Independence Realty Trust, Inc.

standing by. At this time, I would like to welcome everyone to the Independence Realty Trust Q3 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Stephanie Prezot, You may begin.

Good morning, and thank you for joining us to review Independent Realty Trust Third Quarter 2025 Financial Results. On the call with me today are Scott Schaefer, Chief Executive Officer, Jim Zebra, President and CFO, and Janice Richards, Executive Vice President of Operations. Today's call is being recorded in webcast through the Investors section of our website at irtliving.com, and a replay will be available shortly after this call ends. Before we begin our remarks, I remind everyone we may make forward-looking statements based on our current expectations and beliefs as to future events and financial performance. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and IRT does not undertake to update them, except as may be required by law. Please refer to IRT's press release, supplementary information, and filings with the SEC for further information about these risks. A copy of IRT's earnings press release and supplemental information is attached to IRT's current report on the Form 8K that is available in the Investors section of our website. They contain reconciliations of non-GAAP financial measures referenced on this call to the most direct, comparable GAAP financial measure. With that, it's my pleasure to turn the call over to Scott Shape.

Thanks, Stephanie, and thank you all for joining us this morning. Third quarter results were in line with expectations due to our continued focus on managing revenues and expenses. During the third quarter, our average occupancy remained stable as we continued to prioritize occupancy over rental rate in this competitive leasing environment. We finished the quarter at 95.6% occupancy, a 20 basis point improvement from the end of the second quarter. Our resident retention of 60.4% helped support this stable occupancy. Same store revenue also increased in the quarter, driven by higher average rents per unit and improved bad debt versus a year ago. We outperformed expectations on bad debt in the quarter, which now represents less than 1% of same store revenues and demonstrates the effectiveness of the improved processes and technology we have implemented since early 2024. Our value-add renovations contributed to revenue growth as well. We completed 788 units during the quarter, achieving an average monthly rent increase of approximately $250 over unrenovated market comps, which equates to a weighted average return on investment of 15%. During the quarter, same-store operating expenses decreased over the prior year, driven primarily by lower property insurance and turnover costs. In terms of transactions during the quarter, we acquired two communities in Orlando for an aggregate purchase price of $155 million. These acquisitions more than double our number of apartment units in Orlando, improving our market presence and our ability to realize meaningful operating synergies. We currently have three communities held for sale, one of which is expected to close later this year, the other two early next year. While we maintain an active pipeline of acquisition opportunities, we recognize the current disconnect between our implied cap rate and market cap rates. We will continue to evaluate all investment opportunities, including value add renovations, acquisitions, be leveraging, and share buybacks as we allocate capital to drive long-term show or value. Market dynamics remain competitive, but green shoots are emerging in several of our markets as supply pressures ease. Signs of market recovery are most evident in Atlanta, where occupancy has increased 60 basis points since January 1st, all while our asking rents have increased 5%. Jim will provide more detail on other markets, but the point here is that we are seeing early and encouraging signs of recovery. New deliveries in IRT submarkets have declined 56% from the 2023-2024 quarterly averages, and supply is forecast to grow by less than 2% per year for the next several years, which would be meaningfully below the trailing 10-year average of 3.5% per year. Against these improving supply fundamentals, we expect department demands to remain steady in our markets, driven by employment opportunities, quality of life dynamics, and a rent versus buy economics that will continue to favor renting. We have seen positive net absorption in our markets for two consecutive quarters. During the third quarter, over half of our markets, encompassing 60% of our NOI exposure, registered positive net absorption. Atlanta, which is our largest market, moved into positive net absorption for the nine months ended September 30th, with occupancy increasing 50 basis points. Other markets like Coastal Carolina and Charleston are also seeing positive net absorption, while markets like Tampa, Denver, and Dallas are still working through their supply challenges. Before I turn the call over to Jim, I just wanted to reiterate a few things. Market fundamentals are improving, and while it's taking longer than we all expected, there is light at the end of the tunnel, and we see pricing power increasing. We will remain focused on optimizing near-term performance through stable occupancy, managing expenses, and investing in our value-add program with its consistent outsized returns. Over the long term, the three factors that underpinned our past performance will drive our future outperformance. First is our differentiated portfolio of plans via partner communities and markets that will continue to outperform the national average for employment and population growth. Second is the efficiency of our management platform, which has a proven track record of optimizing revenues while also diligently managing expenses. And third is our disciplined approach to allocating capital. We will continue to be deliberate, patient, and nimble in deploying capital to the highest, best uses, including our value add programs, capital recycling, deleveraging, and share mimics. And with that, I'll turn the call over to Jim. Thanks, Scott, and good morning, everyone.

