Q4 2024 Independence Realty Trust Inc Earnings Call
Q4 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. If you'd like to ask a question during that time press star followed by the number one on your telephone keypad.
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Speaker Change: I'll now hand todays call over to my D. Zemba. Please go ahead.
D. Zemba: Thank you and good morning, everyone. Thank you for joining us to review independence Realty Trust's fourth quarter and full year 2024 financial results.
D. Zemba: On the call with me today are Scott Shafer, Chief Executive Officer, Jim Zero, Chief Financial Officer, and Janice Richards Executive Vice President of operations today.
D. Zemba: Today's call is being webcast on our website at IRET living Dot com and there will be a replay of the call available via webcast on our Investor Relations website, and Telefonica <unk> beginning at approximately 12 P M Eastern time today.
D. Zemba: I turn the call over to Scott I'd like to remind everyone that there may be forward looking statements made on this call. These forward looking statements reflect <unk> current views with respect to future events and financial performance.
D. Zemba: Results could differ substantially and materially from what I heard she has projected such statements are made in good faith pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, please refer to Irt's press release supplemental information with violent TCE for factors that could affect the accuracy of our expectations or cause our future.
D. Zemba: I'll show you differ materially from those expectations.
D. Zemba: Since may discuss non-GAAP financial measures during this call.
D. Zemba: A copy of Irt's earnings press release, and supplemental information containing financial information other statistical information and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures in <unk> current report on the form 8-K available at Irt's website under Investor Relations IR of cheese and other SEC filings are also.
Speaker Change: I'll walk through this link IRT does not undertake to update forward looking statements on this call or with respect to matters described herein, except as may be required by law with that it's my pleasure to turn the call over to Scott cheaper.
Scott Cheaper: Thanks, Matt and thank you all for joining US. This morning 2024 marked another strong year for Iot both in terms of operational performance and achieving strategic milestones that position our company for growth.
Scott Cheaper: <unk> operations core <unk> per share for the year of $1 16 was at the high end of guidance and was driven primarily by solid same store NOI growth of three 2%.
Scott Cheaper: Our regional leaders and leasing teams adapted to the changing market dynamics, including the impact of elevated supply to achieve our goal of attaining higher stabilized occupancy.
Scott Cheaper: Also managing average rent growth during the year, we increased same store average occupancy by 110 basis points to 95, 2% and still achieved a one 3% increase in average effective rental rates. These gains were supported by a solid resident renewal rate of 62, 7%.
Scott Cheaper: Same store results were further supported by the notable progress we made in advancing our value add program in the fourth quarter. We completed 395 units achieving a weighted average return investment of 15, 1%.
Scott Cheaper: For the year, we completed 1671 renovation that drove a $239 average increase in monthly rent per unit on the renovated comps and equated to a 15% return on investment.
Scott Cheaper: Five we look to capitalize on our solid occupancy levels and the improving rental rate environment by significantly accelerating value add renovation volumes.
Scott Cheaper: During 2024, we also strengthened our portfolio and future growth potential by investing $240 million at a blended economic cap rate of five 7% to acquired three properties in high growth markets. These properties containing 908 units and expand our presence in Charlotte Tampa and Orlando. Additionally, we are under contract and expect to close this month.
Scott Cheaper: On a 280 unit community in Indianapolis for $59 $5 million by expanding our footprint in these markets. Our operating expenses should also benefit from enhanced scale and synergies.
Scott Cheaper: Regarding strategic milestones in early 2024, we completed our portfolio optimization and deleveraging strategy, which we launched in the fourth quarter of 2023 with two objectives first to sell 10 properties in order to reduce our presence in noncore markets, which will also improve our portfolio's overall quality and operating efficiency and second to.
Scott Cheaper: Significantly deleverage our balance sheet, thereby broadening our access to capital.
Scott Cheaper: Executing on this initiative significantly improved our financial flexibility and enabled us to become an investment grade issuer proceeds from asset sales reduced our net debt to adjusted EBITDA on nearly a full turn to five nine times at year end as a result, we received a triple b flat rating with stable outlook from both S&P and Fitch.
