Ladies and gentlemen, thank you for standing by. My name is Tess and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Maddy Zimba [ph]. You may begin.

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust third quarter 2024 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, Chief Financial Officer; and Janice Richards, SVP of Operations. Today’s call is being webcast on our website at 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 p.m. Eastern Time today. Before I turn the call over to Scott, I’d like to remind everyone that there may be forward-looking statements made on this 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 during this call. A copy of IRT’s earnings press release and supplemental information containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most direct comparable GAAP financial measure is attached to IRT’s current report on the Form 8-K available at IRT’s website under Investor Relations. IRT’s other SEC filings are also available through this link. IRT does not undertake to update forward-looking statements on this call or with respect to matters described herein, except as may be required by law. With that, it’s my pleasure to turn the call over to Scott Schaeffer.

Thanks, Maddy and thank you all for joining us this morning. I would like to begin the call today by thanking our on-site teams for their integral role in ensuring the safety of our residents and communities affected by Hurricanes Helene and Milton. I’m happy to report that all of our residents and employees are safe. We did not experience any significant damage from the storms and there are no down apartment units. And now on to the results. We delivered solid third quarter results with same-store NOI growth of 2.2% and core FFO of $0.29 per share. We continue to operate in an uneven macroeconomic environment characterized by new supply and the effects of inflation on controllable expenses. Despite these conditions, we remain focused on driving occupancy gains while executing on our strategic initiatives. In the third quarter, our average occupancy was 95.4%, 90 basis points higher than the third quarter of last year. This was driven by our resident renewal rate of 66% and our resident retention rate was 57% in the quarter. As we’ve stated throughout this year, we have been focused on growing occupancy while balancing rental rate growth and targeting concessions to maximize leasing economics in this environment. During the third quarter, we continued to experience pressure from new supply, which is impacting new lease rent growth. Our blended rental rate growth was 0.8%, with new leases down 3.6% and renewals up 3.8%. We expect continued strong renewal rate growth in the fourth quarter as we have signed approximately 91% of expected renewals for October and November, and have achieved an effective rental rate increase of 5.3% on signed renewals. And our occupancy momentum continues as same-store occupancy was 95.7% as of October 29, a 30 basis point improvement over our third quarter average, with…

Thanks, Scott, and good morning, everyone. Beginning with our third quarter performance update, net income available to common shareholders was $12.4 million, up from $3.9 million in the third quarter of 2023. Core FFO was $66.8 million and $0.29 per share, both just below a year ago due to our asset sales, which were completed in connection with our portfolio optimization and deleveraging strategy. As a result of these asset sales and deleveraging, we are also happy to report that our net debt to adjusted EBITDA is now 6.3x, down from 7x a year ago, and we remain on track to be at the 6x net debt to adjusted EBITDA by year-end. IRT same-store NOI growth in the third quarter was 2.2% driven by revenue growth of 2.5%. This growth was led by a 1.2% increase in our average monthly rental rates to $1,566 per month and a 90 basis point increase in average occupancy to 95.4%, both as compared to Q3 of 2023. On the operating expense side, IRT same-store operating expenses increased to 2.8% during the quarter. This increase was primarily due to higher personnel costs and higher repairs and maintenance and utilities costs, all driven by continued inflationary pressures. These increases in some controllable operating expenses were offset by year-over-year declines in real estate taxes and property insurance in Q3, reflecting the notable progress we’ve made in these areas. As noted last quarter, we renewed our main property insurance policy in May and saw a 10% reduction in our premiums without changing our deductibles or coverage. For real estate taxes, assessed values have come in lower than we anticipated in State Site, Texas which is 7% lower; Florida, which is 13% lower; and Indiana, which is 11% lower, and all of those states reassess annually. The remaining…

Thanks, Jim. Our performance in the third quarter gives us a great foundation to continue driving growth across the business and to achieve our 2024 guidance. In the fourth quarter and into next year, we will remain focused on solidifying our position in attractive markets, driving high occupancy and rental rate growth, executing our value-add renovations and our capital recycling strategy and delivering shareholder value by returning capital to our shareholders and further strengthening our balance sheet. I would like to close my remarks by thanking the IRT team for their hard work and dedication that made these strong results possible. They continue to remain focused on driving forward our strategic initiatives and delivering value for our residents and shareholders. We remain confident in our ability to achieve a solid performance throughout the rest of 2024 and beyond. We thank you for joining us today, and we look forward to speaking with many of you at NAREIT’s REITworld Conference in the coming weeks. Operator, you can now open the call for questions.

