Independence Realty Trust Q2 2026 Earnings Call Transcript

On Tuesday, Independence Realty Trust (NYSE: IRT ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

The full earnings call is available at Summary Independence Realty Trust reported a 120 basis point sequential improvement in new lease rates during Q2 2026, indicating market recovery and improved rental rate growth. 2%. The company's community Wi-Fi initiative is ahead of schedule, contributing significantly to revenue growth and expected to add at least one penny to core FFO per share in 2027. Value-add renovation programs have resulted in over 20% annual NOI growth, with plans to increase renovation volumes without impacting occupancy.

Independence Realty Trust is on track to achieve its 2026 guidance and expects continued improvement in market fundamentals to support stronger earnings momentum into 2027. Full Transcript OPERATOR Good morning, ladies and gentlemen, and welcome to Independence Realty Trust's second quarter 2026 earnings conference call. As a reminder, today's call is being recorded, and the replay will be available on the Investors section of the company's website shortly after this call concludes. At this time, I will turn the call over to Stephanie Krewson Kelly, Senior Vice President of Investor Relations.

Ms. Krewson Kelly, please go ahead. Stephanie Krewson Kelly, Senior Vice President of Investor Relations Thank you. Good morning, and welcome to Independence Realty Trust's conference call to discuss second quarter 2026 results.

On the call with me today are Scott Schaeffer, Chairman and Chief Executive Officer; Jim Sebra, President and Chief Financial Officer; Janice Richards, Executive Vice President of Operations; and Jason Lynch, Senior Vice President of Investments. Before we begin, please note that any forward-looking statements made during this call are 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.

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 Form 8-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 Schaeffer. Scott Schaeffer, Chairman and Chief Executive Officer Thanks, Stephanie, and thank you all for joining us this morning. I am pleased to report that operating momentum is building across our portfolio as market conditions continue to improve. As our results demonstrate, rental rate growth has improved throughout the year, driving a 120 basis point sequential improvement in new lease rates during the second quarter, with further improvement in July.

Additionally, as of today, with 65% of new lease activity completed for the month of August, new lease spreads for like-kind leases are slightly positive. The consistent upward trajectory in leasing spreads is a clear signal that our markets are in recovery, which, when combined with the new Wi-Fi revenue stream that we've established, supports our confidence in our guidance for same-store revenue growth. As expected, the volume of new deliveries has declined in our markets, and macroeconomic drivers of demand continue to outpace national averages. Recent employment data continues to highlight health care as the primary driver of national job gains over the past year.

This is visible across our footprint. Education and healthcare employment grew faster than total employment in every one of our 10 largest markets over the trailing year. Aligning with our residents' income profile, people continue to relocate to the Sunbelt and Midwest markets for employment opportunities and quality of life. The high cost of home ownership continues to support rental demand, and IRT's value proposition—namely larger apartment units, good school districts, proximity to essential retail and employment centers, with monthly rents that are meaningfully less than new construction—continues to attract and retain residents.

Bearing this point, the steady improvement in market conditions has resulted in greater lead generation volumes over last year and a decrease in concession use. Importantly, overall market occupancies across our portfolio have generally reached levels that support market-wide rent growth. The combination of durable demand, rising market rents, and normalizing concessions has driven the sequential improvement in rental rates that I mentioned earlier. 1% in July.

2% in the second quarter and improved 340 basis points to a positive 20 basis points. Taken together, net effective rental rate growth in our markets is gaining steam with the recovery that is upon us. Rent premiums from our value-add activity will also increase because we perform a full repositioning of the apartment community. Our renovated properties successfully compete with newer Class A properties by offering modern interiors and attractive on-site amenities at a lower price point than new construction while delivering a mid- to upper-teens return on investment.

Our approach to value-add renovations enables us to capture an immediate rent premium and benefit longer term from lower repairs and maintenance and turn costs. The higher rents and lower operating cost realized on renovated units has expanded our NOI margins and boosted same-store NOI by more than 20% annually. Additionally, over the past two years we have significantly decreased the time it takes to renovate units, such that moving forward we can increase the volume of value-add renovations without impacting occupancy, further benefiting future NOI growth.

Lastly, as I referenced at the beginning of my remarks, during the quarter we successfully completed the initial phase of our community Wi-Fi initiative ahead of schedule. This new revenue stream not only supports our outlook for same-store revenue growth this year, but will also contribute at least one incremental penny of core FFO per share to next year's results. In short, our markets are in recovery, we are on track to achieve our 2026 guidance, and we are excited about the earnings momentum building towards 2027. With that, I'll turn the call over to Jim.

Jim Sebra, Chief Financial Officer Thank you, Scott, and good morning, everyone. 2% that outpaced the 80 basis point midpoint of our original guidance range for this year. The outperformance was driven by stronger revenue growth and lower expense growth. 3% in the prior-year period.

Average occupancy of 95% was down 20 basis points sequentially and reflected our deliberate strategy of capturing rental rates over occupancy to maximize revenue. Looking ahead, revenues from our community Wi-Fi program will contribute significantly to other property revenue and same-store revenue growth during the second half of 2026. More on this in a moment. Rental rate growth in the quarter was fueled by a combination of stable asking rents and declining concession use.

