- Average Occupancy: 95.4%, an increase of 120 basis points year-over-year.
- Lease-over-Lease Effective Rental Rate Growth: 3.5% for lease renewals.
- Resident Retention: 55.8%, an increase of 160 basis points year-over-year.
- Same-Store Revenue Growth: 3.6% year-over-year.
- Net Income: $10.4 million, down from $10.7 million in Q2 2023.
- Core FFO: $63.6 million and $0.28 per share, in line with the previous year.
- Same-Store NOI Growth: 2.8%.
- Average Monthly Rental Rate: $1,555, a 1.6% increase year-over-year.
- Bad Debt: 1.6% of revenue, down 40 basis points from Q2 2023.
- Same-Store Operating Expenses: Increased by 4.9%.
- Liquidity Position: $418 million as of June 30, 2024.
- Leverage: 6.5 times, down from 7.2 times in Q2 2023.
- Property Sale: Sold a property in Birmingham for $70.8 million.
- Property Acquisition: Plan to acquire a property in Tampa in Q3 2024.
- Full Year EPS and Core FFO Guidance: Increased by $0.01 per share at the midpoint.
- Full Year Same-Store Revenue Growth Guidance: 3% to 3.3%.
- Full Year Same-Store NOI Growth Guidance: 3.2% at the midpoint.
- Interest Expense Guidance: $83.5 million at the midpoint.
- Acquisition Volume Guidance: $80 million to $82 million for the year.
- Disposition Volume Guidance: Adjusted to reflect finalized property sales.
- Value Add and Nonrecurring CapEx Guidance: Reduced to $77 million.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Independence Realty Trust Inc (IRT, Financial) achieved a 120 basis point increase in average occupancy to 95.4% in Q2 2024.
- Lease-over-lease effective rental rate growth for renewals was 3.5%, with resident retention at 55.8%.
- The company completed renovations on 378 units, achieving a weighted average return on investment of 15.7%.
- IRT saw a notable decline in bad debt expense during the second quarter, with bad debt improving to 1.6% of revenue, down from 2% in Q2 2023.
- The company renewed its main insurance policy with a 10% reduction in premiums, contrary to the initially expected 17.5% increase.
Negative Points
- Net income available to common shareholders decreased slightly to $10.4 million from $10.7 million in Q2 2023.
- Same-store operating expenses increased by 4.9% during the quarter, driven by higher advertising and personnel expenses.
- Newly lease spreads were negative in Q2 due to continued supply pressure, which persisted into July.
- The company faced supply pressures in key markets such as Atlanta, Raleigh, Nashville, and Huntsville, leading to increased concessions.
- The renovation program's lease rate growth of 6.3% was lower compared to the historical 20.4% rent growth, indicating a decline in the effectiveness of the renovation program.
Q & A Highlights
Q: Jim, appreciate the second half blended rate growth and occupancy comments made in the prepared remarks. How are you thinking about the reacceleration from your July results in terms of blended rate growth and the strategy of reverse rent versus occupancy in the back half of the year given some typical seasonality?
A: We're seeing good progress already for August and September and feel confident about hitting the rental rate forecast. For August, 54% of our expected new leases are signed at a minus 1.7%, which is a 160 basis points improvement over July. For renewals, 95% of our expected August renewals are done at a 5.4% effective rental rate growth, and 78% of September renewals are signed at 4.6%. This supports our confidence in reaccelerating rental rates while maintaining occupancy.
Q: Can you touch on the concessions that you're seeing from competitors in some of the markets facing new supply competition?
A: We are seeing supply pressures in markets like Atlanta, Raleigh, Nashville, and Huntsville. Concessions on new developments range from three weeks to two months, depending on the lease-up phase. In July, we saw a slight increase in concessions, which was anticipated due to seasonal demand.
Q: Jim, you mentioned some recent modifications to the JV agreements for properties under development. Can you explain what's going on there and why you made those modifications?
A: The modifications relate to two properties in Nashville where we have a preferred equity stake. We had a right of first offer to purchase, but couldn't agree on value with the developer. We modified the agreement to a right of first refusal, and they will take the properties to market before year-end. If they don't sell and pay us off, we take control and can sell them.
Q: What does the revised lease rate growth assumption for the back half of the year imply for 2025 revenue growth earning?
A: It implies a 90 basis points earn-in for next year.
Q: Can you discuss what you're seeing on the ground in Atlanta, particularly regarding fraud and bad debt challenges?
A: In Atlanta, we are seeing improvement over July. For new leases in August, 55% are already in place with a 400 to 500 basis points increase over July. For renewals, 90% of August renewals are at 5.4%, up from 2.4% in July. We have implemented software to combat fraud, and we are starting to see the benefits with lower bad debt percentages reported in Q2.
Q: You provided new disclosure on the renovation program lease rate growth of 6.3%. How does this compare to the historical 20.4% rent growth?
A: The premium we evaluate is versus an unrenovated comp, while the rental rate growth disclosed is versus the expiring lease. Historically, the rental rate growth would have been around 10% or 11%.
Q: Could you help us understand the rent growth outlook for the back half of '24 and the loss to lease statistics?
A: As of July 31, our loss to lease was 30 basis points. If we hit the midpoint of guidance, we'll have a 90 basis points earn-in for next year.
Q: How should we think about continued capital recycling as a source of capital?
A: For the balance of 2024, we are considering trading out of one remaining asset in Birmingham. In 2025, it will depend on growth in individual markets and where we want to expand or contract. We sold one asset in Birmingham and are redeploying that capital into Tampa.
Q: Can you talk about any other markets where you expect improvement in the second half of the year?
A: We expect to see improvement in occupancy in Raleigh and Charleston as new supply pressures lessen. Overall, we are seeing improvement in the Sunbelt as supply pressures ease through the rest of the year and into 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
