Independence Realty Trust Q2 2025 Earnings Report

Independence Realty Trust EPS Results

• Actual EPS: $0.28
• Consensus EPS: $0.28
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.28

Independence Realty Trust Revenue Results

• Actual Revenue: $161.89 million
• Expected Revenue: $164.78 million
• Beat/Miss: Missed by -$2.89 million
• YoY Revenue Growth: N/A

Independence Realty Trust Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 9:00AM ET

Independence Realty Trust (NYSE:IRT) (NYSE: IRT) is a real estate investment trust that owns and operates multifamily communities, across non-gateway U.S. markets including Atlanta, GA, Dallas, TX, Denver, CO, Columbus, OH, Indianapolis, IN, Raleigh-Durham, NC, Oklahoma City, OK, Nashville, TN, Houston, TX, and Tampa, FL. IRT's investment strategy is focused on gaining scale near major employment centers within key amenity rich submarkets that offer good school districts and high-quality retail. IRT aims to provide stockholders attractive risk-adjusted returns through diligent portfolio management, strong operational performance, and a consistent return on capital through distributions and capital appreciation.

Independence Realty Trust Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Same store revenues increased 1% year-over-year and occupancy rose slightly, but blended rent growth lagged expectations due to softer market conditions and macroeconomic uncertainties.
• Positive Sentiment: Same store operating expenses decreased 60 basis points year-over-year—driven by lower repair & maintenance, real estate taxes, and insurance premiums—fully offsetting softer revenue to deliver 2% same store NOI growth.
• Positive Sentiment: The company identified three older assets for sale and is under contract to acquire two Orlando communities for a total of $155 million at a 5.9% blended cap rate, with an additional $315 million of accretive acquisitions planned on a leverage-neutral basis.
• Neutral Sentiment: 2025 guidance now forecasts full-year same store revenue growth of 1.5–1.9% and new lease growth down ~3.4%, but lower expense assumptions keep the core FFO per share midpoint unchanged at $1.175.
• Positive Sentiment: Deliveries in key markets are expected to taper to less than 2% supply growth in 2026—a 43% drop from 2024 levels—which should support a stronger leasing environment heading into next year.

Presentation

[Operator]

Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust Q2 twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Session. I will now turn the call over to Stephanie Creusen Kelly. You may begin.

[Stephanie Krewson-Kelly, SVP - IR & Capital Markets at Independence Realty Trust]

Good morning, and thank you for joining us to review Independence Realty Trust second quarter twenty twenty five financial results. On the call with me today are Scott Schafer, Chief Executive Officer Jim Siebert, President and Chief Financial Officer and Janice Richards, Executive Vice President of Operations. Today's call is being recorded and webcast through the Investors section of our website at irtliving.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 our 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.

[Stephanie Krewson-Kelly, SVP - IR & Capital Markets at Independence Realty Trust]

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 eight 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 Schafer.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Thanks, Stephanie, and thank you all for joining us this morning. Second quarter same store NOI and core FFO per share results were in line with our expectations as operating expense savings offset lower than expected revenue growth. Same store revenues increased 1% over the prior year. We finished the quarter modestly ahead of expectations on renewal leasing due to another quarter of strong retention. Bad debt continued to decline and average occupancy rose modestly versus a year ago.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

However, our blended rent growth in the quarter lagged our expectations due to market conditions that were softer than anticipated. Lingering supply pressures in some markets and potential residents being more discerning due to continuing macroeconomic uncertainties pressured market rents to a greater degree than we originally anticipated as we sought to continue to maintain occupancy during this timeframe. Jim will cover our revised outlook for 2025 with respect to leasing spreads and overall revenue growth. On the positive side, same store operating expenses decreased 60 basis points over the prior year quarter and fully offset softer revenue growth. Lower repair and maintenance and turnover costs, lower real estate taxes and a reduction in our insurance premium renewal all contributed to this improvement in expenses.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