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

Austin?

Austin, you may want to un-mute your line.

Let’s go to the next one operator.

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

Hey, good morning. Can you guys hear me?

Yes. Good morning.

Thanks. So, obviously, you firmed up the use of proceeds for a lot of the equity deal at this point. I am curious just at the current cost of capital and the opportunity set that you see right now, are you interested in re-upping and pursuing more acquisitions in 2025 or was there something unique about the opportunities that you were seeing when you did that deal.

It wasn’t unique other than we felt that there were good assets in markets where we wanted to expand that could be bought with cap rates that were accrued related to our cost of capital, and that’s why we set out to raise the capital. We didn’t have anything under contract at the time, but we are quickly able to put together a pipeline and identify these three communities, again that we think will be added to the portfolio. And got them under contract, and they are working through due diligence now, and we expect them to close in the fourth quarter.

Okay. But just the opportunities that more broadly in this, or what was this – was this just like sort of unique deal fits that in.

There is opportunities out there and we are seeing a lot of them. We want to be judicious on our use of capital and make sure that everything that we did was accrued into both an NAV and an earnings point of view. So, we would be patient and we will transact them to make sense. But there are transactions out there today.

Okay. Got it. The September renewal spreads are the highest of the year, but the newly spread is the lowest. It does seem like you have confidence in that renewal rate continuing to be above five through November. But how do you feel about the ability to maintain that spread of close to 10% between new and renewal?

We are seeing that also through December in the renewal rate, even a little bit higher in December. Now, it’s early, and we only have, I think 40% of our December renewals. We have about 30% of outstanding [ph] leases have renewed in December, and that will end up in the low-50%s. So, there a good chunk of the December renewals are already in and there as I have said during the high-5% to 6%, so we feel good about it.

Okay. Thank you.

And our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Hey everybody. Can you hear me now?

Yes, we got it.

Good morning. Alright. Perfect. Sorry about that little bit of a technical issue on our end. Just wanted to hit on, if I didn’t – if you didn’t ask this – if somebody didn’t ask this already, but last quarter, you had estimated the earn-in around 90 basis points expectations, obviously for the latter half have shifted a bit. Can you just share what the updated thoughts are of where you expect earn-in to shake out heading into next year?

Yes, basically where we are today and kind of what we think will continue to happen, as Scott just mentioned for November and December, we think the earn-in for next year will be approximately 50 basis points.

Thanks for that. And then just with respect to the operating strategy, where would you guys like to grow occupancy to? And I guess to the extent conditions do improve on the ground, at what point does it really make sense for you to switch back to pushing right again?

We are basically there, Austin, unhappy at 95.5% to 96% occupancy. That’s where we are. So, our strategy going forward will be to maintain that and to have then a more balanced approach to rent growth going forward.

And just last one for me. I guess based on what you see from a supply perspective in front of you, when do you think you could start to see new lease rate growth turn positive?

Yes. I mean I think the supply growth that I think we all wisely believe based on the data that’s been CoStar and Yardi Matrix [ph] for 2025 will be significantly lower than 2024. So, I think you are going to start seeing that new lease kind of trade out, improve quite rapidly throughout the beginning part of 2025. I don’t know, Janice, feel free if you want to add anything else. But I think generally speaking, we are quite bullish on the ability for that supply to benefit the new lease growth going forward.

Absolutely. We are seeing signs of that already within kind of the asking rents starting to creep up. So, we are looking for that flow of new supplies diminish and we are ready to take advantage of it.

Helpful. Thanks everybody.

Thank you, Austin.

