Thank you for standing by, and welcome to the Independence Realty Trust Fourth Quarter and Full Year 2020 Earnings Release call. Please be advised that today's conference is being recorded. Thank you. I would now like to hand the conference over to Lauren Torres. Ms. Torres, please go ahead.

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's Fourth Quarter and Full Year 2020 Financial Results. On the call today with me are Scott Schaeffer, our Chief Executive Officer; Jim Sebra, our 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 approximately 12:00 p.m. Eastern Time today.

Thank you, Lauren, and thank you all for joining us this morning. 2020 was a year like no other for our company, our industry, and our country. We were faced with unexpected challenges brought on by the global pandemic. But due to the perseverance of our team and focus on accomplishing our objectives, we were able to deliver strong fourth quarter and full year results and better position our company for long-term success. We prioritize the needs of our people, which included protecting the health and well-being of our residents and employees, while providing flexibility to those residents demonstrating financial hardship. We focused on growing occupancy and driving leasing traffic, while sustaining our financial flexibility and lowering leverage, thereby strengthening our balance sheet. As a result of successfully executing against these priorities, our same-store average occupancy increased 250 basis points to 94.9% in the fourth quarter on a year-over-year basis, with average effective monthly rent per unit growing 2.6% in the quarter. We have collected 98.7% of fourth quarter rents. Our same-store NOI increased 4.4% in the fourth quarter and 3.1% for the full year compared to a year ago. Our core FFO improved more than 10% in the quarter and for the full year 2020. And we notably reduced our leverage this past quarter having normalized net debt to adjusted EBITDA of 8.2 times at year-end. Reducing our overall leverage has been a long-term objective of ours, and I'm very pleased that we were able to make meaningful progress against this commitment during the year when we faced unprecedented market conditions.

Thanks, Scott, and good morning, everyone. We are pleased to report that IRT closed out 2020 with strong fourth quarter results, led by the diligence of our on-site teams. Due to our ongoing effort to support resident retention and build occupancy during the pandemic, our occupancy grew substantially in 2020 and was 95.3% at year-end. We continued these efforts into 2021 and have sought to support occupancy, ending January at 95.4%. On a lease-over-lease basis for the same-store portfolio during the fourth quarter, new lease rates increased 4.5% and renewals were up 1.6%, yielding a combined lease-over-lease rental rate increase of 3.3%. Strong trends continued in the first quarter-to-date, with new leases having increased 7.7%, led by our value-add communities, while renewed leases are up 4.4% with a blended lease-over-lease rental rate increase of 5.4% for our same-store portfolio. While we are encouraged by these trends, we are also cautious as we continue to manage through the pandemic, and therefore remain focused on maintaining occupancy. Given our occupancy in the fourth quarter of 2020 and into the first quarter of this year, we've taken a targeted approach to renewal rates at communities where we have high occupancy and very little exposure. We remain optimistic about our initiatives behind our value-add and capital recycling programs, which both experienced a pickup in activity in the second half of last year. First, on our value-add program, we completed renovations on 230 units in the fourth quarter and 1,004 units in the full year, realizing average rent premiums of 21% in the quarter and 18.8% in 2020 as compared to un-renovated units.

Thanks, Farrell, and good morning, everyone. Today, I'd like to begin with an overview of our fourth quarter and full year 2020 results, then provide a brief review of our balance sheet and capital structure, and wrap up with a discussion of our 2021 guidance. Beginning with our 2020 performance update. For the fourth quarter of 2020, net income allocable to common shareholders was $13.3 million, down from $23.8 million in the fourth quarter of 2019. The decrease was due to $9.4 million of gains on the sale of real estate assets in the fourth quarter of 2020 as compared to $20.7 million of gains on the sale of real estate assets in the fourth quarter of 2019. For the full year 2020, net income allocable to common shareholders was $14.8 million, down from $45.9 million for the full year 2019. Similarly, the decrease was due to the gain on sale of real estate assets of $7.6 million in the full year 2020 and $35.2 million in the full year 2019. During the fourth quarter, core FFO grew to $20.8 million, up 11.7% from $18.6 million in the fourth quarter of 2019. Core FFO per share during Q4 was $0.22, 10% higher than Q4 last year, at $0.20 per share. For the full year, core FFO grew to $75.9 million, up 10.8% from $68.5 million in 2019. Core FFO for the full year was $0.80 per share in 2020, up from $0.76 per share for the full year of 2019. Turning to our same-store property operating results. NOI growth in the fourth quarter was 4.4%, driven by revenue growth of 5.4%. Rental rates increased year-over-year with an average monthly rent of $1,117 this quarter, up 2.6% since the fourth quarter of last year, and has accelerated to an annualized 4% growth rate sequentially from the third quarter. While this included value-add communities, we did see rental rate growth at our non-value add same-store communities, with rental rates in Q4 increasing 120 basis points over the prior year. For the full year 2020, same-store revenue grew 3.6%, almost entirely driven by the 3.4% increase in average rental rates. We have collected 98.7% of our fourth quarter billings, and we have collected 99.3% of our 2020 billings. As a result, we have evaluated our outstanding receivables for collectability to increase our reserve for bad debt by $124,000 during the fourth quarter to a total of $927,000. The $927,000 reserve for bad debt recorded as of December 31st reduces the future risk of any billed revenue that we have not yet collected.