Scott Cheaper: Best in grade ratings provides us with access to new forms of capital and as demonstrated by the terms of our new unsecured credit agreement significantly improve our cost of debt capital.
Scott Cheaper: We enter 2025 with high sustainable Occupancies strong leasing momentum in our balance sheet geared for growth our business plan for the year is very simple drive NOI and core <unk> growth by delivering rental rate growth on our existing properties and deploying capital into new strategic investments.
Scott Cheaper: Supply and demand fundamentals have improved meaningfully as compared to a year ago and support our expectation to capture higher rents without sacrificing occupancy. We expect a couple of our markets to continue working through the tail end of new supply. These include Denver, and Charlotte, which are forecasting supply to increase five 4% on a combined basis. This year on balance however, we expect.
Scott Cheaper: The steep decline in new deliveries across our markets in 2020.
Scott Cheaper: For the pace of new deliveries to decline even further in 2026.
Scott Cheaper: Looking at Costar data new supply in our same store markets increased six 2% in 2024 with 2025 now forecast to increase by only two 1% a 60% decrease in apartment unit deliveries in 2026, the pace of new deliveries is forecasted to further decrease to one 5% of existing units.
Scott Cheaper: Across our top 10 markets, which generate nearly 75% of total NOI supply increased five 8% during 2024, but is forecasted to increase by just one 8% and one 3% in 2025 and 2026, respectively.
Scott Cheaper: From a demand perspective, our markets continue to benefit from population growth due to lower cost of living and higher job growth than the national average. In addition, our portfolio of high quality largely class B communities in the Sunbelt and Midwest markets represents a strong value proposition for residents, which further supports demand.
Scott Cheaper: In light of continuing strong demand and significant declines in new supply, we expect to enjoy greater pricing power without sacrificing occupancy in 2025, a dynamic that should accelerate during the year and as we advance into 2026.
Scott Cheaper: In terms of deploying capital in 2025, we have nearly three quarters of $1 billion of liquidity, including $156 million available on our forward equity commitments.
Scott Cheaper: This liquidity will be used to fund strategic investments and drive growth.
Scott Cheaper: As Jim will discuss in further detail, we intend to increase the number of value add renovations that on average have generated rois in the mid to high teens and to pursue additional accretive acquisitions.
Scott Cheaper: Before handing the call over to Jim I want to state how proud I am of the IRT team's hard work and dedication throughout 2020 for your efforts made it possible for us to achieve the strategic milestones that are central building blocks of our future growth I'll now turn the call over to Jim.
Jim: Thanks, Scott and good morning, everyone.
Jim: Core <unk> per share during the fourth quarter of 2024 was 32.
Jim: <unk> grew six 7% over the prior year period for the full year core <unk> per share was $1 16 and came in at the top of our guidance range.
Jim: <unk> growth in 2024 was driven by solid same store NOI, which grew three 2% during.
Jim: During the fourth quarter <unk> same store NOI increased five 3% driven by a revenue growth of two 3% and a 3% decrease in same store operating expenses over the prior year quarter.
Jim: Revenue growth was led by an increase in average effective monthly rent of 80 basis points as well as a 100 basis point increase in occupancy as.
Jim: As compared to the prior year the quarter over quarter decrease in operating expenses was primarily driven by continued success in real estate taxes, as well as lower property insurance and repairs and maintenance costs.
Jim: For the full year 2020 for Iot same store NOI increased three 2% and was driven by a 3% increase in revenue.
Jim: Average effective monthly rent increased one 3% during the year and average same store occupancy rose 110 basis points.
Jim: While several categories of operating expenses increase we were able to secure lower property taxes on a year over year basis regarding recent leasing trends, while supply pressures are reducing they continued to impact new lease rental rates in the fourth quarter as well as so far in early 2025 going forward, while we may provide.
Jim: Broad commentary on rental rate trends, we will no longer be providing monthly information and instead continue to focus on managing rental rates and occupancy to maximize rental revenue through time.
