Independence Realty Trust, Inc.

Thank you for joining us to review Independence Realty Trust third quarter 2024 financial results. On the call with me today are Scott Schaefer, Chief Executive Officer, Jim Zebra, Chief Financial Officer, and Janice Richards, SVP of Operations. Today's call is being webcast on our website at irtliving.com. There will be a replay of the call available via webcast on our Investor Relations website and telephonically, beginning at approximately 12 p.m. Eastern time today. Before I turn the call over to Scott, I'd like to remind everyone that there may be forward-looking statements made on this call. These forward-looking statements reflect IRT's current views with respect to future events and financial performance. Actual results could differ substantially and linearly from what IRT has projected. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to IRT's press release, supplemental information, and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations. Participants may discuss non-GAAP financial measures during this call. A copy of IRT's earnings press release and supplemental information containing financial information, other statistical information, and a reconciliation of non-GAAP financial measures to the most direct comparable GAAP financial measure is attached to IRT's current report on the Form 8K available at IRT's website under Investor Relations. IRT's other SEC filings are also available through this link. IRT does not undertake to update forward-looking statements on this call or with respect to matters described herein, except as may be required by law. With that, it's my pleasure to turn the call over to Scott Schaefer.

Thanks, Maddie, and thank you all for joining us this morning. I would like to begin the call today by thanking our on-site teams for their integral role in ensuring the safety of our residents and communities affected by Hurricanes Helene and Milton. I'm happy to report that all of our residents and employees are safe. We did not experience any significant damage from the storms and there are no down apartment units. And now on to the results. We delivered solid third quarter results with same store NOI growth of 2.2% and core FFO of 29 cents per share. We continue to operate in an uneven macroeconomic environment characterized by new supply and the effects of inflation on controllable expenses. Despite these conditions, we remain focused on driving occupancy gains while executing on our strategic initiatives. In the third quarter, our average occupancy was 95.4%, 90 basis points higher than the third quarter of last year. This was driven by our resident renewal rate of 66% and our resident retention rate was 57% in the quarter. As we've stated throughout this year, we have been focused on growing occupancy while balancing rental rate growth and targeting concessions to maximize leasing economics in this environment. During the third quarter, we continue to experience pressure from new supply, which is impacting new lease rent growth. Our blended rental rate growth was 0.8% with new leases down 3.6% and renewals up 3.8%. We expect continued strong renewal rate growth in the fourth quarter as we have signed approximately 91% of expected renewals for October and November and have achieved an effective rental rate increase of 5.3% on signed renewals. And our occupancy momentum continues, as same store occupancy was 95.7% as of October 29th, a 30 basis point improvement over our third quarter average, with October lease renewal tradeouts at 5%. Same store occupancy at our non-value-add communities as of October 29th was 96%. In the quarter, we completed renovations on 578 units, achieving a weighted average return on investment of 14.9%. This brings our total renovations for the first nine months of 2024 to 1,276 units, resulting in a weighted average return on investment of 15.9%. These efforts drove an increase in average monthly rent per unit of $242, exhibiting a significant premium compared to unrenovated comps. While we have historically talked about cash-on-cash returns for our value-add projects, we do track the longer-term benefits and IRRs for each community. Generally speaking, the IRRs on our projects range from 20% to 30%, with some even higher. When you compare these IRRs with our cost of equity, you can see how beneficial these projects are from an NAV perspective over time. Looking to the fourth quarter, we expect to renovate approximately 400 units, which will bring us to our updated four-year target of 1,700 units. As we've noted in the past, the number of units renovated will vary due to the resident retention levels and the timing of new renovation starts. We also continued with our capital recycling initiatives, which include the sale of a property in Birmingham and the purchase of a property in Tampa. Also, after raising equity in September, we are under contract to acquire three properties, one each in Charlotte, Orlando, and Columbus. This will be done at an aggregate purchase price of approximately $184 million and add 776 units to our portfolio. We expect a stabilized economic cap rate on these three assets to be 6%. These transactions reflect IRT's ongoing efforts to increase our exposure in attractive markets where we have a strong presence and reduce our ownership potential. In addition, one of our JV investments in Nashville, known as the Crockett, was paid off in October with us receiving the 20% annual preferred return along with the return of all of our capital. Before I hand the call over to Jim, I'd like to share some recent news. Just yesterday, IRT received a BBB flat investment grade rating from S&P Global Ratings, making this our second investment grade rating since receiving one from Fitch Ratings in early March. Both of these ratings mark a significant milestone for IRT, and reflect our efforts to reset our leverage profile and drive profitable growth. This additional rating will improve our cost of capital and give us access to additional capital sources to implement our business plan and invest in our portfolio. To sum up, our performance this quarter showcases our track record of delivering solid results amidst a difficult macroeconomic backdrop. Looking ahead, we remain confident in our ability to continue driving strong results, underpinned by the effective positioning of our portfolio in high-growth markets and continued execution on our value-add renovation strategy. As a result, we are maintaining the midpoint of our full year 2024 same-store NOI guidance range and now expect to be at the high end of our previous core FFO per share guidance range. We believe we will achieve this by remaining focused on sustaining high levels of occupancy while optimizing rental rate growth and effectively managing our expenses. I'll now turn the call over to Jim.

