Independence Realty Trust, Inc.

Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Independence Realty Trust Q4 and full year 2025 earnings conference 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. We do request for today's session that you please limit to one question and one follow-up. If you would like to ask a question during this time, Simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Stephanie Kruzan-Talley, Head of Investor Relations. You may begin.

Good morning, and thank you for joining us to review Independence Realty Trust's fourth quarter and full year 2025 financial results. On the call with me today are Scott Schaefer, Chief Executive Officer, Jim Sibra, President and Chief Financial Officer, Janice Richards, Executive Vice President of Operations, and Jason Lynch, Senior Vice President of Investments. Today's call is being recorded and 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 prepared remarks, I'll remind everyone we may make forward-looking statements based on 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, supplemental 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 Schaefer.

Thanks, Stephanie, and thank you all for joining us this morning. 2025 was a solid year for IRT. During another year of challenging market fundamentals, we delivered same-store NOI growth that exceeded our initial guidance. We also adopted new technologies that will drive operating efficiencies and cost savings for years to come. Some of the most impactful initiatives included implementing our AI leasing agent to support the time and talents of our property teams, fine-tuning how we manage band debt, and reducing the turn time on our value-add renovations to an average of just 25 days. We also successfully rolled out our Wi-Fi initiative and will be expanding it to 63 communities covering 19,000 units as part of our 2026 plan. On the capital front, last year we sold two older communities and redeployed the proceeds into three newer communities with higher rental rates and lower CapEx profiles. We profitably exited two joint ventures and invested into new joint ventures. Lastly, we purchased 1.9 million of our shares, taking advantage of market dislocation. Because of these and other initiatives, our company is stronger than ever and ready to capitalize on the growth opportunities ahead. So before I say anything else, I want to thank the entire IRT team for last year's extraordinary efforts and successes. Regarding capital allocation, we continue to view investments in our value-add program as our best use of capital. During 2025, we renovated 2,003 units, achieving an average unlevered return on investment of 15.3%. In 2026, we expect to renovate between 2,000 and 2,500 units that are consistent with our historical results and have added six new communities to the value-add program. We expect market fundamentals to continue to improve across our portfolio of well-located communities in desirable submarkets. In 2026, COSTAR forecasts inventory will increase by 2.1% across their markets, weighted by our NOI exposure. This increase is significantly lower than the 3.7% increase in 2025, the 5.9% increase in 2024, and the 3.2% long-term average prior to 2024. Drivers of apartment demand in our markets remain solid. Job growth, population growth, and household formation rates within our markets are expected to outpace the national average for 2026. For example, according to CoStar, job growth across our markets is forecasted to average 60 basis points, double the national average of 30 basis points. Our major markets like Atlanta, Dallas, Indianapolis, and Raleigh are forecasted to achieve 50 to 80 basis points of job growth. This shows that people will continue migrating to our markets for employment opportunities and a better quality of life. As evidenced in the 2025 U-Haul Growth Index, nearly 70% of our NOI is generated from communities located in seven of the 10 highest in-migration states, and the high cost of home ownership will continue to support department fundamentals. Against this backdrop of improving supply and demand, we see the majority of our markets recovering this year. With that, I will now turn the call over to Jim.

