Independence Realty Trust, Inc. Aktie

Good morning, ladies and gentlemen. Welcome to the Independence Realty Trust and Centerspace joint conference call to discuss the announced merger of the 2 companies. [Operator Instructions] As a reminder, this conference is being recorded.

Your host for today's call is Stephanie Krewson-Kelly, Senior Vice President of Investor Relations and Capital Markets at IRT. You may begin.

Good morning, and thank you for joining us on short notice. On the call today are Scott Schaeffer, Chairman and Chief Executive Officer of Independence Realty Trust; Anne Olson, President and Chief Executive Officer of Centerspace; Jim Sebra, President and CFO of Independence Realty Trust; and Jason Lynch, Senior Vice President of Investments at Independence Realty Trust.

Earlier this morning, IRT and Centerspace issued a joint press release announcing that the 2 companies have entered into a definitive merger agreement. That release and an investor presentation filed with the SEC are available in the Investors section of IRT's website, irtliving.com, and on Centerspace's website at centerspacehomes.com.

A replay of this call will be available on both websites shortly after we conclude.

Before we begin, I would like to remind everyone that statements made on this call may constitute forward-looking statements within the meaning of the federal securities laws and are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the current beliefs, expectations and assumptions of IRT's and Centerspace's management and are subject to business, economic, competitive risks and uncertainties, many of which are difficult to predict and outside of either company's control. Neither IRT nor Centerspace undertakes any obligation to update or supplement any forward-looking statements, except as required by law.

Today's discussion also includes non-GAAP financial measures, including FFO, Core FFO, EBITDA, adjusted EBITDA and net operating income. Definitions of these measures are included in the appendix to today's presentation and the press release, and reconciliations to the most directly comparable GAAP measures are available on each company's SEC filings.

With that, I will turn the call over to Scott Schaeffer.

Thank you, Stephanie, and good morning, everyone. This morning, Independence Realty Trust and Centerspace announced a definitive agreement to combine in an all-stock merger, creating a leading middle-market multifamily REIT with a total enterprise value of approximately $8.1 billion and more than 44,000 apartment homes across 17 states.

Before I discuss the strategic logic, let me say how pleased I am to be joined this morning by Anne Olson. Anne and her team have built an excellent portfolio at Centerspace. And just as importantly, they have built a culture and operating philosophy much like our own. The conversations that brought us here were direct and constructive, and they were grounded in a shared view of where value gets created in this business.

Let me frame why we are doing this and why now in 5 points. First, scale matters in multifamily, and it matters more every year. The combined company will own 163 communities and over 44,000 units in predominantly non-gateway markets across 17 states. Scale improves our access to the capital markets, and over time, our cost of capital. Just as importantly, it lets us spread our institutional operating platform across a much larger base of units. This is how a bigger company becomes a better company rather than simply a larger one.

Second, we achieved better growth without changing who we are. I want to be clear on this point because I expect it to be the first question we get. IRT is and will remain a Sunbelt-weighted company. The Sunbelt represents 58% of pro forma NOI and remains our largest exposure and our primary growth engine. Centerspace's portfolio increases IRT's concentrations in the Midwest and Mountain West regions to 27% and 15% of pro forma NOI, respectively. The Midwest and Mountain West markets have historically delivered NOI growth above the U.S. average with less volatility.

Over the period from 2017 through 2025, IRT and Centerspace together delivered weighted average same-store NOI growth of 5.7% a year, above both our non-gateway peers at 4.2% and gateway peers at 2.3%, and it did so with a narrower band of outcomes through the cycle. This is the case for a better risk-adjusted portfolio, a high-growth Sunbelt core paired with lower volatility Midwest and Mountain West markets. Roughly 80% of our pro forma NOI comes from markets that rank in the top quartile for projected population growth, and no single market accounts for more than 11% of our pro forma NOI.

Third, the supply picture is turning in our favor. Across the combined footprint, new deliveries are set to decline through 2029, while population growth continues to outpace the national average. In the Greater Denver MSA, CoStar projects rent growth turning positive this year. Deliveries in the Denver Front Range are expected to fall from 6.7% of inventory in 2024 to approximately 2.8% by 2027 against population growth that is projected to be twice the national average over the next 5 years.

Minneapolis has one of the lowest supply pipelines of any market we track with deliveries expected to fall from 3.8% in 2024 to 1.3% in 2027. Much like Denver, Minneapolis' population growth is expected to be almost twice the national average over the next 5 years. We are not underwriting recovery that has to be imagined. We are seeing it in the data today.

Fourth, we gain a bigger opportunity set for our proven platform. The near-term synergies from this merger are tangible. The reason this combination improves our long-term growth rate rather than just their size is because it provides a longer, broader runway for the 2 internal growth engines we have built, namely our value-add renovation program and our other income initiatives, including our community WiFi program that we began implementing this year. Both drivers are scalable, are funded with free cash flow and now have several thousand additional units to work with. Jim will take you through the economics shortly.

Fifth, we have done this before. In 2015, we acquired Trade Street Residential on a cash and stock transaction that added scale across our regional Sunbelt markets. Then, in 2021, we more than doubled the size of this company through the Steadfast Apartment REIT merger. We integrated into a single operating platform within months of closing, and we exceeded the synergy and accretion targets that we had set at announcement. This is the same management team running the same playbook, and this transaction is roughly 1/4 of our current size rather than doubling of it. Our track record of successfully integrating companies does not eliminate execution risk, but it does mean we know the cadence of how and what to do.

Upon closing, I will continue as Chairman and Chief Executive Officer, and Jim Sebra will serve as President and Chief Financial Officer. Our Board will expand to 11 directors, 9 from IRT and 2 from Centerspace. The combined company will retain the Independence Realty Trust name and will continue to trade on the New York Stock Exchange under the ticker IRT. We will have more to say on organizational structure as we work through the integration planning between now and closing.

And with that, I'll turn the call over to Anne.

Thank you, Scott, and good morning, everyone. Our Board and management team are pleased to be working with IRT on this transformative transaction that is in the best interest of all of our stakeholders. At Centerspace, we've worked to scale our business in strong growing markets while seeking enhancement to our balance sheet. This merger significantly advances that strategy. The company will now have scale and benefits that benefits the operating platform, and the cost of capital will further diversify the market exposure and will have an improved leverage profile.

I'm confident that IRT's commitment to residents and stakeholders reflects our own. I want to give a special thanks to the Centerspace team. I'm very proud of what our team has accomplished, and I'm confident that IRT's leadership will further our commitment to providing great homes for our residents, opportunities for our team members and returns for our shareholders.

With that, Jim is ready to walk through the financial impacts.

Thank you, Anne, and good morning, everyone. I'm going to go over the structure and consideration of this transaction, the earnings impact and synergies, the balance sheet, and lastly, the growth upside beyond the near-term synergies.

Centerspace will combine with IRT in a 100% stock-for-stock merger. Each Centerspace common share and limited operating partnership unit will convert into 3.8 shares or units of IRT, resulting in the issuance of approximately 67.6 million IRT shares and OP units. On a fully diluted basis, IRT shareholders will own approximately 78% of the combined company and Centerspace shareholders will own approximately 22%. The transaction is expected to qualify as a tax-free reorganization for U.S. federal income tax purposes.

Pro forma, the combined company will have an equity market capitalization of approximately $5 billion and a total enterprise value of approximately $8.1 billion. On earnings and synergies, we expect the transaction to be approximately 5% accretive to 2027 Core FFO per share on a leverage-neutral basis.

Supporting our accretion is approximately $24 million of identified annualized synergies, roughly $19 million of that comes from corporate, general and administrative overlap. The remaining synergies come from property level and platform efficiencies, as we move on to a single operating system and near-term incremental revenue opportunities. The vast majority of these synergies will be achieved within the first 12 months of closing.

One data point that frames the efficiency gain. On a pro forma basis, G&A load as a percentage of assets falls to 37 basis points for the combined company. That is a 24% reduction versus IRT stand-alone and a 57% reduction versus Centerspace stand-alone. It places the combined company well below the REIT sector average of 61 basis points and in line with some of our larger multifamily peers.

When we merged Steadfast back in 2021 and Trade Street in 2015, we established synergy targets at announcement and ultimately exceeded them both of those transactions. We have used the same ground-up approach here. And as always, we will work to capture additional synergies and efficiencies beyond those announced as the integration process develops.

Regarding our balance sheet, we expect the combined company to maintain our current BBB investment-grade rating from both Fitch and S&P with a well-laddered maturity profile and minimal near-term maturities. In connection with closing, we plan to repay Centerspace's outstanding unsecured notes and to assume secured debt of approximately $500 million. The average interest rate on this debt is 3.5%. Centerspace does have 1 mortgage maturing on January 1, 2027, and we are not anticipating it will be assumed and instead expected to be repaid on or before closing. The average remaining term of the planned assumptions is 10 years. To delever the combined balance sheet and have the transaction be leverage neutral, we are planning to sell approximately $140 million of assets and have modeled the dispositions at a 5.75% economic cap rate.

IRT expects to maintain its quarterly dividend of $0.18 per share following closing. Centerspace will continue to pay its regularly quarterly dividends of $0.77 per share, except in the quarter which the closing occurs, in which Centerspace will declare and pay a stub cash dividend of $0.09 per share for the number of days elapsed in the quarter prior to closing.

Before handing the call back to Scott, let me discuss the growth upside beyond the immediate synergies. The $24 million of synergies is the near-term highly visible piece of the story. It is not the whole story. The reason we can say that this transaction improves our growth profile is what the larger platform does for 2 internal growth engines that we can fund out of free cash flow. First is the value-add. We have renovated approximately 12,500 units to date at IRT, generating a return on investment of 16%.

Coming into this transaction, our remaining identified pipeline within IRT is approximately 10,000 units. Centerspace brings approximately 3,200 more units, taking the combined runway to roughly 13,200 units. Those Centerspace assets are predominantly in undersupplied markets where rent growth is inflecting, which is precisely the environment in which renovation capital is most productive. This incremental volume adds additional years to the existing value-add runway at IRT.

The second is our community WiFi program. We launched our community WiFi program this year, covering approximately 18,000 apartment units, which are on track to generate approximately $11 million of incremental annualized revenue in 2027. This recurring high-margin other property revenue is also better for residents to manage bulk deliver Internet at a lower cost than they can buy individually.

Looking ahead to future WiFi rollout, the additional runway is now approximately 25,000 units, roughly 15,000 units from the legacy IRT portfolio and now approximately 10,000 units from Centerspace. Both the value-add and WiFi opportunity will build over the next few years, and we expect it to enhance our returns over the longer term. Both are high-return, low-risk sources of growth, and they are funded entirely out of retained cash flow. Both Boards have unanimously approved the transaction. We expect to close as early as the end of the fourth quarter of 2026, subject to shareholder approval, timing of some lender consents and other customary closing conditions.

With that, Scott, I'll hand it back to you.

Thank you, Jim. This merger significantly enhances our scale and diversification and delivers immediate earnings accretion on a leverage-neutral basis while preserving balance sheet strength. Since our IPO, IRT's total shareholder return has outperformed our non-gateway peers. We did not get here by growing for growth's sake. We got here by owning the right assets in the right submarkets and running them well. This transaction is consistent with our core strategy, and I believe it puts us in a stronger position to continue generating attractive risk-adjusted returns for our shareholders.

I want to thank Anne and the Centerspace team for their professionalism they have brought to this process, and I want to thank our team for their continued hard work and dedication to our residents and shareholders.

With that, operator, we are ready to take questions.

[Operator Instructions] Your first question comes from the line of Eric Wolfe with Citi.