We completed four fifty four value add renovations during the quarter in a total of seven twenty nine completions for the first six months of the year, achieving a weighted average return on investment of 16.2% for both periods. As Jim will discuss later, given our stronger than planned retention rates year to date, we expect to complete about six fifty fewer renovations this year as compared to our original goal, which is still a 26% increase over 2024 completions. In terms of investment activity, we are seeing opportunities to deploy capital accretively by trading out of older vintage assets with higher future CapEx needs and to newer communities with lower CapEx profiles. On the disposition side, during the quarter, we identified three assets that we expect to sell during the fourth quarter. For new investments, we are under contract to acquire two communities in Orlando during the third quarter for an aggregate purchase price of $155,000,000 Both properties are in close proximity to existing IRT communities, which improves our market presence and should enable us to realize meaningful operating synergies.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Beyond these pending transactions, our acquisition pipeline remains strong. Our updated guidance implies an additional $315,000,000 of acquisitions before year end, and we have ample liquidity to fund these accretive investments on a leverage neutral basis through capital recycling. Regarding our markets, the good news is that deliveries in general are tapering off across our portfolio with permitting and starts data supporting our outlook for more muted supply growth for the next few years. Looking at market level data from CoStar, Yardi Matrix and Green Street, we're seeing a reduction in deliveries settling out to less than 2% supply growth in our markets in 2026, which represents a 43% reduction from 2024 actual deliveries. As a result, we believe things continue to set up nicely for a stronger leasing environment in 2026 as demand for apartments in our markets is expected to remain strong. I'll now turn the call over to Jim.

[Jim Sebra, President & CFO at Independence Realty Trust]

Thanks, Scott, and good morning, everyone. Core FFO per share was $0.28 in the 2025, up from $0.27 per share in Q1 of this year. Same store NOI grew 2% in the quarter driven by a 1% increase in same store revenue and a 60 basis point decrease in operating expenses over the prior year. Same store revenue growth was supported by a 10 basis point increase in average occupancy, a 90 basis point increase in average effective monthly rents, and a 20 basis point improvement in bad debt compared with the prior year. The decline in same store operating expenses reflected a 90 basis point increase in controllable expenses and a 3% decline in non controllable expenses both as compared to Q2 of last year.

[Jim Sebra, President & CFO at Independence Realty Trust]

Within controllable expenses, we attribute the below inflationary increase to stronger than expected retention rates that led to a 6.7% reduction in r and m and term costs. Within noncontrollable expenses, we saw lower real estate taxes and a reduction in our property insurance premium of 18%. In terms of leasing trends, renewal rate increases of 3.9% coupled with 58% retention support to 70 basis points of blended rent growth in the quarter. New lease trade offs during the first half improved sequentially each month, albeit at a slower pace than anticipated in our original guidance. For the second quarter, new lease trade offs were down 3.1% with supply heavy markets like Atlanta, Dallas, Denver, Raleigh, and Charlotte contributing heavily to these negative new lease trade offs.

[Jim Sebra, President & CFO at Independence Realty Trust]

On the capital recycling front, during the second quarter, we classified three wholly owned communities located in Denver, Memphis, and Louisville as held for sale. Additionally, last week, JV partner in Richmond completed the sale of Metropolis in Innsbruck. We received 31,000,000 in cash consisting of return of our investment and a $10,400,000 gain that we will record in the third quarter within the income from unconsolidated real estate investments. This gain will be excluded from core FFO since it is associated with the property sale. We will recycle proceeds from asset sales into newer communities with higher growth profiles.

[Jim Sebra, President & CFO at Independence Realty Trust]

As detailed in our press release last night, we have two communities under contract in Orlando, Florida. Later today, we expect to close in the first of these communities, a 240 unit property built in 2024 for a purchase price of $60,000,000. The community that is close to an existing IRT community. We expect to close in the second property later this quarter. It is a 403 unit community built in 2019 that is directly adjacent to an existing IRT community.