Thank you, Scott, and good morning, everyone. Four FFO per share during the fourth quarter and the full year of 2025 of $0.32 and $1.17 respectively were in line with our guidance. Same-store NOI grew 1.8% in the quarter, driven by a 2% increase in same-store revenue and a 2.4% increase in operating expenses over the prior year. For the year, same-store NOI increased 2.4% based on 1.7% growth in revenues and a 50 basis point increase in operating expenses. We're pleased with our performance this year amidst a difficult environment and ultimately delivering better same-store NOI growth than we originally anticipated. As compared to the prior year period, fourth quarter same-store revenue growth was led by 124 basis point improvement in bad debt over the fourth quarter of 2024, a 60 basis point increase in average effective monthly rents, and partially offset by a 10 basis point decrease in average occupancy. The year-over-year increase in fourth quarter same-store operating expenses was due to higher repairs and maintenance related to a greater volume of turns, the timing of certain projects, and increased contract services related primarily to ancillary services offered to residents that were offset by other income. These cost increases were mitigated by overall lower real estate taxes and insurance costs. For the full year, 2025 same-store revenue growth was led by an 80 basis point increase in average effective monthly rents, a 30 basis point increase in average occupancy, and a 70 basis point improvement in bed debt year over year. Changes to operating expenses in 2025 were modestly higher than in 2024 due to higher advertising and contract service costs, largely offset by lower insurance and real estate taxes. Sequential point-to-point occupancy during the fourth quarter in our same store portfolio was stable at 95.6%. Our strategy of having higher year-end occupancy is supporting the solid start to 2026 leasing, which I'll address momentarily. Rental rate growth in the quarter was in line with our expectations. Newbies tradeouts in the seasonally slower fourth quarter were negative 3.7%. Twenty basis points lower sequentially from the third quarter. Renewal rates increased 30 basis points to 2.9% in the quarter, and resident retention increased another 100 basis points to 61.4%. Regarding leasing so far in 2026, asking rents in our same-store portfolio have increased 73 basis points since December 31st, and new lease tradeouts remain consistent with the fourth quarter. Renewal lease tradeouts in January were 20 basis points higher than in Q4, We are making good progress on our February-March renewals and expect to achieve approximately 3.5% trade-outs for those months. This leasing activity to date is in line with the trajectory of our 1.7% blended effective rental rate growth assumed in our 2026 four-year guidance, which I'll discuss momentarily. Regarding transactions, during the quarter, we sold the 356-unit community that we had held for sale in Louisville for $50 million, reflecting an economic cap rate of 5.2%. Also during the quarter, we entered into a new joint venture in Indianapolis to develop a 318-unit community that is slated for completion during the second half of 2027. Subsequent to the quarter, we purchased a 140-unit community in Columbus for $30 million, which represented an economic cap rate of 5.6%. The community is located two miles from existing IOT communities. We also acquired our JV partners 10% interest in the Tisdale at Lakeline Station in Austin, Texas, and began consolidating this $115 million asset on our balance sheet. The property is fully developed and currently in lease up. We've been busy on the capital markets front as well. During the quarter, we allocated $30 million to buy back 1.9 million of our common shares, at an average price of $16 a share. Additionally, we entered into a new $350 million four-year unsecured term loan. We used the proceeds to repay our $200 million term loan and mortgages that mature later this year. Our balance sheet remains flexible with strong liquidity. As of December 31st, our net debt to adjusted EBITDA ratio was 5.7 times, and we intend to continue improving this ratio to the mid to low five times. Adjusting our four-year stats for the term loan activity I just discussed, we have zero debt maturities between now and 2028. Turning to our outlook for 2026, our markets are in various stages of recovery, driven by receding supply pressures and demand fueled by job growth, continued population, and migration into our markets. In this improving leasing environment, we expect to drive NOI growth by capturing recovery market rents and maintaining our focus on operating efficiencies to keep costs low while providing a well-maintained, safe environment for our residents and their families. We are establishing four-year EPS guidance of between 21 cents and 28 cents per share and core FFO guidance in the range of $1.12 to $1.16 per share. The bridge from our $1.17 starting point of core FFO in 2025 to the $1.14 midpoint of our 2026 guidance includes the following components. A one cent increase from same store NOI growth and a one cent increase in non-same store NOI growth. These two are offset by one cent from lower preferred income from our joint ventures during the year, three cents of higher interest expense caused primarily by lower levels of capitalized interest incremental interest expense from recent acquisitions, and the expiration of our 2026 SOPR swap, and one cent associated with higher corporate costs reflective of inflationary pressures and increased training and development costs for our community teams. Our 2026 guidance assumes same-store NOI increases 80 basis points at the midpoint, driven by 1.7% same-store revenue growth and a 5.1% increase in controllable operating expenses. A 50 basis point increase in non-controllable operating expenses resulting in overall a 3.4% increase in total same store operating expenses for the year. The midpoint of our same store rental revenue growth of 1.7% is based on the following assumptions. Average occupancy of 95.5%, an average increase of 20 basis points from 2025. Bad debt of 90 basis points of revenue, which is approximately 20 basis points lower than 2025. A 5.4% increase in other income, primarily comprised of an incremental revenue from our Wi-Fi program of $5.5 million, which is expected to commence in July 2026. And lastly, a blended effective rent growth of 1.7%. Our blended rental rate growth assumption is comprised of new lease tradeouts of negative 75 basis points and a renewal tradeout of 3.25%, along with a resident retention rate of 60%. As part of our rental rate expectation, we are expecting that market rents will increase approximately 1.5 to 2%. Operating expenses are expected to grow 3.4% at the midpoint, driven by a 5.1% increase in controllable operating expenses and a 50 basis point increase in property tax and insurance expense. The 5.1% increase in controllable operating expenses includes $1.9 million of Wi-Fi contract costs in our contract services line items. Excluding the Wi-Fi costs, our controllable expenses are increasing 3.5%. The 50 basis point increase in non-controllable costs is comprised of a 2.6% increase in real estate taxes and an 11.5% decrease in property insurance costs. Our non-SAMS store portfolio to start 2026 consists of eight communities aggregating 2,541 units. Two of these communities are currently held for sale and are expected to be sold by mid-year. The remaining six communities include two communities that are in lease up, our legacy development deal in Broomfield, Colorado, and our most recent JV acquisition in Austin, Texas. Both of these deals are leasing up, albeit at a slower pace than anticipated and with larger concessions than we previously modeled. We expect both of these communities will reach their targeted NOI just later than expected as rent growth will come once the communities hit a stabilized occupancy. Overall, for 2026, the midpoint of our guidance assumes non-same-store NOI between 25 to 26 million dollars. GNA and property management expense guidance for the full year is 56 million dollars reflected standard inflationary growth and incremental costs associated with expanded training and development of our community teams. We forecast an $8 million increase in interest expense driven primarily by $3 million of higher interest expenses associated with our net acquisitions last year and our two acquisitions earlier this year, $3.9 million of lower expected capitalized interest on development projects, and $1 million associated with hedges burning off.