It's Nick Joseph here with Eric. Scott, we talked about why scale matters. Do you have a sense for how much of the portfolio you could ultimately end up selling? I think you'll have 22% of your NOI across 15 markets and around 30 markets in total. So what do you think that looks like in 2 to 3 years? And you touched on this a bit, but why does it make sense to lower your Sunbelt market exposure at a time when these markets are starting to recover?

Nick, I think it's -- yes, you're right. Your voice is a little muffled, but if I can restate the question, you're basically asking us how much of the Centerspace portfolio do you think will sell over the next few years because, again, the view of the Sunbelt reinflecting versus the Midwest. Is that right?

Yes. Just how much total you may sell and then the strategic rationale of why lower the exposure to the Sunbelt right now as you're starting to see this inflect more positively.

Again, Nick, it's really hard to hear you. But ultimately, here's what I'll say. Scott had mentioned in his prepared remarks regarding the strategic rationale. And Scott, maybe you want to kind of chime in again on that. Obviously, the portfolio of Centerspace is located primarily in Minneapolis and Denver. Those markets, especially in Minneapolis, have been very kind of stable and low volatility in rent growth. And if you look at kind of the data sources, there's actually a fairly robust rent growth trajectory over the next few years, all at lower volatility. And as we also mentioned in my prepared remarks, just that incremental growth from both value-add and WiFi continues to provide that earnings growth trajectory down the future and only enhances the overall growth that's going to be flowing off the Sunbelt portfolio in the next few years.

But Scott, feel free to chime in.

No, I think you covered it, Jim.

This is Eric. Just a follow-up on Nick's question. I guess, how much of the -- are you assuming to sell to get to the 5% accretion estimate? I know you mentioned $140 million in your prepared remarks and then also in the presentation. But I guess if you end up selling more than that, and I think Centerspace was planning on selling more than that based on the sort of most recent presentations, I guess, could that eat into that 5% accretion estimate? Are you confident that you're only going to sell, say, around $140 million or something around there?

Yes. We're very confident that we'll only be -- we'll only sell the $140 million. Obviously, we've had a very robust and consistent capital recycling program at IRT for years, and we've always done it on an earnings neutral/earnings accretive situation. And if we do decide to sell other assets down the road, which currently are not planned for, we think it will only be beneficial to the combined portfolio down the road.

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

Can you talk a little bit more about your experience with Steadfast and Trade Street? I think some of the incoming commentary from the Street is just concerns about integration risk and execution risk on this transaction. Maybe talk more about what does give you the confidence that this will -- you'll be able to stick the landing and things will go smoothly?

Sure. Thanks for the question. This is Scott Schaeffer. First of all, the Steadfast merger integration was with a much larger company that also had tremendous overlap of the portfolio geography. That caused a little bit of friction at times because we were working through which employees and which markets were going to continue with the combined portfolio. The situation here is much different. First of all, Centerspace is much smaller. It's about 1/4 of our size rather than more than doubling it. And the markets are completely independent other than some small overlap in Colorado. So the integration here will be more of back-office systems rather than people. And the integration of the people is where you end up having most friction.

Okay. And then, you'll have a lot of markets that are kind of 3%, 4% or less. I think it's almost like 2/3 of the portfolio spread pretty widely across the country. I mean, just in terms of like operations post transaction, how do you plan to manage that? Do you think you're going to want to beef up any of your markets to have more scale? Or are you happy with like this 3% to 4% in a lot of markets type portfolio? And just -- you said it's a people business, but that's a lot of people in a lot of places. Can you just talk more about that?

Sure. We're happy with 3% to 4%. We -- as we talked about this, and we had in our prepared remarks that no market is more than 11%, which is good diversification. But even at 3% or 4%, there's enough concentration that we can keep good teams in place and manage the properties well. We are always looking to recycle when appropriate. So that's something that we've done in the past, and we will continue to look at that going forward. But at this point, we're happy with the markets, and we're happy with the communities. And we think that post integration, the accretion targets are well within reach.

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

Jim, are you able to put some brackets around the upfront transaction costs we should expect you guys to incur?

Yes. Right now, it's modeled to be about 3.5% of the transaction value, which is just over $2 billion.

Okay. And then just curious for high-level thoughts how you guys got comfortable with some of these, I guess, more secondary or tertiary markets in Montana, North Dakota, even some assets well outside of Denver. Are you concerned that these markets will just run at a little bit of lower long-term growth rate that's going to dilute the long-term organic growth profile of IRT's portfolio?

No. Actually, it's a great question because it was something that we looked at very, very, very early on in this process. And the way we got comfortable was is that all of these markets are very, very low supply. There's just nothing being built. There's nothing being added while there is some population growth, which is what's going to drive good stable occupancy and ultimately rent growth. So while they not -- they may not be as dynamic as some other markets in the country, there's low volatility and really no additions to supply. So these communities have performed well and will continue to perform well.

And Anne, please feel free to jump in, and you've managed these for years, so you may have some more color.

Yes, sure. I think some of these markets are small, North Dakota, Billings. But even we are public, you could look at the history there. In those markets, we have seen steady growth and particularly through these times where there have been significant supply influxes across the Sunbelt and in markets like Denver and even on the coast. Markets like North Dakota have been consistently growing 5% to 7%. So -- and we see that in the good times, but we also see that hold. So I do think that the combination of this portfolio, which will have the very strong growth narrative and fundamentals with the Sunbelt markets and Denver turning the corner, coupled with this really steady pace of these lower volatility and lower supply markets, it's a very strong combination and should produce very good results for the shareholders.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So when I started reading the press release, I saw synergies, and it started to read a little bit like a merger of equals. I know it's not. But Centerspace has been through its process and landed on asset sales in June, and now, we're here. I'm wondering if I were to write the proxy for you, did EQR, AvalonBay give you any cues into how to make this combination work? And how did it come to fruition after CSR went through its process? Now this merger happens. I'm just curious if the Chapter 2 of the conversation came with a few hints from EQR, AvalonBay?

Yes. Rich, this is Jim Sebra. Obviously, nice to meet you, and we appreciate your time. And certainly, Anne or Scott, feel free to chime in. But when it comes to like the background of the merger, we will be filing an S-4 proxy most likely later this month, and that will detail all those points that will provide a lot more color in terms of the background of the transaction and kind of where it came from.

Okay. Fair enough. And then on the asset sales, are there any exit markets, you might have said it, if I did -- if you did, I apologize. Are there any exit markets in that $140 million? And as a subset to that question, what do you mean by complementary markets when you say we're Sunbelt, they're Midwest, Mountain West? What defines complementary to you? Just the fact that you don't have overlap, is that what you mean by that?

Yes, generally. And that the Midwest is much more stable and less volatility, while the Sunbelt seems to be higher growth, but also a little more volatile. So that's why they're complementary. It brings growth with additional stability to the existing IRT portfolio.

Yes, the exit markets. We haven't announced anything specific on the actual assets to be sold, but we'll be working on that over the next few months as we kind of get ready for closing.

Your next question comes from the line of Ami Probandt with UBS.

Do you still expect to be paying a special dividend to distribute proceeds from the Centerspace strategic review?

Thanks, Ami. Great to chat with you. And Anne, feel free to kind of chime in. But I think what I would say is that the Centerspace process around kind of identifying REIT taxable income, estimating it for the year, looking at the impact of this transaction on it, all of that is still kind of ongoing. And we'll be revisiting that as we get ready for closing. We'll be able to kind of announce and share with shareholders on the third quarter call, the expectation.

But Anne, feel free to chime in.

No, I think that covers it, Ami. We had some expectations of the requirement and gave some estimates around that and held that cash on hand, but those estimates are still under review what would be required or may not be required. And this merger and the impact of that certainly may impact it. So as Jim said, we'll be reviewing that, and we'll obviously update as we have more information.

Got it. And maybe I'll ask Richard...

Ami, you cut out.

Ami has cut out. We will move up to the next question from the line of Alexander Goldfarb with Piper Sandler.

Two questions. The first one is, you guys give a lot of praise to the Midwest. And for those of us who have covered Centerspace for a while, it's been pretty clear that their markets were underappreciated. But you guys are hyping them in a way that's good to hear and yet you're still saying that your focus is going to be more Sunbelt, which has been prone to a lot of supply and a lot more volatility. Why wouldn't you look to increase some of the Midwest or certainly look at other Midwestern markets that have low supply, good economic growth, more stability? Why wouldn't increasing some of that? I'm not saying overweight it, but why not increasing it? Why wouldn't that be a good thing?

Well, we are increasing our Midwest exposure with this transaction. When you look at the results over an extended period of time, the Sunbelt has consistently outperformed, and we expect it to outperform again in the future, or going forward, I should say. We've come through a significant supply wave, and that has come to an end. And now the Sunbelt will be -- will have much better supply-demand dynamics, strong population job growth with limited additions to supply over the next 3 to 4 years. That's a great runway for above-market growth.

We're hyping the Midwest because the Midwest -- first of all, we already have an exposure to the Midwest. It has performed very, very well with low volatility, and we expect it to continue to perform well with low volatility, but it will not be as dynamic as the Sunbelt going forward in our view.

Okay. And then the second question is on the 5% earnings accretion to Core '27, you mentioned Centerspace, which has really low cost of debt, 3.6%. Is that 5% adjusted for GAAP mark-to-market of debt and everything else? Or is that sort of a cash 5%, whereas the GAAP number would be different?

Yes, that's a cash 5%. The GAAP number, again, because interest rates today are higher, would actually be a lower accretion. What we did with the Steadfast merger many years ago, it was actually the opposite, right, with the cash interest or the cash accretion was lower and the GAAP accretion was more. From an FFO and Core FFO perspective, we focus on the cash accretion.

But you think -- is it still accretive on a GAAP basis?

It is, yes.

Your next question comes from the line of Peter Abramowitz with Deutsche Bank.

Just in terms of the cost synergies that you've talked about, can you talk about the timing of when they're all expected to be in place?

Sure. So as I mentioned in my prepared remarks, obviously, there's some initial kind of G&A synergies that really should be in place pretty quickly after closing. Again, it's a lot of the back office overlap, et cetera. There is certainly the operating synergies. Some of those synergies come from things that should be very easy to achieve, like moving from one insurance policy to the other insurance policy, our procurement team and how we do buy stuff as well as obviously larger scale allows us to buy things even cheaper. There's some incremental revenue opportunities on like renters insurance and other things that takes a little bit of time just as the leases roll, but they are relatively small pieces of the overall synergy number.

Okay. I appreciate that. And then I know you included, I think, a footnote or something in the earnings release that there is some small opportunity for synergies on the revenue side. Could you talk about maybe some of the opportunities there, if there's upside down the road? And then also in terms of the value-add pipeline, are there any efficiencies in terms of the opportunity to enhance returns or anything like that?

Well, I think I'll take the second piece first, right? Certainly, on the value-add side, there's always opportunity to get better at what we do. And here at IRT, we -- and I believe Centerspace in the same way, we've always tried to do that. So sure. We'll always look at -- again, we're able to buy a set of appliances across 32,000 units or 34,000, and we'll be able to buy for 44,000 units. So we think that will certainly provide a little bit lower cost and enhanced returns.

I think on the other revenue side and the synergies, again, from the standpoint of that $5 million of operating synergies, the vast majority of those are primarily kind of on the expense side. There is a little bit of incremental revenue opportunities that we've modeled, things like I mentioned before, like renters insurance, et cetera. We think there is certainly some additional upside. We've talked a lot about kind of our data science efforts earlier this year and how that's kind of improving our renewal growth or renewal kind of increases. We think there's outside opportunity.