Third quarter 2025 corporate vote per share of 29 cents was in line with our expectations. Same-store NOI grew 2.7% in the quarter, driven by a 1.4% increase in same-store revenue and a 70 basis point decrease in operating expenses over the prior year. During the third quarter, our point-to-point occupancy increased 20 basis points against the slower-than-normal leasing season, While our new lease tradeouts were lower than we anticipated at negative 3.5%, we've been clear about our desire to maintain stable high occupancy position as well as we head into 2026. Our renewal rate increases of 2.6% came in line with our general expectations as we expected lower renewal increases to support retention and help maintain and grow occupancy during the third and fourth quarter. That strategy is working as expected, with retention at 60.4% in the third quarter. We're beginning to see signs of stabilization across several of our markets through improvement in the S&P lens, along with the ability to maintain occupancy. Let's look at a few of our markets that are experiencing these green shoots since the beginning of this year through the end of September. As Scott mentioned, Atlanta's occupancy has increased 60 basis points since January, New lease tradeouts are 410 basis points better, and asking rents are up 5% this year. Indianapolis asking rents are up 3.5%, while maintaining stable occupancy at 95.3%. Oklahoma City's asking rents are up 80 basis points, and new lease tradeouts have improved 260 basis points, all while maintaining stable occupancy of 95.5%. Nashville's asking rents have improved to 240 basis points this year, with stable occupancy of 96%. Cincinnati's asking rents have increased 11 percentage points, with occupancy increasing 100 basis points to 97.5%. The Coastal Carolina market has seen asking rents improve 5.7%, and occupancy has grown 2.1% to 95.9%. And lastly, Lexington, Kentucky's asking rents are up 22% this year, with occupancy growing 70 basis points to 97%. These markets highlight that fundamentals are firming and pricing power is beginning to return in key regions of our portfolio. For the third quarter, bad debt was 93 basis points of same-store revenue, which represents a 76 basis points improvement over Q3 of last year. as well as a 46 basis points improvement sequentially from second quarter. Our team's efforts in the technology enhancements we implemented since early 2024 are the drivers behind this improvement as underlying collection fundamentals have improved such that overall charge-offs as a percentage of revenue were down 40 basis points compared to third quarter 2024. In addition, accounts receivable balances were 40% lower at September 30th as compared to Q3 of last year. and recoveries from our third-party collection firm were also higher. All in all, the improved performance on our bad debt is exciting to see, and we expect to see continued progress in the coming quarters as we focus on stabilizing our bad debt sustainably below 1% of revenues. Same-store operating expenses decreased 70 basis points over the prior quarter, reflecting our continued focus on managing expenses. Within controllable expenses, which are flat year-over-year, higher advertising spend was offset by lower repairs and maintenance expenses. Our strong resident retention contributed to lower repairs and maintenance expenses in the quarter. Within non-controllable expenses, the 2.3% decrease over the prior quarter reflected our favorable renewals on our insurance premiums from earlier this year. During the quarter, we further enhanced the long-term growth prospects of our portfolio by acquiring two communities in Orlando, for an aggregate purchase price of $155 million and an average economic cap rate of 5.8%. One of these properties is phase two of an existing IRC community, and the other is in close proximity to another IRC community, such that we expect to realize meaningful operating synergies. We used $101 million of our forward equity proceeds to fund these acquisitions and now have $61 million of forward equity remaining. On our assets held for sale, we now expect one asset to transact in 2025, and the two remaining assets will be sold in 2026. On our asset held for sale in Denver, we recorded a $12.8 million impairment in the third quarter due to the recent pressures observed in the Aurora submarket and its impact on the performance of this community. The third quarter was also busier than normal with respect to our joint venture investments. In July, our JV partner in Richmond completed the sale of Metropolis in Innsbruck. We received $31 million in cash, which included a $10.4 million gain in our income from unconsolidated real estate investments line. This gain was excluded from core FFO since it is associated with a property sale. In October, our partner in Nashville redeemed our preferred investments, which resulted in the return of our initial investment, and the receipt of $3.3 million in preferred return, which we will recognize in the fourth quarter. This preferred return will be included in core FFL consistent with historical treatment as it is not associated with an asset sale. From a capital allocation perspective, we will continue to prioritize our Value Add program as it represents the best use of capital given the steady mid-teen returns and the margin expansion renovated units create from increased rents and reduced turn costs. We will continue to evaluate other capital allocation decisions between buying back shares, pursuing acquisitions, and or deleveraging. Our balance sheet remains flexible with strong liquidity. As of September 30th, our net debt to adjusted EBITDA ratio was six times, and we are on track to further improve this ratio in the fourth quarter to the new fives as expenses decline seasonally. We continue to have very manageable debt maturities with only $335 million, or 15% of our total debt, maturing between now and year-end 2027. And nearly all of our debt is either fixed rate or hedged. With respect to our full-year 2025 guidance, we are narrowing our ranges on same-store revenue and expense growth while keeping the NIF points unchanged. With respect to transactions, we are reducing our acquisition and disposition guidance ranges due to timing. Our updated acquisition guidance of $215 million reflects only the acquisitions that have closed to date. Our updated disposition guidance of $161 million reflects the disposition that closed earlier this year and the sale of one asset expected to close in November. These reduced volumes are the primary driver behind our lower expected interest expense and the lower weighted average shares of 2025. And lastly, from a core fulfilled per share perspective, We have narrowly got our guidance range, and our bid point of $1.17 and a half cents is unchanged.