Thanks, Jim. In closing, I would like to highlight that our strong full year results reflect IRT's commitment to retain residents, maintain high occupancy levels and provide quality homes and communities during a time of uncertainty. We're proud of the efforts of our team and thank them for their dedication. Looking ahead, we remain confident in our operating and investment model that was built not only to weather near-term volatility, but also to grow and strengthen over time. We thank you for joining us today and look forward to speaking with many of you at Citi's Global Property Conference in early March. Now - operator, we would now like to open the call for questions.

Certainly Neil Malkin with Capital One Securities. Your line is open.

Hi. Good morning, guys. Thank you for taking the question and nice quarter. First one, you mentioned -- sorry, JV -- commentary on JVs, potentially other structures to more aggressively pursue acquisitions. Can you just maybe elaborate on that? And then why that seems like an appropriate endeavor given your favorable stock price currently issuing equity to delever and grow as opposed to doing, sort of, I guess, complicated JV structures?

Well, thanks, Neil. Well, first, we don't look at it as being overly complicated, and we do look at it as an additional avenue to grow. I'm confident or I'm comfortable looking at it at this time relative to looking at it in the past when we were able to just go out and acquire properties directly because I think I've mentioned this in prior calls that some of the values and cap rates and pricing of our historical type asset, the B plus, A minus, some of the prices are, we think, getting a little bit sloppy. So you look at the situation where you can buy brand new at very similar cost to what people are paying for 12- to 15- to 20-year old product. And we think there's a real opportunity now to have some new construction within the portfolio. So not only do we see this as being a benefit pricing-wise, but we also see it as a way to build pipeline for future growth. It's a situation where the company is now, with the delevered balance sheet, I think, in a stronger position, and we're willing to take on some limited risk at this time.

Yes, that makes sense. Just to clarify, that's -- is it mostly focused on development or just sort of newer five years or younger vintage? Yes, I know you mentioned preferred. So how does that go in terms of priority for you?

It's both. I mean we're looking at both. I mean, we're going to look at what is giving us the best risk-adjusted returns. But we haven't done any transaction yet, and that's why we said we're exploring.

Got it. Okay. Other one for me. Just in terms of guidance, it seems, to be honest, pretty conservative just given you're accelerating from already strong levels of blended leasing spreads. Obviously, you've taken your balance sheet to, I think, the lowest leverage in your history. So congrats on that. But do you -- I mean -- I guess how do you -- what position do you take to sort of get to that current range? I mean, just given kind of the things you've talked about on the call in terms of strength, in terms of what you're looking at from a growth standpoint, in terms of favorable stock price to get you to the current range and not a little bit higher?

So I'm going to let Jim answer the question completely. But I just want to start out with saying that we feel that we're in a very, very good place right now. Our portfolio is well positioned. We're in the area of the country that's growing, jobs and population with limited regulations, but there is still some uncertainty, so the eviction moratorium's still out there. We don't know how long it will be. We don't know how it will end. We've done a very good job of collecting rents, and we continue to collect rents from last year and from January still to this day, as people are able to catch up. So again, we feel we are in good place, but there is some uncertainty, and the guidance we put out, I think, reflects a little bit of that. Jim, do you want to expand on this?

Yes. No, I think that's absolutely right. I mean I think we've done a good job of continuing to build occupancy. We feel like we're in a strong position. But there is aspects of the next few months that are unknown and certainly time will tell. As Scott mentioned, collections continue to be good, velocity continues to be good, good rent growth so far in the month of January, and specifically the first quarter, but we're just being cautious about kind of what the aspects were that we don't know. As Scott mentioned, we did a nice job of collecting so far January rents, and we continue to collect rents every day for January. And January rents are actually slightly -- the collection is actually about 30 basis points better today than they were as of yesterday. So life continues to improve and, obviously, we will continue to evaluate market conditions and update guidance throughout the year as time unfolds.