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

Hi. Thanks. I guess looking at your sequential same-store revenue increase was 1.2% this quarter. It looks like 70 bps of that was from increased rate, occupancy was I think flattish quarter-over-quarter. So, I was just curious what’s driving the other sort of 50 bps of that improvement sequentially?

Yes. It’s both bad debt expense and other income growth.

Got it. Okay. So, I guess that leads me to the next question, which is I know it’s still early, but if you have any thoughts on some of those items for next year because, I guess at least for bad debt, you are probably ending a little bit over 1.5% on bad debt, that creates a little bit of embedded growth. Just curious if there is other income growth or anything else that you could talk about that we should be thinking about for next year in terms of your same-store revenue?

Yes. I mean I think we are not ready to give guidance, obviously for next year just yet. I would say that largely speaking, sure, we are working on continuing to move bad debt lower. We are looking at additional kind of amenity offerings to increase other income growth, all of those great things. I would say the market rent growth is one that I am waiting for someone to ask that question. The CoStar and Yardi Matrix of the world kind of show market rent growth in the kind of the 3% to 3.5% range. So, that’s probably the only bit of data point that we would say, that’s out there because everybody can download that information and get it. But I would say that’s probably one of the bigger building blocks for our revenue growth for next year. And as Scott mentioned, with a more stable occupancy, we are going to be able to have a more balanced approach to rate growth.

Got it. Thank you.

Next question is from John Kim with BMO Capital Markets. Your line is open.

Good morning. So, your lease rate renewals were strong and rebounded well so far this quarter. The new lease rates probably were below expectations, bringing down the total. Were there any markets that surprised you as far as new lease rates not coming in lower than expected? And how does that compare versus – Jim, you just mentioned market forecast of 3% to 3.5%. I mean do you think there will be a lingering impact of supply on new lease rates going forward?

Sure. I will take that one. So, I don’t believe we saw any negative impact. I think we didn’t see as much lift as we were hoping for on the new lease rates based on the seasonality and a little bit of a layover from leasing season into October, in which we were able to push through that additional supply and see that boost in occupancy, which allows for us now to be poised for the pricing power moving forward. Again, on supply, the majority of our supply as in Q1 in most of our markets, and we are pretty confident with the continued pricing power through next year in order to get in and around kind of what the market is anticipating.

Okay. And then can I just ask on your recent acquisitions, you mentioned it’s 6% stabilized. How long did it take to get there? What’s the going-in yield? And are these – as far as these assets, are they new developments recently completed, or are there potential for value add, and if you can just provide some characteristics on them?

Sure. So, two of the three are new constructions delivered in early 2024, the one in Charlotte and one in Orlando. They are both finishing their lease up, and those are the ones that are about 85% occupied and will be stable in the first quarter of 2025.

87% occupied.

87% occupied, excuse me. The third is a smaller asset adjacent to one of our existing communities in Columbus, Ohio, that’s a bit older and will be prime for our value-add strategy.

The yield seems a little bit higher than what we heard in the market?

Well, I think – well, one, I think having capital available and moving quickly and knowing the market so that you can shorten the due diligence time is all a benefit and gets you better execution. And also there is always a small benefit. At least we have always been able to achieve a small benefit, when you are willing to take some lease-up risk. So, when we put these under contract, they were in the lower-80% occupied, that continues to grow, but we are seeing that we get a better price because we are taking that little bit of risk. And again, it’s not really a risk for us per se because we know the markets and we know – we understand the assets.

Great. Thank you.

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

Hi. Good morning everyone. A couple of quick ones for me, first of all, how should we kind of think about potential new development starts? Again, you have improved liquidity. You look – it sounds like you have a better cost of capital. Congrats on the S&P investment-grade rating. But are you kind of at the point now where you can actually start a new project, or does it – is cost of building still kind of prohibitively high relative to rent?

This is Scott. It’s still not something that we are looking to do. We – again, we completed the two ground-up construction development deals that we inherited from Steadfast in the merger. But as we continue to look to deleverage the balance sheet, we like buying stable, very, very close to stable performing assets. And I am not ready to add development risk to our balance sheet at this time.