Scott, back to you. Thanks, Jim. For the past few years, the residential sector has navigated historic levels of apartment deliveries. While supply pressures are receding, it's too early to call a broad market recovery, but we are cautiously optimistic that 2026 will be a better operating environment than 2025. With our differentiated portfolio of Class B assets in highly desirable markets, our efficient management platform, proven value-add program, and strong balance sheet, we are well-positioned to generate attractive core FFO per share growth. We thank you for joining us today, and operator, you can now open the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star, then the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. We do request for today's session that you please limit to one question and one follow-up. Your first question comes from the line of Brad Heffern with RBC Capital Markets. Your line is open.

Yeah. Hi. Morning, everyone. You talked about the green shoots and the prepared remarks. Can you just talk through how the pressure of supply today feels different than it did last quarter or earlier in the year? And when do you expect things to get back to something resembling normal?

Well, we have some markets that were a little softer than anticipated, such as Raleigh, Dallas, Denver, and Huntsville. Raleigh was more of a lingering effect of the supply that was produced, and so we're seeing stable occupancy. Asking rents are a little bit lower than anticipated, feeling the pressure of supply and concessions. We feel that this one's rather short-lived, and we'll start to see some movement early next year. Dallas obviously has had some pretty heavy supply entering in the market. Occupancy has been stable above that 95.5 that we're looking for, but still feeling some pressure from supply and competitive market with concessions entering in and making it a major play. Denver is challenging. Occupancy declined of about 200 basis points, as well as asking rents, feeling the pressure from supply. There's 7.4%. 5% delivered and 25. So we'll work through that and make sure that we are definitely being patient as well as disciplined within all of our strategies in Denver to maximize. And then Huntsville, one of our smaller markets has seen an occupancy decline year over year, but holding stable above that 95% asking rents are feeling pressure from the supply. And we're working through, you know, that 5.7% that was released. We feel that, you know, each one of these markets has potential to start movement on the asking rents and work through the supply. We do see 2026 supply decreasing in all of these markets, which, you know, is the light at the end of the tunnel that we're going to be working through. And I think we'll start to see, you know, some benefit in the second half of 2026. Yeah.

And Brad, just to kind of bring it all full circle, you know, I think know the supply pressures we definitely feel are waning we definitely see a light at the end of the tunnel coming if you look at some of the most recent co-star forecasts for you know fourth quarter and now for 2026 you know the forecast now in 2026 are much lower than what they were earlier this year because as we've been all highlighting you know it does seem like supply was delivered earlier this year than what was supposed to be delivered next year so Again, really great positive, you know, opportunity here in 2026. You know, the one thing we do watch in terms of, you know, obviously each day and each quarter, each month, it's just, you know, this kind of a conversion, right, from leads to leases. And that has been improving for us, right, from month to month to month throughout the third quarter. So that tells us that the pressure of new supply is certainly waning and we're being able to see more throughput into the leasing.