Okay. Thank you, guys.

Austin Wurschmidt with KeyBanc. Your line is open.

Hey, good morning. Thanks, guys. Yes, I just wanted to hit again on some of the new news around the preferred equity and joint ventures. And just hope you could talk a little bit more about how you're underwriting these deals? And how large this investment or platform could become as a percent of enterprise value or however you're thinking about it? And then you also mentioned that this is a source of potential future acquisitions and help building that pipeline. But how much would you guys be willing to expand into kind of more A type assets, as this really hasn't been the focus historically?

Thanks, Austin. So we've identified or targeted no more than $100 million at this time for this program. We think, ultimately, it would be and will be very accretive as far as new construction and is not being what we've done. Remember, we were looking at in both portfolio of fee assets really because we felt that it was a better investment -- better long-term investment with better opportunities for good share accretion and growth. That equation becomes a little more difficult to say when you see, again, 15- to 20-year-old product trading in some of our markets forecast. So we look at it as a good alternative way to allocate capital at higher returns and a way to continue to grow within the markets that we like. And as far as the competition, don't forget the areas that we are in, sunbelt, are growing tremendously. I mean there's one report out there that there will be a $19 million -- 19 million, excuse me, people of population growth in the sunbelt region over the next 10 years. Well, that's 19 million homes that's on access. So we think there's an opportunity. Obviously, it's going to be somewhat limited. As I said, we're still exploring. We haven't done anything. But we think it could be a very good way to allocate capital accretively, again, looking at risk-adjusted returns, but not getting out for our seats. We're going to do it in a limited and measured way, and make sure it's the right thing to do for our company.

Got it. And I certainly think it could make a lot of sense. I appreciate the thoughts there. So as we think about kind of funding this investment, you guys did issue some shares under the ATM, some additional shares under the forward program. And curious what your thought is on how much appetite you have to do anything additional there on that front? And kind of related to, I guess, funding these initial -- this initial preferred equity investments, either through the ATM or just capital recycling?

So we're looking at it really as part of the capital recycling initiative, that we're not going to go out and issue equity in order to fund this, but it would be part of the capital recycling. But again, money is fungible. So we are -- we do think there's opportunity for growth, notwithstanding the sloppy cap rate environment. We have very good relationships. We continue to monitor them. We have the ability to execute and transact quickly, which some sellers want. And we will continue to take advantage of those opportunities as we have in the past. But this is just an alternative use of capital and nothing different, and quite early as it will come from the recycling program.

Got it. Thank you for the time.

Thank you.

Nick Joseph with Citi. Your line is open.

Thanks. Maybe just following up on that. It's obviously nice to see the leverage progress that we've made so far. But when do you expect to get to the target of mid-7 and given guidance and the new announcement this morning, where do you expect leverage to be at the end of 2021?

Nick, thanks. As it relates to our mid to -- low to mid-7s target, we're still on target to hit that by the end of 2022. I think we'll continue to make progress on that front between now and the end of 2021. And obviously, we'll continue to work everything we can to kind of grow those earnings and reduce that net debt-to-EBITDA through just normal accretion. Obviously, there is aspects of future growth. It's still a little bit unknown, and we'll just continue to just moderate and update guidance throughout the year as that comes through.

And so what is the current guidance for the end of the year?

It's a slight downtick to the kind of upper 7s from where we are today, about 8.2%.

And then just following up on the -- on kind of the JV or this new external growth opportunity. Why is now the right time, not necessarily from the opportunity, but just given the uncertainty still from COVID and the eviction moratorium and everything like that, and the progress that you've made on leverage, why is now the right time to execute on that versus waiting a little while longer, until you have a little more clarity and stability?

Thanks, Nick. It's Scott. So that's one of the reasons. The -- I should say, the things you mentioned are the reasons that we're exploring and that we haven't jumped in headfirst. We're looking at it. We believe that the COVID will come to an end. There is an opportunity. Some of the lenders have pulled back, making capital a little more needed by the developers, and it gives us the opportunity for better pricing at this time. But we are exploring it. And we do recognize the uncertainties, and that's why we're going slow. But now with the leverage down where it is, and to Jim's point, you can see it in the 7s by the end of this year. I just feel a little more comfortable to add those different risks when you look at what the reward will be -- could be.

