Independence Realty Trust, Inc. Q2 FY2025 earnings call

• Second quarter same-store NOI and core FFO per share were in line with expectations, with operating expense savings offsetting lower-than-expected revenue growth. Same-store revenues increased 1% over the prior year, renewal leasing was modestly ahead of expectations due to strong retention, bad debt declined, and average occupancy rose modestly, but blended rent growth lagged due to softer market conditions.
• Same-store operating expenses decreased 60 basis points over the prior year quarter, with lower repair and maintenance, turnover costs, real estate taxes, and insurance premium renewal contributing to the improvement.
• Completed 454 value-add renovations during Q2 and 729 total in the first 6 months of the year, achieving a weighted average return on investment of 16.2%. Expect to complete about 650 fewer renovations this year than original goal due to strong retention rates, still a 26% increase over 2024 completions.
• In investment activity, 3 assets were identified to sell during Q4, under contract to acquire 2 communities in Orlando for an aggregate purchase price of $155 million, and the acquisition pipeline remains strong with updated guidance implying an additional $315 million of acquisitions before year-end. Market deliveries are tapering off across the portfolio, with muted supply growth expected in the next few years, setting up for a stronger leasing environment in 2026.

Same-store revenues increased 1% over the prior year. Same-store operating expenses decreased 60 basis points over the prior year quarter. Core FFO per share was $0.28 in the second quarter of 2025, up from $0.27 per share in Q1 2025. Same-store NOI grew 2% in the quarter, driven by a 1% increase in same-store revenue and a 60 basis point decrease in operating expenses over the prior year.

• Revised 2025 same-store portfolio consists of 105 properties. Full year same-store revenue growth is expected to be between 1.5% to 1.9%, a 90 basis point reduction at the midpoint, driven by lower new lease growth but slightly better occupancy. New lease growth for the second half of 2025 is expected to be down 2.7%, resulting in full year new lease growth estimated down 3.4%. Renewal rental increases are still expected to be approximately 3.5% for the year, leading to approximately 50 basis points of blended rent growth.
• Controllable expenses are now estimated to grow by 1.9%, down 190 basis points from the previous midpoint. Noncontrollable expenses for real estate taxes and insurance are expected to decline in 2025 by approximately 40 basis points, down 345 basis points from the previous midpoint. Same-store NOI midpoint growth increased by 5 basis points to 2.1%. Core FFO per share midpoint remains unchanged at $1.175.

• Lingering supply pressures in some markets.
• Macroeconomic uncertainties causing potential residents to be more discerning, pressuring market rents more than anticipated.
• Supply growth in some markets being higher than expected, affecting rent growth and occupancy.
• Potential cherry picking of residents by Class A properties with aggressive concessions, impacting the Class B portfolio.

Q: Austin Wurschmidt asked about revised outlook vs seasonality and month-to-month trends, and traffic/conversions.

A: James J. Sebra explained looking at expiring lease rents vs asking rents, expecting new lease trade-outs to improve from the first half, and seeing good lead and tour volumes.

Q: Eric Wolfe asked about why not seeing big new lease growth with high retention, and confidence in occupancy increase.

A: James J. Sebra said it's due to leases expiring from higher rents signed 2-2.5 years ago, and occupancy in the back half of July moving closer to 95.6% giving confidence.

Q: Brad Heffern asked about common thread in held-for-sale assets and acquisition guidance.

A: James J. Sebra said common thread is higher CapEx load, older vintage; Scott Schaeffer said assets identified, active pipeline.

Q: Jamie Feldman asked about markets moving fastest against expectations and visibility.

A: Janice Richards talked about McKinney, Tampa, Denver having challenges, Charlotte anticipated, and strong markets in Lexington, etc.

Q: Wes Golladay asked about buying JV assets and asset recycling bucket.

A: Scott Schaeffer said no immediate plans for JV assets, and recycling depends on market changes and capital deployment.

Q: Ami Probandt asked about supply trends surprise and single-family rental impact.

A: James J. Sebra said surprise was lingering supply pressure and higher than expected deliveries, single-family rentals not a major factor.

Q: Ann Chan asked about transaction environment bid-ask spreads and growth markets.

A: Scott Schaeffer said bid-ask spreads narrowing, sellers becoming more rational, and Orlando as a growth market with synergies.

Q: Omotayo Okusanya asked about July operating trends, pricing rationality, and impact on Class B portfolio.

A: James J. Sebra said July metrics in line with trajectory, pricing spreads narrowing, and Class A concessions impacting Class B by cherry picking residents.