Thanks, Scott, and good morning, everyone. Beginning with our third quarter performance update, net income available to common shareholders was $12.4 million, up from $3.9 million in the third quarter of 2023. Core FFO was $66.8 million and 29 cents per share, both just below a year ago due to our asset sales, which were completed in connection with our portfolio optimization and deleveraging strategy. As a result of these active sales and deleveraging, we're also happy to report that our net debt to adjusted EBITDA is now 6.3 times down from seven times a year ago, and we remain on track to be at the six times net debt to adjusted EBITDA by year end. IRT same-store NOI growth in the third quarter was 2.2%, driven by revenue growth of 2.5%. This growth was led by a 1.2% increase in our average monthly rental rates to $1,566 per month and a 90 basis point increase in average occupancy to 95.4%, both as compared to Q3 of 2023. On the operating expense side, IRT same-store operating expenses increased to 2.8% during the quarter. This increase was primarily due to higher personnel costs and higher repairs and maintenance and utilities costs, all driven by continued inflationary pressures. These increases in some controllable operating expenses were offset by year-over-year declines in real estate taxes and property insurance in Q3, reflecting the notable progress we've made in these areas. As noted last quarter, we renewed our main property insurance policy in May and saw a 10% reduction in our premiums without changing our deductibles or coverage. For real estate taxes, assessed values have come in lower than we anticipated in states like Texas, which is 7% lower, Florida, which is 13% lower, and Indiana, which is 11% lower, and all of those states reassess annually. The remaining portion of our expenses for property management and G&A are all trending consistent with our prior guidance. On our balance sheet, as of September 30th, our liquidity position was $722 million and was comprised of $18 million of unreserved cash, $308 million available on our line of credit, $150 million available under our private placement bonds, and $246 million available under our forward equity agreements. During Q3, we completed an inaugural private placement and issued $150 million of unsecured notes. The proceeds from these notes will be used to fully repay all of our 2025 debt maturities. These unsecured notes have a weighted average life of 8.5 years and a weighted average coupon of 5.4%. As Scott mentioned earlier, we are also happy to report that we received a BBB flat investment grade credit rating from S&P yesterday. For some time now, we've indicated our efforts to achieve this rating and are excited to deliver on our promise to our shareholders and employees. This rating will open a new capital source for IRT, the public bond markets, and will reduce the effective cost of all outstanding bank borrowings by approximately 20 basis points or $1.5 million annually. In connection with our capital recycling program, we sold a legacy steadfast asset in Birmingham in July for a gross sales price of $70.8 million with an economic cap rate of 5.8%. We used the proceeds from the sale to acquire a property in Tampa in August for $82 million and an economic cap rate of 5.9%. We are also under contract on three properties in Charlotte, Orlando, and Columbus. The aggregate purchase price of these three properties is approximately $184 million with a blended year one economic cap rate of 5.7% and a stabilized blended economic cap rate of 6% as two of these communities are new development and currently approximately 87% occupied. We expect to close on these transactions in the fourth quarter using approximately 35% leverage and the rest coming from our outstanding forward equity agreements. With respect to our full year 2020 for outlook, we are making some minor adjustments to our guidance based on our performance through Q3 and expectations as we close out this year. In particular, we are increasing the midpoint of our full year quarter flow per share by one penny per share. The guidance updates for our operating metrics are as follows. We now expect full-year same-store revenue growth of between 3% and 3.2%, which reduces the midpoint by five basis points compared to our prior guidance. This is due to the lower blended rental rate growth we've experienced year to date as we focused on supporting occupancy this year. For the fourth quarter of 2024, the midpoint of our revised same-store revenue guidance reflects an average occupancy of 95.6% and a blended rental rate growth of 50 basis points. While we are continuing to see pressure on some categories of controllable operating expenses, that pressure is being offset by further positive outcomes on real estate taxes and insurance expense. Our revised guidance for the full year 2024 total operating expense growth remains at 3% at the midpoint. The midpoint of our same-store property NOI growth for 2024 remains at 3.2% and is on top of the 5.7% increase that IRT achieved last year. Regarding other updates to our four-year outlook, we are increasing our guidance for acquisition volume and now expect a range of $264 to $268 million for the year. This reflects not only the one property in Tampa we acquired in the third quarter, but also our plans to close on the properties mentioned earlier that are currently under contract in Charlotte, Orlando, and Columbus. Our disposition volume guidance remains broadly unchanged. Lastly, we do not provide guidance on income from our unconsolidated joint ventures, but we wanted to highlight that the 20% annual preferred return that we received related to the Crockett joint venture will be recorded in Q4 and will provide approximately $3 million of benefit to CORE FFO in 2024. Scott, that's it.