Good morning, ladies and gentlemen, and welcome to the Q2 2019 Independence Realty Trust Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Ted McHugh, Investor Relations.

Thank you, Ashley, and good morning, everyone. Thank you for joining us to review Independence Realty Trust Second Quarter 2019 Financial Results. On the call with me today are Scott Schaeffer, our CEO; Jim Sebra, our Chief Financial Officer; and Farrell Ender, President of IRT. 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 PM Eastern today.Before I turn the call over to Scott, I'd like to remind everyone that there may be forward-looking statements made in 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 Security Litigation Reform Act of 1995. Please refer to IRT's press release, supplemental information and filings with the SEC for factors that can 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 the 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 direct comparable GAAP financial measure is attached to IRT's most recent 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 in 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.

Thank you, Ted. Good morning, everyone, and thank you for joining us this morning. We are pleased with the progress made during the quarter, especially our value-add initiative, which continues to drive robust same-store NOI growth of 6.9% in the second quarter. This is the second consecutive quarter of greater than 5% NOI growth, a testament to the value we're creating through upgrading our portfolio.Our strategy is unique and has been unwavering since our inception, we are working every day to amass and maintain a leading portfolio of high-quality communities in attractive non-gateway cities that demonstrate favorable supply-demand economics. It's simple, but its differentiation within the multifamily space positions us favorably for growth across varying real estate cycles. Our two primary levers of growth are capital recycling and value-add investment. Looking first at our capital recycling, I'm pleased to report that subsequent to the quarter end, we completed the sale of our two remaining communities held for sale in Little Rock, Arkansas, and acquired a 264 unit community in Tampa, Florida, a market we believe represents attractive supply-demand dynamics that directly aligns with our strategy.We will continue to review all of our communities as we work to position the portfolio with the goal of maximizing value for our shareholders. On the value-add front, we are approximately halfway through the Phase I and Phase II programs, and we are excited to officially announce the launch of Phase III. As of quarter end, we identified eight additional communities totaling 2,402 units across five markets, Tampa, Louisville, Memphis, Raleigh and Atlanta. The renovations at these Phase III communities will commence over the next 12 months, utilizing the existing value-add platforms in these markets to maximize efficiencies and returns. We anticipate spending $25 million on the renovations, and once complete, generating an incremental of $4.5 million in annual NOI.As we look at the balance of the year, we expect to continue to see the benefits of this value-add program, capital recycling initiatives and healthy middle market multifamily fundamentals that support our growth trajectory. With this expected growth, we continue to be on track to cover our dividend on an AFFO basis by the end of this year and thereafter. With that, I'll turn the call over to Farrell for a deep dive into our markets and activity during the quarter. Farrell?

Thanks, Scott, and good morning, everyone. During the second quarter, we experienced revenue growth in 16 of our 19 markets with greater than 4% growth in 12 markets. This highlights the advantages of owning a portfolio of differentiated, amenity-rich middle market communities. When looking specifically at NOI growth, our largest markets provided significant outperformance. Raleigh, Louisville and Memphis specifically, all generated NOI growth above 10%, primarily driven by our value-add communities in those markets.Looking at specific markets, Raleigh led our same-store portfolio growth by market, with NOI growth at 13.2% for the quarter and overall portfolio occupancy increasing by 4.1%. The NOI and occupancy improvement in this market is a tangible example of the positive results of our value-add investment program. Phase 1 of our value-add program included the renovation of 253 units at The Village at Auburn to date, which has driven a 17% rental increase for that community.Raleigh continues to demonstrate the core fundamentals we look for in a market with job and population growth that exceed national averages. Atlanta continues to display optimal fundamentals for our communities. We currently own six properties in this market with four in our same-store portfolio. Our communities are located in mature and fill suburban locations with high barrier to entry with three of the four communities in our same-store portfolio currently under renovation.Strong market fundamentals, combined with our value-add effort has pushed rental revenue 9.6% quarter-over-quarter, enabling us to grow NOI by 6.1%, displaying an increase in property taxes of 34%. Overall, the portfolio is performing well. Average occupancy increased slightly to 94.1%, with an increased rent of 5.3% year-over-year as we optimize our presence in our core markets. We are also producing significant rental rate growth that should generate positive performance for the rest of 2019.In the second quarter, we…

