Independence Realty Trust - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivery was in line operationally: CFFO/share $0.29 and same‑store NOI growth +2.7%, with stable occupancy (95.6% period-end) and resident retention 60.4%.
• Reported GAAP EPS $0.03 missed S&P Global consensus EPS $0.080*, while FFO/share $0.30 was modestly above consensus $0.299*; total revenue $167.1mm was slightly below consensus $168.1mm*; Adjusted EBITDA $92.6mm was roughly in line with EBITDA consensus $93.0mm*.
• Guidance update: EPS was lowered materially (midpoint to ~$0.275–0.28) on fewer gains on sale; FFO/share and CFFO/share midpoints were reaffirmed; interest expense midpoint reduced; acquisition/disposition volumes reduced versus prior plan.
• Capital allocation: two accretive Orlando acquisitions closed ($155mm) funded via forward equity; three assets held for sale; bad debt improved to <1% of same-store revenue; balance sheet liquidity ~$628mm with 99.7% fixed/hedged debt.
• Stock catalysts: EPS miss versus Street, reaffirmed CFFO/FFO midpoints, impairment on Denver held-for-sale, and “green shoots” commentary on easing supply may drive mixed reaction near-term.

Note: Consensus values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

• Same-store NOI +2.7% YoY, driven by +1.4% same-store revenue and a 0.7% decrease in operating expenses; NOI margin expanded +90 bps to 63.4%.
• Collections improved: “bad debt…improved to less than 1% of same-store revenues” as process/technology investments paid off (CEO), with bad debt at 93 bps and AR balances down 40% YoY (CFO).
• Accretive external growth: acquired two Orlando communities for $155mm, increasing Orlando exposure to 1,260 units; acquisitions funded leverage‑neutral via $101mm forward equity.

What Went Wrong

• GAAP EPS $0.03 was far below S&P Global consensus $0.080*; Street may focus on headline EPS miss despite REIT FFO/CFFO alignment.
• Lower transaction volumes vs plan (acquisitions to $215mm, dispositions to $161mm) drove EPS guidance cut (fewer gains on sale), and a $12.8mm impairment at Bella Terra (Denver) highlighted market headwinds.
• New lease tradeouts remained negative (‑3.5% in Q3; blended +0.1%), pressured by competitive supply and concessions; several markets (Dallas, Denver, Raleigh) still working through elevated deliveries (management).

Transcript

Speaker 5

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Independence Realty Trust Q3 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. I would now like to turn the conference over to Stephanie Presut. You may begin.

Speaker 2

Good morning and thank you for joining us to review Independence Realty Trust third quarter 2025 financial results. On the call with me today are Scott F. Schaeffer, Chief Executive Officer, James Sebra, President and CFO, and Janice Richards, Executive Vice President of Operations. Today's call is being recorded and webcast through the Investors section of our website at irtliving.com, and a replay will be available shortly after this call ends. Before we begin our prepared remarks, I remind everyone we may make forward-looking statements 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, supplementary 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 F. Schaeffer.

Speaker 1

Thanks, Stephanie, and thank you all for joining us this morning. Third quarter results were in line with expectations due to our continued focus on managing revenues and expenses. During the third quarter, our average occupancy remained stable as we continue to prioritize occupancy over rental rate in this competitive leasing environment. We finished the quarter at 95.6% occupancy, a 20 basis point improvement from the end of the second quarter. Our resident retention of 60.4% helped support this stable occupancy. Same-store revenue also increased in the quarter, driven by higher average rents per unit and improved bad debt versus a year ago. We outperformed expectations on bad debt in the quarter, which now represents less than 1% of same-store revenues and demonstrates the effectiveness of the improved processes and technology we have implemented since early 2024. Our value-add renovations contributed to revenue growth as well.

We completed 788 units during the quarter, achieving an average monthly rent increase of approximately $250 over unrenovated market comps, which equates to a weighted average ROI of 15% during the quarter. Same-store operating expenses decreased over the prior year, driven primarily by lower property insurance and turnover costs. In terms of transactions during the quarter, we acquired two communities in Orlando for an aggregate purchase price of $155 million. These acquisitions more than double our number of apartment units in Orlando, improving our market presence and our ability to realize meaningful operating synergies. We currently have three communities held for sale, one of which is expected to close later this year, the other two early next year. While we maintain an active pipeline of acquisition opportunities, we recognize the current disconnect between our implied cap rate and market cap rates.