The Centerspace team has done a good job of managing the portfolio, and we're looking forward to just kind of bringing the best of both of our portfolios and processes together to really gain or capture as much of these synergies and efficiencies as we can.

Your next question comes from the line of Michael Gorman with U.S. Bancorp BTIG.

Jim, maybe just a quick cleanup question. I thought I heard you say in the prepared remarks that you're going to repay the unsecured notes for CSR upon closing. And so did I hear that correctly? And if so, I'm kind of curious about the thought process there given that it's a relatively low coupon -- relatively low coupon set of notes that are outstanding for 2030.

Yes. We expect -- again, because of the transaction occurring, we expect they will be, I won't say, put to us, but we expect that the transaction will require them to be paid off. That's why we model them. Certainly, if we're able to keep them outstanding such that we can lower our overall cost of debt, for sure, but we will still do it on a leverage-neutral basis.

Okay. That's helpful. And then maybe just looking at the synergies, if I'm doing my math right, if the synergy target is kind of 6.5%, 7% of 2026 consensus, so when you think about getting from there to the 5% accretion in 2027, is that primarily just going towards the timing of those synergies coming online in 2027? Or are there other headwinds there that may bring that back to 5%?

Yes, sure. No, great question. A couple of things. One, we've modeled it. If you look at 2026, obviously, Centerspace has had some assets outstanding that they've owned throughout the earlier part of the year that they sold, and obviously, is kind of increasing their, call it, earnings this year that won't be there next year. So you got to remove that.

Secondly, certainly, there's a timing element of the synergies on when they come in, in terms of 2027.

And then third, we've modeled that from an accretion perspective that the preferred shares are fully dilutive. So we took a worst-case scenario around them because those preferred shares can be put to us. It's very low-cost preferred, I think 3.8% or 3.9% cost. If they stay outstanding and they don't convert, then that will be more accretion from just a logical percentage perspective.

Your next question comes from the line of Wes Golladay with Baird.

Can you talk about how you got comfortable with picking up exposure to so many new markets? Were you looking at some of these markets already?

So yes, we have been looking at some of them. But again, through this process, we were able to just get comfortable with the actual makeup of the portfolio, the market dynamics and the good job that Centerspace has done over a number of years of managing them and generating NOI growth. So they are -- some of them are new markets for us. But in many instances, they're similar to markets we're already in, just in different parts of the country. There's good people in place on site. We expect to keep most, if not all of them. So we will just be moving forward, as Jim said, with the best of both companies' processes and strategies.

Okay. And maybe building upon that last point, you talked about keeping a lot of the people. So that doesn't seem to be an issue on the integration point. Can you maybe talk about how the operating platforms? Should they -- are they on similar platforms right now from the revenue management perspective?

So I mean they -- and certainly, Anne, you can certainly feel free to chime in. They run, call it, the operational platform relatively similar to us in terms of regional structures and district managers and a centralized support team on various kind of growth processes. They do run, obviously, a revenue algorithm that will come over to our revenue algorithm upon the integration process. But I would just say largely, the real benefit to moving forward with the synergies is to kind of, again, get the both -- get the best of both companies from the standpoint of the process and how we're structured.

We don't expect it to really have any significant differences from our structure today except that we'll be able to kind of bring a lot of the data science and analytic work that we've done to really help us into the platform and really provide, again, that incremental outsized growth that we're talking about.

And when I speak about employees or team members, I'm speaking about on-site people.

Your next question comes from the line of Jason Wayne with Barclays.

Just looking at the 6,000 units in the medium- to long-term CSR WiFi pipeline, can you just help quantify the earnings opportunity there and over what time frame those can be realized?

Yes. We know that there's -- of the 10,000 units today, there's plus or minus 3,000 to 4,000 that are available to kind of move into the WiFi program immediately because, again, the terms of the existing contracts with bulk Internet are either out of contract or coming to a very close period of time. The 6,000, I believe, will start in the next few years once they -- again, individual properties get to that window of time. Generally speaking, the Internet service providers won't really allow you to kind of amend the contract until they're within 2 years of the termination date. So we have to get to that period of time.

Now again, we will obviously work with all the providers and et cetera. But largely speaking, we expect the revenue benefits to be very similar to what we've modeled and have been performing at IRT, anywhere from, call it, $60 to $70 of incremental revenue per month per unit, and the cost to be somewhere in that kind of $25 to $35 per month.

Got it. And then just on the value-add. So you mentioned that it's historically generated 16% returns, but those vary a bit by market and by project. So on the 10,000 CSR units you identified for value-add, are there any meaningful differences from the IRT portfolio or anything different by market there?

A little hard to hear that, but I think your question was really any differences between the Centerspace kind of return versus ours?

On value-add...

In terms of value-add.

Yes. That's right.

Yes. No, I think generally speaking, again, the -- a lot of their renovation programs are very similar to ours in terms of what they do and the returns they get. There is the opportunity for us on a few of the ones that we've underwritten where the value-add lift from a cost perspective isn't as great as what we've historically seen, which might provide a little more return. But again, as we continue down the integration path, we'll be able to update the investors with all this information. Just as a clarity, though, is like the value-add and the WiFi is not in the 5% accretion. So that is upside growth on top of that baseline 5% accretion.

The final question comes from the line of Jamie Feldman with Wells Fargo.

Just a couple of cleanup questions. I guess going back to Alex's question on GAAP versus cash, can you -- what is the GAAP -- I assume that means FFO growth for GAAP, like what is the accretion expected on FFO or GAAP?

Well, again, the FFO, again, will be probably very similar to the GAAP number. I think it's -- I'll get back to you, but I believe it's about roughly 3% accretive on a GAAP basis.

3%, and that's with all the synergies you're talking about?

That's all the synergies, and just, again, basically market interest rates of all the debt that we're assuming.

Okay. And then the $140 million, are those transactions in process? Or are those earmarked for sale and going to be marketed soon? Are those transactions maybe CSR had in process? And then are they specific markets that you can talk about?

No, they're not in process. And again, as we provide -- as we kind of nail it down and begin to communicate, we'll have more information specifically on the third call around it, third quarter earnings call.

Okay. And then if I can just -- it sounds like I'm last, if I could just sneak in another. So just -- I think one of the first comments you made when the call started was just the relative growth rate kind of pre and post with or without the transaction. Can you just give some color on like the same-store NOI or even the blend outlook over the next 12 months for stand-alone IRT versus the combined entity so even if you want to go longer than 12 months?

Well, you were limited to 1 question and 1 follow-up, but you snuck a third one in. No, unfortunately, we can't speak to that. We're obviously in the process of doing our budgets for next year. CSR is beginning their budget process. They haven't given guidance. So no, we're not prepared to talk on that at the very moment.

Okay. And then, is $45 million a break fee from the document published this morning?

Yes. The break fee is $45 million for Centerspace and $60 million for IRT.

We have reached the end of the Q&A session. I will now turn the call back to IRT's Chairman and CEO, Scott Schaeffer, for closing remarks.

Well, thank you all for joining us this morning. We're excited about the future and look forward to working through the process and the integration. So I hope everyone has a good rest of the day. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Independence Realty Trust's Second Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded, and the replay will be available on the Investors section of the company's website shortly after this call concludes. At this time, I will turn the call over to Stephanie Krewson-Kelly, Senior Vice President of Investor Relations. Ms. Krewson-Kelly, please go ahead.

Thank you. Good morning, and welcome to Independence Realty Trust conference call to discuss second quarter 2026 results. On the call with me today are Scott Schaeffer, Chairman and Chief Executive Officer; Jim Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President of Revenue Strategy; and Jason Lynch, Senior Vice President of Investments. Before we begin, please note that any forward-looking statements made during this call are 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, 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 8-K 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 Schaeffer.

Thanks, Stephanie, and thank you all for joining us this morning. I am pleased to report that operating momentum is building across our portfolio as market conditions continue to improve. As our results demonstrate, rental rate growth has improved throughout the year, driving a 120 basis point sequential improvement in new lease rates during the second quarter with further improvement in July. Additionally, as of today, with 65% of new lease activity completed for the month of August, new lease spreads for like-kind leases are slightly positive.

The consistent upward trajectory in leasing spreads is a clear signal that our markets are in recovery, which when combined with the new WiFi revenue stream that we have established, supports our confidence in our guidance for same-store revenue growth. As expected, the volume of new deliveries has declined in our markets and macroeconomic drivers of demand continue to outpace national averages. Recent employment data continues to highlight health care as the primary driver of national job gains over the past year. This is visible across our footprint. Education and health care employment grew faster than total employment in every one of our 10 largest markets over the trailing year, aligning with our residents' income profile. People continue to relocate to the Sunbelt and Midwest markets for employment opportunities and quality of life. The high cost of homeownership continues to support rental demand and IRT's value proposition, namely larger apartment units, good school districts, proximity to essential retail and employment centers with monthly rents that are meaningfully less than new construction continues to attract and retain residents. Bearing this point, the steady improvement in market conditions has resulted in greater lead generation volumes over last year and a decrease in concession use. Importantly, overall market occupancies across our portfolio have generally reached levels that support market-wide rent growth.

The combination of durable demand, rising market rents and normalizing concessions has driven sequential improvement in rental rates that I mentioned earlier. New lease trade-outs for like-term leases at our Midwest communities were positive 2.3% in the second quarter and a positive 2.1% in July. New lease spreads at our Sunbelt communities were a negative 3.8% in the second quarter and improved 180 basis points in July. And in the West, new lease trade-outs were a negative 3.2% in the second quarter and improved 340 basis points to a positive 20 basis points in July. Taken together, net effective rental rate growth in our markets is gaining steam. With the recovery that is upon us, rent premiums from our value-add activity will also increase. Because we perform a full repositioning of the apartment community, our renovated properties successfully compete with newer Class A properties by offering modern interiors and attractive on-site amenities at a lower price point than new construction while delivering a mid- to upper teens return on investment.

Our approach to value-add renovations enables us to capture an immediate rent premium and benefit longer term from lower repairs and maintenance and turn costs. The higher rents and lower operating costs realized on renovated units has expanded our NOI margins and boosted same-store NOI by more than 20% annually. Additionally, over the past 2 years, we have significantly decreased the time it takes to renovate units such that moving forward, we can increase the volume of value-add renovations without impacting occupancy, further benefiting future NOI growth.

Lastly, as I referenced at the beginning of my remarks, during the quarter, we successfully completed the initial phase of our community WiFi initiative ahead of schedule. This new revenue stream not only supports our outlook for same-store revenue growth this year, but will also contribute at least one incremental $0.01 of core FFO per share to next year's results. In short, our markets are in recovery. We are on track to achieve our 2026 guidance, and we are excited about the earnings momentum building towards 2027. With that, I'll turn the call over to Jim.

Thank you, Scott, and good morning, everyone. Core FFO per share for the second quarter of $0.28 was ahead of our internal expectations, driven by stronger-than-expected same-store NOI growth of 1.2% that outpaced the 80 basis point midpoint of our original guidance range for this year. The outperformance was driven by stronger revenue growth and lower expense growth.

Same-store revenue growth of 90 basis points in the quarter was led by a 7.3% increase in other property revenue, along with continued improvement in [ bad debt ], which declined to 1.1% of total revenue from 1.3% in the prior year period. Average occupancy of 95% was down 20 basis points sequentially and reflected our deliberate strategy of capturing rental rates over occupancy to maximize revenue. Looking ahead, revenues from our community WiFi program will contribute significantly to other property revenue and same-store revenue growth during the second half of 2026. More on this in a moment. Rental rate growth in the quarter was fueled by a combination of stable asking rents and declining concession use.