Asking rents across our markets increased by 3% from January through May and have held steady since. As demand strengthened during the year, we were able to reduce concession use from 54% of new leases in April to approximately 28% in July. 1% in July. Finally, as Scott mentioned, with over 65% of our expected new leases signed for the month of August, new lease tradeouts for like-term leases are slightly positive.

While this is early, we are excited to see the continued improvement of market fundamentals translate into better pricing power. We provided July and August data in today's prepared remarks. However, investors should not expect monthly data to continue to be presented on future calls. We are only providing this detail since, one, new lease tradeouts are in focus right now, and two, this activity helps investors understand the momentum that is building and our confidence in achieving our guidance, which we will discuss momentarily.

Regarding individual markets and new lease growth, seven markets had positive new lease tradeouts during the second quarter, 11 were positive in July, and so far in August, 13 markets are seeing positive new lease spreads. 1%, San Antonio with 1%, and Louisville with 30 basis points of positive spread. 4% during the second quarter, and they accelerated to a positive 2% in July. On renewal leases, our data science efforts are supporting lower renewal concession use and higher effective renewal rates without significantly impacting resident retention, which was 58% in the quarter.

6%. 5%. 1%. 5%.

On the expense side, same-store operating expenses increased 50 basis points in the quarter, reflecting higher payroll and contract services, partially offset by decreases in property taxes and insurance. On our property Wi-Fi initiative, I'm pleased to report the program is running slightly ahead of plan due to earlier implementation at 19 communities that went live in May and June. 5 million in revenues and $3 million of NOI. Turning to capital allocation, our value-add renovation program remains our most attractive investment opportunity.

Through the first half of the year, we have completed 1,026 units, putting us on track to meet our original guidance of 2,250 units. We achieved 16% ROIs on renovations in the first half of the year and, as Scott highlighted, expect to capture higher rent premiums going forward as market rents continue to recover. On the capital recycling front, we are under contract for the sale of Stonebridge Crossing in Memphis, which should close before the end of this quarter. We intend to use the proceeds to delever and forecast ending the year with a net debt to EBITDA ratio in the mid-5s.

Additionally, I'm pleased to highlight that in June Fitch Ratings increased our outlook to positive from stable and that both Fitch and S&P affirmed our BBB flat rating. 5%. 7% for the full year, and our expectation for lower operating expenses during the second half of the year. For core FFO per share, the expected increase in same-store NOI is offset by $2 million of higher interest expense and a $2 million decrease in expected non-same store NOI.

In addition, core FFO per share is benefiting from a lower weighted average share count due to our first-quarter share repurchases. 14. Details on our updated same-store guidance are as follows. 7% at the midpoint is unchanged.

1% we delivered in the first half. We want to be clear about the components of this growth. 5 million from our Wi-Fi program in the second half. 3 million of revenue that will come from leases signed in the second half of 2026.

8%. 6% or better. Ultimately, all in all, as we sit here today, 87% of our full-year revenue growth is already achieved or contracted. 4% midpoint, primarily driven by better results in both controllable and non-controllable operating expenses.

For our non-same store portfolio, the reduction in forecasted NOI relates primarily to the slower lease-up at The Tisdale at Lakeline Station, the development asset we consolidated during the first quarter of this year. The project's average occupancy of 36% in the second quarter was behind our original expectations. We made good leasing progress in July with the community now 42% occupied. We expect this community to reach stabilized occupancy during the first quarter of 2027.

Lastly, we are increasing the midpoint of our full-year interest expense guidance by $2 million, reflecting higher SOFR rates, including an assumed 25 basis point increase in September, and temporarily higher average debt levels associated with the timing of investment activity. As I mentioned previously, with the pending sale of Stonebridge and the associated deleveraging, we expect to end the year with net debt to EBITDA in the mid-5s. Scott, that was a lot. Back to you.

Scott Schaeffer, Chairman and Chief Executive Officer Thanks, Jim. To summarize, same-store results through the first half of the year are ahead of plan, driving the increase in our same-store guidance for the full year. Demand remains strong as demonstrated by our year-over-year increases in leasing volume and the trajectory of new lease tradeouts. Our value-add program will benefit from increasing rental rates in the ongoing recovery, and the shorter completion timeline will enable us to increase future value-add activity with no impact on occupancy.

Our Wi-Fi initiative is ahead of plan and contributing meaningfully to the revenue growth assumed in our guidance. As we move through the back half of 2026, we expect continued improvement in apartment market fundamentals to drive stronger leasing and earnings momentum into 2027. We thank you for joining us today. Operator, you can now open the call for questions.

OPERATOR We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one.

Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Eric Wolf with Citibank.

Your line is now open. Please go ahead. Eric Wolf, Analyst at Citibank Hey, thanks. Good morning.

You mentioned that new leads were up year over year and concessions across your markets were down. If possible, could you just quantify those two data points of the leads and the concessions? I'm just trying to understand sort of how big of a shift this was and get some context around, you know, sort of how quickly market conditions are improving. That's helpful.

And then you talked about new leases being positive thus far in August. Can you just talk about where occupancy is today? And you mentioned, you know, sort of addressing most of your sort of second-half leases already. I guess based on sort of what you've signed thus far, would you expect occupancy to sort of stay stable from current levels?

Scott Schaeffer, Chairman and Chief Executive Officer Yeah, occupancy today is 95%. And yeah, we would expect it to stay stable. It might actually grow a little bit as we end the year. Eric Wolf, Analyst at Citibank Okay, thank you.