Scott, back to you. Thanks, Jim. The outlook for 2026 is meaningfully better than 2025. Some headwinds remain in a few markets where supply is still being absorbed, but in all cases, market fundamentals are improving. Demand in our sub markets continues to be driven by population and job growth that exceeded the national average. People continue to migrate to the Sunbelt and Midwest for jobs and quality of life, and the lower cost of renting favors apartment demand. We will maintain our focus on operational stability and efficiency to maximize the flow of revenue growth to the bottom line, and we will remain nimble and disciplined in allocating capital to the highest and best uses to create value for shareholders. We thank you for joining us today, and operator, you can now open the call for questions.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We do request for today's session that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Austin Wershmuth with KeyBank Capital Markets. Your line is now open. Please go ahead.

Hey, good morning, guys. Jim, just curious how the new lease rate growth assumption, 75 basis point decrease this year Does that fully incorporate that you capture the 1.5% to 2% market rent growth? And then can you break out how that 75 basis points is comprised for the first half of the year and then in the back half of the year?

Yeah, great question. Thank you for, Austin, obviously the insight. The 75 basis points of new lease growth obviously starts negative in January, like I kind of mentioned, very consistent with fourth quarter and continues to get better throughout the year. The new lease growth that we've got based on the guidance for the first half of the year is down about 2.25%. And then the second half of the year, it's up roughly 75 basis points, such that for the year, new lease growth is about negative 75 basis points for the year. And that does assume that you capture, I don't know the exact, I can't remember the exact percentage, but a vast majority of that market rent growth.

That's helpful. And then just on the non-same store pool, I mean, can you talk a little bit about, you know, how that stacks up, I guess, you know, versus the same store pool. It sounds like, you know, you've got a little bit of slower growth there from some of the drag on the lease up, but, but is there any conservatism in that figure just based on what you've experienced more recently and just trying to think about, you know, kind of the brackets on upside downside risk for, for that pool of assets. Thanks.

