Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Independence Realty Trust, Inc. Company Earnings Second Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s presentation, Ms. Lauren Tarola, IRT Investment Relations representative. Ma’am, please begin.

Thank you. Good morning, everyone. Thank you for joining us today to review Independence Realty Trust second quarter 2017 Financial Results. On the call with me today are Scott Schaeffer, our Chief Executive Officer; Jim Sebra, IRT’s Chief Financial Officer and Farrell Ender, President of IRT. Today’s call is being webcast on our website at www.irtliving.com. There will be a replay of the call available via webcast on our Investor Relations website and telephonically, beginning at approximately 12:00 pm Eastern Time today. Before I turn the call over to Scott, I would like to remind everyone that there may be forward-looking statements made during the call. These forward-looking statements reflect IRT’s current views with respect to future events and financial performance. Actual results could differ substantially and materially from what IRT has projected. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to IRT’s press release, supplemental information and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations. Participants may discuss non-GAAP financial measures in this call. A copy of IRT’s press release and supplemental information containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is attached to IRT’s most recent report on the Form 8-K, available at IRT’s Investor Relations website and along with IRT’s other SEC filings. IRT does not undertake an obligation to update forward-looking statements in this call or with respect to matters described herein except as may be required by law. At this time, I’ll turn the call over to our CEO, Scott Schaeffer.

Thanks, Lauren, and thank you all for joining us today. I’m pleased to report another strong quarter as we continue to execute on our investment, operational and financing strategies. We reported second quarter core FFO of $13.4 million, up 24% year-over-year on the back of 5.6% same-store NOI growth. Rental rates reached a record high for our portfolio with average effective monthly rent per unit reaching $1,010, up 3% sequentially and 5% year-over-year. Average occupancy across our portfolio was very strong as well, increasing to 94.9%, up 110 basis points compared to the first quarter of 2017. Our portfolio performance reflects our commitment to operational excellence as well as our value-add initiative, both enabling rental rate growth while maintaining strong occupancy rates. The value-add initiative has been and will continue to be a key component for our long-term growth strategy. We’re continuously evaluating each community to identify areas where we can improve unit interiors, common spaces, and exteriors to reduce tenant turnover and associated costs, increase occupancy, resulting in enhanced portfolio returns. We currently have nine value-add projects underway, and we look to add additional properties to the redevelopment pipeline for 2018. In addition to value-add opportunities, we’re also evaluating our communities through a capital recycling lens, looking to dispose off assets that no longer meet our middle market quality standards and rotate capital into communities that both fit our investment thesis and represent an opportunity to unlock value. Year-to-date, we’ve executed nearly 147 million of transactional activity, disclosing off three class C properties and purchasing solid class B communities in attractive locations. During the second quarter, we disposed off three communities, totaling $59.6 million that were previously identified as held for sale, and acquired two high-quality middle market communities, one in Lexington, Kentucky and one in Raleigh-Durham of Carolina.…

Thanks, Scott. We continue to see strong performance in our key markets, stability across our portfolio, as well as a rebound in fundamentals in markets that have shown softness in previous quarters. New supply in many of our markets remains low, as a percentage of overall inventories, especially when compared to gateway markets. As I mentioned in the past, softness in the portfolio has been mainly confined to our classic A communities that have more direct exposure to new supply. We have seen this in Charlotte and Orlando markets with about average deliveries, and we’re seeing it now in Greenville. Our classic A community there has seen a decline in rents of 1.1%, as compared to last year as we work to maintain occupancy as two new competing properties have come on line and are currently in lease-up. In our top performing markets Little Rock and Charlotte, revenue has grown 9.8% and 8.2% respectively compared to last year. Little Rock’s growth comps a year after rents dipped as a result of new properties delivered in the area impacted the overall market. With those new buildings now occupied, going forward, we expect stable occupancy and normalized rent growth for our two communities. Charlotte’s performance can be attributed to the termination of a concession we offered remain competitive with the new construction, which impacted community throughout 2016. Two of the more challenging markets, Greenville, which I previously mentioned, saw 1.1% decline and Oklahoma City saw revenue growth of 1%. After couple of quarters of committing additional resources and reallocating staff in Oklahoma City, we have confidence that the portfolio is stabilized, closing the quarter with blended occupancy of 92% across our five communities with the ability to slowly start pushing rents. In our four largest Louisville, Memphis, Atlanta and Raleigh, we saw…

