Earnings call transcript Q2 2023

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Operator

Thank you for standing by. My name is Briana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust Second Quarter 2023 Conference Call. [Operator Instructions].

I will now turn the call over to Lauren Torres.

conference. your begin may You

Lauren Torres

Thank you, us XXXX you joining everyone. results. good review Independence morning, to Quarter Thank Realty for and Trust's financial Second

On Operations. Jim Sebra, Schaeffer, Financial Officer; are Daley, me Richards, of Chief the SVP Janice Officer; of EVP People; Executive Mike Scott and Operations and call with Chief today

approximately on be of the at call Today's call our p.m. on telephonically replay webcast XX:XX Relations website at and via today. a webcast our Time is being irtliving.com. Investor website There will Eastern available beginning

results the there Before reflect filings pursuant Scott, cause Please from materially of provisions I good the this turn and information our IRT's to I'd with financial like those the in the our has could to IRT materially statements to statements be what expectations. factors for future accuracy Act Actual are future from refer call current IRT's safe over to made differ Such to Reform of Securities differ remind or forward-looking to substantially everyone may XXXX. could expectations forward-looking and that Private respect on and made statements projected. views with SEC call. harbor affect the These events supplemental that Litigation release, results faith of press performance.

financial supplemental non-GAAP through SEC filings under Form Relations. Participants and other of financial most containing information information attached also IRT's IRT's X-K available measures IRT's direct this to the report available during current a GAAP at this Investor non-GAAP comparable other reconciliation earnings on website is may financial IRT's information, link. are measure the financial discuss press to call. A release and of statistical measures copy

required respect update this law. forward-looking by as not to be statements may does with on IRT described herein, matters except or undertake call to

my the Scott that, With pleasure call to turn to Schaeffer. over it's

Scott Schaeffer

Apartment for we thank months we right are REIT that you our during merger you, and morning. closed. merger the we Steadfast team the since integration transaction a years into all changes with announced lead place now IRT process, since After been the of the in joining X this to Thank future. and have us Lauren, number It's confident XX

second delivered share metrics best be this results, want FFO growth to call. Before X per the This cumulative that I getting the in group across in XXX% can has last public the we also years. apartment IRT share throughout that operating our business quarter various growth growth into with a cover other and improvement over peer seen will large

business delivered, We that are on not we've of returns our and the the plan continue and manner. built a we've execute done, shareholder in proud we business disciplined but to we're

across sequential portfolio drove improvements compared the point operational delivered key a basis second strength on FFO the a X.X% to the second on we delivered last We quarter. XXX growth a to In reflecting of quarter, that growth in improvement Sunbelt quarterly Now NOI core of portfolio occupancy increased resiliency and quarter, markets. XX.X% and results. same-store reflecting and basis, Midwest year-over-year our X.X% the same-store

July same-store XX, at our portfolio reached non-value-add same-store XX.X% XX.X%. of As occupancy our with

rate growth occupancy us of volume half remain our the sustainable and leases submarkets. in continued expect We drive conversion occupancy and the this to year. to Lead strong, rental of in second enables many increases

year-over-year, X second NOI XX.X% from the XX.X% year-over-year, margin performance supporting rental revenue. in to X.X% include: ago. in improved quarter X% metrics key Our average increase a rate years increased up

investment renovated unlevered program, We return half in where second invest our XX%. quarter of through X,XXX XXX we value-add an XXXX, to renovation in of particularly and our first continue in on units the communities, the achieving

and us of expect X,XXX to X,XXX than rate in retention we anticipated, half first With the deliver year XXXX. a resident between and behind now the renovated higher units

confident remains and team in our full trends. quarter, third approach. key continuation paced the our demographic operational the our will Demand leverage that deliver positive remain from migration, to we of employment through year and markets thoughtful targets our on and continue enter we benefit fundamentals and we As favorable,

saw report great to migration of including recent the in other a people of Bank influx first continues, trends pandemic Dallas, the America that as quarter during Orlando cities, cities XXXX Tampa, and reversing. grow that In cities of a Data they not net recent that the Pandemic of of Houston, titled through XXXX. suggests inflow of population these A during number Austin continue by than migration the quarters. largest Charlotte, note large are XXXX saw faster

this notable the we mid-teen during first such markets, presence as isn't has Raleigh-Durham, Columbus our half across Beach. out a markets, key also Myrtle Dallas, Tampa, continued our to and in Sunbelt markets to dynamic and This portfolio, Charlotte strong these the strength in including XXXX limited Midwest and NOI of growth Indianapolis growth. NOI seeing as IRT play achieved are currently having deliver

