Q1 2021 Independence Realty Trust Inc Earnings Call
3% driven by Revenue growth of 5.6%. This growth was driven by 260 basis points of higher, average occupancy, and a 2.9% increase in average includes value of communities. We did Sienna like rows of 2.5% at our same-store non-value activities. Again, this growth is driven by age seven basis points of incremental occupancies and a 1.7% increase in our average rental rate for the first quarter as compared to last year.
With regards, the rent collection, they have continued to be strong despite the Persistence of the COVID-19 pin beverage and extended is actually moratoriums. Today we have collected 98.4% of our first quarter billing consistent with last year. We evaluated uncollected announced for collectability and recorded a reserve for bad debt. For those amounts. We deemed uncollectible as of today off, maintain a bad debt. Reserve of 1 million dollars associated with a 1.5 million dollars of gross receivables outstanding at quarter-end, as a result, we have a net receivable balance of $500,000 in believe that they will be collected in the near-term. From early perspective are bad debt expense which is a deduct. When arriving at Revenue was 80 basis points into one month, this is consistent with six. 20, 20 and better than our original guidance. Therefore, we have reduced bad debt expense. In our updated full year 2021 guidance from one point to 5 a.m.
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Good day, and thank you for calling standing by and welcome to the Border Independence program. The first quarter, 20 21 on yours release conference call. At this time off after the speaker presentation,
Netflix session. Thank you and good morning everyone. Thank you for joining us will result through Thursday, our first cheaper order. Our chief executive one finance officer will result in zebra on the call with me today until Thursday sir.
Property operating expense side, same store, operating expenses grew 6.2% in the first quarter primarily due to higher insurance. And real estate taxes a trend that has continued since last year. Excluding is noncontrollable expenses controllable operating expenses? Increased 3.8% due to higher utilities Contract Services and repair your maintenance costs. High utility rates usage and snow new car for the primary drivers of the incremental increases.
Chief Executive Officer of Jim T fibra are today. Our chief call is being webcast asked on our web website. Ellender today's call is being webcast. There left on our web website at ww.w on their website will be a way of the conical a.m. available on our investor released today side and tell us before sonically return. The call you back over to approximately 12, to remind p.m. everyone eastern time that they're made today be forward-looking before events made. I'll turn the call of this call over to Bob.
Before moving on, to our balance sheet, I'd like to cover the increase in G&A expenses and see 121 expenses included a one-time, stock compensation, expense, for retirement, eligible employees. This is consistent with July last year. This one-time expenses caused an increase in looking at the quarterly Runway that G&A expenses. If you remove these one-time expenses you increase in g, n a q, 122 Q1-twenty-one is 4.5% as is highlighted previously. We are making investments in our operating and Technology platforms.
I'd like these forward to remind looking State. Everyone that's reflect that they're made. I already forward-looking State current events made on with this call back to future events and financing state mental performs reflect events. I are current deals with actually driven and material and Thursday from mental Performance Tire tournaments. He has rejected, she will result of such say, for substantive, are made in Chile and goods and materials pursuing from went to the harbor has provisions of the private Securities litigation in good favor form of night went to the office provision. Please up the please refer to private Securities. Litigation reform Elemental impact of 95 South
Take to update forward-looking statements in this call or with respect to matters described herein except as may be required by law.
With the, we ask these refer to be fire, T Sports Factor. That's release that could affect the elemental and accurate information of our feelings with the wage SEC, or coffee for a future, or factory results. That could affect the material accuracy, leave from the other expose expectation stations or clubs participant. Our future is made the results us not to differ on Gap material, Financial magazines from Jersey during those expecting this call patients.
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That is my pleasure to turn the call over to Scott Shafer.
Thank you Lauren, and thank you all for joining us today. This time, last year, we were faced with unexpected challenges brought on by the pandemic and were uncertain about the magnitude and impact of this crisis on our lives businesses. Since then we will come a long way. And now have a clear view of the future making us more optimistic about realizing our growth potential for the balance of this year. And beyond that I see, we are encouraged by the strength of our portfolio and the progress made during the past twelve months. All leading to favorable demand trends at our properties. This demand is led by an acceleration in vaccine distribution office, or economic Outlook and favorable migration Trends, we're clearly seeing the benefit of owning and operating properties, and attractive non Gateway markets where there are notable near and long-term growth drivers with a focus on the Sun. Belt region has proven to be the right strategy as the pandemic has reset, how and where people choose to live work and play.