[Jim Sebra, President & CFO at Independence Realty Trust]

The blended economic cap rate on both of these acquisitions is a 5.9%, which includes operating synergies from our increased scale in the market. We canceled our pending acquisition of a community in Colorado Springs because the lease ups slowed and signed rents were lower than our underwriting. While we like this market long term, we do see other opportunities where we can put that capital to work. The 315,000,000 of other acquisitions included in our updated guidance should further enhance our operating efficiencies and be accretive to AFFO. We will fund Yolando and other pending acquisitions using a $162,000,000 of forward equity commitments outstanding and proceeds recycled from asset sales, all done on a leverage neutral basis.

[Jim Sebra, President & CFO at Independence Realty Trust]

Our balance sheet remains flexible with strong liquidity. As of June 30, we have only $337,000,000 or 16% of our total debt maturing between now and year end twenty twenty seven. Nearly 100% of our debt is fixed rate or hedged. With respect to our full year 2025 guidance, we are adjusting some of our underlying assumptions to reflect our performance in the first half of this year and expectations for the second half. From a big picture perspective, our reduced outlook for revenue growth is offset by lower expense growth, resulting in slightly higher same store NOI growth and the same midpoint for core FFO per share.

[Jim Sebra, President & CFO at Independence Realty Trust]

The guidance updates for our operating metrics are as follows. Our 2025 same store portfolio now consists of a 105 properties, reflecting the removal of the three properties held for sale. Our updated outlook assumes full year same store revenue growth of between 1.5% to 1.9%, which represents a 90 basis point reduction at the midpoint. The decrease is driven primarily by lower new lease growth offset by slightly better occupancy as compared to our original guidance. On the new lease growth front in our original guidance, we assume that effective new lease growth would improve throughout the year such that for the year effective new lease growth would be flat.

[Jim Sebra, President & CFO at Independence Realty Trust]

We are now assuming that new lease growth for the second half of twenty twenty five will be down 2.7%, which when coupled with a negative 4.4% new lease growth in the 2025 means that our full year new lease growth is now estimated to be down 3.4%. Overall, our renewal rental increases are still expected to be approximately 3.5% for the year, which leads to approximately 50 basis points of blended rent growth for 2025. Just to summarize, our revised revenue guidance is based on the following inputs for the 2025. Average occupancy of 95.7%, blended rental rate growth of 60 basis points on our remaining lease expiration that total 53% of our available units, bad debt of 1.3% of revenue, and 2.7% growth in other income over the 2024. With regards to property operating expenses, we have a more favorable outlook due to the reductions in both controllable and noncontrollable expenses.

[Jim Sebra, President & CFO at Independence Realty Trust]

On controllable expenses, higher retention is reducing our RNN and turnover costs, while our site teams are continuing to manage expenses for contract services and others exceedingly well. Overall, controllable expenses are now estimated to grow by 1.9%, which is down 190 basis points from the previous midpoint of 3.8%. On noncontrollable expenses for real estate taxes and insurance, we now expect these expenses will decline in 2025 by approximately 40 basis points, which is down three forty five basis points from the previous midpoint due to the 18% savings we secured on our 2025 property insurance premiums and further improvements in real estate taxes. In total, the 1% midpoint of our revised guidance range for total operating expenses for the full year 2025 is two forty five basis points better than the midpoint of our previous guidance range. From a same store NOI perspective, the midpoint of our NOI growth increased by five basis points to 2.1%.

[Jim Sebra, President & CFO at Independence Realty Trust]

Additionally, we expect lower G and A and property management expenses for the year, and our new midpoint of $55,000,000 is $1,000,000,000 less than our prior midpoint driven by efficiency savings from our recent rollout of AI leasing tools. Finally, from a core FFO per share perspective, our midpoint of a dollar 17 and a half cents is unchanged. Scott, back to you.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Thanks, Jim. We continue to believe we're at the beginning stages of a multiyear period of improving fundamentals and growth in the multifamily sector and for IRT. Supply growth should remain muted in the next few years and support positive new lease growth as we head into 2026. Additionally, is stable, renewals and retention are strong, bad debt is declining and year to date tour volumes are up over twenty twenty four levels, all which point to continued strong demand for our communities. Given these improvements, we believe our markets and our company remain positioned to outperform as fundamentals continue to improve. We thank you for joining us today.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

And operator, you can now open the call for questions.