Jim: With that said on our light total leases for Q4 of 2024, our blended rental rate growth was flat with new lease rates down four 6% and renewal rents up five 4%.
Jim: Regarding leasing activity so far in 2025, new lease rates in January continued a similar negative seasonal trend that we saw in Q4, but these trends are improving with rents continuing to move higher in January and February.
Jim: Our renewal rental rate growth in 2025 is also continuing the positive trends we've experienced in Q4.
Jim: In a moment, we will provide full year guidance information and specifically cover our expectations for blended rental rate growth for 2025.
Jim: Turning to our balance sheet. During 2024, we reduced total debt by over $200 million and improved our net debt to adjusted EBITDA ratio to five nine times down from six seven times a year ago.
Jim: This outperformed our goal to achieve six times a year and during 2025, we intend to further improve our net debt to EBITDA ratio to the mid fives as NOI and EBITDA continues to grow.
Jim: When looking at debt maturities between now and the end of 2027, we have less than 18% of our total debt scheduled to mature this low level of debt maturities is among the lowest of our public apartment peers.
Jim: As Scott mentioned in his work repeating during 2024, we achieved a significant milestone with respect to our balance sheet management. Today, we are an investment grade issuer that will be ratings from both Fitch and S&P as.
Jim: As previously noted while these ratings open up a new source of capital for Iot the public debt markets. This achievement also resulted in an immediate reduction of our interest rate on our unsecured bank borrowings of 34 basis points.
Jim: Earlier this year, we further strengthened our liquidity and financial flexibility by increasing the borrowing capacity under our revolver from 500 million to $750 million and extending its maturity to 2029.
Jim: As of today, we have nearly three quarters of $1 billion of liquidity consisting of $21 million of unrestricted cash.
Jim: $494 million available under our unsecured revolver and $156 million of available proceeds under the forward equity agreement from September as a result, we have ample dry powder to invest accretively.
Jim: During the fourth quarter, we reclassified our legacy steadfast asset, which is our final property in Birmingham as held for sale and recognized an impairment of $21 million.
Jim: We intend to recycle the equity from this asset into the purchase of the community we have under contract in Indianapolis later this month on.
Jim: On the acquisition front, we acquired $158 million in properties during Q4, using a $112 million of equity from our forward equity raises and $46 million in debt.
Jim: The blended economic cap rate on these acquisitions was five 7% and as Scott mentioned increases our exposure in Orlando and Charlotte.
Speaker Change: Turning to our outlook for 2025, we entered the year with strong occupancy momentum and operating fundamentals that support market rent growth.
Speaker Change: Currently we expect to drive value for Iot shouldered by optimizing leasing economics through capturing higher rates to diligently managing expense growth and investing capital in our value add program and new acquisitions.
Speaker Change: We are establishing full year EPS guidance of 19 to 22 per share and core <unk> guidance in the range of $1 16 to $1 19 per share.
Speaker Change: The bridge from our $1 15, starting point of core <unk> in 2024 to $1 17, and a half cent midpoint of our 2025 guidance includes the following components.
Speaker Change: <unk> <unk> of accretion from NOI growth from our existing same store portfolio.
Speaker Change: Half a penny of acquisitions completed in the fourth quarter of 2024, and the acquisitions, we intend to complete in 2025.
Speaker Change: Offset by a half a penny of increased overhead costs and <unk> of dilution for 2024 asset sales and deleveraging.
Speaker Change: Our 2025 same store portfolio consists of 108 properties, reflecting the addition of one property in Huntsville, Our guidance assumes same store NOI increased two 1% at the midpoint driven by two 6% same store revenue growth factors in the following components.
Speaker Change: 30 basis points from higher average occupancy as we are assuming an overall occupancy of 95, 5% for 2025 at the midpoint.
Speaker Change: 50 basis points from lower bad debt as we are assuming bad debt is one 4% of revenue.
Speaker Change: 60 basis points of earnings from 2024 and lower concessions.
Speaker Change: 35 basis points of benefit from our value add renovations.
