Independence Realty Trust, Inc. (IRT) Q4 2025 Earnings Report, Transcript and Summary

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.