Asking rents across our markets increased by 3% from January through May and have held steady since. As demand strengthened during the year, we were able to reduce concession use from 54% of new leases in April to approximately 28% in July. As a result, like-term new lease trade-outs have improved throughout the year from negative 3.9% in the first quarter to negative 2.7% in the second quarter and negative 1.1% in July. Finally, as Scott mentioned, with over 65% of our expected new leases signed for the month of August, new lease trade-outs for like-term leases are slightly positive.

While this is early, we are excited to see the continued improvement of market fundamentals translate into better pricing power. We provided July and August data in today's prepared remarks. However, investors should not expect monthly data to continue to be presented on future calls. We are only providing this detail since, one, new lease trade-outs are in focus right now; and two, this activity helps investors understand the momentum that is building, and our confidence in achieving our guidance, which we will discuss momentarily. Regarding individual markets and new lease growth, 7 markets had positive new lease trade-outs during the second quarter.

11 were positive in July. And so far in August, 13 markets are seeing positive new lease spreads. Markets with the highest new lease trade-outs in the second quarter were Lexington at a positive 9.6%, Cincinnati with 4.6%, Charleston with 1.8%, Columbus and Oklahoma City, both with positive 1.1%, San Antonio with 1% and Louisville with 30 basis points of positive spread. Looking at our largest market, Atlanta's new lease trade-outs were negative 3.4% during the second quarter, and they accelerated to a positive 2% in July.

On renewal leases, our data science efforts are supporting lower renewal concession use and higher effective renewal rates without significantly impacting resident retention, which was 58% in the quarter. To date, renewal spreads on like-term leases are ahead of expectations, increasing from 3.2% in the first quarter to 4.1% in the second quarter and further accelerating by 50 basis points in July to 4.6%. August renewals, which are 95% complete today, are a positive 4.5%. All in all, our blended rent growth across like-term leases improved from 70 basis points in the first quarter to 1.3% in the second quarter, resulting in blends for the first half of the year of 1.1%. In July, blended rents on like-term leases were positive 2.5%. On the expense side, same-store operating expenses increased 50 basis points in the quarter, reflecting higher payroll and contract services, partially offset by decreases in property taxes and insurance.

On our property Wi-Fi initiative, I'm pleased to report the program is running slightly ahead of plan due to earlier implementation at 19 communities that went live in May and June. Wi-Fi contributed roughly $400,000 of incremental revenue in the second quarter, which was ahead of guidance and is ramping quickly to achieve our original second half guidance of $5.5 million in revenues and $3 million of NOI. Turning to capital allocation.

Our value-add renovation program remains our most attractive investment opportunity. Through the first half of the year, we have completed 1,026 units, putting us on track to meet our original guidance of 2,000 to 2,500 units. We achieved 16% ROIs on renovations in the first half of the year, and as Scott highlighted, expect to capture higher rent premiums going forward as market rents continue to recover. On the capital recycling front, we are under contract for the sale of Stonebridge Crossing in Memphis, which should close before the end of this quarter. We intend to use the proceeds to delever and forecast ending the year with a net debt-to-EBITDA ratio in the mid-5s. Additionally, I'm pleased to highlight that in June, Fitch Ratings increased our outlook to positive from stable and that both Fitch and S&P affirmed our BBB flat rating.

Now turning to guidance. We are increasing the midpoint of our same-store NOI guidance for the full year by 70 basis points to 1.5%. This increase equates to an additional $2.5 million of NOI as compared to our original guidance and is based on our outlook for same-store revenue growth, which we affirm at 1.7% for the full year and our expectation for lower operating expenses during the second half of the year. For core FFO per share, the expected increase in same-store NOI is offset by $2 million of higher interest expense and a $2 million decrease in expected non-same-store NOI. In addition, core FFO per share is benefiting from a lower weighted average share count due to our first quarter share repurchases. As a result, after all these moving pieces, we are maintaining the midpoint of our core FFO per share guidance of $1.14. Details on our updated same-store guidance are as follows: same-store revenue growth of 1.7% at the midpoint is unchanged. That implies second half growth of roughly 2.1%, an acceleration from the 1.1% we delivered in the first half.

We want to be clear about the components of this growth. Of the roughly $10 million of same-store revenue growth in our guidance for the year, $8.7 million is already in the books from revenue earned in the first half and the $5.5 million from our Wi-Fi program in the second half. That leaves about $1.3 million of revenue that will come from leases signed in the second half of 2026. As we sit here today, we've already signed about 50% of our leases for the second half of the year at blended spreads of 2.8%. To achieve the $1.3 million of incremental revenue growth, we need to sign the remaining 50% of our leases at blended spreads of 1.6% or better.

Ultimately, all in all, as we sit here today, 87% of our full year revenue growth is already achieved or contracted. Our revised midpoint for operating expense growth of 2% is 140 basis points lower than our original 3.4% midpoint, primarily driven by better results in both controllable and noncontrollable operating expenses. For our non-same-store portfolio, the reduction in forecasted NOI relates primarily to the slower lease-up at The Tisdale at Lakeline Station, the development asset we consolidated during the first quarter of this year.

The project's average occupancy of 36% in the second quarter was behind our original expectations. We made good leasing progress in July with the community now 42% occupied. We expect this community to reach stabilized occupancy during the first quarter of 2027. Lastly, we are increasing the midpoint of our full year interest expense guidance by $2 million, reflecting higher SOFR rates, including an assumed 25 basis point increase in September and temporarily higher average debt levels associated with the timing of investment activity.

As I mentioned previously, with the pending sale of Stonebridge and the associated deleveraging, we expect to end the year with net debt to EBITDA in the mid-5s. Scott, that was a lot. Back to you.

Thanks, Jim. To summarize, same-store results through the first half of the year are ahead of plan, driving the increase in our same-store guidance for the full year. Demand remains strong as demonstrated by our year-over-year increases in leasing volume and the trajectory of new lease trade-outs. Our value-add program will benefit from increasing rental rates and the ongoing recovery and the shorter completion time line will enable us to increase future value-add activity with no impact on occupancy.

Our Wi-Fi initiative is ahead of plan and contributing meaningfully to the revenue growth assumed in our guidance. As we move through the back half of 2026, we expect continued improvement in apartment market fundamentals to drive stronger leasing and earnings momentum into 2027. We thank you for joining us today. Operator, you can now open the call for questions.

[Operator Instructions] Your first question is from the line of Eric Wolfe with Citibank.

You mentioned that new leads were up year-over-year and concessions across your markets were down. If possible, could you just quantify those 2 data points, so the leads and the concessions? I'm just trying to understand sort of how big of a shift this was and get some context around sort of how quickly market conditions are improving.

Sure. So lead volume is up about 5% year-over-year. And then concession usage, I'll kind of talk about it in 2 pieces. One would be just the volume of new leases that have a concession and the second one will be the average concession. If you look at kind of the pace of concessions where we are right now in, say, the month of -- for July versus earlier this year, April and March of this year, 52% of our new leases had a concession. And as you said, in July, 23% of our new leases had a concession. And that compares against last year concessions for new leases roughly around the same 23% mark. So year-over-year, concessions are kind of back to where they needed to get to. But where we are in July, it's a significant improvement from where we were earlier this year. That's all on top of, obviously, a 3% to 3.5% asking rent growth that we've experienced since this time last year. And then the average concession is hovering in Q2 of this year for purposes of new leases in the $1,300 range right now.

Got it. That's helpful. And then you talked about new leases being positive thus far in August. Can you just talk about where occupancy is today? And you mentioned sort of addressing most of your sort of second half leases already. I guess based on sort of what you've signed thus far, would you expect occupancy to sort of stay stable from current levels?

Yes. Occupancy today is 95%. And yes, we would expect it to stay stable. It might actually grow a little bit as we end the year.

Your next question is from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Just going back a little bit to the concession question. I'm just curious which markets are you still seeing the heaviest concession usage and kind of where, I guess, the next opportunity or leg up is from driving down concessions? Can you just give a little detail across markets?

Sure. Great question, Austin. I'll start, and then I'll ask Janice and Jason to kind of chime in wherever I miss something or misspeak. But obviously, the biggest positive move in concessions so far this year is really in Atlanta. Back in March and April, 60% to 70% of our new leases had concessions. And in July, that was down to about 17%. So really a real positive move in Atlanta. Dallas today continues to be relatively high on the concession usage. Back in March and April, that was roughly about 45% to 50%. And today, we're running around 40%, 42%. And then Tampa is also seeing a little bit heavier concession usage, although it is down slightly in July. Earlier this year, it was in the, call it, the 55% to 60% range. And right now, we're hovering around 40%. But Janice, Jason, feel free to chime in.

Okay. Just going back a little bit to kind of the back half, bad debts kind of held a little bit above that 1% range after seeing some meaningful improvement in the back half of last year. Just wondering what are you seeing into the third quarter? And what's kind of the expectation now for further improvement into the back half of the year?

Yes. Back half of the year, our guidance implies, I think it's 95 basis points of bad debt, and that's kind of where we're running right now for July and August.

Your next question is from the line of Jamie Feldman with Wells Fargo.

This is Conor on with Jamie. Over the past several quarters, your team has highlighted the advantages of your Class B portfolio and its relative affordability. As concessions begin to moderate and supply is absorbed, are you seeing any meaningful divergence between Class B and newer Class A product in terms of retention, move-outs, pricing power or other variables?

No, I don't think we were really seeing any significant change today between the Class B -- in terms of the core operating fundamentals between Bs and As.

Okay. And then you've previously discussed the acceleration in same-store revenue in the back half of the year from Wi-Fi. Can you walk us through the second half contribution? And as we move into 2027, should investors think about the initiative as largely ramped? Or is there additional upside from this rollout over time?

Thank you. Good question. We started the Wi-Fi program, and we rolled it out effective early July. Obviously, a few communities were done in May and June, but it's going to contribute about $5 million to $5.5 million of revenue in this year, roughly about $3 million of NOI. That is kind of starting at an initial kind of ramp where there's about 70% penetration in July of all of our resident base. And then as leases turn, that penetration will grow. We expect to be 80%, 85% penetrated by the end of the year, and that will continue to improve in the next year as well as you'll get an extra 6 months of revenue and an extra 6 months of NOI. We are currently evaluating additional properties for the program to be added to it next year because, again, this initial WiFi program was only 19,000 units. So once we come out with 2027 guidance, we'll give you some more color on how significant that will be.

Your next question is from the line of Brad Heffern with RBC Capital Markets.

Obviously, positive new lease spreads has been an area of investor focus. I appreciate the comments about being slightly positive in August on like-term. I'm wondering, do you expect to see kind of a normal level of seasonal decline after that? Basically wondering just if we can expect new lease to be around 0 or better in the third quarter or if we're going to see the normal September fall off and we'll have to wait until next year to see that on a quarterly basis?

Good question. July, as we commented, new leases were down 1.1%, and that's about 40% of the third quarter expirations. In terms of the month of July. So I don't know if third quarter will be, call it, 0. But in terms of guidance, what we've assumed is that we kind of maintain roughly a minus 50 basis points in new lease trade-outs through the end of the year. And that pretty much assumes that asking rents stay flat. I will provide a little bit of additional color that it is coming upon good comps where we had large concessions in third and fourth quarter of last year that are not expected to be present this year, and that should both support new lease trade-outs as well as renewal trade-outs.

Okay. Got it. And then on concessions, you said earlier that they were flat year-over-year in July. I just want to make sure I understand that commentary right. Is the full new lease improvement just coming from rate growth? Or is there something else there that I'm missing that's contributing as well?

Yes. I would say, if you look at year-over-year, it's coming from rate growth. If you look at it from earlier this year to now, it's coming from concessions stopping.

