Independence Realty Trust, Inc. (IRT) June 2, 2026 Conference Transcript

All right. Good afternoon, everyone. This is the 2.30 session. I'm Eric Wolf with Citi Research. I'm very pleased to have with us Independence Realty Trust, CEO Scott Schaefer, CFO Jim Sabra, and SVP of Investments Jason Lynch. Scott, I'll turn it over to you to introduce the company, and then we'll do some Q&A.

Thank you, Eric. Thanks, everyone, for joining us today. I'm going to give a very brief overview, and then, as Eric just mentioned, we'll get to your questions. So IRT has a differentiated portfolio of 117 communities with over 34,000 units, differentiated because it's predominantly Class B, located in the Sun Belt and Midwest, and mostly the Sun Belt. after some rough couple of years i can say that market fundamentals are finally improving multi-family like most real estate is supply and demand driven and i can happily say that supply is finally trending below the long-term average which for us in our markets has been about three percent per year new deliveries in 2026 are projected to be 2.6 percent so below the three of existing supply and then it drops to only 1.2 percent in 2027 and 1.3 percent in 2028 so we're at the beginning of what should be a good time in the cycle along with that reduction in supply demand continues to be strong population growth employment growth and household formation in our markets will significantly outpace the national average and the coastal markets For the next three years, population growth is expected to be, in our markets, is expected to be 6.1 people for every new apartment that's delivered. And employment growth is forecasted to outpace the national average by three and a half times. We have a resilient middle-income resident base that is largely immune to AI job disruption. I mean, that's a big topic these days, but we are seeing no effect whatsoever. And our portfolio will continue to benefit from the cost of renting versus the cost of home ownership. And we benefit from the lower cost of renting one of our apartments versus the cost of renting a newly delivered Class A. So as we have all those new deliveries being absorbed and the concessions burning off, we will be back in a very good price competitive place. We have an efficient operating platform. Our operating expenses increased by only one-half of a percent in 2025, and our G&A spend was only 34 basis points of gross assets, which is in line or lower than most of our even large-cap multifamily peers. And our secret sauce for some time now has been our value-add strategy. It's meaningful to us just because of our size. We will do between 2,000 and 2,500 units this year, full renovations, that will compete with brand-new Class A construction, but at a much lower price point. And this value-add program returns about 16% to 20% on our invested cost. And lastly, we have a seasoned management team that is managed through many multifamily cycles. I've been at this for over 40 years. Jim, probably 20, 25 years. And Jason, not as many, but still enough to know what he's doing. So at this point, I'll stop and turn it over back to Eric for questions.

And then, obviously, you can see the mics over there. So just jump or raise your hand with questions. whenever you want to. Maybe I'll lead off, you know, over the last couple weeks, we've seen some big news in the apartment space. You have the two largest apartment REITs, AVB and EQR merging. And I think, you know, if you look at the reasons behind it, it's mainly because they're trying to find a way to generate alpha versus peers. Maybe talk about how you think you're going to generate alpha.

And when you look at sort of your size, obviously you're on the smaller end within the group you know do you consider that to be an advantage disadvantage and do you think you need to have achieve more scale over time well historically it's been an advantage and it's funny because you know when when I'm talking to someone about IRT that doesn't really know us I say we're the smallest of the big REITs and by far the largest of the small REITs we're kind of caught in the middle all by ourselves and I don't think BIGGER IS NECESSARILY BETTER AND OUR TRACK RECORD WILL SUPPORT THAT. WE'VE DELIVERED HIGHER SAME STORE NOI GROWTH. OUR VALUE ADD PROGRAM AND EXPENSE MANAGEMENT HAS LED TO OUTPERFORMANCE ON A TOTAL SHAREHOLD RETURN ON BOTH THE FIVE YEARS AND TEN YEAR PERIODS. WE'RE THE ONLY APARTMENT WITH PREDOMINANTLY CLASS B APARTMENTS AND AGAIN WITH THE SIZABLE meaningful value-add component, which lifts our same-store NOI performance by at least 20% each year over the past several years and has helped us achieve NOI growth that's above the peer group, even during a period of declining new lease rates. It also, the value-add will add about 1.5% to our NOI for our total portfolio NOI.