We will continue to evaluate all investment opportunities, including value-add renovations, acquisitions, deleveraging, and share buybacks as we allocate capital to drive long-term shareholder value. Market dynamics remain competitive, but green shoots are emerging in several of our markets as supply pressures ease. Signs of market recovery are most evident in Atlanta, where occupancy has increased 60 basis points since January 1, all while our asking rents have increased 5%. Jim will provide more detail in other markets, but the point here is that we are seeing early and encouraging signs of recovery. New deliveries in IRT submarkets have declined 56% from the 2023 to 2024 quarterly averages, and supply is forecasted to grow by less than 2% per year for the next several years, which would be meaningfully below the trailing 10-year average of 3.5% per year.

Against these improving supply fundamentals, we expect apartment demand to remain steady in our markets, driven by employment opportunities, quality of life dynamics, and a rent versus buy economics that will continue to favor renting. We have seen positive net absorption in our markets for two consecutive quarters. During the third quarter, over half of our markets, encompassing 60% of our NOI exposure, registered positive net absorption. Atlanta, which is our largest market, moved into positive net absorption for the nine months ended September 30, with occupancy increasing 50 basis points. Other markets like Coastal Carolina and Charleston are also seeing positive net absorption, while markets like Tampa, Denver, and Dallas are still working through their supply challenges. Before I turn the call over to Jim, I just wanted to reiterate a few things. Market fundamentals are improving and while it's.

Speaker 4

Taking longer than we all expected there.

Speaker 1

is light at the end of the tunnel and we see pricing power increasing. We will remain focused on optimizing near term performance through stable occupancy, managing expenses, and investing in our value-add program with its consistent outsized returns. Over the long term, the three factors that underpinned our past performance will drive our future outperformance. First is our differentiated portfolio of Class B apartment communities in markets that will continue to outperform the national average for employment and population growth. Second is the efficiency of our management platform, which has a proven track record of optimizing revenues while also diligently managing expenses. Third is our disciplined approach to allocating capital. We will continue to be deliberate, patient, and nimble in deploying capital to the highest and best uses, including our value-add program, capital recycling, deleveraging, and share buybacks. With that, I'll turn the call over to Jim.

Speaker 4

Thanks, Scott, and good morning, everyone. Third quarter 2025 corporate FFO per share of $0.29 was in line with our expectations. Same-store NOI grew 2.7% in the quarter, driven by a 1.4% increase in same-store revenue and a 70 basis point decrease in operating expenses over the prior year. During the third quarter, our point-to-point occupancy increased 20 basis points against the slower than normal leasing season, while our new lease tradeouts were lower than we anticipated at negative 3.5%. We've been clear about our desire to maintain stable, high occupancy to position as well as we head into 2026. Our renewal rate increases of 2.6% came in line with our general expectations, as we expected lower renewal increases to support retention and help maintain and grow occupancy during the third and fourth quarter. That strategy is working as expected, with retention at 60.4% in the third quarter.

We're beginning to see signs of stabilization across several of our markets through improvement in asking rents along with the ability to maintain occupancy.

Speaker 1

Let's look at a few of our.

Speaker 4

Markets that are experiencing these green shoots since the beginning of this year through the end of September. As Scott mentioned, Atlanta's occupancy has increased 60 basis points since January. New lease tradeouts were 410 basis points better and asking rents are up 5% this year. Indianapolis asking rents are up 3.5% while maintaining stable occupancy at 95.3%. Oklahoma City asking rents are up 80 basis points and new lease tradeouts have improved 260 basis points, all while maintaining stable occupancy of 95.5%. Nashville's asking rents have improved 240 basis points this year with stable occupancy of 96%. Cincinnati's asking rents have increased 11 percentage points with occupancy increasing 100 basis points to 97.5%. The Coastal Carolina market has seen asking rents improve 5.7% and occupancy has grown 2.1% to 95.9%. Lastly, Lexington, Kentucky asking rents are up 22% this year with occupancy growing 70 basis points to 97%.