Given this improving Outlook and our strong Market presence were very excited for the year ahead. And as a result are raising our 2021 guidance, Jim will address this later on today's call, let's give you a sense of our optimism. Raising the midpoint of our full-year and noi growth guidance from 2.5% to 4.125% a 65% increase.
This encouragement is exemplified by another strong results. Specifically, in the first quarter are same store, noi increased 5.3% and our core ffo improved to more than 23% compared to a year of our same-store. Average occupancy increased to 95.3% of 260 basis point increase on a year-over-year basis, average effective, monthly rent per unit grew 2.9% in the quarter off and we collected over ninety-eight percent of first-quarter rent and now have collected over ninety nine percent of our fourth quarter 2020, rents.
And with favourable demand Trends continuing we are seeing strong results. So far. In April, our total portfolio. Average occupancy is 96% a 330 basis. Point Improvement compared to April of last year long. We have now collected almost 97% of April rent which is consistent with collections at this point in March and given our low lease expirations and high-occupancy in the first quarter. We continue to drive rent growth averaging 4.5% so far in the second quarter. Another key component of our strategy is the advancement of our value-add program with the exception of our value-add program. In January of 2018 through the end of the first quarter, we have come back to Renovations on 3861 units achieving a weighted average return on investment of 18.5% on interior, renovation cost, and excited to tell you that we have started Renovations at 3 additional Community here. And we'll begin Renovations, on 1/4 in the near future.
In addition to our value-add program will continue to focus on acquiring investment properties under our Capital, recycling program, and exploring the potential for joint venture relationships focused on new multi-family development team as mentioned on our last earnings call. We are looking to provide Capital through preferred Equity, Investments and joint ventures with third-party developers in corn on Gateway markets, in particular. We are exploring developments in the Southeast and Gulf region where we see opportunity for growth. Our expectation is that these investments will deliver unlevered IRS of approximately 20%. While giving us the ability to purchase, the new leads developed community, that attractive Capco between five and five and half percent. We are making progress on this front with three letters of intent. Signed aggregating total investment for us a $56 million dollars. The closing of these transactions is expected to occur second half of this year.
We are excited about our future.
There was through the communities, we own and highly attractive, markets are high Roi value-add program or creative Investments that we intend to pursue through preferred equity and joint venture opportunities that I can promise you is that we will remain committed to staying focused on what we do best and look to maintain our strong and simple balance sheet. At this time, I want to turn the call over to Farrell for an operational update Farrell.
Thanks Scott and good morning everyone to Echo. Scott's comments, this has been an extraordinary year that Challenger team was unexpected circumstances under their dedicated efforts and focus on Resident retention, continue to report solid results. And now a strong start to 2021. And the first quarter, our occupancy grew 260 basis points to 95.3% from 90.7% a year ago, this is continued in April with total portfolio average occupancy at 96% of 330 basis points year-over-year.
We've been able to achieve these levels while increasing our average effective monthly rent by 2.9% in the quarter.
On a lease basis, for the same store, portfolio, new lease rates, increased, 6.8% and renewals were up 4.8% during the first quarter. You willing to combined life or at least rental rate increase of 5.9%.
Strong Trends. Continue in the second quarter to date with new leases having increased 9.6% that by our value-add communities. While renewed leases are up. 3.7% off Blended least over lease rental rate increase of 4.6% for our same store portfolio to
Can you do a balance?
Green two point. Nine million shares of our comments.
In the first quarter, we issued two million shares of our common stock under our aftermarket sales program. At our way,
The average price per share of $14.50 and then enter into a forward. Sale agreement associated with these shares.
Dividend. It board of directors, declared a quarterly cash dividend of $0.12 per share, which was paid on April 23rd. This represents a payout ratio of 71%, on 17 off of a SFO, during q1 of 2021.
With respect to our Outlook, we are increasing our 2021 guidance based on the first quarter results and increasing visibility on business industry and economic conditions for the remainder of this year. Off our revised guidance for 2021, DTS is a range of $0.05 to $0.08 per diluted share and for is a range of $0.72 to $0.75 per share wage, which I remind you now include stock compensation expense and the amortization of deferred financing.