Speaker Change: 25 basis points from other income and finally, our expectation for blended rental rate growth of one 6% for 2025.
Speaker Change: We expect the majority of the blended rental rate growth to be weighted in the second half of 2025, such that the actual benefit received in 2025 is closer to 60 basis points.
Speaker Change: For our value add investments, we expect to renovate approximately 2500 to 3000 units during the year as we've noted in the past the number of units renovated will vary due to resident retention levels and the timing of new renovation starts.
Speaker Change: Looking at expense growth in 2025 at the midpoint of guidance. We expect same store operating expenses to increase three 5% based on a three 8% increase in controllable expenses and a three 1% increase in non controllable expenses.
Speaker Change: G&A and property management expense guidance for the full year is $56 million.
Speaker Change: Reflecting standard inflationary growth, we forecast slightly higher interest expense of $89 million at the midpoint, reflecting the additional interest expense from future acquisitions.
Speaker Change: During 2025, we plan to use the remaining $156 million available under our forward equity agreements along with lower amounts of leverage to acquire approximately $240 million in properties and assumed economic cap rate in the mid fives.
Speaker Change: These acquisitions are modeled using the midyear convention and are incremental to the acquisition, we are making in Indianapolis as that is the recycling of capital from the sale of our last asset in Birmingham.
Scott Cheaper: Scott back to you.
Speaker Change: Thanks, Jim I'm proud of our 2024 accomplishments the portfolio, we've created and our dedicated team who continued to deliver outstanding results. We prove the resiliency of our business model in the face of heavy supply headwinds as demonstrated by our solid same store NOI growth occupancy gains and rental rate growth, we delivered core <unk> per share that was.
Speaker Change: At the high end of guidance and we reduced our net debt to adjusted EBITDA to five nine times, resulting in strong investment grade rated balance sheet.
Speaker Change: Looking into the future. We believe that we are at the beginning of a multiyear period of improving fundamentals and growth for the multifamily sector. We expect our portfolio of high quality communities in non gateway markets to experience stronger rent growth and higher occupancies than the national average, we look forward to capitalizing on this growth for shareholders as we manage through 2025 and headed into an even stronger.
Speaker Change: The growth opportunity in 2026, we.
Speaker Change: We thank you for joining us today and look forward to seeing many of you at cities Global property CEO Conference next month.
Speaker Change: Later, you can now open the call for questions.
Speaker Change: Thank you as a reminder, if you'd like to ask a question press star followed by the number one on your telephone keypad.
Speaker Change: We ask that you limit yourself to one question and a follow up well pause for just a moment to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Your first question is from the line of Austin, <unk> with Keybanc capital markets.
Speaker Change: Hey, good morning, everybody, Jim you flagged new lease rate growth.
Speaker Change: It remains negative early this year I think you said it is gradually improving in early 2025.
Speaker Change: What does guidance assume for new lease rate growth this year, and how does that sort of play out through the year and then could you also share whether that includes the benefit as well from the value add redevelopment that you provided.
Speaker Change: Yes, no great question Nelson and good morning, everybody. So in guidance, we've assumed a blended lease rate growth of one 6%.
Speaker Change: For the year that excludes any benefit from the value add.
Speaker Change: There are obviously other income benefits.
Speaker Change: The one 6% that assumes.
Speaker Change: Our renewal growth of 3% at 55% retention rate and effectively zero percent new lease growth over the year.
Speaker Change: Obviously, we're starting the year at slightly negative and it will continue to move.
Speaker Change: North to zero by kind of early leasing season in April.
Speaker Change: This is new leases obviously.
Speaker Change: Early April and then obviously you end the year positive.
Speaker Change: Okay. That's helpful. And then just a question on investments.
Speaker Change: Can you just talk about sort of the investment pipeline.
Speaker Change: Has that started to pick up I guess in terms of the transactions out there today and.
Speaker Change: How are you thinking about the markets that are most appealing as well as the types of assets are these class a <unk>.
Speaker Change: Recently developed assets that may still be in lease up or are they more of a.