Okay, got it. Thank you. And then, Jim, on the forward equity, you obviously need to settle that by the end of the year, but there's no additional acquisitions contemplated in the guide. Are you planning to extend that, or is there a chance that you'll let that expire?

So we can obviously always extend it. You know, we do have two forward equities, one from September that got closed out, and that'll be kind of closed out this quarter. And then the one that we did in the first quarter of 2025, we actually have until the end of the first quarter of 2026. So the $61 million that's left remaining is primarily that, and that we have until March 31st to close that one out. Okay, thanks.

Your next question comes from the line of James Feldman with Wells Fargo. Your line is open.

Great. Thank you for taking the question. You know, given the sequential moderation and blends, especially on the renewal side, can you talk about what your latest thoughts are on earning for 26 and your current loss to lease?

Yeah, great. Jamie, obviously, good morning. Nice to see you. Lost the lease today. It's actually gained a lease of about 1.5%, and that our earning right now for 2026 looks to be about 20 basis points. Obviously, we have to finish the year before the earning is actually locked in, but it's about 20 basis points. Okay. Thank you for that.

And then I guess just thinking about, you know, renewals down so much sequentially, I think if you look across the peer group, it's at the lower end. I know you said you wanted to keep occupancy at the expense of rate. Are there certain markets where you're really kind of surprised at how hard you have to site to keep people? Just maybe talk us through the different regions, if it's any, or different markets, or is it pretty similar to what you said before on the renewal side?

Yeah, I would say similar to the markets that Janice went through before in terms of the more supply-heavy markets certainly have a little more competition that we have to work harder to keep people at. I would say generally the retention rate, you know, that 60% has been a focus of ours. And we baked into our original guidance earlier this year a steady decline in that renewal rate because we knew that we wanted to keep occupancy high heading into the slower seasonal periods of the fourth quarter. So I would say even though it's sequentially lower, we've been pretty clear about we've expected this all throughout the year. What we see right now so far for fourth quarter, that renewal rate is actually about 40 basis points higher. So we see a little bit of strength, you know, redeveloping. But the difficulties in terms of really we're having to, quote, unquote, work hard. We're working hard every day, right? But, no, it's definitely in those markets that Chad has mentioned.

So you're saying your renewals are up 40 basis points already in the fourth quarter for the T6? The spread, yes. Okay.

And what about new leases and blends? New leases are pretty much in line with what you saw in the third quarter, and blends are about, call it, 50 to 60 basis points. And about 90% of our expectations for renewals for the fourth quarter have already been signed. Okay, great. Thanks for the call.

Next question comes from the line of Austin Wordsmith with KeyBank Capital Markets. Your line is open.

Great. Thanks. Good morning, everybody. So going back to some of the green shoots that you referenced in your prepared remarks, you know, coupled with, I guess, the softness in the back half of this year and just broader uncertainty. I mean, how do you approach the 2025 outlook and kind of the sequential improvement and fundamentals and think about sort of that ramp in the first part of next year?

be a little more specific in terms of ramping because obviously we're staying away from really talking about any kind of 2026 guidance. I would say that our expectation is to continue to drive occupancy here in the fourth quarter. As I just mentioned, we're definitely seeing some improvements on the renewal spread and just continue to manage the business for the long-term value creation of our shareholders.

I guess there was this expectation for lease rate growth to inflect in many of the Sunbelt markets late this year. So is that more likely a first half of 26? Do you see, you know, new lease rate growths, which I think you referenced are kind of in line with where they've been trending? Does that begin to improve, you know, over, you know, the several months ahead? What's sort of the thought process on how that trajectory looks from here?