These markets highlight that fundamentals are firming and pricing power is beginning to return to key regions of our portfolio. For the third quarter, bad debt was 93 basis points of same-store revenue, which represents a 76 basis point improvement over Q3 of last year as well as a 46 basis point improvement sequentially from second quarter. Our team's efforts and the technology enhancements we've implemented since early 2024 are the drivers behind this improvement as underlying collection fundamentals have improved such that overall charge offs as a percentage of revenue were down 40 basis points compared to third quarter 2024. In addition, accounts receivable balances were 40% lower at September 30th as compared to Q3 of last year and recoveries from our third-party collection firm were also higher.

All in all, the improved performance on our bad debt is exciting to see and we expect to see continued progress in the coming quarters as we focus on stabilizing our bad debt sustainably below 1% of revenues. Same-store operating expenses decreased 70 basis points over the prior year quarter, reflecting our continued focus on managing expenses within controllable expenses, which were flat year over year. Higher advertising spend was offset by lower repairs and maintenance expenses. Our strong resident retention contributed to lower repairs and maintenance expenses in the quarter within non-controllable expenses. The 2.3% decrease over the prior quarter reflected our favorable renewals on our insurance premiums from earlier this year. During the quarter, we further enhanced the long-term growth prospects of our portfolio by acquiring two communities in Orlando for an aggregate purchase price of $155 million and an average economic cap rate of 5.8%.

One of these properties is phase two of an existing IRT community and the other is in close proximity to another IRT community, such that we expect to realize meaningful operating synergies. We used $101 million of our forward equity proceeds to fund these acquisitions and now have $61 million of forward equity remaining on our assets held for sale. We now expect one asset to transact in 2025 and the two remaining assets will be sold in 2026. On our asset held for sale at Denver, we recorded a $12.8 million impairment in the third quarter due to the recent pressures observed in the Aurora submarket and its impact on the performance of this community. The third quarter was also busier than normal with respect to our joint venture investments. In July, our JV partner Enrichment completed the sale of Metropolis in Innsbruck.

We received $31 million in cash, which included a $10.4 million gain in our income from unconsolidated real estate investments line items. This gain was excluded from core FFO since it is associated with a property sale. In October, our partner in Nashville redeemed our preferred investments, which resulted in the return of our initial investment and the receipt of $3.3 million in preferred return, which we will recognize in the fourth quarter. This preferred return will be included in core FFO consistent with historical treatment as it is not associated with an asset sale. From a capital allocation perspective, we will continue to prioritize our value-add renovation program as it represents the best use of capital given the steady mid-teen and the margin expansion renovated units create from increased rents and reduced turnover costs.

We will continue to evaluate other capital allocation decisions between buying back shares, pursuing acquisitions, and deleveraging. Our balance sheet remains flexible with strong liquidity. As of September 30, our net debt to adjusted EBITDA ratio was six times, and we are on track to further improve this ratio in the fourth quarter to the mid-fives as expenses decline seasonally. We continue to have very manageable debt maturities with only $335 million or 15% of our total debt maturing between now and year end 2027, and nearly all of our debt is either fixed rate or hedged. With respect to our full year 2025 guidance, we are narrowing our ranges on same-store revenue and expense burden while keeping the midpoints unchanged. With respect to transactions, we are reducing our acquisition and disposition guidance ranges due to timing.

Our updated acquisition guidance of $215 million reflects only the acquisitions that have closed to date. Our updated disposition guidance of $161 million reflects the disposition that closed earlier this year and the sale of one asset expected to close in November. These reduced volumes are the primary driver behind our lower expected interest expense and the lower weighted average shares for 2025. Lastly, from a core FFO per share perspective, we have narrowed our guidance range and our midpoint of $1.175 is unchanged. Scott, back to you. Thanks, Jim.

Speaker 1

For the past few years, the residential sector has navigated historic levels of apartment deliveries while supply pressures are receding. It's too early to call a broad market recovery, but we are cautiously optimistic that 2026 will be a better operating environment than 2025. With our differentiated portfolio of class B assets and highly desirable markets, our efficient management platform, proven value-add program, and strong balance sheet, we are well positioned to generate attractive core FFO per share growth. We thank you for joining us today and can now open the call for questions.

Speaker 3

Thank you.

Speaker 5

As a reminder to ask a question, you will need to press Star then the number one on your telephone keypad. If you would like to withdraw your question, press Star one. We do request for today's session that you please limit to one question and one follow up. Your first question comes from the line of Brad Heffern with RBC. Your line is open.