Speaker Change: Class B that you can kind of continue to backfill the value add redevelopment Paul Thank you.
Speaker Change: Hi, Austin, It's Scott Shafer.
Speaker Change: When we raised the capital.
Speaker Change: Paul.
Speaker Change: We really were intent on building a pipeline and to put it to work and we've accomplished that we are a very fulsome pipeline.
Speaker Change: Both.
Speaker Change: New construction.
Speaker Change: <unk> that are in lease up and also some existing class b.
Speaker Change: We're actually starting to see.
Speaker Change: A little bit of distress and the effects of the higher interest rates. So many of the communities.
Speaker Change: We have in the pipeline are we think are becoming available because of.
Speaker Change: Financing.
Speaker Change: That's coming to maturity and needs to be replaced.
And can't be replaced at existing rates and also new construction that the construction loans or just.
Speaker Change: Much higher cost than what was underwritten.
Speaker Change: And people are looking to move those assets more quickly than they might otherwise do so we have a very fulsome pipeline were very confident.
Speaker Change: Putting that capital to work very accretively.
Speaker Change: Your next question is from the line of Eric Wolfe with Citi.
Speaker Change: Okay. Then can you talk about why you're increasing the value AD spend in 2025 and I think your guidance is based around 30 bps of occupancy occupancy growth. If I got that right. So just how are you going to achieve that even with the sort of increase in value add spend that I think typically brings sort of a longer term time.
Speaker Change: And more downtime on because I think in the past one of the things you've been hesitant about doing increasing the.
Speaker Change: <unk> spend is that sort of lower occupancy that you get with it. So just talk about how comfortable you are predicting sort of occupancy growth with increase in Vietnam.
Art: Good morning Art.
Speaker Change: Hi.
In past years, we've always targeted the 2500 to 3000 units in 2024, we ended up doing less than that just because of the pressure from new supply and we didn't want to spend.
Speaker Change: Capital to renovate a unit and have it be competing with all the new supply that was offering concessions. So we purposely dialed back the number of value add units that we completed started and completed but as we see supply pressure waning going into 2025, and now and clearly in 2026, 2027 and rents going up.
Speaker Change: We intend on doing more value add units and take advantage of those dynamics and just a follow up Eric we are planning to start 15, new communities in 2025, so the potential pressure on occupancy from the downtime will be dispersed amongst a greater volume of properties and it won't be <unk>.
Speaker Change: Okay.
Speaker Change: Where we can still hit the.
Speaker Change: 2500 to 3000 volumetric.
Speaker Change: Got it that's helpful and then as far as the bad debt. It looks like it was up sequentially in the fourth quarter can you just talk about what caused that and what gives you the confidence to predict you can call. It about 50 bps of.
Speaker Change: The average bad debt improvement throughout 2025.
Jana: This is jana.
Jana: For bad debt, it's really more of a timing situation moving into the fourth quarter.
With seasonality.
Jana: Worked through the markets Atlanta, and Memphis were.
Jana: Yes.
Jana: We were hit with that timing situation I think that it's going to normalize and we're going to hit that one for sure.
Jana: Yeah, and I think just as a follow up I think.
Jana: A lot of the things that we put in place over the past call it year year, and a half to really kind of identify the fraud. That's occurring in some of these markets are really beginning to kind of hold their teeth. Obviously it takes a little time from when a resident gets in to get them out and then obviously, let the tools work to get the new resident in and we're seeing the.
Jana: Volume of residents kind of moving into the eviction Q lowering such that we're we're pretty confident are going to hit the one 4% this year.
Speaker Change: Your next question is from the line of Brad Heffern with RBC capital markets.
Brad Heffern: Hey, Rick I know you said you didn't want to talk about spreads, but im curious if you can just qualitatively talk about how the start of this year compares to last year and maybe a normal year on the sunbelt just trying to gauge how much the supply impact is fading.
Brad Heffern: Brad sure Great question, I would say that certainly the new lease spreads are certainly.
Brad Heffern: Lower this year than they started last year.