Yes. That’s helpful. And then if we could talk about insurance a little bit. Again, it’s a good year for you guys in regards to insurance. But there was one thought to kind of think about next year, again it’s – hopefully, it’s not too early to start thinking about next year. Just given everything we have seen with hurricanes and the payouts all the insurance companies have to make, is there a risk that they kind of ratchet up premiums in 2025?

Great question. We have gotten this a few different times. And obviously, the insurers are going to use all of these severe weather events as a reason for rates to increase. I would say that over the past few years, as premiums have increased, insurers have come back to the marketplace. So therefore, the competitive edge that you have as a purchase of reassurance is beginning to kind of flow back. Obviously, it’s still way too early to tell for next year our renewals not until mid-May, we do have a blanket policy and we have not had any losses this year that we have put on to our insurers, which will really help us in that kind of negotiation, knock on wood. But we are quite happy with where we sit today. And obviously, next year is still a bit of a question mark, but we are – we think we will have a good negotiating like next year.

Okay. One more, if you don’t mind, the preferred investment that’s going to be recorded in 4Q, could you just – do you say, it’s going to be a $0.01 impact or a $0.03 impact, I wasn’t sure I heard that correctly?

Yes, it’s $3 million. It’s about a $0.015 benefit to core FFO per share.

Thank you.

Our next question comes from the line of Ann Chan with Green Street. Your line is open.

Hey. Good morning. Could you share what you are seeing in terms of sessions from competitors for markets you previously noted with higher supply, competition, Atlanta, Raleigh, Nashville, etcetera, and how that’s been trending in recent months?

Absolutely. So, we – as we have noted, we have got the high supply that we are challenging in Raleigh, Atlanta, Dallas and Nashville. We have seen a little bit of an ebb in Dallas, which make us hopeful next year’s growth could be close to and/or in line with what CoStar and Yardi are anticipating. Atlanta has pretty much stayed consistent, especially in our submarkets with concessions. We have had the ability to pull back in some areas. We still are very targeted with our concessions. We review them and adjust them accordingly on a weekly basis based on how we can optimize net effective rents. And so again, we have not seen much change. We are hoping to see a little bit more change in November, December as we see the supply start to ebb. Delivery is again – sorry, deliveries, again start to subside more in Q1. And so that’s where we are going to start to see the concessions really start to pull back.

Thank you. And specifically for Atlanta being one of your largest markets, could you share what you are seeing on the ground there operationally and update on the progress in recent months subsequent to the third quarter.

Yes. So, although Atlanta still is relatively challenging, we have seen a bit of an upswing. On our blended for Q3, we were at a negative 1.1. For October, we are at a positive 1.3 on the rents side. So, that’s definitely going in the right direction for us. Occupancy year-over-year, we have had a 2.4% increase, which we will then be able to maintain. And so based in month-over-month, we were able to get another 50 basis points in growth there. So, Atlanta is definitely on the upswing comparatively. But we will still see challenges with bad debt. On the core side, we are still seeing a bit of delay, not as much as we saw maybe coming into ‘24, and we are hopeful that, that will subside even more in ‘25 as the courts start to catch up and we start to utilize all different aspects in order to minimize that bad debt.

Great. Thank you.

And our last question comes from the line of Linda Tsai with Jefferies. Your line is open.

Hi. Thank you. A follow-up on insurance, do you see institutional owners taking on higher deductibles to help offset the impact of higher insurance costs? Do you think this is a growing trend?

I don’t know if it’s a growing trend. I have said that – we said in the past, when we did our renewal back in May, we didn’t change our deductibles. We did not take that high deductible. Obviously, you are always willing to look at taking a high deductible to see is that much, if not more, in premium dollars. We have heard some people doing that as a way of managing their premium, but I don’t have any real kind of clear anecdotes as to what percentage or how much they are doing. But we haven’t to be clear.

Thank you.

That concludes the question-and-answer session. I would like to turn the call back over to Mr. Scott Schaeffer.

Thank you all for joining us this morning. Again, we look forward to seeing some of you in Las Vegas at the NAREIT Conference. And otherwise, we will speak to you next quarter. Have a good day.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.