Speaker 4

Yeah, hi.

Morning everyone. You talked about the green shoots in the prepared remarks. Can you just talk through how the pressure of supply today feels different than it did last quarter or earlier in the year, and when do you expect things to get back to something resembling normal?

Speaker 3

We have some markets that were a little softer than anticipated, such as Raleigh, Dallas, Denver, and Huntsville. Raleigh was more of a lingering effect of the supply that was produced. We're seeing stable occupancy. Asking rents are a little bit lower than anticipated, feeling the pressure of supply and concessions. We feel that this one's rather short lived and we'll start to see some movement early next year. Dallas obviously has had some pretty heavy supply entering in the market. Occupancy has been stable, about that 95.5% that we're looking for, but still feeling some pressure from supply and a competitive market with concessions entering in and making it a major play. Denver's challenging occupancy decline of about 200 basis points as well as feeling the pressure from supply, there's 7.45% delivered in 2025.

We'll work through that and make sure that we are definitely being patient as well as disciplined within all of our strategies in Denver to maximize. Huntsville, one of our smaller markets, has seen an occupancy decline year over year, but holding stable above that 95%. Asking rents are feeling pressure from the supply and we're working through that 5.7% that was released. We feel that each one of these markets has potential to start movement on the asking rents and work through the supply. We do see 2026 supply decreasing in all of these markets, which is the light at the end of the tunnel that we're going to be working through. I think we'll start to see some benefit in the second half of 2026.

Speaker 4

Yeah.

Brad, just to kind of bring it all full circle, I think the supply pressures we definitely feel are waning. We definitely see a light at the end of the tunnel coming. If you look at some of the most recent CoStar forecasts for fourth quarter and now 2026, the forecast now in 2026 are much lower than what they were earlier this year, because as we've been all highlighting, it does seem like supply was delivered earlier this year than what was supposed to be delivered next year. Really great positive opportunity here in 2026. The one thing we do watch in terms of, obviously each day and each quarter, each month.

Is just, you know, this kind of.

A conversion, right, from leads to leases. That has been improving for us, right, from month to month to month throughout the third quarter. That tells us that the pressure of new supply is certainly waning, and we're being able to see more throughput into the leasing.

Okay, got it. Thank you.

Jim, on the forward equity, you obviously need to settle that by the end of the year, but there's no additional acquisitions contemplated in the guide. Are you planning to extend that, or is there a chance that you'll let that expire? We can obviously always extend it. We do have two forward equities, one from September that got closed out, and that'll be kind of closed out this quarter, and then the one that we did in the first quarter of 2025, we actually have until the end of the first quarter, 2026. The $61 million that's left remaining is primarily that and we have until March 31 to close that one out.

Okay, thanks.

Speaker 5

Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

Speaker 4

Great. Thank you for taking the question. Given the sequential moderation in.

Speaker 1

Blends, especially on the renewal side, can.

Speaker 4

You talk about what your latest thoughts.

Speaker 1

Are on earning for 2026.

Speaker 4

Your current loss to lease? Yeah, great.

Jamie, obviously, good morning. Nice to see you. Loss to lease today, it's actually gain to lease of about 1.5%. Our earning right now for 2026 looks to be about 20 basis points. Obviously, we have to finish the year before the earning is actually locked in, but it's about 20 basis points.

Okay, thank you for that. I guess just thinking about renewals down so much sequentially, I think if you look across the peer group.

Speaker 1

It's at the lower end.

Speaker 4

I know you said you wanted to keep occupancy at the expense of rate. Are there certain markets where you're really kind of surprised at how hard you.

Speaker 1

Have to fight to keep people.

Speaker 4

Maybe talk us through the different regions.

Speaker 1

Is it any different markets, or is it pretty similar to what you said before on the renewals?

Yeah, I would say similar to the markets that Janice went to before in terms of the more supply heavy markets, certainly a little more competition that we have to work harder to keep people at. I would say generally the retention rate, you know, that 60% has been a focus of ours and we baked into our original guidance earlier this year a steady decline in that renewal rate because we knew that we wanted to keep occupancy high heading into the slower seasonal periods of the fourth quarter. I would say even though it's sequentially lower, we've been pretty clear about, we've expected this all throughout the year. What we see right now so far for fourth quarter, that renewal rate is actually about 40 basis points higher. We see a little bit of strength redeveloping.

