Thank you for standing by. My name is Amy and I will be your conference operator for today. Welcome to the Independence Realty Trust Q2 2024 Earnings Conference Call. [Operator Instructions] I would like to now turn the call over to Maddy Zimba. You may begin.

Thank you and good morning, everyone. Thank you for joining us to review Independence Realty Trust second quarter 2024 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer; Mike Daley, EVP of Operations and People; 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 PM 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.

Thank you for joining us this morning. Our second quarter results highlight our strategy to drive occupancy through stronger resident retention along with higher lead volume for new leases, while continuing to prudently manage our expenses. Specifically, we delivered an increase of 120 basis points in average occupancy to 95.4% in the second quarter with lease-over-lease effective rental rate growth of 3.5% for lease renewals and resident retention at 55.8%. As of July 30, same-store occupancy was 95.6%, with July lease renewal trade-outs at 2.9% and total resident retention at 55.4%. Mike will provide more detail on our operational metrics momentarily. We are pleased with our team's ability to manage operating expenses, along with a notable decline in bad debt expense during the second quarter. Later on this call, Jim will provide an update on our expense outlook, particularly the recent renewal of our insurance policies and our current view for 2024 real estate tax expense. Looking at the broader market, we are in the midst of a transitionary period as supply and demand levels are rebalancing across our portfolio and are expected to improve further in the back half of 2024 and into 2025. While the second quarter continued to see pressure from new deliveries, it was matched by strong demand as apartment absorption outpaced historical levels. By the fourth quarter of 2024, CoStar reports that delivery should slow to about 60 basis points of inventory with 2025 new supply deliveries expected to decline further to a quarterly average of 50 basis points of our submarkets inventories. As we look across our portfolio, the Midwest continues to have a limited supply pipeline and we do not see that changing over the coming months. We still expect to experience new supply across some of our Sunbelt markets, including Austin and…

Thanks, Scott. During the second quarter, we continue to operate in a dynamic macroeconomic environment with pressure from new supply and inflation on controllable expenses. With this in mind, we successfully increased occupancy and retention, which in turn resulted in lower turnover and repair and maintenance expenses in the first half of this year compared to the first half of 2023. In the second quarter, we delivered a same-store average occupancy rate of 95.4%, an increase of 120 basis points year-over-year and a resident retention rate of 55.8%, an increase of 160 basis points compared to last year. Our same-store portfolio average rental rate increased 1.6% in Q2, contributing to 3.6% year-over-year property revenue growth for the quarter. As we mentioned on our Q1 earnings call, we continue to reduce the use of concessions in the second quarter and the average concession remain the equivalent of about 2 weeks rent. For July, our highest expiration month of the year, we saw pressure from new supply and moved quickly to buy some occupancy through concessions. This has positioned us well for the balance of the year and the volume of expirations is lower, and we expect supply pressure to decline. Selective concessions are one tool, but we primarily focus on effective pricing strategies, strong sales performance and our ongoing initiatives to drive high resident retention as the basis of our efforts to sustain strong occupancy. New lease spreads were negative in the second quarter due to the continued supply pressure that Scott discussed and this continued into July. We do not expect this trend to continue as we now have only about 30% of lease expirations remaining for the rest of this year. Lease-over-lease effective rent growth for renewals in the second quarter was 3.5% and we are forecasting continued strong…

Thanks, Mike, and good morning, everyone. Beginning with our second quarter performance update, net income available to common shareholders was $10.4 million, down slightly from $10.7 million in the second quarter of 2023. Core FFO was $63.6 million and $0.28 per share, in line with a year ago. IRT same-store NOI growth in the second quarter was 2.8%, driven by revenue growth of 3.6%. This growth was led by a 1.6% increase in average monthly rental rates to $1,555 per month and a 120 basis point increase in average occupancy to 95.4%, both as compared to Q2 of 2023. Bad debt also improved in Q2 as we continue to implement various tools to help identify fraud before it happens. During Q2, bad debt was 1.6% of revenue, down 40 basis points from 2% in Q2 of last year. On the operating expense side, IRT same-store operating expenses increased 4.9% during the quarter. This increase was primarily driven by higher advertising expenses as we increase our efforts to drive occupancy as well as higher personnel expenses. Contract service expense decreased approximately 1% in the quarter, while repairs and maintenance expenses increased 8% due to the timing of repair and maintenance projects. For the 6 months ended, repairs and maintenance expenses are 1% lower than last year. Before turning to the balance sheet, let me make a few remarks regarding our non-controllable expenses for insurance and real estate taxes. Year-to-date, we've made notable progress in these areas and are now expecting to see lower overall growth for the full year 2024 than what we originally expected. On property insurance, we renewed our main policy in May and saw a 10% reduction in our premiums without changing our deductibles or coverage. In our initial guidance earlier this year, we expected a 17.5% increase…