Yes, great question. I'll break it into two components. Obviously, the same-store properties that we bought last – I'm sorry, the non-same-store properties that we bought last year are very much performing kind of in line with our expectations. The two deals that are in development are behind where we want them to be from a lease-up perspective and from, obviously, as I mentioned, a little bit higher concessionary environment. They are both the guidance numbers assume some conservatism in the buildup of that NOI throughout the year, specifically like the deal we bought in Austin or the JV we took over in Austin. You know, our anticipation is that we will probably end up selling that asset maybe later this year and really begin to kind of cut off some of that drag. But again, for guidance purposes, it's assumed that we own it for the whole year.

Understood. Thanks for the time.

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

Great. Thanks for taking the question and good morning. Can you talk about the impact of concessions burning off and what you think that'll do to help your rank growth projections? And if you could provide any more color on, you know, just your confidence in going from the minus two and a quarter to the plus 75, that would be helpful too.

Yeah, no, great. You know, I'll start with the last one. You know, the The new lease trend is obviously very much a function of just asking rent rent throughout the year and then obviously the expiring rents in each month. You know, as I mentioned on the prepared remarks, you know, our asking rents in January are up 75 basis points from where they were at December 31st. As I mentioned earlier, the market rent growth assumption is about one and a half percent. We're halfway there. And obviously, the year has to continue to play out. But we're quite excited to see the strength in the asking rent growth so far this year. When you look at kind of where the asking rents are today versus the expiring rents out month by month throughout the year, you pretty much hit that kind of break-even point, June, July timeframe, and you turn positive on new lease trade-outs in the back half of the year. From a concession standpoint, we do assume lower concessions in the back half of the year. I don't have the exact improvement in my fingertips. I'll get back to you on that one. But I think, ultimately, it does produce better comps for us in terms of the ability to kind of grow that rental rate, specifically on renewals in the back half of the year. But I just want to be clear. There has been some conservatism based into what those renewals are just because we want to make sure we hit them.

Okay. And then I guess just turning to the markets – I think you said most of your markets will be in recovery this year. Can you just talk about like some that, you know, the standouts on both the best markets, you know, that are kind of surprising you to the upside and where you think the drags will be? And then maybe focus specifically on the Midwest markets where you have unique exposure.

Absolutely. So the Midwest, Columbus, Indiana, Kentucky delivered consistent performance throughout 27. We anticipate this to continue in 26 and all signs and starting point indicate that. And all throughout 26 consistent performance. Yeah. Some of our emerging markets, as we say, is Atlanta showing strong fundamentals, delivering 100 basis points in proof and in occupancy and 490 basis point expansion and blended growth from January of 25 to December of 25. So we're positioned to continue this growth and momentum through 26. Nashville has maintained stable occupancy through 25. It created the ability to have pricing power in the second half of the year, delivered a 280 basis point expansion in blended growth from January 25 to December 25. Dallas occupancy remains stable as well through 25, providing consistent foundation. Blended rent growth is showing momentum. As Jenna lit us in, we're excited about the asking rent momentum we're seeing through the start of 26. So there's clear signs that the market inflection is on its way, and we're anticipating the second half to come to fruition in the second half of 26. Raleigh, blended rent growth momentum is building here. Net absorption is projected to be positive in 26, and so we've anticipated to see that inflection point in the second half of 26 as well. Some of the markets that are weaker is Memphis. Memphis is facing a a slower macro growth environment in 26 with jobs and population. However, we're going to remain focused on protecting that occupancy while we, you know, wait for gradual improvement in the fundamentals and fundamentals start to recover. New supply is elevated in Denver and in our sub-markets. Lease-ups are taking a little longer to stabilize, as we mentioned with Flatirons. And concessions are remaining above normalized levels. We believe primarily this is due to timing of deliveries. Our focus in 26 is disciplined occupancy management as the market works through the supply, and we position ourselves for 27.

Okay, great.

Thanks for all that, Keller.

Yeah, Jamie, just a quick follow-up. You know, obviously the market performance, excuse me, and the new lease performance, yes, but they go obviously hand-in-hand. From when you look at 2024 to 2025 and kind of our thinking about 2026 guidance, you know, there is acceleration in new lease trade-offs in eight of our 10 top markets, right? Just to put a finer point on just how excited we are about what we see coming and the acceleration of asking rents and the burn-off of, or excuse me, where the expiring rents are relative to those asking rents.