attractive have benefiting increases shown when average markets from monthly markets recycling these increasing these focused total, job We rent, also while scale conditions warrant. out double-digit capital wages. attractive increasing markets, less and in growth In on in remain of

isn't close To strategic have sense only quarter of an fit IRT's which early footprint with anticipated in rate of the and we we makes sale, held cap expect point, in location sale This one for economic that our a property XXXX the X%. to exit. asset for Illinois, economic to fourth and

sale proceeds Our reduce to be of debt. will use primary

have under development side, properties with Denver. we advancements Lastly, on the our in development made

destination is XX% leased. units at completed community those Arista Our complete now and XX% are

XXXX. our the plan, a X.X% now first we expect to development be and original unlevered cost. are These on yield results We of ahead expect by of quarter this stabilized

XXXX and pleased the of full FFO ranges. EPS midpoints to increase are our year We core guidance

cost further planned improvements, on initiatives structure We leverage. will focused our remain through driving occupancy, technology delivering and further reducing managing value-add

now over Mike. to call like would to I turn the

Mike Daley

Thanks, Scott.

call have and to implementation our increased which overall between improvements XXX% included XX/X led our close improvements capture to on-site As performance training we've have our past improving and Scott occupancy sustainable teams mentioned, the in as expanding center made the and enhancing exchange X group. as a sales completing to our over well information of significant leads, gains. These revenue the operations management program and of communication months,

of occupancy July second which and average improvements targeted rate of performance As to basis same-store quarter the led a line a XX.X%, our increase with XX, to nonvalue-add XX is goal. have point compared in

the occupancy Looking portfolio remains these ahead, QX driving QX with efforts. the our on validating of results today's focus and success across

XXX last year lead-to-lease X.X% our today, conversion XXXX. has points Through basis improved in X% year-to-date from to

in growth the XX% was these of signed, rent-to-income and was ratio QX. leases X.X% average For all new effective lease-over-lease rent

rate renewal resident retention QX and sales enhancements standpoint, has comprehensive This as retention of was our QX XX.X% improvements. is to our our date. for performance in to and increased leasing made part process to a strong attributable XX.X% From to

growth Sales Based excellence at has as on in rent IRT. XXXX sustainable Lease-over-lease been and growth rent and occupancy QX will our pricing X.X%, driver robust be increased renewal renewals to QX to a continue driving X.X% XXXX power. of critical that was in foundation, increased for to occupancy. reflecting prioritize we date

communities. continue high the performance demand about and for middle We market remainder to expect operational XXXX our benefit overall to of for from are our optimistic

are long-term confident performance and in value. to sustainable create We deliver our operating ability

turn Jim. call will over I the that, now to With

James Sebra

update, million higher Thanks, compared million shareholders XXXX, Beginning $X.X of reflective latter was YieldStar available second Mike, amortization and merger. was everyone. performance to morning, related the and $XX.X loss expense which net quarter quarter income of the common with of in to good a our second of to XXXX depreciation

ago. and basis. $XX.X quarter, flow the that NOI a million, year increased the core FFO core organic per to growth grew year-over-year share the second in X.X% During rent growth we $X.XX This experienced a reflects on X.X% to share from quarter and per

month. growth rates driven growth by the growth This led average X.X%, was second monthly IRT in quarter $X,XXX revenue an of to by rental in same-store X.X%. X% increase was per NOI

increased On second the during operating the expense insurance as property same-store services side, operating well expenses. expenses advertising by higher led and IRT as contract quarter, X.X%

continue higher-than-normal to on impact increases. have causing costs, an Inflationary operating pressures

wherever technology help We to the possible. our continue and use teams to contracts to reduce procurement solutions costs read

year, has the teams complexity, savings support to times residents. and with better performance response responsibilities, over existing approximately improved service sales and we community in our generated empowered particular, million centralization the $X.X new reduced services past and our consolidated management effort In This of resident associated annual teams.

across On value-add and an a our the technology business, front, helping resident an initiatives improve portal. vendor in mobile the implementing us services. procurement operational apps teams we maintenance effectiveness and our continue and advance to improved included invest has ERP This for platform,

our optimize continue team ranked where of a We of employees apartment to units we third our closely while improve per at In is there are which stands we IRT employees better as are X.X the work One benchmark, line units and ratio bottom or forward, driving currently residents, our commitment IRT new more our to automation metric guess. just and to growth. specialized key [indiscernible] possible, XXX public costs view structure total reduce roles our technology of lives cost X help teams, drive actively the to day-to-day metrics and to managed, for I peers. of centralize driver Going and that rather X to to out larger than technology innovation movement all but members evaluating value.