Thanks, Jim. With the first half of 2024 now behind us, we remain confident in our portfolio's solid renter demand fundamentals and our ability to execute our 2024 business plan. For the remainder of the year, we will continue to focus on solidifying our operating gains and driving further on-site efficiencies, continuing our value-add renovations, strengthening our presence in our core growth markets and supporting occupancy while optimizing rent growth. We thank you for joining us today. And operator, you can now open the call for questions.

[Operator Instructions] Our first call comes from Eric Wolfe with Citi.

It's Nick Joseph here with Eric. Jim, I appreciate the second half blended rate growth and occupancy comments you made in the prepared remarks. So just curious how you're thinking about kind of the reacceleration from your July results in terms of blended rate growth and kind of that strategy of rent versus occupancy in the back half of the year, just given some typical seasonality that we'd expect you to see?

Good question, Nick. We're seeing good progress already for August and September and feel good about hitting the rental rate kind of forecast we put out there. Let me give you a few and let me give all the investors and analysts a few statistics on what we're seeing already for August and September. Regarding new leases, the August trends have improved significantly from what we saw so far in July. So far in August, of our expected new leases that we would expect to sign to hit that occupancy forecast, 54% are already signed at a minus 1.7%, which is roughly 160 basis points improvement over where we were in July. Regarding renewal leases, August and September trends are also outpacing July. For August, 95% of our expected renewals are done at an effective rental rate growth of 5.4%. For September, 78% of our expected renewals are also signed at an effective rental rate growth of 4.6%. We feel good about kind of hitting that -- the rental rates reaccelerating given our goal to continue to kind of drive occupancy.

That was very helpful. And then you mentioned some of the markets that you're obviously facing new supply competition right now. Can you just touch on the concessions that you're seeing from competitors in some of those markets?

Sure. So we are definitely seeing the supply pressures in the expected markets such as Atlanta, Raleigh, Nashville and Huntsville, as it's continued through the year. Concessions are ranging on the new development anywhere from 3 weeks to 2 months, dependent upon what phase of the lease-up they're in. Through the July month, we did see a slight increase in concessions being offered that was anticipated just because of the seasonality and the demand being there to capture.

The next question comes from Brad Heffern with RBC Capital Markets.

Jim, I appreciate the answer to the last question with the additional color on how the new leases are trending, but it still seems like you would need to see another sequential uplift in September to hit the guidance. So any color you can give there about what gives you that confidence? Is it easier comps? Is it something else?

Great. Brad, good question. It's really -- obviously, September is really early so far from a new lease standpoint. We really think that as we kind of continue to push occupancy in July and are kind of at that level that we like, that we should be able to kind of now push rates a little more. As I think, we also mentioned or in Scott's prepared remarks, the volume of new supply or pressure from new deliveries is beginning to wane and that will also help support us driving rents for driving rental rates.

Okay, got it. And I noticed in the footnotes that you did some recent modifications to the JV agreements for the properties under development. Can you walk through how those work, exactly what's going on there and why you made those modifications?

Sure. This is Scott. The modifications were really related to the 2 properties in Nashville, where we have -- it's not so much a JV, but we have a preferred equity stake where we -- our investment is accruing at 20%. We had a right of first offer to purchase. They're both completed. They're both well in the lease-up. But we could not come to terms with the developer partner, if you will, on what the value was. So we modified the agreement that instead of a right of first offer, we have a right of first refusal, and they've agreed to take it to market before the end of this year. And then we'll basically have a last look at wherever the market then sets the value rather than us trying to put in an initial offering and come to an agreement with the developer. And we did that for both of the Nashville properties. If they don't pay us off, sell the property and pay us off by the end of the year, then we take control and we can sell it.

The next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Great. Appreciate all the detail on kind of how the third quarter has been trending. So, I guess, if you're on track to kind of hit the revised lease rate growth assumptions for the back half of the year, what does that imply for a 2025 revenue growth earn-in?

Yes, good question. It implies 90 basis points earning for next year.