All right, thank you.

Your next question comes from the line of Eric Wolf with Citi. Please go ahead.

Hey, thanks. You mentioned that market rent growth was up 75 basis points in January from December. Is that a relatively normal increase from December? I'm just trying to put it into context with what you normally see at this time of year and maybe what you've seen over the last couple months.

So it's probably a little bit faster pace than what we would normally see in the call it seasonally slower period of January is slower, though, than what we saw in January of last year. So it gives us confidence that, you know, we're back to, you know, while it's a little bit heavier, a little bit faster pace, it's not as fast or as extreme as it was in January of last year. So it gives us confidence that the asking rent growth, you know, could firm up in this kind of area.

Got it. And then could you talk about how you set your bad debt guidance, maybe how it trended or quarter where you ended the year and what you're expecting in 2026 relative to 2021?

Yeah, great question. For the year of last year, we ended at 110 basis points of revenue. The fourth quarter alone ended at 72 basis points of revenue. For purposes of setting guidance for 2026, we assumed 90 basis points of revenue. Starting a little higher in the first quarter, so call it somewhere in the kind of 100 basis point range and then stepping down to the kind of 80, 70 basis point range in the fourth quarter of 26. Got it.

Thank you.

Next question comes from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

Yeah. Hey, good morning, everyone. Just as a follow-on to the last question, you said last January had stronger growth than this January did. Obviously, last year, that proved to be kind of a head fake. So I guess what gives you confidence that we're not in a similar situation this time?

Yeah, well, the asking rent growth in early January of last year was probably three times as high as it was today. But we also see just a little more stability around the demand picture. We don't see the ebb and flow that we saw in January and February of last year. Okay, got it.

And then you have a couple of assets designated for sale. Do you have a likely use of those proceeds at this point?

We don't have a defined use of proceeds. You know, we obviously assumed in guidance that they are kind of sold in the middle of the year, and we'll use the capital to either acquire something else, deliver, or buy back stock.

Okay, thanks. Your next question comes from the line of Amy Probent with UBS. Please go ahead.

Thanks. I was hoping that you could break down the blended spread forecast into a Sunbelt and Midwestern buckets. And then if you could comment on what impact value has on the blends, that would be great. Thank you.

Value-add impact on the blends, I'll start with that one first. You know, we have obviously a bunch of properties in the value-add program. They do get kind of a nice premium over comps. It is supporting the blends by roughly 70 basis points on the individual units, but for the overall blends, about 20 to 30 basis points of support. In terms of the blended rental rate growth trajectory throughout the year, we expect it to be about 1% in the first half of the year, about 2.5% in the second half of the year. And in terms of looking at kind of the individual market growth between like the Sunbelt markets, the Midwest markets, and Denver. We expect negative overall blended rent growth in Denver throughout the year simply because, as Janice mentioned, the overall supply pressures and kind of what it's expected to do on new lease growth. In terms of the Sunbelt, I'm sorry, in terms of the Midwest, we expect the blends for the full year to be right around kind of 2.5% to 3%. really supporting it. And then the Sun Belt, you're just under 2% funds.

Thanks for that. And then how does the lower supply environment impact your decisions around capital allocation for redevelopment? Do you typically see higher returns on redevelopment in the lower supply environments?

Yes, of course, because the redeveloped units are competing directly with the newer product. So with less newer product, we'll have better pricing power on our renovated units.

Are you able to provide any context how much higher the returns could be?

Well, last year, the return on investment was about 15.3%, and in years prior to all of this supply hitting, we were in the high teens, 18, 19, and in a couple years, even north of 20%.

Great, thank you.

Your next question comes from the line of Omatayo Okazanya with Juche Bank. Please go ahead.

Yes. Good morning, everyone. I was wondering if you could talk a little bit about the same-store OPEX guide for 2026. I think, again, the controllable expenses, you did talk a little bit about the Wi-Fi program having some impact on it, but even extra Wi-Fi is still about 3.5%, which is kind of higher than where you trended recently. So just kind of curious, kind of what else is kind of trending up within that, those controllable expenses?