Yeah, so gotcha. As we've mentioned, you know, the desire that we have is to continue to, you know, keep occupancy at a nice, stable, high level for us as we end the year and get ready for 2026. You know, that's always been our goal. And we've been talking and pretty vocal about, you know, trading rate, especially on new leases to accomplish that goal. So as a result, right, new leases have kind of, flattened out, right, where they are today in the third quarter when we were expecting them to continue to get better. We do see some progress in, you know, future months. They are getting better, but we're obviously being cautious because, again, we want to continue to maintain this high stable occupancy. If you look at our expiration schedule, you look at what leases are expiring month by month for next year, and again, without kind of prognosticating on market rank growth and so on and so forth, yeah, we do expect that new leases should begin to kind of hit that break-even point in the first half of next year.

And then can you just talk about how concessions have trended in some of the markets where you're seeing sort of some of that competition? Janice, you highlighted some details in the market, but, I mean, are concessions getting worse? Are they stable, getting better? Just trying to get a sense, high level of, you know, that competition that you're facing from the new lease ups.

Yeah, so I don't have, Janice will in a moment talk about maybe individual markets. I would say, you know, generally speaking, if you look at all of our leasing activities, so renewals, new leases, everything, in the third quarter of this year, 23% of all of our leases had some type of concession associated with it. That is down from 30% in Q3 of last year. The average concession is up slightly to $735 per call lease. And that's up from $710 in Q3 of last year. As you look at it, kind of looking from, you know, from sequentially from quarter to quarter, that 23% is slightly higher from second quarter. But if I look out in October, we're down from where we were in the third quarter in terms of overall volume. So hopefully that helps.

And as we monitor competition very closely in the four software markets that we talked about, we are seeing some ebbs and flows in concession, obviously based on the lingering supply and or what we would consider stalls lease up. Nothing that has been outlandish or very surprising. However, we've seen a slight increase of concession usage in what I would say Dallas and possibly in Raleigh in specific pockets. Denver is definitely a concessionary market and will probably continue to be so as we work through that 7.5% of supply that was released in 25 and doesn't anticipate to ebb as fast as some of the other markets that we are in.

Helpful. Thanks for the time.

Thanks, Austin.

Next question comes from the line of Eric Wolf with Citi. Your line is open.

Hey, good morning. Looks like your net acquisition guidance came down and you have some assets that are teed up early next year. So could you just talk about your appetite for buybacks and how you think about the spread between where your stock is trading today versus where you can sell assets?

Thanks. This is Scott. So the acquisition guidance came down because we had a We had a small portfolio under contract, and in due diligence, we became aware of some significant structural issues, and it was an all or nothing, so we walked away from it. And, you know, at this point, we clearly recognize the disconnect between where, you know, markets are trading and where properties are trading relative to our implied cap rate at our share price. So we have a strong appetite for buybacks. You know, we want to be disciplined, obviously. Clearly, it's a very good use of capital at this point. But we also continue to work on our leverage. So, you know, we're going to do it with retained earnings and other capital that won't impact our EBITDA.

Understood. Yeah, I guess I was... trying to think through to what extent you could sell additional assets and try to take advantage of that spread if you thought it was material. I know there's sometimes tax implications from that. There's also sort of a descaling of the enterprise that you have to be sort of careful about. But I was just curious to what extent we could see you sort of ramp up the dispositions next year and then try to use those proceeds to be a bit more aggressive on the buyback in a leverage-neutral manner?

Well, I think it's a balance, and it's a balance with the deleveraging strategy. And we still want our leverage to come down, which it has been doing, and we want it to continue to come down. So the thought of selling assets and giving up the EBITDA of that asset and then using the capital to buy back stock, while it might be a great return, it's going to increase our leverage, and I'm not sure anyone wants to see that. So we have the $60-some million on the forward available to us, and we also have some of the JV programs that are not EBITDA producing during the construction. So as those funds come back to us, that's available for us to use as capital for share buybacks.

And just to clarify, the $61 million on the forward, we can net share settle that today, so we don't actually issue a bunch of shares and have to buy back a bunch of shares. But to Scott's point, that forward was issued at, I think, an average price of $20.60, and we're trading below that. So there's an opportunity there to take some of that quote-unquote gain and buy back incremental shares.

All right. Understood. Thank you.

Thank you.

Next question comes from the line of John Kim with BMO Capital Markets.

Good morning. I want to go back to your renewals that you signed this quarter. Back in September, in your presentation, you talked about the renewal trade-off being in line or tracking expectations. So I'm wondering if something happened in September where it decelerated quicker than you had thought, or was this the two points that you anticipated?