[Operator]

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

[Austin Wurschmidt, Senior REIT Analyst - Equity Research at KeyBanc Capital Markets]

Great. Thanks. Good morning, everybody. Jim, I appreciate of the detail you provided around second half, the second half outlook. I guess given some of the lingering supply challenges and change in renter behavior that you and Scott highlighted in the prepared remarks, I mean can you share how you approached your revised outlook versus maybe historical or typical seasonality and month to month trends?

[Austin Wurschmidt, Senior REIT Analyst - Equity Research at KeyBanc Capital Markets]

Just trying to get a sense here of kind of the implied acceleration, in lease rate growth and what's driving that?

[Jim Sebra, President & CFO at Independence Realty Trust]

Yes. No. Good question. Thank you, Austin. And certainly, Scott, Janice, feel free to chime in.

[Jim Sebra, President & CFO at Independence Realty Trust]

You know, I would say, you know, the way that we went about kind of our, called, expected, you know, kind of, excuse me, new lease trajectory for the back half of the year was just looking at, you know, what is the average of, call it, effective rent rental rate of the leases that are expiring each month, what we know today based on who has renewed and who hasn't renewed or who is, quote, unquote, likely to renew, and comparing those kind of expiring rents versus what we think would be an estimate based on where our estimate rents are today and kind of our expectations for kind of how that moves month by month through the rest of the year. And then obviously, as you and I have talked about, it's just math, right, in terms of just calculating what that kind of implied trade out would be.

[Austin Wurschmidt, Senior REIT Analyst - Equity Research at KeyBanc Capital Markets]

So should we think that you're going to see kind of a seasonal slowdown or things flatten out? Or does it assume any additional reacceleration? And then just secondarily, I guess, have you seen any change in sort of traffic or conversions versus what you were seeing play out in the spring and early summer? And just kind of high level for maybe how July operating conditions?

[Jim Sebra, President & CFO at Independence Realty Trust]

Yes. What we expect is that as you look at the new lease trade outs heading into the back half of the year, there's going to be some continued improvement month by month as compared to kind of where we were in the first half of the year. I think the assumption right now is that the new lease trade out is going to be a negative 2.7%. In the second half of the year, where it was negative 4.4% in the first half of the year. So again, continued improvement.

[Jim Sebra, President & CFO at Independence Realty Trust]

In terms of leasing trends, yes, we continue to see good lead volume. I think lead volumes are up roughly 3% to 4% over the same time last year, which last year was up, call it, 20% or the year before that. So we see really good demand. And we're seeing, as we mentioned in our Nabry deck, we'll continue to see really good kind of tour velocity as well in terms of converting those leads to tours. So we are seeing really good kind of solid demand even in the back half of the year as we see July and what's developing for August.

[Austin Wurschmidt, Senior REIT Analyst - Equity Research at KeyBanc Capital Markets]

Great. Thank you.

[Operator]

Your next question comes from the line of Eric Wolf with Citi. Your line is open.

[Eric Wolfe, Director at Citi]

Hi, thanks. Maybe just a sort of broader follow-up to that. I'm just curious, why do you think you're not seeing, I guess, a big pickup sort of a new lease growth when you have 60 retention, 4% renewals? Is it just that private peers aren't seeing the same dynamic? I guess I would just think that with retention high across the industry, occupancy high, your expectation for occupancy to increase, you'd see better market rate growth. So like what is sort of holding it back right now?

[Jim Sebra, President & CFO at Independence Realty Trust]

Yes. It's not so much the I mean, the market rate growth. I think as we've all kind of talked about, we are seeing continued supply pressure. And as we've said in our prepared remarks, some of the macroeconomic uncertainties are kind of holding market rates down a little bit.

[Jim Sebra, President & CFO at Independence Realty Trust]

What we are seeing from our standpoint on the trade outs is our average renter stays with us, call it, two to two point five years. So the leases that are expiring and are not renewing, they're just coming from a higher kind of rent that they signed two to two point five years ago, and that's what's causing the negative trade out.

