from-home trend continues. Occupancy for the company sits at just over 96% today, and rental rates have increased 4.6% for the nine months ended 2021. A 4.6% increase isn't huge given the state of the rental market today, but this number will likely increase now that the acquisition is complete because roughly 69% of IRT's net operating income (NOI) is now derived from the Sun Belt, a region experiencing significant demand and inward migration.
IRT also has the potential to renovate 20,000 units, given the newly combined portfolios. Historically, completed units as a part of the value-add renovation project resulted in a 17% return on investment, and the company predicts future returns for this effort will fall in line with past performance. Unlike many other multifamily REITs, Independence serves mostly middle-income tenants, a largely underserved market that is substantiated by long-term demand as housing becomes more expensive.
While IIPR has outperformed IRT over the past five years, IRT has consistently outpaced the S&P 500 and is in a strong position to maintain that momentum moving forward. IRT certainly isn't without risk; its debt ratios in particular are high, which is something the company will need to address as it grows. However, given IRT's new position as a premier multifamily operator in the Sun Belt region and its still-relatively small market-cap of $5 billion, there is a lot of room for growth, and this is the reason I believe it could be a great alternative buy for patient growth investors.