No, I think the point I was trying to make earlier is that we actually anticipated the renewals to go down in the third quarter. So when we kind of talked about them tracking in line with their expectations, that was clear that that was our expectations. You know, certainly, you know, as we mentioned earlier, you know, we are obviously working in a very competitive environment and, we are obviously looking to renew and retain as much of our residents as possible because not only are you saving a negative lease trade out, but you're also saving the vacancy costs, turn costs, and all the other stuff that goes along with it. So, no, I would say that the 2.6 was very much in line with our expectations.

And just to clarify, that 40 basis point improvement, is that what you're sending out, sending renewals out today or what you're signing?

What we've signed.

Okay. My second question is the cap rate on the Aurora sale. I'm wondering if you could disclose that. And I think you said in the prior call that this was related to the Steadfast portfolio. But I'm wondering if you're looking at Denver as a market that you're looking to potentially sell more assets out of just given the supply pressures.

Yeah, I don't have the cap rate on the Aurora Denver Health for Sale asset. That is not closed yet, obviously. It's not even under contract. So I would say it would be a cap rate based on our internal view evaluation. But I can get back to you on that specifically.

Okay. And then Denver as a market?

We're not looking to exit the Denver market. The property in Aurora was a steadfast property. It's an older property, expensive to run, high CapEx, and that's why it was identified as self-for-sale. Got it. Thank you.

Next question comes from the line of Wes Golody with Beard.

Hey, yeah. Good morning, everyone. I just want to look at your number two market, Dallas. It looks like your same score revenue growth is accelerating, but I believe I heard you in the commentary talking about more concessions in the market. So I'm just trying to see what's going on there.

Yeah, I think in Dallas, what we're seeing is, you know, targeted markets and some markets that have had high supply are becoming more concessionary as we go into the slower seasonal months in order to maintain that occupancy. And so we're just making sure that we're staying competitive within the market. Concessions are increasing as we've kind of seen a lingering effect of that supply. You know, we're still able to maintain our occupancy, so the demand factor is still stable. It's just making sure that we can work through that supply on a timing factor.

Yeah, I think Wes specifically would balance that. Yeah, specifically with Dallas, I think you saw the average occupancy this quarter, you know, up 40 basis points over the third quarter of last year. So that's a contributor to the acceleration.

Okay, thanks for that. And then looking at this year, you talked about your tech contributions, you know, being a bit of a tailwind. Do you think that momentum continues into next year? And then will the bad debt expense coming down lower be a tailwind again next year?

I'll start with the last one, bad debt. Yes, we expect that the bad debt will continue to be, as I mentioned in the prepared remarks, we're working to keep that sustainably below 1%, so that should be a nice tailwind or support to 2026 and beyond. I would say that on the technology side, yes, obviously we've implemented a series of pieces of technology both on the kind of front of house leasing and sales and tours, and as well as back of the house, so payables processing, you know, other things that we are definitely working on. And we're going to continue to expand that to continue to drive, you know, lower expenses and better property improvements throughout the chain. Okay. Thanks for that.

That's all for me.

Next question comes from the line of Amy Proband with UBS.

Hi. I'm wondering, were there any moving pieces within the same-store revenue guide, such as blended rent assumptions, occupancy changes, bad debt?

Amy? Amy, are you there?

Can you hear me now?

Yes. Okay, great. Would you mind restating that? You broke up there.

Yep. Sorry about that. I was wondering if there were any moving pieces within the same store revenue guidance, such as changes in blended rent, occupancy, or bad debt.

For what, fourth quarter?

Yeah, within the guidance. If you had maybe increased your assumptions on occupancy and decreased on rent, any moving pieces to get you to that, to the guidance midpoint.

Oh, yeah, sure, sure. So, you know, the assumptions in guidance for occupancy was 95.5% in the fourth quarter, blended rank growth of 20 basis points, other income growth of about 3%. And then we've assumed a similar improvement in bad debt as we saw in the third quarter. Bad debt in fourth quarter last year was about 2%. So if you kind of reduce that by that roughly 70, 80 basis point improvement we saw this quarter, that's kind of what's factored into Q4.