Your next question is from the line of John Kim with BMO Capital Markets.

I just wanted to follow up on your commentary on new lease trade-outs. Just given the success you've had so far through August and lower concessions, do you think it could be an improvement from the minus 2.1% you had in the second quarter, again, just given the easier comps and commentary you've had?

In terms of the rest of the year?

Yes, for the third and fourth quarter.

Yes. We certainly think that third and fourth quarter should be better than what we -- the minus 2.7% in the second quarter for sure.

Okay. And then can you provide pricing commentary on the 2 assets held for sale?

No. We're on the assets were held for sale in Memphis, we're still working through that closing process. So that's not something we typically disclose on this time.

Would it be within the typical range of cap rates that you sold in the past?

Yes, that's fair.

Your next question is from the line of Ami Probandt with [ UBS Investment Bank ].

I was hoping to get a little bit more context on how the peak leasing season played out. Is it fair to characterize this as a normal peak leasing season in terms of length and magnitude? And with the leasing season extending a little bit into July, is that due to stronger demand than normal? Or are easy comparisons more of a factor?

Yes. This is Janice. We are definitely seeing a robust strong absorption rate throughout the markets that have supported the recovery that we're seeing on our new lease rates as well as asking rates. I think whether it's a comp set or it is concessions that's going to elongate, we shall see. We are coming up against an easier comp set that will allow for us to have more pricing power. And I think as we move into the leasing season, we'll see normal seasonal patterns kick in through the rest of the year.

Great. And then you mentioned that -- sorry, go ahead.

Ami, just a little bit of a follow-up. The lead data in terms of like the size and trajectory of leasing season is certainly suggesting it's back to a normal kind of cycle. As I mentioned earlier, our leads are up 5% for the year. But to highlight, July was actually up quite significantly or closer to 20%, 25%. So we do see really good demand building, but we're still being cautious, and we're still driving the focus on rate as opposed to occupancy so we can continue to deliver our results and focus on the long term.

That's helpful. And then in terms of bad debt, you mentioned 95 basis points in the second half of the year, which I believe is still well above where you were pre-COVID. So what do you think is leading to bad debt lingering at the higher level? And do you think that this is just kind of the new normal level of bad debt? Or could there be continuing tailwinds in 2027?

Well, we think that it's -- certainly, there's a new level of normal relative to post-COVID. We think certainly not that fraud is a huge issue anymore, but the ability to have fraudulent IDs is still a lot easier today than it was in 2020. So I think that's something that we're continuing to use technology to try to sort out and figure out. But I think we certainly expect to continue to make some forward progress in 2027. Do we -- is the aspiration to get back to pre-COVID levels? Sure, absolutely, and we think we can get there. But it's just going to take additional kind of technology rollout and usage throughout the portfolio.

Your next question is from the line of Wes Golladay with [ W. Baird ].

I want to go back to the comment about the increased leads. Are those -- I guess, can you talk about your conversion rate? Are you signing more of those leases -- those leads into leases?

Yes. I mean I would say our conversion rate is still roughly consistent with where we've seen in the past. I mean it's -- we really focus on, obviously, the whole conversion from -- it's not just conversion from lead to tour, but the closing ratio of tours applications, applications to leases. And I would say just largely, it's resulting in more volume of leases, yes.

Okay. And then you mentioned that Tisdale was a little bit behind on occupancy. Can you also comment on the rate expectations there?

Yes. The rate expectations are also behind some of the initial underwriting we made when we entered. If you remember, that was a joint venture development deal that we entered several years ago. The rate environment has been different or more difficult than what we originally anticipated. But the deal is ramping nicely. It is obviously experiencing a little higher use of concessions today. And we do expect to stabilized occupancy, if you will, in Q1 '27.

Your next question is from the line of John Pawlowski with Green Street.

A few questions on expenses, but I want to make sure I heard that statistic properly. So lead volume was up 5% in 2Q, and it was up 25% in July. And if I heard that right, is that really a function of organic demand? Or were there other idiosyncratic factors with marketing campaigns or something unusual that happened in July from a year ago?

Yes. It's certainly no additional marketing spend, just getting better at our various organic, what I would say, search engine optimization, making sure we're ranking high with both Google algorithm as well as the AI tools that exist today. And then I think from the standpoint of the fundamental driver of it is clearly from the organic algorithm and the search demand.

And then on expenses, so it's been maybe 2.5 years where repair and maintenance costs have declined on an absolute basis. I know turnover is down meaningfully versus 2 or 3 years ago. But curious if we should expect any kind of outsized well above inflationary costs on R&M in the next couple of years, if there's a kind of catch-up to be had on the very, very low R&M costs for the past couple of years.

Yes. No, I don't think so. I think the teams are doing a great job of taking care of our properties and really focus on turning units and being smart about the use of vendors versus internal individuals on site doing various things. So I think no, there's no expectation for any kind of outsized increase in repairs and maintenance costs down the road.

Your next question is from the line of Peter Abramowitz with Deutsche Bank.

Just wondering if you could give an update on a potential sale of the Mustang in Dallas. I know it's something you've talked about marketing for sale in the past. Just curious how the process has gone there and I guess, pricing and kind of depth of demand relative to your expectations?

Good question. We have not made a decision yet on whether to sell the asset or not. We did market it to a limited extent, but it's a great asset in a great location with, we think, tremendous opportunity long term. So we're still analyzing what the best approach is, whether or not we keep it and/or we end up selling it. The project is doing fine. It's basically stabilized. Occupancy is north of 93%. Concessions are declining. So as we look forward, we think it might be a good addition to our portfolio. But we're not ready to make that decision or give that answer yet.

All right. I appreciate that, Scott. And then it looks like you paused the buybacks in the second quarter after doing, I guess, a modest amount in the first quarter. Just looking at it, the stock was still trading at a pretty significant discount to NAV and for much of the quarter actually trading below the price at which you bought back stock at or below the price at which you bought back stock in the first quarter. So I just wanted to ask about kind of the thought process and decision-making there around pausing the buyback and just kind of general thoughts on how you're thinking about use of excess capital today?

Yes. Good question. I think the decisions around the buyback is really just there wasn't any excess capital to use to buy back stock in the second quarter. If not, we would have certainly been a buyer of it. As Jason mentioned, the Stonebridge deal that's selling -- that is selling here in September. And certainly, if there's excess capital that comes from that, we will certainly be looking to buy back stock. I mean our primary -- our best use of capital today continues to be the renovation program. After that, it's still -- given the stock price as of yesterday, we'll still be buying back stock. But again, it's all based on the availability of excess capital.

And frankly, where that capital comes from the majority of the buybacks that we made were -- the capital came from the sale of joint venture assets that were not contributing to EBITDA. We have resisted selling assets, giving up the EBITDA and in order to just buy back stock because, one, it becomes negative relative to leverage. But also, we like our portfolio and we like the long-term prospects of the portfolio.

Your next question is from the line of Jason Wayne with Barclays.

Just on expenses, real estate taxes came in better than expected over the past couple of years as well. Just wondering where you captured the tax savings this year and which markets you saw that in?

Sure. The biggest win so far this year has been in Texas markets. Texas appeals each -- or Texas [Audio Gap] every year, and we go through an appeal process. I would say the savings in terms of the appeal process can be a bit lumpy from period to period depending on the timing and obviously, the success of the appeal. So you have some of that kind of working through this quarter where we had appeals from last year that came in this year and they came in better than we anticipated. But even that, when you look at our guidance for the year, we lowered real estate tax growth overall because we're expecting better assessments or lower assessments and probably the same, maybe slightly lower millage rates where our overall tax expense will be better than last year, better than we originally anticipated.

Got it. And then you said you mentioned you see a path to achieve higher rent premiums on your value add. So is that something you're looking to grow? And kind of how should we think about that contribution in 2027?

Yes. I mean I think the rent premiums will continue to improve as rental rates improve. And as I said before, it continues to be our primary use of capital. It is a fantastic program that has really provided a tremendous amount of NOI growth for IRT over the years. So as we kind of look forward to stabilizing and improving market fundamentals, it is certainly a program that we will continue to look at to accelerate when it makes sense and where it makes sense.

And let me add, clearly, the renovated units compete most directly with the new construction. So with all the new construction that came online over the last few years that were offering concessions, that actually put downward pressure on the premiums that we could then get on the renovated units. So as we go forward, with less competition from that new construction, we really see the premiums and the returns expanding on the value-add program. And then you add in there that we've significantly reduced the amount of time that it takes to renovate a unit, so we can do many more renovations without impacting occupancy and thereby generating much better growth.

Your next question is from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Scott, just sticking with the comments you had there on value-add redevelopment and kind of the ability to execute without impacting occupancy. I mean, how much from a unit volume perspective and spend can you really handle without increasing leverage as well as impacting occupancy? Can you just kind of frame up the sizing of that program, how big it could get in a given year?

Sure. So last year, I think we did 1,700 units, give or take. This year, we're going to be closer to that 2,500 units. Jim is telling me 2,000 to 2,500. I'm going to tell you closer to the 2,500. When we started this program, it was taking anywhere from 30 to 35 days to turn a unit. Now we're down below 20 days. So we've made a significant improvement in the process and in the amount of time it takes. So we feel that we can really continue now to ramp it. I have always been resistant of doing too many because of the pressure that it was putting on occupancy. And I hated that headline risk of having a lower portfolio occupancy because of the value add. This will allow us to really ramp the program and presumably get to 3,000 to 4,000 units per year.

If you also remember, when we -- after the Steadfast deal, we took on those 2 on-balance sheet developments and really used a lot of free cash flow to fund those developments. Now that they're behind us, obviously, we took capital earlier this year and bought back stock, and that capital will be available next year to, as Scott mentioned, put into the value-add program.

That's really helpful. And then maybe just last one, just strategically, given the relative size of the portfolio and just ability for you to remain more nimble, what are the biggest other opportunities in front of you now that you are seeing fundamentals start to show some green shoots and improve into the back half of this year?

Well, it's all about the cost of capital. We would hope that with the market recovery that we have a cost of capital that will allow us to go back and acquire again. We have always resisted growth for the sake of growth. So we've been patient. Value-add continues to be clearly the best use of capital. We're generating, again, as Jim mentioned, I think, in his remarks, mid-teens unlevered returns. But again, there's only so much of that we can do. So at 4,000 units a year, you're talking about $80 million. I would like to see, again, the cost of capital at a point where we can -- or a level where we can then start growing again. There's opportunities out there. And we've proven that our strategy works.

We have reached the end of the Q&A session. I will now turn the call back to Scott Schaeffer for closing remarks. Please go ahead.

Well, thank you all for joining us this morning. We appreciate your continued interest in IRT and look forward to speaking with you -- many of you in the weeks ahead. So thank you.

This concludes today's call. Thank you for attending. You may now disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the Independence Realty Trust First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded, and a replay will be made available on the Investors section of the company's website shortly after this concludes.

At this time, I will turn the call over to Stephanie Krewson-Kelly, Senior Vice President of Investor Relations and Capital Markets. Ms. Krewson-Kelly, you may go ahead.

Thank you. Good morning, and welcome to Independence Realty Trust conference call to discuss first quarter 2026 results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President; and Jason Lynch, Senior Vice President of Investments.

Before we begin, please note that any forward-looking statements made during this call are 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, 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 8-K 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 Schaeffer.

Thanks, Stephanie, and thank you all for joining us this morning. First quarter results were in line with our expectations and represented a solid start to the year. Same-store revenue and NOI increased, reflecting stable year-over-year occupancy and a 40 basis point increase in effective rents. Our performance this quarter reinforces 3 themes: portfolio stability, improving market fundamentals, and disciplined capital allocation. While certain markets are still working through late cycle supply, the trajectory we are seeing in asking rents, along with the stability of demand supports our outlook for sequential improvement in revenue as we move through the leasing season.