Thanks, Farrell, and good morning, everyone. For the second quarter of 2019, net income allocable to common shareholders was $14.7 million, up from $3.5 million in the second quarter of 2018. Core FFO grew to $16.9 million, up from $16.4 million in 2018. Core FFO per share was $0.19. We reported same-store NOI growth of 6.9%, with revenue growth of 5.4%, and property level expenses increasing 3.1%. As Farrell mentioned, we continue to see strong rental rate growth in our markets.On the revenue side, occupancy in our same-store communities averaged 94.1% during Q2, up 10 basis points from Q2 last year, and the average effective monthly rent was $1,062, up 5.3% since Q2 of last year. On the expense side, controllable operating expenses, while seasonally higher in Q2, are overall trending lower than our original forecast as increases in utility, payroll and contract services were not as significant as expected. We do not see these categories increasing significantly in the second half of 2019.As for our largest expense category, real estate taxes, we received assessments on the majority of our communities and believe the remaining assessments will be consistent with our expectations. Given these assessments, we expect the outcome for the year to be at the midpoint of our guidance range. Interest expense was elevated this quarter as compared to second quarter last year, primarily as a result of the timing of capital recycling activities.The year-over-year increase in G&A expenses is a result of our investment in the platform during 2019, including people and technology, which is consistent with our original guidance. We are focused on recruiting and retaining top talent to help drive future growth at IRT. The sequential increase from Q1 2019 in G&A is driven by higher expenses associated with the timing of stock compensation and some…

Thank you, Jim. As we move into the second half of 2019, we continue to be excited by the opportunity ahead and remain confident in our portfolio and strategy. We appreciate you joining the call today. Operator, I'd like to open the call for questions at this time. [Operator Instructions]. Your first question comes from Austin Wurschmidt with KeyBank Capital Markets.

Just curious, today, as you look at your cost of capital and the stock now trading at a premium to NAV, you kind of dripped out a little bit under the ATM this quarter. But just curious how we should think about your willingness to use the ATM program using forward as you look to kind of manage your leverage and become opportunistic maybe on the acquisition front.

Well, thanks, Austin. The marketplace today is very competitive on acquisitions, especially in the markets that we're focused on. We had set a goal, and we're in line to cover the dividend by the end of the year. So we're not going to do anything that might be considered or might ultimately be dilutive to those earnings. So we did use the ATM a little bit in the second quarter, as we talked about, that was money that was then directly used to fund the capital renovation -- or renovation program at the properties. And it's accretive. So I think, depending on the price and consensus NAV, because I don't want to do anything that's dilutive to consensus, any of the either. We will be opportunistic using the ATM in the future. But again, not in any way that will impact covering the dividend in the fourth quarter or would be investing that capital being dilutive.

Great. I appreciate the thoughts there. I mean, you mentioned a competitive acquisition landscape in your comments there. But you did take your acquisition guidance up a bit for the full year. So just curious how the pipeline looks today? And what you're seeing in terms of volume of opportunities.

The acquisition scenario is very competitive. And again, in the markets that we're focused on, especially in the B Class assets, everybody is chasing these 15 to 20-year-old assets with this view of value add. And it's driven cap rates down. In many instances, well below 5%. So it's actually even a little bit upside down.We're seeing A assets in these markets that are trading at cap rates that are, in some instances, as much as 25 to 40 basis points higher than B assets. So we're keeping a close watch on it. We want to be opportunistic. But it's an aggressive scenario right now for the B assets.