Yeah, no, great question. I think if you look at the rest of the controllable expenses, the increases are, you know, primarily, the heavier increases that I would say above inflationary primarily are in payroll, and utilities and the other drivers. But again, even as I mentioned on the call, if you're a prepared market, if you remove the cost of the Wi-Fi program, you're still, the controllable expense is only growing about 3.5%. But it's really kind of the payroll and the utilities is pushing it up a little bit.

And then payroll is because you're just hiring more people or you're paying to kind of compete with the market. Just kind of curious what's happening there.

So it's a variety of things. It's primarily, you know, inflationary increases for the team members. It's also increased incentive compensation to drive results are the key drivers. There's also a little bit of, you know, there's some benefits in health care savings in 2025 that are not expected to repeat in 2026. But I think the overall increase in payroll is in the kind of 6% to 7% range, which is almost entirely driven by some of that savings on benefit programs in 2025.

Okay, that's helpful. Then development spend and guidance as well. I mean, you only have one development project left. It's pretty much almost complete. You're already kind of in lease-up mode on that project, but I think you were still kind of forecasting a meaningful amount of development spend in 26. I'm just kind of curious what that pertains to.

We weren't forecasting development spend in 26, but you're right. We did have one final on-balance sheet development called Flatirons, that one was completed and all that development spend has been incurred, so there's not really an expected increased development spend this year. We obviously continue to expect to spend redevelopment money on value-add programs, but not development money.

Gotcha. Okay. That's helpful. And then for sticking with the redevs, what would, for the 2026 guidance, again, get to kind of see the amount of units that are going to probably be up versus 20 but curious what kind of yields are being assumed. Again, just kind of given some of the yield pressure that we've seen in this past year or so.

So I apologize. We'll have to obviously make this your last question so we get to some other analysts. But ultimately on the redev, we did about 2,000 units in 2025. We're planning to do somewhere in the kind of the 2,000 to 2,500 units in 2026. The ROIs that we assumed on the six new properties that we're adding to the redevelopment program are very consistent with kind of historical trends, about 15%, 16%. As Scott mentioned earlier, as the market cycles come back and the supply pressures wane, we should be able to see more pricing power in our redevelopment program and therefore be able to compete more directly with some of the Class A stuff and even generate higher returns.

Thank you.

Thanks. Thanks.

Your next question comes from the line of John Kim with BMO Capital Markets. Please go ahead.

Thank you. Just going to your Flatiron development, it's expected to be a drag this year as you lease up the asset and you're expensing the interest. But where do you see occupancy stabilizing in terms of timing? And then maybe if you could just comment on why it's taken longer to lease up the assets.

Sure. The occupancy forecast, the guidance assumes that we hit occupancy at about 90% in the month of June. That's about a quarter behind expectations and certainly, you know, I wouldn't say fully stabilized yet, but again, 90%. We would want to see 93%, 94%, 95%. But I think the other component of just the drag on earnings is just lower rent growth or lower actual rents for signing, and then just having a little higher concessions. Janice, if you want to add anything, feel free.

Yeah, I think we're seeing the sub-market as a whole in Broomfield. Obviously, there's been an onslaught of supply in that market that kind of all came to at the same time. And so really just working through that fundamental, we're seeing high conversion of the leads that are coming through the door. Cures are strong. And so with that continued momentum, we see that, you know, we're going to hit that stabilized marker.

Okay. And then just going back to your blended guidance, you're expecting, I guess, a pickup in the second half of the year. And that goes against what you've experienced the last few years, where When this lens has peaked in the first half, I understand there's easier comps and concessions, but what other assumptions do you have in terms of the dynamics and getting that improvement later this year?

I think, you know, it's primarily obviously better comps in the back half of the year, right? Just like I mentioned before, a little bit lower, you know, concessionary expectations. We also think just generally speaking, you know, the market rent growth is going to be better in the second half of the year simply because, you know, the supply pressures are less and then all the deliveries that have happened should be leased up by then, really further enhancing the opportunity for pricing power. Okay. Thank you.