Thanks, Farrell. For the quarter, net income available to common share shareholders was $18.7 million and diluted EPS of $0.27 per share. Core FFO per share was $0.19, up sequentially but down $0.03 year-over-year due to an increase share account as a result of the management internalization and deleveraging that incurred in Q4 2016. Adjusted EBITDA increased up 4.3% year-over-year to $19.5 million. Our operations are strong again this quarter with total revenue of $39.6 million compared to $39.1 million last quarter and $38.3 million in Q2 2016. Same-store total revenue increased 4.3% year-over-year to $36.2 million while property level operating expenses increased by 2.2% to $14.3 million. Same-store NOI increased 5.6% year-over-year. Turning to the balance sheet. We closed the quarter with 46 properties aggregating $1.3 billion in gross assets. Our indebtedness was $765 million, down both sequentially and year-over-year as our recent capital recycling activity has helped to lower our debt exposure. Unencumbered assets, as a percent of the total portfolio count has increased this quarter to 33%, up from 29% in Q1 2017. By total NOI, unencumbered assets represented 31% of our portfolio in Q2 2017. As previously stated, we are committed to reducing our net debt to adjusted EBITDA ratio to the mid-7s in the long-term. We plan to meet our target by growing NOI organically and strategically resetting capital, using those gains to further grow NOI. For the quarter ended June 30th, this ratio was 9.7 times. However, adjusting for acquisitions and dispositions that occurred in late in the quarter, our pro forma ratio is 9.5 times. As we move into the second half of the year, we’ve updated our guidance for fiscal year 2017 as outlined in our press release, and I will highlight some of the key metrics as well. Given our strong…

[Operator Instructions] Our first question or comment comes from the line of Drew Babin from RW Baird & Company. Your line is open.

I was hoping if you could talk about the specifics behind significant decrease in property tax growth expectations for this year. Was that the result of appeals coming in successfully? I was hoping you could us through that.

It’s both, the combination of appeals coming in successfully and the initial assessments coming in lower than what we forecasted originally.

And then quickly on G&A. During the quarter, with shared services agreement, how much did shared services agreement impact that? And I guess absent that, is the remaining G&A number kind of a good run rate going forward?

Yes. I mean, the G&A that we presented on the face of our financials for the six months ended June 30, was $4.8 million. I’ll make sure you know that that includes about $1.1 million of stock comp expense. So, when you remove the stock comp, it’s about $3.7 million for the year to date, and that’s kind of pretty much of good run rate for the full year in terms of roughly 7.4% or $25 [ph] million.

And then, transaction market right now, just curious what are you seeing across your regions. Is it mostly lease-up deals are hitting the market or is there a significant base of core deals at pricing that’s reasonably attractive?

We have a pretty healthy pipeline. I think it’s representative of what we did this past quarter. We targeted specific markets like Tampa and Raleigh, which we bought in over the past year and there’s plenty of opportunity out there. It’s our job to get out there and find it. And I think this quarter has been pretty representative of what we’ve been able to buy.

Our next question or comment comes from the line of Craig Kucera from FBR Capital Markets. Your line is open.

I appreciate the color on the redevelopment. But, can we kind of go back through that, kind of what you’re expecting to get through in 2018, because I think my notes were a little bit jumbled up?

Sure. So, we have nine properties that total 1,600 units that are going to be -- in the process or going to be renovated throughout -- the remainder of this year and throughout 2018. And then, beyond that, we’ve identified another eight properties, approximately 2,500 units that will start Phase 2 sometime in 2018. It’ll take another year to fully renovate these properties.

Got it. And so, the first nine properties, I think you mentioned, you’ll be spending in average of maybe $6,700 a unit, is that roughly what you think, you might spend on the other properties, once you start them -- if you start them?

Yes. We’re estimating 5,500 on average for upgrades on that second base.

And just going back to the guidance. When you look across the board, your revenue expectations are higher, your expenses are lower. Will you be conservative earlier this year or have you seen some real market strengthening?

Yes. We’re heavily being conservative. We have seen -- continue to be above our guidance in terms of same-store, so we’ve seen some market improvement than we were originally focused, but we’re certainly conservative, and we’re certainly at point of the initial guidance.

Thank you. Our next question or comment comes from the line of Dan Donlan from Ladenburg Thalmann. Your line is open.

Jim, I just wanted to go back to the guidance question. You guys did $0.19 in the quarter. So, just kind of curious, if you get to the low and the high end, you get to the low and you have to see kind of reduction in kind of that run rate. So, I’m just curious what’s driving that. It feels like the timing of the asset sales and acquisitions in the second quarter actually help you going forward. So, is it just simply that the crossing sales, is that kind of what is potentially driving the run rate down -- towards, if you’re looking at the low end?

Basically, yes.

Okay. And so, your acquisition guidance, you’ve already hit it 87 million. What are your thoughts there in terms of looking at new properties going forward?

This is Scott. We are always looking for new properties. But, we’ve maintained and continue to be focused on the fact that we’ll grow when we can do it accretively to earnings and continue to ratchet down the leverage. I don’t want just to grow for the sake of growth. So, we have, as Farrell mentioned, we have a nice pipeline of deals that we’re looking at. However, it’s just that at this stage. And if we identify additional assets that we feel appropriate to recycle out of, then we would look to tap that pipeline to replace those earnings. The final property, C property that we have to sell, since we have now met our acquisition guidance, when we sell that, that final asset, those proceeds will go to reducing leverage.

And then just curious on the remaining exposure on a class -- as a percentage of NOI, class A, class B, class Sales -- you’ll be out of the class C, when you sell it across. If you sell that, where do you stand on an exposure based on NOI?

On an exposure to Class C will be out of…

Just class A and B?