Brad Heffern: But I would say the trends that we're seeing in the fourth quarter are certainly continuing into January and February but as I mentioned on the prepared remarks.
Brad Heffern: Rents are rising into February here, so where we're seeing that.
Brad Heffern: Movements in the negative new lease trade out on the renewal side renewals are slightly lower I'm, sorry, it's slightly higher in earlier this year as compared to last year simply because we've got concessions burning off and we're benefiting from that.
Brad Heffern: We're quite excited about kind of what we're seeing in the treated and the trajectory here and we're looking forward to kind of delivering on our guidance.
Speaker Change: Okay got it and then on the blends guide one 6% I think that's just right in the middle of our Camden <unk>.
Speaker Change: I guess I would've thought you might have been higher than them just given the Midwest exposure.
Speaker Change: I know you can't speak to exactly why why theyre guiding what they're guiding to you, but do you think thats a more conservative figure than your peers, maybe is it partially the occupancy growth that you're targeting or any other color you can provide around that.
Speaker Change: Yes, I think I think that's a fair assessment, we're always trying to manage rents and occupancy to maximize revenue through time and given that kind of expectation, we have on maintaining and managing that higher occupancy, we're just being a little more conservative in the rent growth trajectory that we see developing in.
Speaker Change: And obviously, we will continue to manage it for to maximize revenue through time.
Rich Hightower: Your next question is from the line of Rich Hightower with Barclays.
Rich Hightower: Hey, good morning, guys.
Rich Hightower: So I just want to go back to the.
Speaker Change: The same store buildup really correctly I think you said, 55% retention assumption for the year and obviously that's down materially from where you ended.
Rich Hightower: 2024, and so is that real.
Rich Hightower: <unk> to the value add displacement is that something else driving that statistic in particular.
Rich Hightower: Yes, no I think we always kind of target 55% in terms of retention each quarter I would say that some quarters bounce around I think the fourth quarter was 51% the third quarter was 57%, but I think largely for 2024 were in that 55% zone.
Rich Hightower: Okay, maybe I, maybe I misheard earlier okay.
Rich Hightower: And then just on the expense guide.
Rich Hightower: Maybe just help us understand.
Rich Hightower: Especially on the controllable side of things why that is.
Rich Hightower: In particular elevated relative to non.
Rich Hightower: Non controllable as this year.
Rich Hightower: In terms of 2025 guidance, yes, thats right.
Rich Hightower: Yes, I think it's more.
Rich Hightower: Yes, no I think I think it's more in our non controllable we are assuming a zero percent property tax increase.
Rich Hightower: Which is causing the call it the pace of growth to be slightly lower on the non controllable side then.
Rich Hightower: The controllable side.
Speaker Change: Your next question is from the line of Ann Chan with Green Street.
Ann Chan: Hey, good morning.
Ann Chan: Can you give us a rough sense of the NOI margin benefit to your existing properties.
Ann Chan: And you're subscale markets when you acquire an additional property.
Ann Chan: And meaningfully expand that unit count in those markets.
Ann Chan: <unk> basis.
Ann Chan: Yes, I mean, I think obviously from the standpoint of the acquisition as we bring something in house that was previously only maybe not Mac not managed well.
Ann Chan: Once we get it on our platform and then kind of be able to benefit from the scale.
Ann Chan: Better contract. It certainly is improvement I don't have the exact NOI benefit in front of me, but we've been able to see our ability to either keep increases of expenses in the controllable side, either kind of muted throughout from year to year, when we start adding significant scale.
Ann Chan: Or even try to make them go down, but I can get back to you specifically with what we see is an NOI margin increase.
Ann Chan: Great. Thanks.
Ann Chan: Can you can you help me break out that $2 six as expected revenue growth for 2025 between Sunbelt markets.
Ann Chan: In the West region.
Ann Chan: Sure.
Ann Chan: The other two 6% the Midwest is three 4%.
Ann Chan: Sunbelt is two 2% and what we call west or Denver is two 2%.