Got it. Thanks. And then you mentioned materially lower supply delivery levels, but I'm wondering if you think that we may see extended lease up periods and if you're factoring that into your thought process at all.

We are thinking about that. We are, as you can imagine, we have not put out 2026 guidance yet, so we are evaluating that with respect to what that budget will look like for next year and how significant it will be. You know, the deliveries have come down quite significantly, you know, even throughout 2025, even though the deliveries are higher than we all anticipated. The level of deliveries in 25 are still significantly under 2024. So we are expecting to see a lot of the lease-ups if not done. But if there is some extension, it should be a very small effect in the kind of early to mid part of 2026.

Got it. Thank you.

Next question comes from the line of Omatayo Okusanya with Deutsche Bank.

Yes, good morning, everyone. Really good color in regards to kind of supply and what's happening in your market. I'm curious if you could talk a little bit on the demand side. I mean, is some of the pressure on blended rates really more because there's just a lot of supply and people have options, or is there like an actual demand issue where, you know, whether it's because of slowing job growth or things like that, you're getting a little bit more pushback as well in terms of asking rent and renewals.

Sure. I mean, I think, you know, I think that you've heard us previously as well as, you know, a lot of our apartment peers, you know, the leasing season kind of started a little earlier, ended a little earlier. I would say just generally speaking on the demand side, if you look at just our sub markets and you look at absorption levels and demand levels, It's you know in second quarter and third quarter their peaks right over historical you know recent history in terms of what they were. Obviously that's because of lease ups everything else, so I would say the demand is still quite healthy for apartments. You know a lot of our resident base that we cater to and our differentiated class B product. is not the white collar jobs that might be experiencing job losses. It's hospital workers, it's nursing home workers, it's retail workers. It's, again, not the typical white collar, including we have factory workers and blue collar workers. It's a much, what we think, more defensive, you know, in the AI era than what, you know, folks appreciate or think might be affecting apartments down the road. We do track reasons for move outs because of job losses. And I would say there's really no elevation there over the past six to nine months. So it's not something we are watching. It's not something that we're overly concerned about at the moment, but we are watching and paying attention to it.

Gotcha. And then my last one for me, just because it's election season at this point, anything on any ballots in any of your key markets that you're kind of watching as that could potentially impact your business?

Well, the school district in my local town, I don't like very much, but that's a different story. No, we're not aware of anything. We're not aware of anything in our markets where we should be concerned.

Great. Thank you.

Our final question comes from the line of Anshan with Green Street.

Hi, good morning. So are you seeing any labor availability issues resurfaced for any type of employees or geographic markets?

You mean inability for us to hire employees?

Yes.

Yeah, no, I would, I would say generally speaking from our renovations teams or onsite teams to our corporate teams, you know, jobs are filling, you know, kind of in the expected timeframe. So there's no real concern or issue there with availability.

We've also seen a market reduction in the turnover within our onsite teams, which is encouraging going forward.

Great, thank you. And second question for me. Yeah, I know you mentioned earlier that you haven't seen any larger demand shift with the tenants. I'm just wondering if you've observed in 3Q and over 2025 any kind of emerging shifts in just general tenant behavior that might influence rent growth, you know, differing between the markets, such as like shorter lease terms or higher concessions, move-in timing, shifts for the class B product type or anything like that from that perspective. which markets appear more resilient versus more vulnerable to these types of tenant behaviors?

Yeah, we haven't seen, I would say, tenant behaviors in terms of payment patterns or work order developments that would cause us any level of concerns. I would say that the one thing that continues to shift and we continue to try to be on the leading edge of it is the whole, you know, how does a prospect find us, right? The whole marketing engine, the advertising engine. You see us spending more money on advertising dollars between ios services paid search as well as just pure organic seo and then also getting deeper into the kind of how the ai tools are working where you can type in the chat qpt show me an apartment for whatever in atlanta and how do we show up in that list every each and every time um you know today we're ranking on page one of you know some of the google searches just organic searches on uh for many many keywords we still have more room to go we're going to keep pushing on that but it's um That's an area that we're spending a lot of time and energy on.

Great. Thank you. Seeing no further questions, I would now like to turn the call back over to Scott Schaefer for closing remarks.

Thank you all for joining us this morning, and we look forward to speaking to you again next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.