peers, us approximately our our second annual compared is which we A and G&A large points public average benchmark in is basis which XX have with of an points. puts as our to line assets, metric gross basis XX

Turning to our balance sheet.

credit As floating had of million. average our additional our $XX X.X unsecured rates $XXX was unrestricted years. weighted of million million nearly our the exposure interest capacity maturity indebtedness facility. approximately is is and of to of liquidity hedges We XX, only total our Today, of X% June and our $XXX position through cash

only second XXXX the remainder the important through our of target only $XX at down to our have our maturities forward year-end million by year-end XXXX the X.X% of of our the X.Xx to million of We debt that EBITDA, lowest from quarter our also expectations of debt. and and debt is expect It to at the year, is XXXX we and peers in public for with of in note maturity occupancy a the maturities we fixes $X XXXX. ended ago, X.Xx in year improvement net achieve leverage still exposure

clear debt-to-EBITDA XXXX. net a by mid-Xx line of also achieve a to We sight target have year-end

and core of EPS share are respect our outlook, per guidance. the year With to midpoint full we XXXX our raising

range $X.XX of guidance midpoint. the is for core increase of per share range $X.XX FFO to of $X.XX and share, per $X.XX a $X.XX a EPS now diluted Our an at to

X.X%. reflects We average XXXX, our occupancy unchanged X.XX% are range half guidance effective increase NOI of revenue of This of at revenue and same-store operational following growth narrowing assumptions net of for X.XX% the and midpoint rental blended a rate the XX.X% same-store of growth of the growth respectively. second X.X%, the with and

for expense guidance with our side, and full year expense expense expenses midpoint our operating of the unchanged the at midpoint. XXXX by is estate X.X%, X.X% tax and operating up On X.X% at up each the total also growth range, insurance real controllable

With more that now in we our our for clarity now certain full increased on taxes, services, inflationary contract now on we year, factoring expense are higher operating repairs real in pressure including and estate and lower insurance maintenance. growth renewed policies the expenses, expenses

rate G&A We guided for and interest property as of million swap previously to full are reflect a place $XX.X expense million down in taking $XXX million down a put $XX midpoint to also of range earlier result expense from in this the to savings versus high the interest the our million, management XXXX. range reorganization reducing midpoint end $XXX.X we previously our of of year. and new the from We're X-year March year

million, While million at to for the we any not increasing the volume up year, our additional are we assuming property that mentioned are volume acquisition disposition earlier. sale midpoint QX in $XXX.X reflect Scott to $XX.X from this still Illinois

that second during million at And XXXX, are of $XX nonrecurring per value-add midpoint expect guided the XXXX. $XX through due earlier we dividend development These and our expenditures This the excess each We recurring this inflationary by of year we and to expect the CapEx our we pressures. of in up from lastly, is still raised of paying million expect million $XX ranges. in in at current previously spend capital to CapEx flow which funded regarding maintenance after cash million CapEx, $XXX XXXX. quarter generate $XX our in quarter, XX%, primarily midpoint, $X.XX million beginning

turn I'll Scott. Scott? to call Now the back

Scott Schaeffer

Thanks, Jim.

for excited look lie half we the ahead the XXXX we're As IRT. second of to beyond, ahead that opportunities and for

remain patient value-add investments and focused will We allocation on our disciplined efforts, in will debt continued reduction be capital in program. which our and

outsized delivering value shareholder and committed shareholders rates fundamentals growth remain well-positioned our driving markets. to in We returning to are capital strong as also while estate real our

with can and us you now for to the again. We to call we speaking thank open look questions. Operator, joining forward you today

Operator

[Operator Instructions].

question first Citi. comes with Wolfe Your from Eric

Eric Wolfe

your in there. X.X% stay on see quarter, half consistent decline you in year. to recent would probably would to of the that you're seasonal that though the mentioned growth You accelerate would Based expecting trends, kind to back a even blended assume remarks spreads fourth the your I normally the of

what going you're see and guess, not year So the this that decline half. gives the you actually I back in that spreads confidence, can accelerate to