20-21. We now expect at our same-store communities to increase between 3.5% and 5% up from a previously, guided range of 1.55% to 3.5%. This updated guidance reflects expected, same store, Revenue growth of between 3.75% and 5% as our average rental rates have been increasing higher-than-expected and our bad debt expense has been trending lower than expected. Moving on to expenses are new projected growth and total same-store real estate property taxes of 4.25% and 5.5%. As a result of our expectation. That controllable operating expenses should increase between three and four percent and our noncontrollable spices, including taxes and insurance should increase between 7 and 8%.
Lastly we are now providing guidance around transaction volume expectations. We are projecting a disposition line of up to $100 as well as an acquisition line between 100 million and 200 million for the for year of 2021 to follow up on the comments made earlier by Farrell. We have ample liquidity to fund the pending Acquisitions that we mentioned. There's also important to note that our core ffo guidance. Did not assume that these transactions occur. The ranges are meant to be indicative of the potential magnitude as we turn to see it.
Alex time to call back to Scott, Scott.
Thanks Jim in closing, I want to highlight how encouraged I am by our strong. Start to the year, this reflects our teams continued efforts to provide well-managed quality homes. To our residents while continuing to strengthen our balance sheet. We want again to thank our team for their hard work and dedication and thank you for joining us today. We hope you all stay well and look forward to speaking. With many of you, let me reach virtually every conference at the beginning of June operator, we would now like to open the call for questions.
And as a reminder, to ask a question, do we need to press star one again? That is star one to ask a question. So we'll pause for a moment to compile the queue and a roster.
And your first question comes from the line of Neil Malkin with Capital One Security.
Thank you. Good morning. You want a guy? You mentioned them, you know, JV side or a truck died. Three letters of intent, 3 deal teams, maybe, you know, talk about that how that progressed, you know, maybe at the life or, you know, total size and with the breakdown in between, I guess, JV development versus the preferred or, you know, Mez opportunity,
Sure. Thanks Neil so our appetite hasn't changed. We're still looking to to limit the investment in in this type of program to a hundred million dollars a month and we've entered into. As I said, 300 is for new construction communities in our Target markets where we have management capabilities and and we think at that returns and will ultimately purchase options that are going to be very attractive. So again this program is meant to use same amount of our Capital today to build a pipeline of future Acquisitions. In the markets where we want to grow.
Gotcha. You're that you're doing preferred lending and on those development deal is that what you're saying or might not be door or 25 or relationships? But there there will be prefer. There will be preferred investments in in this program as well. Okay, but these three are the are basically. Just JV Equity, essentially, you're using for Thursday. Correct? Yes, correct. Okay, great, thanks. And the other one, you know, he's going to be on the operations side have to be hearing a lot about out-migration from the coast and am, you know, your your Market being the the clear beneficiary or beneficiaries. Can you talk about what you're kind of seeing on the ground or from your property manager is in terms of money, you know in migration have you seen you know, consistent and steady increase, you know since you know like earlier middle of last year off
From a percentage of people from out of state, who are we rebuilding these new? Leases kind of how to think about, you know, what that looks like on the ground.
If it's anecdotally, I mean when you're in the market, everybody's talking about it. And, you know, they put their seeing, you know, Northeastern license plates more. So in the market, when we look at the data off, it's been fairly consistent over the past year. So our Carolina properties are really seeing the majority of it. You know, it's about 6 to 8% depending on the community of info from FAQ, get a New York, New Jersey, PA markets, but we're watching it very carefully.
Okay, and then just to be clear the, the deals you have on your contract, the Acquisitions, the two deals at separate and apart from the, the 300 I am. So that's incremental, yes. Okay. All right. Thank you guys. Next question, comes from the line of
Everybody. Good morning wanted to jump. Back to the preferred Equity or the development joint ventures. You mentioned again on the $56, can you provide some additional detail on on the market of the details are located in? And and what is the structure of the joint ventures? Are the developers contributing the land or will they have additional equity in the deals?
Austin. The three deal. Right down one is just out of just outside of Richmond. One is in Austin. Texas. And one is in Nashville, Tennessee.
Yeah, that's helpful. So should we leave? You should we view these as sort of new markets that you'd be interested in entering and gaining scale given sort of the, you know, my understand the thought process with this would be that this program could provide sort of that future pipeline of Acquisitions. So what are the thoughts on sort of adding additional markets?