On the supply front, new deliveries in our markets continue to decrease and are trending well below the long-term average. On a macro level, job growth, population growth and household formation in our markets are forecasted to meaningfully outpace the national average. First quarter operating results reflect these improving market fundamentals.

Average occupancy was stable at 95.2% and resident retention of 60.5% remained high, both consistent with our expectations. Asking rents in our markets have increased an average of 2.8% this year, and every one of our markets has seen asking rents increase since January 1.

Our recent strategy of prioritizing occupancy now positions us to prioritize rental rate growth during the upcoming leasing season. Concession activity has started to moderate, but is still elevated compared to historical levels. The combination of normalizing concessions and the trajectory of market rent growth against our known lease expirations supports our confidence that new lease trade-outs will reach breakeven this leasing season.

Turning to capital allocation. Value-add renovations continue to be our most attractive investment opportunity. During the quarter, we completed 426 units, generating an average unlevered return of 15.4%. First quarter volume supports our full year assumption of completing 2,000 to 2,500 units in 2026. On the capital recycling front, we continue to make progress on the 2 assets held for sale and our joint venture in the Las-Colinas submarket of Dallas, known as The Mustang, is currently marketed for sale. The proceeds from these recycling efforts will be redeployed based on the best risk-adjusted return opportunities at that time, including stock repurchases, deleveraging and/or new investments.

Finally, during the quarter, we took advantage of the ongoing dislocation in the public markets by repurchasing 1.8 million of our shares at a cost of $30 million, bringing total repurchases since the fourth quarter of last year to 3.7 million shares and $60 million.

With that, I'll turn the call over to Jim.

Thank you, Scott, and good morning, everyone. Core FFO per share for the quarter was $0.26, in line with our expectations. Same-store NOI grew 1% during the quarter, driven by revenue growth that was consistent with expectations and modest outperformance on operating expenses. Same-store revenues grew 1.4% year-over-year, supported by stable occupancy of 95.2%, higher average rental rates, growth in other income and bad debt that is 60 basis points lower than Q1 of last year.

On the expense side, lower property insurance and repairs and maintenance partially offset higher personnel and utility costs, resulting in same-store expense growth of 2%. The leasing environment remains competitive but continues to improve as new supply is absorbed. Asking rents across our same-store portfolio have increased 2.8% since the beginning of the year, up significantly from the 73 basis points we cited on our February call.

Within our top 10 markets, those with the largest asking rent increases to date are Raleigh, which is up 5.7%; Indianapolis, up 5.2%; Oklahoma City, up 4.8%; Columbus, up 4.6%; and Nashville, up 4.5%. In our 2 largest markets, Atlanta is up 80 basis points this year and Dallas asking rents are up 2.1% year-to-date.

Concession activity increased materially late last year and continued into the first quarter. In the first quarter, approximately 27% of our right-term leases had a concession that averaged $1,241. Early second quarter trends are directionally encouraging as leasing activity accelerates in the peak leasing season.

Blended rent growth of 70 basis points for the first quarter was in line with the trajectory of our full year guidance assumption of 1.7%. Renewal rate growth of 3.2% and resident retention of 60.5% were also in line with our expectations. April and May renewal trade-outs are tracking modestly ahead of plan at approximately 4% and retention has remained steady.

New lease trade-outs of negative 4% in the quarter were in line with our previous commentary and our expectations. Given the rise in asking rents, our gross lease trade-outs are at breakeven levels with almost all of the negative trade-out on new leases due to the higher-than-normal concession activity in the first quarter. As mentioned previously, we are seeing an improvement in concessions early in Q2 and expect them to continue trending lower during leasing season.

Before moving on to our balance sheet, let me give you an update on our property WiFi initiative. As mentioned previously, we are installing property WiFi across 19,000 units this year with an expectation that all will be done and operating on July 1. I'm pleased to announce that we are slightly ahead of schedule with residents excited about the new gig-speed WiFi and halfway converting over to the program. I look forward to updating you further on our Q2 call later this year.

Our investment-grade balance sheet remains strong with ample liquidity and no debt maturities to refinance until 2028. Net debt to adjusted EBITDA was 6.5x at quarter end, reflecting seasonally lower first quarter EBITDA and the impact of consolidating our Austin joint venture asset in January.

We expect leverage to trend lower towards the mid-5s over the course of the year. As Scott mentioned, we expect to use some of the proceeds from pending asset sales to reduce leverage. And longer term, we will further reduce leverage organically through EBITDA growth. Based on the results to date, we are affirming our full year core FFO per share range of $1.12 to $1.16 and are comfortable with the major assumptions that support that range.

Scott, back to you.

Thanks, Jim. We are firmly on track to achieve our 2026 plan. Portfolio performance remains in line with our expectations and market fundamentals are improving. While select markets continue to work through elevated concessions, demand in our submarkets remains durable and continues to be supported by population inflows into the Sunbelt and Midwest for quality of life, employment opportunities and long-term affordability trends.

We are encouraged by the increase in market rents to date and our ability to capture market pricing without meaningfully sacrificing occupancy. Early signs of improvement in new lease trade-outs during April represent a constructive start to the leasing season, and we believe we are well positioned to benefit as conditions continue to normalize.

We thank you for joining us today. And operator, you can now open the call for questions.

[Operator Instructions] Your first question is from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Scott, you highlighted in your prepared remarks about prioritizing lease rate growth over occupancy. Just wondering if this is a change in the operating strategy or consistent with what was assumed in initial guidance? And can you kind of share where you're sending out renewals for the months ahead, what you expect to achieve and just how aggressive you really think you can be on renewals given the competitive landscape?

Thanks, Austin. It is clearly consistent with our original guidance. This was the plan that we put in place towards the end of last year as we saw the pressure of new supply starting to subside. So during that period of excess deliveries, we really were focused on keeping our occupancy high. And now we feel that we're well positioned with that stable occupancy and the supply-demand equation flipping better to for landlords that we can now start pushing rents while still keeping occupancy stable.

I'm going to let Jim talk about what we're doing with growth tradeoff.

So on the -- you asked a question about renewal growth and what we're sending renewals out in the future. Obviously, April is done, May is almost done. We're right in the kind of the low 4% range for those 2 months. June is still a little early, so I don't want to get too far ahead, but it's approximately a little bit ahead of that 4% and then July is even a little ahead of that.

So again, we expect to -- and they are the rate that we expect to secure. So we actually see a lot of really great opportunity here to capture rate during peak leasing season.

Then just kind of sticking with the lease rate growth, you underwrite an improvement through the year in new lease rate growth as well. And I think, Scott, you even mentioned kind of that hitting kind of positive territory in the months ahead. How confident are you that, that trajectory is kind of consistent with what you originally underwrote, again, going back to the competitiveness that you highlighted earlier in the call?

Yes. Good question. I'll take it for Scott. I think from a new lease perspective, we kind of commented on it pretty much kind of in line with what we expect in the first quarter. We see new lease pricing improving kind of as you move into April and certainly May. I think it's right around the kind of plus or minus 130 basis points better in April and May. And we just see the opportunities there -- it's in our prepared remarks, we see this kind of asking rents have improved, and we do see concessions beginning to come down a little bit that gives us that confidence around kind of hitting that breakeven level here during that leasing season.

As you kind of look out into kind of the May, the June, the July months and you look at what our expiring rents are, they are all lower than our current asking rents, meaning we are clearly moving in the positive territory. It just comes down to kind of the concessions ebbing and flowing in the market dynamics, which we are still very much positive on and is developing as kind of we expected.

Your next question is from the line of Eric Wolfe with Citigroup.

You mentioned that asking rents were up 2.8% year-to-date. You're seeing improved new leases in April, lower concessions. Can you just put that in context for us? Is that normal seasonality? Did the same thing on concessions happen last year? I'm just trying to understand what's normal seasonality from your perspective versus maybe signs that supply impact is easing?

Yes. So the 2.8% asking rent growth is a little bit ahead of what we would say is a normal growth in the beginning part of the year. Again, this is pretty kind of supply ebb and flowing. The concessions in terms of broad views right now in the first quarter and certainly in April, they're all higher than historical periods, right? We do expect them to continue to wane. So I would say that kind of the plus or minus on the asking rent side, again, is kind of slightly ahead of where you would see a typical seasonal pattern.

I guess based on your answer to the previous question, June and July, it sounds like the expirations are a bit lower. I guess my question is, you're expecting this big sort of ramp in the back half of the year. I guess when do you think we'll see signs of that happening? Is it sort of in the June, July time period that you'll see that sort of plus 2% type of blend? Because I guess at some point, you would expect, right, for asking rents to be sort of better than normal seasonality or maybe it's just the comp is so easy. I'm just curious when you kind of see that sort of 2% blend that you're expecting.

Yes. You start seeing that not as much in the month of July, but you start seeing that in the kind of the September forward months, especially because, again, the concessions in 2025, you suggest the comp is easier. I think the concessions were heavier. So the renewal growth that we're anticipating in the back half of the year is expected to be sizably better in the first part of the year.

Your next question is from the line of Jamie Feldman with Wells Fargo.

Can you talk more about your blended rent growth across your key markets and how this compares to your expectations? And then I know you've kept your outlook for the year, but any that are trending better or worse than you would have thought on both the blended rent side and the concession side?

Yes. I'll ask Janice or Jason to kind of jump in here in a minute. But I would just say, broadly speaking, the trajectory of the kind of the blended rents and stuff -- for this year are very much kind of trending aligned with what we expected. As I mentioned, concessions are a little heavier. But as we said, we're getting a little bit better asking rent growth, but Janice will go through it market by market.

Sure. From a market perspective, we've got Atlanta, Raleigh and Nashville showing positive momentum supported by moderating supply and improved pricing power year-to-date. Atlanta achieved an 80 basis point rent buildup on top of what we saw at the tail end of last year. Raleigh is leading with the 5.7% growth, as Jim alluded to, and then followed by Nashville at 4.5%.

Looking ahead, both Raleigh and Atlanta are expected to benefit from this meaningful decline in supply as a percentage of inventory, down 31% and 69%, respectively, compared to 25%. So that further supports continued rent growth and stabilization of occupancy.

Any other markets to call out?

I mean, we have some markets that we're keeping close eye on as well. So relative to expectations, all of our markets are generally in line. Denver and Austin remains supply driven and will continue to experience pressures from elevated new deliveries. However, Austin continues to stand out with the highest household formation across all of our markets at 2.3%, which would help support absorption as supply begins to moderate. Orlando, Tampa and Houston showed some softness in Q1.

In Houston, we believe the softness is temporary as the second half of the year will benefit from continued strength in oil production. Anecdotally, in Orlando, we're seeing some movement tied to return to office activity while still working through late cycle supply pressures. And in Tampa, we're seeing some impact from the hurricane-related displacement that followed in Q4 of 2024. However, as Tampa local, I remain very encouraged with the growth coming in the market and optimistic about the back half of 2026.

Then just thinking about like the other income contribution to same-store revenue in the back half of the year. Can you talk about any change? I know you kept your guidance again, but like how are you trending on that part of the earnings model? And anything we should be thinking about in terms of your ability to hit those numbers?

So yes, I think generally speaking, for the first part of the year so far, other income has grown about 5% over the prior year. We obviously expected in our guidance a fairly significant ramp with the property WiFi program. And as I mentioned in my prepared remarks, we're ahead of schedule. We're obviously not prepared at this very moment to give any kind of significant update to that, but we do see a little bit of potential upside to that assumption with respect to guidance.