I would agree. And also, here, I just want to say, where we've been successful, the deal we've mentioned in Tampa is where people value our execution, and we're able to preempt at a number that makes sense for us and the seller. That was a deal that was going to be marketed, they came to us with a number, we agreed and obviously, closed.

Is it fair to say that, that was similar to the cap rate on what you closed in the second quarter?

It was a little bit lower. The cap rate on the Tampa deal was a 5.1 economic cap rate. And the deal we bought in Atlanta in April was a 5.5 economic cap rate on our year one underwriting.

Got it. And then last one for me is of the two properties you pulled from Phase 2 of your value-add program, how much does that incorporate? Or how much of the spend on Phase 2 did those properties account for?

They were two of our smaller projects, with the total capital or construction costs of $3 million, would have yielded about a $500,000 rent premium or NOI premium.

And that's $3 million in total, correct?

$3 million total construction costs.

We took between those two deals.

Your next question comes from Nick Joseph with Citi.

This is Michael Griffin on for Nick. Regarding same-store NOI, how do you see the spread between total same-store NOI and excluding the value add of the same-store NOI trending throughout the rest of the year?

Yes. I think, Michael, good question. I think, generally speaking, we would expect the trend, as you've seen it so far in the first half of the year to continue into the back half. We don't see any significant kind of alteration to that?

And regarding the timing of Phase III, I'm just curious, why you decided to announce it now as opposed to waiting for Phase 1 and 2 are closer to completion.

Phase 1 will be largely complete by the end of this year. So in the next five months. We're only doing the improvements as we've discussed on turns. So if tenants keep renewing, there will be some straggler units at Phase I properties that will carry on into 2020. But Phase 1 will be largely done at the end of this year. And we've identified it, we've started some of the work on the Tampa assets that are in Phase III. And we just thought it, we're doing it, we should announce it.

Okay. Got it. That's it for me.

[Operator Instructions]. And your next question comes from John Guinee with Stifel.

This is Aaron Wolf on for John. A quick question. You mentioned the 5.1 economic cap rate on the Tampa acquisition on year one underwriting. What does that cap rate -- what does the yield look like in year two and three, once the value-add initiative is complete and you see rent roll-ups.

Sure. In year three, once we're done, fully renovated, it's 6.2.

Okay, great.

I don't have a -- the year two numbers, obviously, in between that as we get through the renovation.

Okay, perfect. And last question for me, are you seeing any signs of softness in any of your core markets or markets that you have the slightest bit of concern about?

I would say we're watching, Louisville and Memphis are just not as dynamic as the other markets in terms of job and population growth. So given that we have a pretty considerable holdings in those markets, we're watching them very carefully. Our communities there have been performing well. But again, like I said, just with the fundamentals in those markets, we're watching them very carefully.

Thanks for taking my questions. Nice quarter.

Thank you.

Your next question comes from Craig Kucera with B. Riley FBR.

I may have missed this, but which was the asset that you're now marketing for sale here in the third quarter and kind of what's the size of the asset from a dollar perspective?

Our property in Austin, Texas, and we think it's going to sell in the $50 million to $55 million range.

Got it and as far as Phase III go, I understand you're starting it here in early 2020. But as you think about sort of pacing for that project, for that program, is that likely to take 12, 18, 24 months? Or how are you thinking about that relative to turn in those assets?

To completion or when we are going to start them?

To completion.

It would probably be about 18 months.

Okay, terrific.

Craig, I would like to -- this is Scott. I would like to just add one thing about the Austin property, you may wonder why we would be selling in Austin, when we say we're selling out of markets that don't have long-term -- positive long-term growth fundamentals. Austin clearly does, but it's so good in Austin, that it doesn't make sense for us to be acquiring anymore, and we only have one asset there. So we're really eliminating or selling that asset because it's an area where we really can't grow.

I am showing no further questions at this time. I will now turn the conference back for closing remarks.

Well, thank you for joining us this morning. We look forward to speaking with you again in approximately 90 days. Have a good day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.