Yes, often. That's that's, that's correct. These are markets that we targeted. These are markets where we've looked at a number of opportunities and just have not for a number of reasons and, and not being pricing have jumped in. But through this program, we think it will give us a foothold and allow us to build out in the future. And what was the structure again in terms of the, the, you know, the joint ventures? I mean, are they, you know, fifty-fifty joint ventures initially or or you know something else? Can you provide any detail on this one? Sure they're very often or uh, again joint venture common Equity, where the developers contributing to land. It's already been approved. It already has life, you know, all of the zoning and other, you know, regulations work through and addition and the developer's edition is contributing additional Equity as well. So I don't have the exact
Percentages right off hand. I think it's 82 money, but clearly, the developer is the lines and has Capital at risk. And, and what we talked about this program is that the timing is is there almost shovel-ready? So, as soon as as we close the construction will beginning,
Got that cellphone and just last one for me on the new acquisitions you mentioned in Dallas and Charlotte I think you said these were lease up deals is the four and a half percent in the initial cap rate. And and if so, what do you think back upon stabilization and the and the timing of stabilization?
So they are.
The Dallas property is in an area where we already have three other assets. Very, very close by. And again, I look at this as defensive as much as offensive in that. I wanted to control this new construction of new new delivery, rather than having somebody else come in. And it's also a market that's been very strong and seeing seeing tremendous growth. So, we're excited about that. The other property in Charlotte is a little bit different. We've been looking to grow in Charlotte. It's an info location. A very, very, very well located. And, you know, we got comfortable with the new construction investment here because we think in this area, even though this one is new construction, it will not have a lot of competition from additional deliveries in the future month. So one of the benefits obviously is being the, the v-class investor is that we were insulated from from new delivery and I look at this acquisition almost a little bit as a control
View, everyone else is running now to to to buy the bees and driving down cap rates. You know, we were able to find a brand new delivery in a very well located area, um, it should be insulated from from new competition because of where it is.
And getting it at a much better price than the Beast. And in regards to the cap, right? That's a a year to stabilize tax, adjusted cap rate,
got it. So what sort of ongoing in basis where where you stepping in bringing around for taking about four to six months off, Speedway. Thanks sir.
Your next question comes from the line of Nick Joseph. The city
Peter, this is Michael Griffin on, for Nick, just curious. So, your occupancy, this quartermaine's above the historical average, are you seeing a better ability to push rents as a result of this? I'm not seeing that our pricing on the new or renewal side.
What we're definitely seeing better price on the new side because we have the value-add program, which is is generating, you know, very healthy returns and on the renewal, you know, there has been, you know, very good demand. We're seeing our renewal rate continually increase since you know the third quarter of last year and we will push rents. You know, where we can. We do have more lease expirations in the second and third quarters by Design. So I'm taking that into consideration with renewal rates. But, you know, we expect to continue to drive rates and and drive them in a very healthy way, as long as we can do that while still keeping not seeing that ninety-five ninety-six percent range
Are you seeing any markets where you're able to push rents?
More so than others.
Atlantic has been a really strong market for us over the past couple of quarters and and Memphis. As you can see on the results. You just one more for me, obviously announce the birth ATM program. Last fall wondering what appetite there was if any, for deleveraging through a larger Equity race
You know, we we we look at that constantly but we have no plans at this point to raise Equity to deal ever. We've met you look at where we were a year ago, leverage was 9.2 times. So we're full turn below that even through the pandemic while still driving, you know, the best way, no portfolio returns in the industry. So uh just through organic growth without new acquisitions or or other organic growth. We expect the leverage to be in the 7th by year-end. So we have no appetite at this moment to raise Equity to deliver.
Okay. That's it for me. Thanks for the time. Thank you. Your next question comes from the line of John Campbell BMO Capital Market.
Thank you, you increased your guidance, pretty sizable. You ahead of the peak leasing season. I was wondering what surprised you the most so far this year. Relative. Projection just a couple months ago.