Your next question is from the line of Brad Heffern with RBC Capital Markets.

On Atlanta, you called it out as having positive momentum, but you also quoted, I think, the lowest asking rent changes of any of the numbers that you quoted. I guess, can you just give a broader perspective on that market given it is your largest and maybe reconcile those things?

Yes. Brad, I'll start and then maybe I'll ask Janice to kind of chime in here. If you look at the asking rent growth that we talked about on our third quarter call in Atlanta, that was one of the biggest in 2025 by almost 5%. And Janice's prepared remarks were another 80 basis points on top of that. So a lot of really great things are happening.

When you look at kind of blends for the first quarter, Atlanta was roughly 1.5% blended rent growth, and that's double what it was in the fourth quarter. So that's the kind of the positive trajectory that we're seeing there. Janice, feel free to add.

No, I think from Atlanta, what we're also seeing on the concession side is we're seeing some decrease in submarket specific areas where we're going to be able to optimize and grow revenue holistically without the use of concessions.

Jim, I just wanted to clarify your comments on reaching breakeven on the new lease side. When you say that expiring rents are below asking rents, is that including the impact of concessions? Like if concessions are flat year-over-year, would you get to positive leasing spreads in the summer months? Or does that need concessions to go away? Basically, just wondering like what you mean by asking rents and expiring rents and how those incorporate concessions.

All great question. I think if concessions kind of stay at the current level, we should still reach breakeven.

Your next question is from the line of Ami Probandt with UBS.

How much of an impact, if any, do you think that the winter storms had on your blended rent growth, which decelerated in the first quarter?

We did see some change and some slowness in demand in January and February. However, we've seen it pick back up and come back within expectations. We actually exceeded our demand expectations by about 10% for Q1 holistically. So I think we're good to go with the expectation going into leasing season to have that demand back in place.

There have been some soft results in some of the smaller markets like Huntsville. Could you highlight what's happening in some of those markets? Is it competitive supply? Or have you seen any demand challenges?

Huntsville is still working through supply pressures. We actually were just in Huntsville recently on a town hall and joining with the team and really saw some great opportunity there and are still very bullish on the market. So no challenges from a demand side as we work through this lingering supply.

Your next question is from the line of John Kim with BMO Capital Markets.

Your value add -- so your value-add performance, it's underperformed your non-value-add portfolio in terms of both blends and occupancy. I'm wondering how you see that trending for the remainder of the year? And how much of a driver is the value-add portfolio to the improvement in blended lease growth in the second half of the year?

Good question, John. I think from an occupancy perspective, the value-add portfolio is inherently going to run at a lower occupancy just because it's -- the units are vacant for plus or minus 20 to 30 days, where a typical turn time in our non-value-add portfolio -- sorry, I get this in my head. Non-value-add portfolio is 7 to 10 days, right? So inherently, the occupancy there is going to be always a little bit lower structurally than a typical non-value-add portfolio. I think from a blend perspective in the first quarter, you saw just a desire to kind of keep retention a little bit higher and therefore, a little bit, call it, softer blend growth because it's the retention renewal growth.

The renewal rate growth wasn't as strong in the value add as opposed to the non-value add. But I think fundamentally, when you look at the whole value-add portfolio versus the non-value-add portfolio from an NOI perspective, the value-add portfolio generated about 3.2% NOI growth in the first quarter versus about 50 basis points of NOI growth in the non-value-add portfolio. So we're really still very bullish on it. We really think it's going to continue to produce the returns.

Now for the rest of the year, I think, obviously, the guidance is pretty strong with respect to kind of the benefits the value-add provides to that, and we still expect it to do what we -- we still expect to hit those targets.

I may have missed this, but did you provide the blended that you've seen in April and what you're seeing in terms of how the rest of the quarter plays out?

We had spoken about it on one of our first questions here. But from the standpoint of as we see kind of April and May developing, specifically on renewal rates, April and May are kind of right around the low 4%, 4% range. June is a little bit higher than that, but June is still a little bit early. On the new lease trade-outs, April and early kind of May, we do see them kind of getting better to the tune of about 130 basis points from where they were in the first quarter.

Your next question is from the line of Jason Wayne with Barclays.

Thinking about capital allocation from here. So you said you wanted to pay down debt, but just wondering how you're thinking about more share repurchases from here?

So obviously, capital allocation is very important as we move forward. And we are continuing to analyze the portfolio for -- to recycle capital, recycle out of properties where we think the capital has a better use long term. And as that recycling happens, we will then consider what the best use is. And our stock price will help determine whether share buybacks are better than deleveraging and/or new investments. So it's hard to say sitting here today what the use of that capital will be. We have to really determine it when the capital is available and then determine what the best use is.

Yes, makes sense. And just on the value-add completions, I think you gave a guidance range last quarter of 2,000 to 2,500 completions this year. Is that still the assumption? And how are you trending on that this year so far?

Yes. As Scott had mentioned in his prepared remarks, that's still the expectation and 426 units that we did do in the first quarter are right in line with that goal for the year.

[Operator Instructions] Your next question is from the line of Mason Guell, Baird.

How the development performing so far versus expectations?

The 2 on-balance sheet developments -- well, there's 2, call it, historical on-balance sheet developments. That's the Arista in Broomfield, Colorado, and Flatiron in Broomfield, Colorado. Arista is fully occupied, stabilized. It's in our same-store pool, so performing just fine.

Flatirons, as we mentioned last year, is in the process of lease-up. As we disclosed in the supplement, 82% leased and it's about 66% occupied. It should hit stabilization here in the low 90% in the month of June, maybe early July. And again, as we mentioned, rental rates there are a little behind our initial underwriting expectations, but we believe it's still a great market and a good long-term investment, and we'll be able to push rate once we get it stabilized.

The additional asset that was added to our in-development disclosure in the quarter is our joint venture asset called the Tisdale at Lakeline Station in Austin, Texas. That deal is in lease-up is still very early. It's about 33% leased -- 37% leased. 33% occupied, 37% leased, which is up from roughly 25% occupied when we took it over. So again, leasing up as we would have expected at this point since we now are managing it and consolidating it.

Great. And is the anticipated timing for the 2 consolidated held-for-sale properties still around midyear?

Jason will answer. The question is what's the timing of disposition for the 2 health care.

Sorry. Yes, we're still aiming towards the midyear. We are actively marketing those and working towards a sale.

At this time, there are no further questions. I will now hand the call back over to presenters for any closing remarks.

Well, thank you all for joining us this morning, and we look forward to seeing many of you at NAREIT and then speaking with you again next quarter.

This concludes today's call. Thank you for joining. You may now disconnect your lines.

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. [Operator Instructions]

I would now like to turn the conference over to Stephanie Krewson-Kelly, 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 Schaeffer, Chief Executive Officer; Jim Sebra, 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 rtliliving.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 8-K 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 Schaeffer.

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 bad 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 we'll be expanding it to 63 communities covering 19,000 units as part of our 2026 plan. On the capital front, last year, we sold 2 older communities and redeployed the proceeds into 3 newer communities with higher rental rates and lower CapEx profiles. We profitably exited 2 joint ventures and invested in 2 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 at ROIs that are consistent with our historical results and have added 6 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 7 of the 10 highest in-migration states, and the high cost of homeownership will continue to support apartment 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. Core 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 bad debt year-over-year. Same-store 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. New lease trade-outs in the seasonally slower fourth quarter were negative 3.7%, 20 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 31, and new lease trade-outs remained consistent with the fourth quarter. Renewal lease trade-outs in January were 20 basis points higher than in Q4. We are making good progress on our February and 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 full 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 2 miles from existing IRT 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 have 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 4-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 31, our net debt to adjusted EBITDA ratio was 5.7x, and we intend to continue improving this ratio to the mid- to low 5x. Adjusting our full year stats for the term loan activity I just discussed, we have 0 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 recovering 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 full year EPS guidance of between $0.21 and $0.28 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 $0.01 increase from same-store NOI growth and a $0.01 increase in non-same-store NOI growth. These 2 are offset by $0.01 from lower preferred income from our joint ventures during the year, $0.03 of higher interest expense caused primarily by lower levels of capitalized interest, incremental interest expense from recent acquisitions and the expiration of our 2026 SOFR swap and $0.01 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 noncontrollable 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 the 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 trade-outs of negative 75 basis points and a renewal trade-out 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 item. Excluding the Wi-Fi costs, our controllable expenses are increasing 3.5%. The 50 basis point increase in noncontrollable costs is comprised of a 2.6% increase in real estate taxes and an 11.5% decrease in property insurance costs.

Our non-same-store portfolio to start 2026 consists of 8 communities aggregating 2,541 units. Two of these communities are currently held for sale and are expected to be sold by midyear. The remaining 6 communities include 2 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 of between $25 million to $26 million. G&A and property management expense guidance for the full year is $56 million, 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 2 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 submarkets 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 rent in favors of 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.

[Operator Instructions] Your first question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Jim, just curious how the new lease rate growth assumption is 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?

Yes. Great question. Thank you for -- Austin, obviously, the insight. The 75 basis points of new lease growth, obviously, starts negative in January, as 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 baked into 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 -- sorry, 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 how that stacks up, I guess, versus the same-store pool? It sounds like you got a little bit of slower growth there from some of the drag on the lease-up. But is there any conservatism in that figure just based on what you've experienced more recently? And just trying to think about kind of the brackets on upside, downside risk for that pool of assets.

Yes. Great question. I'll break it into 2 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 2 deals that are in development are behind where we want them to be from a lease-up perspective and from, obviously, as I mentioned, some 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, 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 assume that we own it for the full year.

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

Can you talk about the impact of concessions burning off and what you think that will do to help your rent growth projections? And if you could provide any more color on just your confidence in going from the minus 2.25% to the plus 75%, that would be helpful, too.

Yes. No, great. I'll start with the last one. The new lease trend is obviously very much a function of just asking rent trends throughout the year and then obviously, the expiring rents in each month. As I mentioned on the prepared remarks, our asking rents in January are up 75 basis points from where they were at December 31. As I mentioned earlier, the market rent growth assumption is about 1.5%. So 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.

The -- 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 breakeven point in June, July time frame, 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 at my fingertips, so 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 baked 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 of the standouts on both the best markets 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...

'25...

Throughout '26. Consistent performance, yes. Some of our emerging markets, as we say, is Atlanta showing strong fundamentals, delivering 100 basis points improvement in occupancy and 490 basis point expansion in 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. Balance occupancy remained stable as well through '25, providing consistent foundation. Blended rent growth is showing momentum. As Jim alluded to, 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 of -- 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 slower macro growth environment in '26 with jobs and population. However, we're going to remain focused on protecting that occupancy while we wait for gradual improvement in the fundamentals start to recover.

New supply is elevated in Denver and in our submarkets. Lease-ups are taking a little longer to stabilize, as we mentioned with Flatiron. And concessions are remaining above normalized levels. We believe primarily this is due to timing of delivery -- sorry, -- our focus in '26 is disciplined occupancy management as the market works through the supply and we position ourselves for '27.

Yes, Jamie, just a quick follow-up. Obviously, the market performance and the new lease performance go, obviously, hand-in-hand. From when you look at 2024 to 2025 and kind of our thinking about 2026 guidance, there is acceleration in new lease trade-outs in 8 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 I shouldn't say, but where the expiring rents are relative to those asking.

Your next question comes from the line of Eric Wolfe with Citi.

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 the year and maybe what you've seen over the last couple of 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 we're back to -- while it's a little bit heavier or a little bit faster pace, it's not as faster pace or as extreme as it was in January of last year. So it gives us confidence that the asking rent growth 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 fourth quarter where you ended the year? And what you're expecting in 2026 relative to 2025?