[Eric Wolfe, Director at Citi]

Got it. And I think you said that you expect occupancy to increase to 95.7% in the back half. I think it came down a bit in 2Q.

[Eric Wolfe, Director at Citi]

Just curious what gives you the confidence that prediction? Have you already started to see occupancy rise in July? Are you seeing sort of forward indicators that would suggest that, that occupancy is sustainably going to be higher? Just trying to understand why you're predicting higher back half occupancy.

[Jim Sebra, President & CFO at Independence Realty Trust]

Sure.

[Jim Sebra, President & CFO at Independence Realty Trust]

Yes. No. As we mentioned, obviously, the May, June and July months were obviously, I would say, a difficult a little bit of a difficult environment operating to. But we did see occupancy in the back July continue to click up closer to that kind of 95.6%. So we feel confident about being able to drive that a little further north and maintain that in the back half of the year.

[Eric Wolfe, Director at Citi]

Thank you.

[Operator]

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

[Brad Heffern, Director at RBC Capital Markets]

Yes. Hey, everybody. Thanks. For the assets you guys have held for sale, is there any common thread there between either the three markets or the three assets? And then in those markets, would you continue to downsize in any of them?

[Jim Sebra, President & CFO at Independence Realty Trust]

Thanks, Brad. In terms of the common thread, would just say that generally speaking, two of the assets, the one in Memphis and the one in Louisville, two legacy IRT assets that have gone through the value add program, and we feel that we've kind of maximized value there. They're a little also a little older in the Vinci side and a little more expensive to run from a CapEx load. The deal in Denver, the legacy Steadfast deal, again, a little older on the vintage side and certainly a little higher on the CapEx load. So the common theme the common theme is, you know, kind of higher CapEx load, more expensive to run, older deals, and the goal is to continue to recycle that capital out of, those types of assets and into newer assets with better growth profiles.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Got it. And then on the increase in the acquisition guidance, you obviously have the $155,000,000 under contract already. For the rest of that, are those, assets identified already? Any color you can give on what the rest of the volume might look like?

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Yes. This is Scott. Yes, assets are identified. We do have a very fulsome and active pipeline. And it really is matching up with the dispositions of the communities that are held for sale.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Obviously, as we work through the process and consider alternatives and better allocation of capital or potentially better allocation of capital, we will make a decision when those sales happen of the three that are held for sale. We'll make a decision as to what's the best use of that capital at that time. But we have an active pipeline and add values that will be accretive to what we're selling and at below replacement cost. So we'll just continue to work that, and we'll see where we are again as those three properties sell.

[Brad Heffern, Director at RBC Capital Markets]

Okay. Thank you.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Thank you.

[Operator]

Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Thanks for taking the question. I just was hoping you could get a little bit more granular on the market. Where would you say conditions have moved the fastest against your expectations? Where do you think you have kind of the lowest visibility or even the best visibility on your outlook for the back half of the year?

[Janice Richards, EVP - Operations at Independence Realty Trust]

Absolutely. What we've seen against our, expectations is kind of Dallas was surprising with the amount of increased supply in the first half of the year. The McKinney area, especially, we saw increased concessions, you know, sequential rep reductions. Occupancy is stable, but is that the price is that the, consequence of pricing power and also, you know, just slugging through that supply that's in the market. We've seen really strong absorption, so it's a promise that we're getting towards the end of the the light at the end of the tunnel.

[Janice Richards, EVP - Operations at Independence Realty Trust]

And, we've noted extended pre leasing time frames from delivery to occupied, but at a pace in which we're comfortable with that eventually, we will get back to a normal supply level in Dallas. So that one was a bit of a slow start, versus our anticipation. Tampa also was a bit of a slow start on the pricing power side. You know, first quarter, we saw not an inflection of ex of supply, but we saw some hangover high occupancy due to maybe some of the weather events that happened in the the third and fourth quarter. And then so people were staying put.