Your next question comes from the line of John Pawlowski with Green Street. Please go ahead.

Thanks. Good morning. Jim, it'd be helpful to hear what kind of balance between fixed and floating rate debt you're going to target in the next, well, two to three years as you have a significant amount of swaps or collars expiring, as well as just the duration of debt with maturities in 28, 29. Just would love to hear your strategy in the next couple of years.

Great question. Obviously, we just did this $350 million bank term loan, and we obviously thank all of our banking partners for participating in that. The expectation we had this year was that when all the debt that was maturing this year, we would be hitting the investment grade market, which is why we got the rating a few years ago. Obviously, the investment grade costs are much more expensive today than where a floating rate environment is, and we actually are okay being a little more floating rate in today's environment than trying to fix everything. And we want to be able to enjoy some of that kind of expected either where the SOFR is today relative to treasuries or a potentially declining SOFR curve over the next few months, quarters, again, depending on what the Fed decides to do. For the 2028 maturities, our goal is to be in the investment grade market for some or all of those expirations. you know, when we hit it and how fast we hit it or how sizable the individual bond issuance is. But the goal is to, you know, a lot of those maturities that are going to start happening in 2020 are mortgages. That will improve the unencumbered pool and potentially allow us to, you know, further enhance our rating profile and maybe even securing a better rating.

Okay. That helps. So we should assume, I think, maybe you already took this swap out or it rolled, but About $250 million in swaps maturing this year. We should expect you guys just roll to floating rate debt.

So there's two swaps maturing this year. There's one that's maturing in March of 2026. That was a one-year swap we put in place last year. simply because of just where we saw the interest rate curve for one year and wanting to protect our interest expense during 2025 versus where we saw maybe the interest curve may not be as steep. The actual cuts were going to happen as planned, and we actually thankfully won on that swap from a cash flow perspective. We're not anticipating redoing that swap. We're going to, again, stay floating, and we'll enjoy about a 30 basis point improvement on the underlying SOFR from the 3.9 that we swapped out to the 3.6 that SOFR is today. For the June swap that's maturing of $150 million, we've already put a forward starting swap in place. That swap that's maturing is 2.2%, and we've put a new swap in place that's swapping at 3.25% SOFR.

Okay.

Thanks for all the call out. We're not, at this point, we're not anticipating putting any other swaps in place. That being said, we are watching the interest rate markets like a hawk, and we will continue to do and protect as best we can the interest rate expense going forward. Okay. Thanks.

Your last question comes from the line of Maizen Gale with Baird. Please go ahead.

Hey, good morning, everyone. For your Mustang joint venture property in Dallas, is the call option period open? What are your thoughts on exercising the call option and what is the forward NOI yield?

So, yes, the call option is open. When we look at where that property will trade today or be valued today, it is still at a cap rate that is not our best use of capital to buy it. um so i would anticipate that property being sold uh this year because we can use um that capital uh in in better ways again as jim said through deleveraging and we're buying back our shares better ways relative to owning that asset owning that asset correct great and then um kind of piling on that you repurchase some shares in the quarter can you kind of talk about your thought process for doing so

Sure. Obviously, like us, like a lot of our peers, there is a fundamental disconnect between implied cap rates as well as market cap rates. And we looked at that as a good opportunity to take capital that was or earnings or capital that was from non-EBITDA generating sources and use that capital to buy back stock. Because obviously, if you sell an asset, you lose the EBITDA, you lose the earnings. and we're obviously very much focused on long-term. You know, ever since our start, we've always said we're going to be patient and disciplined, and we're going to continue to be that way. That being said, we did have a lot of capital that came in last year from the sale of one of our joint venture assets as well as the embedded gain that was existing in the forward contracts, and we just took those proceeds and used that to buy back stock in a positive and accretive way for shareholders. Great.

Thank you.

There are no questions at this time. I would now like to turn the call back over to Scott Schaefer, CEO, for closing remarks.

Well, thank you all for joining us this morning. I just want to reiterate how excited we are about 2026 and the forward trajectory that we see for our portfolio. So thanks for joining us, and we look forward to speaking with you next quarter.

Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining and you may now disconnect. Everyone have a great day.