So that's why I continue to say that it's meaningful. and you mentioned in your remarks that you know you're finally kind of sort of starting to see supply ebb after you know multiple years of of heavy supply I think there have been you know times over the last couple years that that that peers have been sort of optimistic that we would see a bit of a turnaround and then that supply tended to linger I guess why do you think you know right now or this time is going to be different what gives you the confidence that fundamentals are actually turning yeah I'll take that and maybe Jason you can chime in I think you know from the standpoint of like what Scott had mentioned before the fundamentals the pressure from the new side new

deliveries in most of our markets happened the deliveries happened in late 2024 early 2025 such that the lease up is almost complete and that is what's kind of fueling this opportunity and this perspective that we have and everybody seems to be very focused on when will new lease tradeouts turn positive or at least be break even and where we see ourselves today we continue to see really great acceleration in new lease trade-outs some really great momentum from first quarter into april and may and certainly now into june and we have we have confidence that we'll be able to hit kind of break even point at some point this year you know where our asking rents are today roughly 1550 per unit the average expiring rent for the rest of the year is 1531. so we're already positive And it's really kind of what will allow us to turn really positive from a trade-off perspective is ultimately not having to use concessions to drive leasing activity. And as Jason will cover here in a minute, we expect to see that just because we're getting now to more kind of a stabilized occupancy in the overall each market.

Yeah, and looking at the amount of supply that's been delivered since 2024 and 2025, what's left of that, most of that inventory has already been leased up. it's roughly 80 percent occupied today which leaves roughly 80 some thousand units left to to lease up of that supply that represents roughly one and a half percent of the total inventory in our markets so in the grand scheme of things it's a relatively small amount of supply remaining to to be leased that goes you know hand in hand with the amount of supply that's expected that's got already mentioned around two and a half percent for next year coming down from the the highs that we've seen over the last years so going forward it starts to support a pretty strong foundation

for better absorbed or continued absorption of that remaining supply and improved pricing I guess along with that can you maybe talk about what you're seeing for for this peak leasing season specifically obviously it's a really important sort of point in the year for you all I think based on your systems you can kind of tell sort of what's going to happen you know sort one to two months forward so maybe tell us what the sort of forward indicators are looking at what are the most important demand indicators that you look at and how they've been trending yeah great question you know obviously you know for for us you know we send renewals out about three months ahead of time so we've already set renewals out through the first half of august and we're

seeing you know really great kind of pricing you know july renewals are sent out at right around 5.2 percent now we ultimately achieve a little bit lower than that but that's great renewal growth that we expect to see at least in the month of july on the new lease side what you've you know well let me step back again what we saw so far in april and may both from both new leases as well as renewals you know our blended rent growth is about 1.6 percent you know that's a really great sign as we kind of head into the beginning part of leasing season on the new lease side we continue to see really great trends our lead activity our lead volume is very much in line with what we expected we see very normal what i would say patterns in that lead volume the time frame for which leads are turning into ultimate leases is a little bit longer this year than maybe it was in previous years as people continue to search and evaluate but it's not extremely longer you know typically it would be about four weeks from when a lead shows up until when they move in that's now about four and a half to five weeks of time but what we've been focused on is really trying to combat you know the the competitive set by a you know making sure people find us on the web or AI tools by really kind of pumping up our SEO and our website work making sure our keywords are there and making sure that people read you know the the information that people are seeking through their web searches or AI are found on our website so they again folks show up as a lead for us and then we can work to convert them you know into a tour ultimately our lead to lease conversion rate so far this year is better than what it was last year so again we see some really great trends developing in terms of overall fundamentals I won't comment yet on where we see new lease trade-outs for June it's still a little bit early you know July is even earlier but the it is shaping up certainly to kind of move into that kind of breakeven direction.

And I guess, would you say that the improvement you're seeing is sort of consistent across your portfolio? Are there certain markets that are driving that? And I think if you look at sort of the past year, call it two years, you've seen some pretty consistent and solid growth out of your Midwest markets. It's been some of those more supply affected markets that have been lagging. What are you seeing in those specifically?