[Janice Richards, EVP - Operations at Independence Realty Trust]

And then as we started to trade, we weren't able to accelerate that rent as as quickly as we anticipated. We do feel that Tampa's '25 into '26 is very strong, and we're seeing strong absorption in that market. And then lastly, obviously, there's Denver. So Denver has had an onslaught of new supply and will continue to do so through most '25 into '26. And so it's really just making sure that we are maximizing where we can and ensuring that, you know, we're we're hedging the bet on on occupancy, but also looking for opportunity on the rent side.

[Janice Richards, EVP - Operations at Independence Realty Trust]

So those are the three markets that, probably were, a challenge comparatively to what is anticipated. Charlotte, again, is still high with, supply, and so we're working through that. But that was that was anticipated. We've seen some great, movements in Lexington, Columbus, and Oklahoma City. And so we're hoping to capitalize on that for the rest of the year as well.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Okay. Great. And then given the expectation for improvement, can you give an update on your July numbers, like where new, renew and blend rents? And then what are you going out for renewals on for August?

[Jim Sebra, President & CFO at Independence Realty Trust]

Sure, Jamie. So we're obviously staying away from giving monthly data. But I would just tell you that the information, as I mentioned earlier, on occupancy was kind of in that 95.6%. I would say new lease trade outs are kind of largely in line with June. There is obviously a little bit of, again, high peak of expirations.

[Jim Sebra, President & CFO at Independence Realty Trust]

And then when you get into kind of renewals, August renewals we sent out long time ago, we sent them out at roughly 33.5% renewal rate, and that's what we see developing. And then as you look at kind of September and October, we're closer to that 3% range.

[Jamie Feldman, MD & Head - REIT Research at Wells Fargo]

Thank you.

[Operator]

Your next question comes from the line of Wes Golladay with Baird. Your line is open.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Hey, good morning, everyone. Do you anticipate buying any of the JV assets? And can you give us an idea of the size of the asset recycling bucket? How many older assets do you have left?

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

So good question.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

On the JV front, we have, as we announced, the Richmond asset, was sold to a third party. We looked at it, and it would have been our only asset in Richmond, so we decided not to buy it through our option. We're pleased with the way that it turned out. One of the JVs in Nashville, we were just, alerted by the developer partner, that we will be paid off in either late August or early September. We are not going to acquire that one at this time.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

I mean, we're not going acquire that one. There's there's two more, in Texas that are fleet and lease up, and we have about a year from now before we have to make a decision. So we will continue to watch the progress of lease up and market conditions, and we'll make a determination when we have to. I'm sorry. What was the second part of your question?

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Oh, yeah. And the second one was just like you're using the, I guess, the noncore older assets to, I guess, fund acquisitions. Just kind of curious what is the size of that bucket? How much more asset recycling can you do?

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

There's always recycling that we can do.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

I mean, every year, the assets get a year older. So really, it's not just the age. It's changes in markets and its CapEx cost and what is an alternative use for that capital. Is it buying back stock? Is it redeploying in newer, better long term assets?

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Is it deleveraging? And as I said in my earlier remarks, that's a determination that we'll make when we know the capital is coming back.

[Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co]

Got it. Thank you.

[Operator]

Your next question comes from the line of Amy Probunt with UBS. Your line is open.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Hi, thanks. So supply is typically pretty well known at the start of the year. So what would you say surprised you about supply trends this year?

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

And have you seen any indications that supply of single family rentals may have also been a factor in addition to apartment deliveries?

[Jim Sebra, President & CFO at Independence Realty Trust]

Amy, thanks for the question. I think the biggest surprise experience relative to kind of our expectations from the earlier year and kind of how the year has developed is really just kind of two parts on supply. One, just the lingering pressure and how long it's kind of been hanging around for, and then, b, the volume of incremental deliveries relative to expectations. You know, we were obviously using CoStar data that suggested, you know, end of last year, early this year, that the deliveries across our submarkets in our portfolio is going be roughly 2% to I think 2.6% of existing stock. That number is now 3.5%.