Speaker Change: Your next question is from the line of Barry, Oxford with Colliers.
Ann Chan: Okay.
Speaker Change: Great guys. Thanks for taking the call on the acquisitions just to kind of drill down a little more on that on the distressed.
Speaker Change: Property set that Youre seeing are cap rates rising and if so by about how much maybe versus six months ago that you might've seen.
Speaker Change: Good morning cap rates, what we're seeing has been pretty stable in the.
Speaker Change: The mid fives.
Speaker Change: That we're buying in Indianapolis is about a five seven cap the ones that we purchased in Charlotte and Orlando are similar.
Speaker Change: Obviously, the cap rates follow the 10 year up and down with a little bit of a lag and while we might have seen.
Speaker Change: Cap rates drop at the end of last year and an increase this year with the 10 year. What we're seeing is just more and more properties and more opportunities come to market, but that cap rates are really pretty pretty static in the mid fives.
Speaker Change: Great. Thanks, guys I appreciate it.
Speaker Change: Thank you perfect.
Speaker Change: Your next question is from the line of Michael Gorman with BTG.
Speaker Change: Yeah. Thanks, Good morning, Scott, maybe sticking with that question for a second there when you think about the cap rates you are talking about a new investments you talked about acquiring some of the properties in lease up I just wanted to make sure I clarified is that is that a stabilized number or is that a going in number and then how do you think about value add potential in.
Speaker Change: The future when you think about those investment yields on a going in basis.
Speaker Change: So.
Speaker Change: We typically buy and lease up we're really buying late in the lease up process. So it's close to stabilization, but we do look to have some benefit as we take occupancy 80, or 85 up to that 95% level. So.
Speaker Change: The 55657 is really going in and then we're looking to get a little higher than that through.
Speaker Change: Once the property is stable.
Speaker Change: And as far as the value add.
Speaker Change: The value add has always been our best use of capital and we've been able to generate those high <unk> mid to high teens returns on our buy and Thats, what we are seeing continuing.
Speaker Change: And that's again on an unlevered basis so.
Speaker Change: We're excited about the supply pressure of 2024, and 2023 being largely behind us that we really can ramp that value add back and the value add the number of value add renovations back to where we want it to be in that high.
Speaker Change: By 2000 to 3000 3000 unit number.
Speaker Change: That's great and then maybe just one more on the value add are you seeing more competition for those assets in the market.
Speaker Change: With the challenges in getting new development going are you seeing any traditional development players looking more at some of the value adds since they can't get financing or approvals for new ground up development is there more competition in that acquisition pool.
Speaker Change: No if anything I would say there is less.
Speaker Change: It's funny I always look back and think the world got a little upside down a few years ago when cap rates really compressed and interest rates were very low everybody was looking at doing the value add because money was free and you could generate these high yields and cap rates actually on B class and it's been lower than what new construction a class unit was.
Speaker Change: Trailing four but now we're seeing it more in line.
Speaker Change: But I don't think theres any more competition to purchase.
Speaker Change: Value add community.
Speaker Change: Community today than there has been in the past if anything maybe a little less.
Speaker Change: Your next question is from the line of Linda Tsai with Jefferies.
Linda Tsai: Yes, Hi, can you remind us what bad debt was last year and how much it contributed to your same store.
Speaker Change: 424.
Speaker Change: Bad debt last year was one 9% of revenue.
Speaker Change: I'm going to.
Speaker Change: Double check this but I believe it was two 2% in 2023. So it contributed roughly 30 basis points of growth in 2024.
Speaker Change: Thanks, and then what do you expect to end the year in terms of leverage.
Speaker Change: So I apologize the phone broke up there what do we expect to end the year in terms of leverage.
Speaker Change: Yes.
Speaker Change: Yes, we said mid fives, so that could be five six ish property 57 ish.
Speaker Change: So it could be five five.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of our motto Zakaria with Deutsche Bank.
Speaker Change: Okay.
Speaker Change: Hello.
Speaker Change: Yeah, Hey, good morning.