James Sebra

Yes. the Eric, it. question. thanks for I appreciate

growth impact rental of that include second the half the X.X% That base has a plus of roughly half growth units does of XXXX. kind just year. additional will guidance X.X% second the blended, X,XXX from net growth effective the deliver Our of an rate basis of coming roughly of additional in value-add XX effective kind rent in average an so base of case points rent this

everyone I'll is the lease-over-lease lease that that out growth X.X% for And October that we're in to the and X% will is to on rent X.X%, range. X%, QX, we growth. remind to loss for then our also help renewals current sending date base to think loss X% the lease and support

level. we -- So definitely that that occupancies now to as progress as well strength normal see as return we just

So be the also grow kind us a we'll back maintain them to of year. part this match little of rents but bit, able through

Eric Wolfe

of you're it, said, That's X.X% the mid-Xs, sort X.X%, year. around just on the full I you growth like blended helpful. sounds And for call of based also sort guess year, that's expecting then averaging just what out it

Given earn-in taking that, with the I just mean, like of XXXX XX% your blend should you be basically entering the for X.X%. around of year. I'm

Just [indiscernible] on curious thoughts XXXX.

James Sebra

early and be a earnings next us Yes. number point little to it. rough you just I put kind can maths approximation would of certainly for this for a But out it, mean certainly, it's it's bit but at year. of do an that

Eric Wolfe

Okay.

So would the approximation around be a like rough X.X there.

James Sebra

Rough.

Operator

next Heffern RBC with Your comes from question Brad Markets. Capital

Bradley Heffern

occupancy in comments, in bucket, occupancy the said to level I the But should You're been back XX% the historically continue know target. prepared that's nonvalue-add you above the rise. also I think

is you're on a you curious, there keeping of I'm that point sort flat at pushing more So the And new will rent maybe level targeting? satisfied be with what side? it occupancy and

Scott Schaeffer

been It's always you between us Brad. question, revenue is the and the growth. this highest Scott, for generate for Thanks as rent occupancy total It's -- to know. a balance

of that You've to confident full say the volume does combined value the leases will little XX% rate of heard me occupancy quarter, add and grow occupancy third me, over which seeing in the we're The occupancy, bit that we're through years will lead for full be on the that to occupancy to the is a the allow for that conversion leads continue but XX%. pressure put with portfolio nonvalue-add whole the range. that

Bradley Heffern

mid-Xs line prepared you 'XX. it. comments the Jim, of your leverage by mentioned year-end Got sight And in Okay. then, on

that a with more there is that peers? the you maybe some point public And new. goal? in profile leverage the in investment-grade getting point? at the also should the are think take line path go to figure ultimately, larger that's order I we choosing as down But Or

James Sebra

mid-Xs, meetings. the a kind bit of that The with in past little we've individual it's Yes. talked a number the about

of right becoming do something we of we we by It grade. against ourselves meetings. is something driven so. is And that's it of on certainly public even kind target the AREIT think think peers, down our we now the grade. just in path And trajectory about while investment larger I comp to investment always go we certainly, have of is it kind of talked as this that our more kind goal

Operator

comes Austin question next Wurschmidt Markets. Capital Your with from KeyBanc

Austin Wurschmidt

rate And and X% I was to value-add across guess, the how of provide half is the I of we assumption from the just then kind of growth renovations. lease back to hoping by caused assets through new of back year July, renewals you volatility new pool detail rate could rate balance some of back half lease lease that some about to XQ growth asking should around rate into, growth. additional in the blended what specifically that on think trended the nonvalue-add into remove X.X% X%

James Sebra

good a it's question. Yes,

we The have continuing kind sorry, occupancy. in continue -- kind presented leases the occupancy. is growth, component of or X These out July, as to in early July generally to X%. of I'm about are small new lease range, on was leases early that on July the kind leases July X The value-add the it half early units portfolio. of value-add data before you non-value the Xs still -- blended it trend still of of the lease focus new for of weeks X.X% are back the to to kind to new of growth, and new given July to as was the the For as had we that -- And driving add sample know, renewals -- it you for kind X% you X units. previous size upper lease up think of blended in in that a lease a that July of X June, as highlighted, weighting going generally percent higher October new definitely X.X% of

Austin Wurschmidt

you the complete then Got driving I value-add what's Okay. then of wasn't of time? XXXX size this in And year? that's in you renovations small renovations at you this highlighted the sort expect No, the And to thinking about sure it. are helpful if downtick detail. how

James Sebra

question. Good Yes.

turn be we X,XXX It the just add. now, know, the renewals, is volume add For of obviously roughly to only value kind just if properties, we've of there's Therefore, right the the you next we X,XXX that units and units. do expectation XXXX. for tenants. for retention our decide through on We'll less renovations folks to as renovation and higher stay units next year continue year. value And still will still can seen