Well, I mean, I don't know if it was a surprise when we, you know, crafted our initial guidance. You know, it was before the vaccine was was being distributed off. There was still a lot of unknowns with, you know, where the economy was going to be in 2021. So as we look at it today we felt it prudent to say, you know, we think what the the balance of 2021 will look like we did it still with erring on the side of caution or conservatism. But as we look through the balance of a year, we feel that, you know, the guidance that we put out is reasonable and again with an eye on, or erring on the side of conservatism,
But there are still some unknowns. I mean the the eviction moratorium is is still out there and you know, we don't know if that will be extended to be on June and we don't know how many residents, you know, they took advantage of that. Right now we have about a hundred residents who are deferring the rent, because of the moratorium.
We don't expect that to grow but that's something that we don't control.
I know the data is less than a month, but you had new leases accelerating growth and renewal sort of slowed down how should we read into this? For the new lease is driven by market strength or your renovation programs or where the proportion amount of both lease is coming from that were signed or what should we take out of that?
so,
We, we feel that until this pandemic and this crisis is over for good that, you know, the strong occupancy is the best way to protect the five folio and and, you know, continue to deliver, you know, results like we have. So, as we look forward at our lease expiration date schedule, again, it is skewed towards the second and third quarter during leasing season. You know, we're adjusting our renewal rates in order to make sure that we're maintaining occupancy. And that ninety-five ninety-six percent range on Thursdays is once the unit is vacant, you know, we're out there and you want to drive as much rent as you possibly can or once you know, it's going to be vacant. I should say or the tenants going to leave and it's also helped dramatically birth value-add program. I mean the value of program were getting you know, eighteen to twenty percent premiums over expiring lease. You know, that's very powerful from the rent growth perspective and in regard birth,
It's got next in terms of the lease expirations, are you put it in perspective, you probably stall close to have any leases in April as we did in the first quarter. So, you know, given you know, the pandemic we want to be them and and, you know, they drive Rocky that you wanted to be very cognizant of the amount of leases that are rolling in the sport.
On the jv's. I know you probably don't want to go too much into detail but you quoted the unlevered. I I was at 20% and I'm wondering if you could break that down between the current. In fact, I found it versus you know, fees or promotes and and capital appreciation. I don't have that in front of me but I'll grab that and give you a call back a bit odd, but do you do you expect it? The the yield or the income to be paid in cash or inequity.
Yeah. And we think it's will be paid in cash. Certainly obviously the the, the the details, you know, I'll come back to you with the with the specifics. I appreciate it. Thank you.
Our next question comes from the line of a member flights of their thanks. Gud morning guys. Following up on your kind of improvement and cost of equity loan. Can you just provide an update on how you're cranking your sources of capital today between disposition incremental, leverage, and then additional Equity issuance has? Yeah, I mean, I think I should continue with that are are kind of capital. We, obviously we have retained earnings that we are, you know, funding back into the business of the value-add, you know, and then we kind of look at, you know, dispositions? You know, given the high cap rate of the lokal. Vibrant, the highs, you know, pricing as another good source, you know, you know, with kind of equity costs, you know, being the lower-ranking one,
Okay that's helpful. And then as a follow-up to that, what kind of cap rates? Do you think you could achieve today for some of the assets you're targeting for disposition or at least what spread to achieve on Capital recycling between the volume and cells?
I mean.
We're seeing in the market, you know, like like I mentioned in the call sub 4% cap brakes on some of the value-add deals. So I would think you know, 4% right now is, is the market across the other markets that we're in.
And then last name for me, you focused recently on some of the newer construction acquisition today, which I get given value-add cat brakes, but what level are looking to pull the drive value. As you're under eighteen, the steel door weird used to your competitive Advantage with some of those newer vintage deals, is it some of the clustering benefits that you talked about? Or is there any other areas that way you can drive value? I mean I think it's a combination to what Scott said method, Dallas deal. I think we could definitely leverage the communities that we have in that submarket. Same thing in Charlotte, it's within, you know, off 7 minute drive of a community that we already have in that market but we really feel like, you know, these are typically direct relationships and we're getting a slight discount. The market to take up what we feel as minimal at least up risk month. So that's where we think most of it's going to be driven from.
Great, thanks for time.
And your next question comes from the line, and I'll let him borrow zelman.
Excuse me.
Yeah it under contract or obviously kind of Class A new developments and, you know, you know, new building where the JV and kind of preferred investment program it's going to focus. I mean, what is the runway you think left for kind of