[Jim Sebra, President & CFO at Independence Realty Trust]

And it appears that it's deliveries are being pulled forward from 2026 into 2025. So it makes 2025 2026 even better, but it is a little bit more of a surprise that we've been having to kind of wrestle with. And as Jan has mentioned, you know, when you look at specifically the Dallas market, you know, CoStar was originally anticipating a lot of deliveries in 2025, and they they seem like they've moved all into q one and '25 2025. So that's been, like, the biggest surprise. And then I think from the single family rental standpoint, we don't believe that is really affecting us.

[Jim Sebra, President & CFO at Independence Realty Trust]

Our reasons for move out to rent a home continue to be in that 2% to 3% of our move outs. It hasn't increased. So we don't believe that's been really a factor for us.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Great. And then just a quick one. For the assets held for sale, what do you expect for the cap rates on those? And I assume you're quoting economic cap rates.

[Jim Sebra, President & CFO at Independence Realty Trust]

Yes. We'll quote economics. So obviously, we haven't obviously nailed down final sales prices and all that, so it's still a potential moving, but it's in a low to mid fives.

[Ami Probandt, Equity Research Analyst - REITs at UBS Group]

Okay. Great. Thank you very much.

[Operator]

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

[Ann Chan, Senior Associate at Green Street Advisors, LLC]

Hey, good morning. Thanks for taking my question. So first one, just on the current transaction environment. Could you give us a sense of the bid ask spreads you're seeing on both the buy and sell sides? Are there any signs that price discovery is starting to reset or that distressed driven opportunities are emerging?

[Jim Sebra, President & CFO at Independence Realty Trust]

So you're I'm sorry. It broke up a little bit. Your bid ask spreads on just the transaction market?

[Ann Chan, Senior Associate at Green Street Advisors, LLC]

Yes.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

So the acquisitions or the the properties that we have under contract in Orlando, you know, are are in close proximity to existing, IRT communities, which generate significant operating synergies. So as we look at those two assets, we're expecting them to generate a 5.9% cap rate yield in year one. So that's very healthy. I think as far as bid ask, what what we're seeing is that especially in the newer, more recently completed communities, that the sellers have now come to their senses and recognize where values are and that bid ask gap has narrowed. There is some pressure from continuing high interest costs.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

There's pressure because lease up is taking a little longer on the newer communities. And for those reasons, sellers are being more reasonable and realistic.

[Ann Chan, Senior Associate at Green Street Advisors, LLC]

Thanks. And you highlighted Orlando as one of the growth markets with opportunities to drive scale and synergies. Are there any other MSAs in the pipeline where you're seeing similarly compelling fundamentals or where you look to build additional scale?

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Well, we still believe in the Sunbelt. We like the Midwest generally. Indianapolis and Columbus have both been strong for us. Indianapolis is a little more a little stronger more recently. My plan is to keep our ratio of Sunbelt exposure to Midwest exposure somewhat consistent.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

So as you see us continue to grow in Sunbelt over time, expect that growth in Midwest as well to keep that ratio consistent. We haven't announced any additional acquisitions in other markets than Orlando. So at this time, I would just stick with that. Orlando has been at the top of our list for growth for some time. We've never been able to or we haven't been able to, I should say, find something that fit within the areas in Orlando that we wanted also at a price that made sense.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

These two assets that we're buying fit our strategy completely deep. The second one that will close, we expect later here in August, is literally across the street and Phase two of our existing Orlando asset. So that's why there's great operating synergies for us to acquire that one. And the other one is within a five minute drive of the existing IRT community. So we're excited about adding those to the portfolio, and we continue to analyze markets and we'll act accordingly as, again, capital is to be deployed into new assets.

[Ann Chan, Senior Associate at Green Street Advisors, LLC]

Thank you.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Thank you.

[Operator]

And your next question comes from the line of Omotayo Okusano with Deutsche Bank. Your line is open.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Yes. Good morning, everyone. Not apologies if I missed this earlier on, but could you talk a little bit just around like July operating trends and what you're seeing in terms of kind of, you know, demand? Is this the kind of a lot of supply pressures that you're kind of seeing that easing? What does that mean for your blended lease rates?