Yeah, and in the in the Midwest that continues to be the trend The Midwest there's some supply that we've seen there that that's pretty minimal But we're working through that. But generally speaking, it's continuing to be one of the strongest more stable regions and so that includes Columbus Indy Lexington and Louisville Where we're seeing kind of inflection points is in the southeast is where we're looking at like a Raleigh for example Where if we look at total occupancy within the market of both new newly delivered units as well as The existing stabilized assets We're starting to see some of that get to a point that it's at 90% occupancy for the total market and that starts to lead us to Be able to see some, you know light at the end of the tunnel.

So so to speak on being able to push right there In terms of slower markets Denver is one of our one of our slower markets that's been a little bit more difficult from Some regulations there as well as new supply Could you maybe talk about the demographics of your tenant base, whether that's changed over time, you know, sort of who your core customer is, and you kind of think back to sort of the core customer today, is that different than it was pre-pandemic? Yeah, I'll take that one.

I would say just generally speaking, our resident demographics are very relatively consistent with what it was pre-pandemic. The vast majority of our residents have jobs that are in what we refer to as more essential services or point-of-demand type services. Folks like, you know, blue-collar construction workers, plumbers, electricians, first responders, health care services, nurses, et cetera, as well as in the education or teaching fields. So our estimate based on job descriptions and what we see in our resident base, 80 to 85 percent of our residents are really kind of secure and not easily replaced by AI. The average age of our resident is 36, 37 years old. They make about $80,000 to $85,000, and they have a rent-to-income ratio of in the 22% to 23%. We have been getting a lot of questions around, you know, recent college grads and difficulty of them finding jobs and therefore impacting overall occupancies or at least demand. And we see that rough range of people that are less than 25 years of old is still roughly the same percentage of our overall resident base. So we don't necessarily see, you know, kind of issues in that regard.

And I think everyone has seen the sort of weaker housing numbers that have been out there, whether it's sort of existing home sales, you know, stagnant sort of prices. Obviously, it depends quite a bit on, you know, which market you're talking about. But I guess to what degree is sort of this weaker housing market, you know, helping you? Obviously, we've seen your retention increase. But at the same time, weaker housing market also typically means less job growth associated So how do you sort of weigh the balance between whether this sort of weaker housing market is helping you or hurting you?

Yeah, I mean, I think you're absolutely right, right? The old adage that we kind of tend to follow or tend to see is, you know, in any given month in any given year, a third of your residents are always leaving for life events. They're buying a home. They're renting a home. They need more space. They're getting relocated job, et cetera. a third are going to stay no matter what and so you're kind of always competing for that third you know certainly the the slowness in the housing market or the high house prices are keeping residents in our buildings a little bit longer our people our residents who are moving out to buy a home is certainly lower today than it was pre-pandemic pre-pandemic we were kind of in the 16 percent to 21 percent kind of in and every every month every year and right now we're kind of right around 13 percent. So we're not so much worried about it kind of snapping back that it's going to kind of impact retention significantly. We're doing a lot of data science and decision science around kind of what keeps residents in and really trying to pay attention to the resident experience. But you certainly, we certainly see, as Scott mentioned, you know, we're expected to see in our markets just continued job growth to the tune of about three times the national average so even if the housing market is a little bit slow and we still see the jobs being there that will kind of continue to absorb both aid, stuff that has already been delivered as well as stuff that will be delivered in the future.

If there are any questions, obviously just go up there. But you brought up, go ahead, sure.