Speaker Change: Good morning, everyone. How are you Scott how are you Jim.
Speaker Change: So the same store opex guidance for the year again, it kind of seems like there is a normalization.
Speaker Change: Same store Opex growth.
Speaker Change: Is it a fantastic job last year of controlling the controllable I'm curious what kind of initiatives I am pleased with 25 to quote unquote control the controllable.
Speaker Change: And what are the factors that will determine whether you end up on the high end or low end of that same store opex growth guidance.
Speaker Change: Absolutely. So we had the fundamentals in place as we did it in 'twenty four and 'twenty five inch.
Speaker Change: Ensure that we are sending smart and we are placing the dollars and to really enhance the resident experience and ensure that we can maintain that retention level at a high place dependent upon how that goes and if theres any inflationary costs that we have to come in and they come into play we may or may not see that that comes in at the high level that we.
Speaker Change: As paid it to come in in the middle.
Speaker Change: On our guidance and we will March forward as we did in 2004 with.
Speaker Change: A very controlled approach.
Speaker Change: Just as a follow up obviously you use.
Speaker Change: And in turn our procurement team that is constantly renegotiating things for us. So we have a lot of really good policies in vessels of policies processes in place to.
Speaker Change: Really kind of fine tune and manage the expenses as best as possible, but of course as Janice mentioned trying to keep the resident experience at the forefront of our prospectus.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of John Kim with BMO capital markets.
John Kim: Good morning.
John Kim: Jim You mentioned on your guidance that Youre expecting builds of 3% and you signed five 4% in the fourth quarter you got over 4% for the year. So why are you expecting as moderate so much and maybe if you could tell us where you are sending out renewals today.
John Kim: Yes, we said renewals out for the month of April in the kind of three to three 5% range. The first half of May has also gone out in that same range.
John Kim: And it's just as Jon we're just kind of.
John Kim: We just exited a period of time that was never really seen in history before we're kind of entering into a period of time, where we've never necessarily seen the low supply.
John Kim: We're just trying to be thoughtful in terms of our guidance. So we deliver on the guidance what we promise.
John Kim: To the extent that we can deliver.
John Kim: To the extent that we can deliver above it we will.
John Kim: And then when you look at your value add.
John Kim: Versus your same store performance.
John Kim: Spread on blended is about 100 basis points.
John Kim: 70 basis points versus negative 30 for your same store.
John Kim: Historically that spread has been wider and I know youre still getting high returns on your on your invested capital.
John Kim: Is that.
Speaker Change: Low spread due to fewer renovated units per community.
Speaker Change: Or is there something some other factor thats driving that lower and do you expect that.
Speaker Change: Two the value add units.
Speaker Change: He needs to drive the.
The blended <unk>.
Speaker Change: Stronger in 2025.
Speaker Change: Yes, generally when you look at that the new lease.
Speaker Change: New lease rate growth that we disclosed in our supplement for the value add communities that obviously includes all leases in the properties as they ramp as our renovation program. So when you kind of breakdown new lease growth out into that which is call. It first term generation of what we call first generation renovation leases versus second turn.
Speaker Change: Meeting, it's a unit that was renovated two or three years ago and it's just turning also beat the resident left.
The new lease spread on the first generations.
Speaker Change: In the fourth quarter was flat at zero percent.
Speaker Change: And I think what you would see is if we werent spending the money on the renovation that rents would actually be more negative rates.
Speaker Change: And I think what we've tried to show over the years is.
Speaker Change: Even though we would even though we would do that would happen and we try to remove the market ups and the market's down from the calculation of the premium that we disclose on the value add so we're looking at okay. If we spend those dollars today, how would our rent fair versus the non renovated cop.
Speaker Change: Okay.
Speaker Change: That does conclude the Q&A portion of today's call I will now hand, todays event back over to Scott Schaeffer for any closing remarks.
Speaker Change: Thank you all for joining us this morning, and we look forward to speaking with you again in three months time.
Speaker Change: Have a good day everyone.
Speaker Change: Thank you for joining today's call you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yes.
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