Independence Realty Trust, Inc. Q3 FY2025 earnings call

Key Points

• Scott Schaeffer: Third quarter results were in line with expectations. Average occupancy remained stable at 95.6%, same-store revenue increased, and bad debt was less than 1% of same-store revenues. Value-add renovations contributed to revenue growth. The company acquired 2 communities in Orlando and had 3 communities held for sale. Market dynamics were competitive but green shoots were emerging in some markets like Atlanta.
• Jim Sebra: Core FFO per share was $0.29, in line with expectations. Same-store NOI grew 2.7%. Occupancy increased 20 basis points, renewal rate was 2.6%, and bad debt improved. The company acquired 2 communities in Orlando, recorded a $12.8 million impairment on a Denver asset, had joint venture activities, and the balance sheet was flexible with a net debt to adjusted EBITDA ratio of 6x.

During the third quarter, average occupancy was 95.6%, a 20 basis point improvement from the second quarter. Resident retention was 60.4%. Same-store revenue increased due to higher average rents per unit and improved bad debt. Value-add renovations contributed to revenue growth, with 788 units completed, achieving an average monthly rent increase of approximately $250 over unrenovated market comps and a 15% weighted average return on investment. The company acquired 2 communities in Orlando for an aggregate purchase price of $155 million, which more than doubled its number of apartment units in Orlando. There were 3 communities held for sale, with one expected to close later in 2025 and the other 2 early in 2026. Same-store operating expenses decreased over the prior year, driven primarily by lower property insurance and turnover costs.

Forward-Looking

• Narrowed ranges on same-store revenue and expense growth while keeping the midpoint unchanged. Reduced acquisition and disposition guidance ranges. The updated acquisition guidance was $215 million, reflecting closed acquisitions to date. The updated disposition guidance was $161 million, reflecting closed dispositions and one expected to close in November. Narrowed the core FFO per share guidance range with the midpoint of $1.175 unchanged.

Risks

• Disconnect between the company's implied cap rate and market cap rates. Supply pressures in some markets such as Raleigh, Dallas, Denver, and Huntsville. Potential extended lease-up periods due to lower supply delivery levels but still needing to factor into future planning.

Q: Brad Heffern asked about how supply pressure feels different now vs earlier and when to expect normal.

A: Janice Richards and Scott Schaeffer responded that supply pressures are waning, CoStar forecasts for 2026 are lower than earlier, and the conversion from leads to leases is improving.

Q: James Feldman asked about forward equity and plans to extend.

A: James Sebra replied that the company can extend the forward equity, with $61 million remaining until March 31, 2026.

Q: James Feldman asked about renewals, loss to lease, and earn-in for 2026.

A: James Sebra stated loss to lease is a gain to lease of about 1.5% and earn-in for 2026 is about 20 basis points.

Q: James Feldman asked about concessions trend.

A: James Sebra and Janice Richards mentioned 23% of leases had concessions in Q3 2025, down from 30% in Q3 2024, with average concession up.

Q: Eric Wolfe asked about appetite for buybacks and spread between stock price and asset sale.

A: Scott Schaeffer said there's a strong appetite for buybacks, balancing buybacks with deleveraging.

Q: John Kim asked about renewals, cap rate on Aurora sale, and Denver market.

A: James Sebra said renewals were in line with expectations, cap rate on Aurora sale not disclosed, and the company is not looking to exit the Denver market.

Q: Austin Wurschmidt asked about supply delivery and lease-up periods.

A: James Sebra stated the company is evaluating extended lease-up periods and deliveries were down significantly in 2025.

Q: Eric Wolfe asked about demand side, labor availability, and tenant behavior.

A: James Sebra and Scott Schaeffer responded demand is healthy, no labor availability issues, and the company is focusing on advertising and tenant behavior shifts.