So we're very, to use a term of a Philadelphia flyer, gritty, right, in Philadelphia, that's where we're from. So we really try to use, you know, competitive results whenever we can. So on the property insurance side, last year in May 15th is when our property contract gets renewed. We were down 18%. In May of this year, we just renewed our property insurance again, and we were down 24.5%. And that's with better insurance and no change in our ultimate deductible, simply because we have a great consultant who helps us inject competition into a very uncompetitive field, which is the insurance brokerage network. We're also very gritty when it comes to real estate taxes. We work directly with a consultant to help us with tax assessors and when to push and when not to push and how to negotiate and not negotiate, and we've had really great success on that over the years. so hopefully that answers your question maybe sticking with expenses you brought up AI before could you just maybe talk through how are you using AI today sort of some of the things that you're considering and to the extent that you want to quantify it but maybe just sort of what the opportunity might look like I think we're not ready to quantify it just yet but I think we are using AI today when it comes to the resident or the prospect leasing funnel. So once, obviously, a resident shows up as a lead, the AI tool will work that resident. I would encourage all of you to go out and look at one of our communities on the website, put yourself in as a lead, and you can see how the tool interacts with you. You can ask it questions like, why should I live here? And get some really great responses. We also use it to serve our existing resident base. If residents have questions, they have work orders, they have an issue with paying a bill or they have an issue with a charge, the AI tool can give them all of those responses and help them get the work order placed as well as follow-up on satisfaction of that work order post it is complete. That has been running in our business since April of last year. We are using, as I mentioned, AI and various machine learning techniques around kind of data science and our retention, and we're really kind of looking at what keeps people with IRT, what causes people to leave. And we continue to obviously see things like resident service and the resident experience as being drivers outside of the typical life events as being items that cause people to leave IRT. And we're really using that to help us with a series of agents when those service issues pop up, we're getting notified them quickly and we're able to kind of get working with the residents to make sure their issues and or concerns are alleviated or resolved very promptly. because we now know how much that's going to impact us from a resident retention down the road. And then lastly, you know, we're certainly looking at ways in which we can continue to be efficient. As Scott had mentioned from a G&A perspective, we're already at levels where our bigger, larger peers are, but we are not done and we want to continue to get better at that. So we're looking at using agents in our finance team and finance accounting functions and payables function to continue to kind of create more work and more opportunity for, you know, the computers to do a lot of the mundane and routine tasks. And it frees up our team to do more important tasks like serving our residents or looking at amenities from revenues, et cetera.

Hopefully that helps. Maybe switching to capital allocation, you brought up, you know, one of the sources of alpha being your value-add program. It's different than a lot of what your peers are doing. Could you talk about that, sort of how you look at the returns, what the runway is on it, and how you like to fund it? Sure.

So the value-add, I believe, is our best use of capital. Currently, we're able to fund that just from free cash flow after after the dividend payment which obviously is our cheapest form of capital but it's it's a very simple program we're taking 10 to 15 year old communities that compete directly with newer construction in in any of our markets and we're we're improving our communities to the point where they compete from a lifestyle amenity point of view with that new construction but but at a significant discount to the rent being charged by the newer community. We're spending anywhere from $15,000 to $20,000 a unit. That includes interior and also common area space and generating, as I mentioned earlier, generating premiums that are, again, anywhere from 15% to 20% returns on that invested dollar. what that doesn't that return doesn't include is the cost savings going forward because you have all new appliances new air conditioners take out the carpet and you have you know full hardwood plank flooring so each turn and and ongoing our repairs and maintenance in those communities tends to be much more cost effective we we did run an IRR out on a number of our communities, and the IRRs are in the mid-30s when you include in the cost savings going forward. So that is by far our best use of capital. Beyond that, you know, it depends on where our, frankly, our cost of capital is at any given time. Today, with where our share price is relative to NAV, a very good cost or use of our capital is buying back shares we bought back 1.8 million shares already this year we again use that from transaction capital or or free cash flow we're not going to lever up in order to buy back shares but whenever we're going through a recycling or we have other sort of a capital event we will then do the quick math and it doesn't take long what is that best use is it to to buy back our own stock and where is it to invest in, you know, a new community. And again, right now, the analysis is very simple. It would be to buy back shares.

And I guess, remind me, for the value-add program, I guess what percentage of your portfolio have you already done? It sounds like you've calculated that the expenses are lower to the point where it actually lifts your IRR. So what percentage have you done?