[Jim Sebra, President & CFO at Independence Realty Trust]

Sure. Yeah. We did talk a little bit about this earlier. Yeah. Obviously, occupancy has been building throughout the month of July.

[Jim Sebra, President & CFO at Independence Realty Trust]

Our lead volume, tour volume continue to be kind of really healthy and above levels of last year. New lease trade outs are, I would say, relatively consistent with what we experienced in the month of June, and renewal spreads are also very consistent. We think that for the second half of the year, our new lease trade outs will be kind of negative 2.7%. And then for the year, our renewal increase will be kind of averaging out about three and a half percent. So all of those all of the July metrics are in line with those that trajectory.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Gotcha. That's helpful. And then if and then just on the supply front, again, I mean, it it it just looks like based on your results and some of your and your peers, you know, it just feels like, you know, I know that's the private owners or who was it in secured, but in all your market that, you know, owners have got a little bit more aggressive with pricing, maybe just, again, concerns about tariffs or things like that. Just kinda curious if you could just kinda talk about if if if that's still the feeling in the air, if pricing is getting a little bit more rational at this point as you kind of move beyond that point?

[Jim Sebra, President & CFO at Independence Realty Trust]

Yeah. No. Great question. And and, you know, I think as we just kind of chatting with Ann about, you know, the we do think that sellers are becoming more rational, and that kind of bid ask spread is narrowing, you know, for all the reasons you suggest, you know, macroeconomic macroeconomic uncertainty around tariffs, etcetera, as well as what the current forward curve has applied for the ten years. We do think that, generally speaking, that gap is narrowing.

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Okay. That's helpful. And then one last one from my end. Again, as I kind of think about the consumer today and again, maybe on the rental end of things, the kind of, you know, more attractive concessions and rates that kind of getting given the oversupply on the Class A side. Can you just talk a little bit about again How much that's impacting your, you know, your predominantly class b portfolio?

[Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank]

Again, whether you kind of feel like you're losing customers to, you know, the class a space where they're offering two months to rank free and just those kind of dynamics. So what what's kind of happening to your core consumer and kind of how are they looking at at your building?

[Jim Sebra, President & CFO at Independence Realty Trust]

Sure. Yeah. I think, you know, generally speaking, when you have, new supply delivers where a developer is behind the lease up or the lease up isn't kind of going at the pace that he or she would like it to go, they do offer, obviously, more and more aggressive concessions to get the lease up done. You know, as those concessions get more aggressive, you know, that tends to, you know, potentially cherry pick residents away from the Class B. But fundamentally, it just requires more obviously work for us, right, to continue to maintain occupancy and drive rents.

[Jim Sebra, President & CFO at Independence Realty Trust]

And when that happens, it just reduces our ability to manage rents higher through time. So I think just fundamentally, as saw last year, the whole kind of Class A to Class B transition, especially on the new supply, certainly impacted us. It impacted a lot of players out there, and we see a little bit of that stickiness and spodziness continuing in the first half of this year.

[Operator]

And there are no further questions at this time. Scott Schafer, will turn the call back over to you.

[Scott Schaeffer, Chairman and CEO at Independence Realty Trust]

Well, thank you all for joining us today, and we look forward to speaking with you again next quarter. Have a good day.

[Operator]

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

Participants

Executives

• Stephanie Krewson-Kelly, SVP - IR & Capital Markets
• Scott Schaeffer, Chairman and CEO
• Jim Sebra, President & CFO
• Janice Richards, EVP - Operations

Analysts

• Austin Wurschmidt, Senior REIT Analyst - Equity Research at KeyBanc Capital Markets
• Eric Wolfe, Director at Citi
• Brad Heffern, Director at RBC Capital Markets
• Jamie Feldman, MD & Head - REIT Research at Wells Fargo
• Wesley Golladay, Senior Research Analyst at Robert W. Baird & Co
• Ami Probandt, Equity Research Analyst - REITs at UBS Group
• Ann Chan, Senior Associate at Green Street Advisors, LLC
• Omotayo Okusanya, Managing Director - Head of US REIT Research at Deutsche Bank