That's helpful. And then just more specifically, I wanted to hit on Atlanta because this has been one of the more challenging markets and obviously, a top market for you guys. Could you just specifically discuss what you're seeing on the ground in Atlanta kind of subsequent to 2Q from a fundamental perspective, as well as just maybe give an update on some of the fraud and bad debt challenges that you faced in that market and more broadly, if there's anything else, any other markets that are relevant as well?

Absolutely. So I can give you a few stats on the new lease and renewals that we're seeing for August and September in Atlanta. We are seeing improvement over July. Regarding new lease for August, we are also estimating about 55% of our needed leases are already in place and we've seen the new lease rate increase 400 basis points to 500 basis points over what we saw in July. So we're definitely moving in the right direction. For renewals, August, we have 90% of our August renewals in place at a 5.4% versus the 2.4% we saw in July. And September, we're seeing 65% in place at 4.8%. So we're moving in the right directions. We're confident in that market that we've seen improvement and we'll continue to do so. As for fraud, we have implemented in the beginning of this year, we've spoken about it in previous earnings calls, some software that has helped us combat that fraud. We are starting to see the benefits of that now with our lower bad debt percentage that we reported in Q2.

That’s helpful. Thanks for the update.

And our next question comes from John Kim with BMO Capital Markets.

You provided a new disclosure this quarter, which is always welcome. This one is on the renovation program, lease rate growth of 6.3%. I'm looking at that versus the historical 20.4% rent growth you've gotten on the renovation program. Are those the apples-to-apples comparisons that we should look at? And if you can comment on why it's not as stronger than it has been historically?

Yes. It's a good question. As I think we've talked about in the past on earnings calls, certainly with investors, you have the premium that we evaluate and we disclosed in terms of the ROIs versus an unrenovated comp. The premium that we -- the rental rate growth that we disclosed was versus kind of the expiring lease. So it's just a little bit of a difference of the 2 basis points. But obviously, the current rental rate is the right way to think about it. And for us, it's always about putting capital to work that really drives that ROI for investors. And looking at versus an unrenovated comparable in our view, is the best way to evaluate it because it removes any kind of market kind of ups and downs through time. And when the market rents are growing, that would inherently inflate the ROI when it's not the true ROI and vice versa with market rents declining.

Maybe another way to ask this is, where would that 6.3%, where would that have been 2 or 3 years ago?

It probably would have been 10% or 11%.

[Operator Instructions] The next question comes from Omotayo Okusanya with Deutsche Bank.

I'm still trying to assess what rent growth could look like in the back half of '24. Could you help us kind of understand kind of going into 3Q '24 where you earn in and your loss to lease statistics stand?

Going into 2025 or going into 2024?

Into 3Q '24 -- as of 3Q '24.

Yes. So loss to lease as of July 31 was 30 basis points.

Okay. And then your earn in?

Earn-in heading into the rest of this year?

Yes.

I don't have that in front of me. I'll come back to you on that Omotayo.

Okay. No worries.

Yes, I also answered earlier, at -- if we hit the kind of the midpoint of guidance, we'll be at 90 basis points earn-in for next year.

Okay. And then in terms of just asset sales, again, the recycling program is over, but again, you did identify one new asset as part of your capital recycling program. How do we kind of think about that going forward of continued capital recycling as a source of capital?

For the balance of '24, we have 1 asset remaining in Birmingham that we are considering. We haven't made a decision yet. We are considering trading out of. And then in 2025, it will depend on how we see growth in each individual market where we want to expand and where we may want to contract. But we had 2 assets in Birmingham. We sold one. We're redeploying that capital, as we said, into Tampa. That leaves us with 1 in Birmingham, and it's never ideal to own 1 community in a market. So it's one we're looking at closely and determining when -- if and when we should be trading that.

Our next question comes from Mason Guell with Baird.

Thank you for giving some color on the improvement in Atlanta since July. Can you talk about any other markets you expect to maybe improve a little in the second half of the year, which might soften a bit?

Sure. I think we'll definitely start to see and have seen some improvement on the occupancy side with Raleigh and Charleston as we start to see the new supply start to ebb. So those are some markets that we'll see ultimately, just in the Sunbelt, we're seeing improvement as the supply pressure is weighing slightly through the rest of the year and into '25.

Thank you. That does conclude the questions. At this time, I would like to turn it back over to Mr. Schaeffer for closing remarks. Please go ahead.

Thank you for joining us this morning and we look forward to speaking with you in October, I guess, for our third quarter earnings report. Thank you, everyone.

This concludes today's conference call. You may now disconnect.