What's left to do? so we've done about 12 000 units kind of over our life cycle we have about 10 000 that are still in the pipeline kind of left to go i'm sorry there's 7 000 in the pipeline today that are working and renovating and there's another three or four thousand behind that that'll be ready once obviously the current properties are done and as scott has always said you know as we complete what we have today you know our nicer stuff will age and then by the time we're done with our current stuff, those will be ready for and ripe for a value-add program.

And you brought up that one of the better uses, or I might have said best, I don't want to misquote you, uses of capital today was buying your stock back. You said you don't want to increase leverage to do it, so maybe sort of tell us how you can continue to buy back your stock without increasing leverage and sort of where you want leverage to be one, two years from now.

So we've worked very hard to bring our leverage down. So at least from my perspective, it's not something that we want to do that would increase our leverage. So we've invested in a number of new development deals through what we refer to as our, it's a very unique title, our JV program, where during the development there is capital that's tied up, plus there's also presumably some level of profit upon delivery of the community, and that capital is not generating any EBITDA along that process. So when that capital hits, we then have cash, frankly, that we can allocate. And because it has not been part of our EBITDA while outstanding, it's then a very good use of it is then to just buy back your shares because you're not giving up any EBITDA, which would, if you were giving up EBITDA, it would then just increase your leverage ratio. So that's capital. We've done some of that last year. We have one JV community in Dallas that has been delivered and is going through the sale process today. So that, to me, is capital that is perfect for, again, at the right price, buying back shares. Beyond that, we do have two assets held for sale, and they will transact at some point this year, and we'll have to use some of the proceeds to pay down leverage in order to right-size it, but then the excess proceeds would be available to be used to buy back shares, again, should the price warrant it.

And I guess maybe take us through sort of, you know, you have the two assets for sale. Are there others that you're not, you know, wed to? How do you think through each year, like what's a sort of non-core part of your portfolio? What's better off to be sold versus held? And then obviously you're doing the math on whether it makes sense to sell and buy your stock as well.

So generally speaking, we like our footprint. We like our communities. We do go through a process every year where we review the performance. We review what we believe the future is for each community. and we determine if there's any that we feel that we should exit and then redeploy that capital. So as I sit here today, we only have the two that are announced and held for sale, but it's something that we're constantly looking at. And typically, because we like, again, our geography and markets, it comes down to an age and whether or not a community is more expensive to run than an alternative would be. and how much rent growth, and is it available for value-add? I mean, there are certain things that you have to consider, such as any community that was built before 1990 has generally eight-foot ceilings, and that's not something you can change, and people would rather have nine-foot ceilings. So when we're looking at whether a community is right for our value-add program, typically the ones with the eight-foot ceilings we don't consider. So those are the assets that at the right time we will be looking to exit and to redeploy that capital.

Any other questions from the audience?

Don't say that.

Some things don't change to the positive on that front. Does your context change after some period of time in terms of how you address that or is it kind of comfortable existing and sort of doing what you do in that context? I'm curious how you think about just that dynamic for you guys. It's a fairly unique portfolio in the conference.

Just restate the question.

Yeah, I'm going to restate the question so that anyone who's listening in can hear it. It's, you know, how do we consider, you know, our share price versus our value? And it's been, you know, we've been trading below NAV for a little bit of time. And if that doesn't change going forward, you know, how are we going to look at it and what do we want to do? So I will tell you that, you know, again, our results, rent growth, NOI growth, core FFO growth, have been strong relative to our peers. That's what we can control. We do get questions, should you sell the company? I would have rathered sell the company when we were trading at $28 a share rather than $16. So I don't think today is the time to just, when you have a well-performing, stable portfolio, to just throw up your hands and say we're done. We know that our returns are growing. our rent is increasing on a blended basis our expenses are under control our NOI is growing our EBITDA is growing this market dislocation I will end it's you know there's always cycles and we're just coming what I believe is we're coming to the end of what is this this you know difficult cycle and we're at the beginning of what should be a very good period and and the results will be telling so you know we get back to the the standard you know four or five six percent rent growth where we were before COVID with good expense control you'll see you know much higher NOI growth in the you know high single digits the low double digits and at that point you know the the valuation should change but if they don't it's something that we'll have to consider Thank you. Thank you. Thank you.