Yes. 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.

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

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?

Yes. Well, the asking rent growth in early January of last year was probably as -- 3x as higher 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. 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, delever or buy back stock.

Your next question comes from the line of Ami Probandt with UBS.

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

Value-add impact on the blends, I'll start with that one first. 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 kind of -- sorry, not 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 blend for the full year to be right around kind of 2.5% to 3%, really supporting it. And then the Sunbelt, you're just under 2% blends.

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

Yes, of course, because the redeveloped units are competing directly with the newer product. So with less newer products, 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 then in a couple of years, even north of 20%...

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

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 ex the Wi-Fi, it's 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?

Yes. No, great question. I think if you look at the rest of the controllable expenses, the increases are primarily -- the heavier increases that I would say above inflationary primarily are in payroll and -- I'm sorry, and utilities and the other drivers. But again, even as I mentioned on the call, prepared remarks, 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 payroll 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 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 -- there are 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. And 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 Flatiron. That one was completed and all that development spend has been incurred. So there's not really an expected increased development spend for this year. We obviously continue to expect to spend redevelopment money on value-add programs, but not development money.

Got you. Okay. That's helpful. And then for sticking with the redevs, what -- for the 2026 guidance, again, good to kind of see the amount of units that are going to probably be up versus '25. 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 6 new properties that we're adding to the redevelopment program are very consistent with kind of historical trends of that 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.

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

Just going to your Flatiron development is 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 asset.

Sure. The occupancy forecast is -- the guidance assumes that we hit occupancy at about 90% in the month of June. That's about a quarter behind expectations. And certainly, I wouldn't even 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 we're signing and then just having a little higher concessions. Janice, if you want to add anything, feel free.

Yes. I think we're seeing the submarket as a whole in Broomfield. Obviously, there's been an onslaught of supply in that market that kind of all came to fruition 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. Tours are strong. And so with that continued momentum, we see that we're going to hit that stabilized mark.

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 in the last few years where blended rents have kind of peaked in the first half. I understand there's like easier comps on concessions, but what other assumptions do you have in terms of the dynamics and getting that improvement later in this year?

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

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

Jim, it would be helpful to hear what kind of balance between fixed and floating rate debt you're going to target in the next, call it, 2 to 3 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, when we hit it and how fast we hit it or how sizable the individual bond issuances. But the goal is to -- a lot of those maturities that are going to start happening in 2028 are mortgages. That will improve the unencumbered pool and potentially allow us to 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 roll, but about $250 million in swaps maturing this year, we should expect you guys just roll to floating rate debt?

So we have -- there's 2 swaps maturing this year. There's one that's maturing in March of 2026. That was a 1-year swap we put in place last year simply because of just where we saw the interest rate curve for 1 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 are 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 were 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 put that a new swap in place that's swapping at 3.25% SOFR. 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.

Your last question comes from the line of Mason Guell with Baird.

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. So I would anticipate that property being sold this year because we can use that capital 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 kind of following on that, you repurchased 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.

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.

There are no questions at this time. I would now like to turn the call back over to Scott Schaeffer, 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.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Independence Realty Trust Q3 2025 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Stephanie Krewson. You may begin.

Good morning, and thank you for joining us to review Independence Realty Trust's Third Quarter 2025 Financial Results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, President and CFO; and Janice Richards, Executive Vice President of Operations. 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 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, 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 8-K 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 Schaeffer.

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 continue 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 2 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 3 communities held for sale, one of which is expected to close later this year, the other 2 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, deleveraging, and share buybacks as we allocate capital to drive long-term shareholder 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 1, 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 forecasted 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 apartment demand 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 2 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 9 months ended September 30, 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 3 factors that underpin our cash performance will drive our future outperformance. First is our differentiated portfolio of Class B apartment communities in 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 program, capital recycling, deleveraging, and share buybacks.

And with that, I'll turn the call over to Jim.

Thanks, Scott, and good morning, everyone.

Third quarter 2025 core FFO per share of $0.29 was in line with our expectation. 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 trade-outs were lower than we anticipated at negative 3.5%. We've been clear about our desire to maintain stable high occupancy to position us 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 asking rents, 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 trade-outs were 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 trade-outs have improved 260 basis points, all while maintaining stable occupancy of 95.5%.

Nashville asking rents have improved 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 improving 5.7% and occupancy has grown 2.1% to 95.9%. And lastly, Lexington, Kentucky 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 point improvement over Q3 of last year, as well as a 46 basis point improvement sequentially from second quarter. Our team's efforts and 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 30 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 year quarter, reflecting our continued focus on managing expenses. Within controllable expenses, which were 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 noncontrollable expenses, the 2.3% decrease over the prior year 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 2 communities in Orlando for an aggregate purchase price of $155 million at an average economic cap rate of 5.8%. One of these properties is Phase 2 of an existing IRT community and the other is in close proximity to another IRT 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 1 asset to transact in 2025 and the 2 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 enrichment completed the sale of Metropolis at Innsbrook. We received $31 million in cash, which included a $10.4 million gain in our income from unconsolidated real estate investments line item. This gain was excluded from core FFO since it is associated with a property sale.

In October, our partner in Nashville redeemed our preferred investment, 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 FFO 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 30, our net debt to adjusted EBITDA ratio was 6x, and we are on track to further improve this ratio in the fourth quarter to the mid-5s 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 midpoint 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 for 2025.

And lastly, from a core FFO per share perspective, we have narrowed our guidance range and our midpoint of $1.175 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.

[Operator Instructions] Your first question comes from the line of Brad Heffern with RBC Capital Markets.

You talked about the green shoots in 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 is 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 supply from -- or pressure from supply and competitive market with concessions entering in and making a major play.

Denver, Denver is challenging occupancy decline of about 200 basis points as well as asking rents feeling the pressure from supply. There's 7.5% delivered in '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 that 5.7% that was released.

We feel that 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 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 some benefit in the second half of 2026.

Yes. And Brad, just to kind of bring it all full circle, I think 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 CoStar forecast for fourth quarter now of 2026, the forecast now in 2026 are much lower than what they were earlier this year because as we've been all highlighting, it does seem like supply was delivered earlier this year than what was supposed to be delivered next year. So again, really great positive opportunity here in 2026.

The one thing we do watch in terms of, obviously, each day and each quarter and each month is just this kind of the 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.

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. We do have 2 forward equities, one from September that got closed out, and that will 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 31 to close that one out.

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

Given the sequential moderation in blends, especially on the renewal side, can you talk about what your latest thoughts are on earn-in for '26 and your current loss to lease?

Jamie, that was a good one. Great to see you. Loss to lease today is actually a gain to lease of about 1.5% and that our earn-in right now for 2026 looks to be about 20 basis points. Obviously, we have to finish the year before the earn-in is actually locked in, but it's about 20 basis points.

And then I guess just thinking about 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 fight 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 renewals?

Yes. 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 blend. I would say, generally, the retention rate that 60% has been a focus of ours. And we baked into our original guidance early 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 redeveloping. But the difficulties in terms of really we're having to "work hard", we're working hard every day, right? But no, it's definitely in those markets that Janice mentioned.

You're saying renewals are up 40 basis points already in the fourth quarter off of the '26?

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.

Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

So going back to some of the green shoots that you referenced in your prepared remarks, 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 in 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 spreads 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 new lease rate growth, which I think you referenced are kind of in line with where they've been trending. Does that begin to improve over the several months ahead? What's sort of the thought on how that trajectory looks from here?

Yes. So as we've mentioned, the desire that we have is to continue to keep occupancy at a nice stable high level for us as we end the year and get ready for 2026. That's always been our goal, and we've been talking and been pretty vocal about 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 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 rent growth and so on and so forth, yes, we do expect that new leases should begin to kind of hit that breakeven 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 that competition that you're facing from the new lease-ups.

Yes. So I don't have -- Janice will in a moment, talk about maybe individual markets. I would say, generally speaking, if you look at all of our leasing activity, 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 it, lease, and that's up from $710 in Q3 of last year. As you look at it kind of looking from sequentially from quarter-to-quarter, that 23% is slightly higher from second quarter. But if I look at 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 our competition very closely in the 4 softer 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 stalled 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 add as fast as some of the other markets that we are in.

Next question comes from the line of Eric Wolfe with Citi.

It looks like your net acquisition guidance came down and you got some assets that teed up for early next year. So can 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 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 at this point, we clearly recognize the disconnect between where 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. We want to be disciplined, obviously. Clearly, it's a very good use of capital at this point. But we also continue to work down our leverage. So we're going to do it with retained earnings and other capital that won't impact our EBITDA.

Yes, I guess I was trying to think through like 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 well below that. So there's an opportunity there to take some of that "gain" and buy back incremental shares.

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

I wanted to go back to your renewals you signed this quarter. Back in September, in your presentation, you talked about the renewal trade-out 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 2 what 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 our expectations, that was clear that, that was our expectations. Certainly, as we've mentioned earlier, 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 signed.

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.

Yes. I don't have the cap rate on the Aurora Denver held-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 of valuation, but I can get back to you on that specifically.

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 up for sale.

Next question comes from the line of Wes Golladay with Baird.

I just want to look at your #2 market, Dallas. It looks like your same-store 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.

Yes. I think in Dallas, what we're seeing is targeted markets and submarkets 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. 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 and a timing factor.

Yes. And I think yes, specifically with Dallas, I think you saw the average occupancy this quarter, up 40 basis points over the third quarter of last year. So that's a contributor to the acceleration.

And then looking at this year, you talked about your tech contributions 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, other things that we are definitely working on, and we're going to continue to expand that to continue to drive lower expenses and better property improvements throughout the chain.

Next question comes from the line of Ami Probandt with UBS.

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

Ami? Ami, are you there?

Can you hear me now?

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

Yes. 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?

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

Yes, sure. So the assumptions in guidance for occupancy was 95.5% in the fourth quarter, blended rent 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.

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 those -- what that budget will look like for next year and how significant it will be. The deliveries have come down quite significantly 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.

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

Really good color in regards to kind of supply and what's happening in your markets. Curious if you could just 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 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 rents and renewals.

Sure. I mean I think that you've heard us previously as well as a lot of our partner peers, 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 submarkets and you look at absorption levels and demand levels, it's -- in second quarter and third quarter, their peaks, right, over historical 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. A lot of our resident base that we cater to in our differentiated Class B product is not the white collar jobs that might be experiencing job losses that 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. So it's a much -- what we think more defensive in the AI era than what 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 6 to 9 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.

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

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

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

So are you seeing any labor availability issues we service for any type of employees or geographic markets?

You mean inability for us to hire employees?

Yes.

Yes. No, I would say, generally speaking, from our renovations team to our on-site teams to our corporate teams, jobs are filling kind of in the expected time frame. So there's no real concern or issue there with availability.

We've also seen a marked reduction in the turnover within our on-site teams, which is encouraging going forward.

And second question for me. 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 different between the markets, such as like shorter lease terms or higher concessions move-in timing, shifts towards the Class B product type or anything like that. And from that perspective, which markets appear more resilient versus more vulnerable to these types of tenant behaviors?

Yes. 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 -- how does the 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 kind of how the AI tools are working where you can type into ChatGPT, show me an apartment for whatever in Atlanta and how do we show up in that list of each and every time.

Today, we're ranking on page 1 of some of the Google searches, just organic searches on -- for many, many keywords. We still have more room to go, and we're going to keep pushing on that, but it's -- that's an area that we're spending a lot of time and energy on.

Seeing no further questions, I would now like to turn the call back over to Scott Shaffer 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.