Austin Wurschmidt

for that should that occupancy a broadly improve? what's a segment in in to the returns? just Or just Has slowdown non-value-add. has we guess, the that in with happening today? function and I reramping mean, of I some follow-up now And on piece. markets value-add of your expect been returns

James Sebra

yes. expect occupancies and No, or stabilizing, we to as now rent returns the premiums stabilize definitely the improve

Operator

BMO next Your with John comes Kim question from Markets. Capital

John Kim

Scott, you how with markets. trends on offering you new wondering aggressive longer-term may as any continuing use. that or was being mentioned the as plan more net addressing or strong are your I in migration supply concessions far leases other that practices you potentially

Scott Schaeffer

we relatively John. where We've an rare. been concessions that push. Thanks, bit we some But used little need more it's a of feel targeted occupancy

our As I've really the And B-class nearly you read to past, said units, level about, in not think affect supply might doesn't it generally us a and new speaking, that would. the the you we're And at on are is price construction XX the we're we're and years a better focused much in average of different more that new point rent. on infill as that old to on. lot everyone a communities, in since location our XX

limited affected Class that being Even A $XXX with receiving, renovated below speaking, has that premium even units, are in units supply we're still the not range, But maybe us. the new rents really So the in concessions. a $XXX, generally the renovated targeted used good we're we've a delivered. again, new our

benefit a pricing just point. the from have we So

John Kim

redeploying When you you expect we exited Chicago. IRT sell of And Okay. one where other do And where other conversely, this markets sorry, own asset? see to -- period capital? this can markets only you out market

Scott Schaeffer

appropriate it some We're the dispose are There determining portfolio off constantly limitations. and when assets. looking at is to

penalties. fixed the was they portfolio and rate have with mortgages, first prepayment For example, loans, in Star financed

sell to property. when into to to as We away So large throw prepayments. a we our equation the it's have to don't value want of through give just that appropriate some

on have recognize point, this give we're be But a and an than going the frame. single we're answer time exit. you markets specific constantly that We that that to it I more looking should at some we have at But do can portfolio. I want to concentrated is, don't it

are of in on long use Or continue And when more it we to to will determined be better and better redeploy, would at again time. accretive again, that do the proceeds, where term depending as it far at the as cap delever? rates it Is time. to just be

Operator

Anthony Your from next with comes question Powell Barclays.

Anthony Powell

spreads to go gives to later the I that less What able question to economic you'll traffic, newly to after that spreads, you in confidence October. year, that going X% achieve that up guess those gives you if a what lease on I the you are be higher at uncertainty, looking pricing? the foot confidence guess X% in

James Sebra

Yes.

we've question. The questions, So assumed kind that one of second XX value what X% good the for to as that I units blended The growth renewals of we'll X.X%, rent deliver. out went is at basis for an my add in is Yes. through half value-add growth, currently. plus incremental additional from blended sending the year that that points X% X,XXX the entire October rent earlier base units coming we're of deliver, in we'll

And to today our is lease X%. loss

of So kind we've X% you're okay, really in when this to baked about, renewals, X.X. got you X% achieving think

occupancy a that. confident push and leasing So you the X.X%, year the of only quite lease achieve upper we've season. into part kind season our given the of kind the need back not if heading that -- We strength year-to-date of loss done post to little to feel or on supports Xs really that having

Anthony Powell

one more activity. maybe And on just transaction

You're selling asset Chicago. in

you peers there for in out seeing your are assets some to the of motivated are cap at doing trend past What point? of rates How being in are this terms sellers going few acquisitions. out What by months? Some sale?

Scott Schaeffer

REITs. on When investors, They property, were for Chicago public speaking, Chicago the ask So is number type between generally the smaller bid our transaction and it from, local, transactions. -- or bids. we had to that appears us a still more a gap the not there the of

and additional spread in rates. those volatility We that it close are yet and seeing not more still because actually bid-ask the transactions to transactions come interest make that circle of will full market. confident I'm

would to were you, a I seem Chicago speaking. little very moment. very, our rates, tell generally to X.XX% for X.X% have the we the transaction. We And bit range, in with Cap stabilized happy

Operator

questions further will closing at no to Schaeffer Scott now the this call remarks. time. turn are There back I for

Scott Schaeffer

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

Operator

concludes This today's conference call.

disconnect. may You now

Independence Realty Trust (IRT) 27 Jul 232023 Q2 Earnings call transcript