Thank you.

Amanda Sweitzer with Baird. Your line is open.

Thanks. Good morning, guys. I wanted to start with your value-add pipeline and the two projects that are still on hold. Can you go through the fundamental triggers you're looking for to become more comfortable with restarting those projects? And then as we think further out, do you see opportunities in the existing portfolio to add properties to that pipeline beyond the six that you've outlined?

Sure, Amanda. It's Farrell. So the two properties that we haven't commenced on out of the six that we identified, one is our Asheville community. It's a market that is heavily dependent on tourism and service. So if you look at the results, we're down in that market, and we're looking to get an 18% to 20% return on any renovation project. So right now, we just don't feel that given where the market is that we would be able to generate those types of returns. The other property is a property in Raleigh. Same type of situation given the submarket. We are not confident right now, but we think in the future that we will probably add that to the value-add pipeline. And I think, as you know, we build out teams in all these markets that we're doing value-add, in the Columbus, Memphis, Tampa, Raleigh. So we're self-performing all the work and saving a considerable amount of money compared to somebody that would have to bring in a general contractor. So there's still several markets that we have not done this in, that have communities that we think will eventually be added to the value-add pipeline, such as ND and Indianapolis and Oklahoma City and Dallas. So it's just a matter of, again, building out those teams and not -- and doing this really thoughtfully.

That's helpful. And then following up on the most recent forward sale. Can you talk more about how you thought about your cost of capital at the $14 per share issuance price, I guess, relative to your NAV likely increasing sort of recent decline in private market cap rates?

Yes. I mean, I think when we look at kind of raising equity capital, we tend to look at kind of how we can deploy in assets that are -- what the cap rates are of assets and just making sure that it's accretive from an earnings standpoint and from an NAV standpoint. So that's kind of how we think about the cost of capital per se. And we always look at it also as a kind of incremental deleveraging. So we may not use those proceeds to fund something where it's leverage-neutral, but rather leverage improving through time to just kind of take that into account in terms of making sure it's accretive from an earnings and an NAV standpoint.

That’s helpful. Thanks for the time.

John Massocca with Ladenburg Thalmann. Your line is open.

Good morning. So you mentioned that the Class B market appeared kind of frothy. But I mean how has that trended recently? Just curious if you've seen any impact on competition for assets from kind of some of the recent changes in interest rate expectations?

Yes, John, it's Farrell. Yes, we've definitely seen some pressure on cap rates in our market. I mean, it's a pretty favorable asset class right now and the markets we're in are desirable. So we're seeing cap rates at 4.5% and trending down to, as Scott mentioned, even sub-4 in certain circumstances where people are underwriting significant value add. So it's gotten pretty competitive.

But I mean even -- has it even gotten more competitive since, say, like November, December as maybe there's been some expectation of a little bit of an interest rate increase on the long end of the curve?

I would say that even before -- coming out of the summer, there was just pent-up demand because there was a lot of deals that just went sideways because of the market. So I would say the fourth quarter in general and into this year, you've just seen a lot more people get a lot more aggressive because they haven't been able to put out capital for six months.

Okay. And then I know we've talked about the JVs kind of ad nauseam at this point. But in light of the discussions around JV, what is your view on kind of supply dynamic for Class A assets in your markets? I mean historically, there's been some headwinds to those assets from new supply that doesn't exist in Class B. And has the pandemic just kind of extinguished all that concern, given kind of population movement and some of the growth in some of your core markets?

I don't think it's distinguished that concern. But I think that we're going to come at this in a very targeted way and make sure that we are in locations and markets that will be able to absorb any new supply, and that you're well-located and appropriately managed. So it doesn't eliminate the concern, but we expect that we'll be doing it in a way that we take all of that into consideration.

Okay. And then one last detail one on the balance sheet. As some of these kind of mortgage bullets come due, should we expect those to be refinanced as mortgage debt? Or are you kind of moving to a completely unsecured balance sheet?

Yes. This is Jim. Yes, we'll be moving to a unsecured balance sheet. So we will not be refinancing those with mortgages.

Okay. Well, that’s it from me. Thank you all very much.

Thanks, John.

There are no further questions at this time. It's now my pleasure to turn the call back over to Scott Schaeffer for closing remarks.

Well, thank you all for joining us today. We are excited for 2021 and look forward to speaking with you and giving you an update on our next call. Have a good day.

This concludes today's call. We thank you for your participation. You may now disconnect.