Yes. So, class A represented about $8.4 million of our quarterly NOI for Q2 and class B was $13.5 million.

And then, just lastly, just going back to the acquisition questions. The properties that you purchased this quarter, it looks like their construction is early 2000s. Is that kind of the vintage that you guys are going to be looking at on a go forward basis or is stuff still last, call it 5 to 7 years on your radar screen or stuff maybe even in the 90, just kind of curious there as how we look forward?

Sure, Dan. It’s Farrell. Ideally that is what we are looking for, late 90s, early 2000 product that has nice ceilings has decent finishes. We can go in there and do, like we’ve talked about, amenity upgrades, and club house, fitness center, park, things like people kind of expect today and just have good clean units. And in the case of these two, South Terrace we feel has a really strong value-add component; we managed it for a while and know the property and have it for -- to a lesser extent, and we can do a smaller value-add and generate a significant returns.

And then, sorry, last one on the value-add, how long of a tail does this program have? Do you feel like you’ll be re-having properties through 2019 as the current portfolio exists? Any color there would be helpful?

Yes. So, to get through everything we’ve identified, what we do through 2019 and then we will continue to evaluate the portfolio. I mean, as it ages, will some properties be added to the list, probably. We will continue to evaluate the portfolio.

Thank you. Our next question or comment comes from the line of Brian Hogan from William Blair. Your line is open.

Quick question on the leverage, it was 9.5 times pro forma. Was that pro forma for crossing, I think I catch that, and then as a follow-up…

Yes, it was not pro forma for crossing, just pro forma for the three transactions, the two sales -- I am sorry, the four transactions three sales and the one acquisitions -- the two acquisitions that we did in the quarter. So, once crossings comes in, the net debt to EBITDA should kind of perform into the 9.3 and 9.4 times on a go forward basis.

Okay. And then, you mentioned your target has been around 7 times. How long do you think it takes you to get there home?

It really depends on the NOI growth. I mean, NOI growth is the key driver of it. But our model suggests, it’s kind of end of 2019 timeframe.

All right. And then, actually on the NOI, it’s margin expansion, and where do you think the margin can go from here? Is it into the low 60s, what timeframe over the next several years?

Again, it’s product NOI growth, I mean you’re not going to see it. We have probably couple of more percentage points to go with, I don’t you think you’re going to see it, the high 60s.

Not in low 60s or I guess….

On the high 60s.

Low to mid-60s is where it will be. Obviously running a class B portfolio is little more expensive than class A and the rents aren’t as high per unit or per foot. So, the margins we think will pop out in the mid-60s.

Okay, thank you. Just to the ability to push rents, obviously you are doing the renovation type and value-add items. But just in general, are you seeing same ability to push rents in your 3% to 5% and how long do you see that persisting?

I mean I can’t predict how much longer we will see it but looking forward for the rest of the year. I mean we have the outliers, as I mentioned both on a high end, low end of the spectrum. But the portfolio in general, in terms of revenue growth is falling between 2.5% to 5.5% pretty consistently.

We believe it’s a function of the supply-demand dynamic. And in our markets, we’re really not seeing an increase in supply; demand has maintained -- has been strong. We continue to see population and job growth And as all that continues, we should be able to continue to push rents.

Last one for me. Have you seen any shifts in the monthly turnover for whether the home ownership or whatever is -- what are the factors driving any shifts in the market turnover?

It’s been pretty consistent that we have move-outs, about 20% for home ownership and about 20% for relocation or job transfer. Again, it may fluctuate a percentage point here there, but generally that’s what people are normally going for.

That’s been pretty steady.

Yes.

Thank you. Our next question or comment comes from the line of [indiscernible] from Deutsche Bank. Your line is open.

Quick question on the cost of capital. Just like with the share price where it’s today, are you -- any intent to maybe delever more aggressively? When would you be comfortable with maybe doing something like that?

Well recognize that our leverage is higher than we want it to be and higher than it will be as we continue to move forward. But it still is very dilutive to delever the balance sheet through additional equity raises. So, our plan had been, as Jim mentioned, to deliver organically as NOI increases but also as we acquire new assets to equitize them a little more than we have in the past and through that process ratchet down leverage even more. So, that’s the plan.

Got it. And then, I guess you’re trying to recycle out of the class B assets. Are there any markets in general that you want to be out of that you have a concern for 2018 or 2019?

Well, just to be clear, we’re recycling and have recycled out of the class C assets, not Class B. Class B is our focus and that’s where you will see additional growth moving forward. There are some markets and we continue to evaluate the portfolio as a whole. And markets where we have some limited exposure and we don’t intent to grow into, more likely than not in the future will be markets that we exit. But we have not made any determination at this point.

[Operator Instructions] Our next question or comment comes from the line of Steve Shaw from Compass Point. Your line is open.

Hey, guys. What was the CapEx budget for Phase 2 of the value-add?

$14 million for Phase 2.

Thank you. I’m not showing any additional questions at this time. I would like to turn the conference back over to management for any closing remarks.

Thank you for your continued interest in IRT. We appreciate you joining us today and hope to speak with you in the near future.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.