The difficulties in terms of really we're having to, quote, unquote, work hard or working hard every day.

Speaker 4

Right.

It is definitely in those markets.

That Chad has mentioned. You're saying your renewals are up 40 bps already in the fourth quarter?

The T6, the spread. Yes.

Okay.

Speaker 1

What about new leases and blends?

New leases are pretty much in line with what you saw in the third quarter. Blends are about, call it 50 to 60 basis points. About 90% of our expectations for renewals for the fourth quarter have already been signed.

Speaker 4

Okay, great.

Speaker 1

Thanks for the color.

Speaker 5

Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Speaker 0

Great, thanks. Good morning, everybody. Going back to some of the green shoots that you referenced in your prepared remarks, coupled with, I guess, the softness in the back half of this year and just broader uncertainty, how do you approach the 2025 outlook and kind of the sequential improvement in fundamentals and think about sort of that ramp in the first part of next year?

Be a little more specific in terms of ramping because obviously we're staying away from really talking about any kind of 2026 guidance. I would say that our expectation is to continue to drive occupancy here in the fourth quarter. As I just mentioned, we're definitely seeing some improvements on the renewal spreads and just continue to manage the business for the long term value.

Speaker 4

Creation of our shareholders.

Speaker 0

I guess there was this expectation for lease rate growth to inflect in many of the Sunbelt markets late this year. Is that more likely a first half of 2026? Do you see new lease rate growths, which I think you referenced, are kind of in line with where they've been trending? Does that begin to improve over the several months ahead? What's sort of the thought on how.

Speaker 1

That trajectory looks from here?

Speaker 4

Gotcha.

As we've mentioned, the desire that we have is to continue to keep occupancy at a nice, stable, high level for us as we end the year and get ready for 2026. That's always been our goal and we've been pretty vocal about trading rate, especially on new leases to accomplish that goal. As a result, new leases have kind of flattened out right where they are today in the third quarter when we were expecting them to continue to get better. We do see some progress in future months. They are getting better, but we're obviously being cautious because again, we want to continue to maintain this high stable occupancy. If you look at our expiration schedule, you look at what leases are expiring month by month for next year.

Again, without prognosticating on market rent growth and so on and so forth, we do expect that new leases should begin to kind of hit that break even point in the first half of next year.

Speaker 0

Can you just talk about how concessions have trended in some of the markets where you're seeing sort of some of that competition? Janice, you highlighted some details in the market. Are concessions getting worse, are they stable, getting better? Just trying to get a sense high level of that competition that you're facing from the new lease ups.

I don't have Janice in a moment. Talk about maybe individual markets. I would say, generally speaking, if you look at all of our leasing activities, so renewals, new leases, everything, in the third quarter this year, 23% of all of our leases had some type of concession associated with it. That is down from 30% in Q3 of last year. The average concession is up slightly to $735 per lease, and that's up from $710 in Q3 of last year. As you look at it, kind of looking sequentially from quarter to quarter, that 23% is slightly higher from second quarter. If I look out in October, we're down from where we were in.

Speaker 4

The third quarter in terms of overall volume.

Hopefully that helps.

Speaker 2

Yeah.

Speaker 3

As we monitor competition very closely in the softer markets that we talked about, we are seeing some ebbs and flows in concession, obviously based on the lingering supply and what we would consider stalled lease up. Nothing that has been outlandish or unsurprising. Very surprising. However, we've seen a slight increase of concession usage in what I would say Dallas and possibly in Raleigh and in specific pockets. Denver is definitely a concessionary market and will probably continue to be so as we work through that 7.5% of supply that was released in 2025 and doesn't anticipate to ebb as fast as some of the other markets that we are in.

Speaker 0

Helpful. Thanks for the time.

Speaker 4

Thanks, Austin.

Speaker 5

Next question comes from the line of Eric Wolfe with Citigroup. Your line is open.

Speaker 4

Hey, good morning. Looks like your net acquisition guidance came down, and you have some assets teed up early next year. Could you just talk about your appetite for buybacks and how you think about the spread between where your stock is trading today versus where you can sell assets? Thanks.

Speaker 1

The acquisition guidance came down. We had a small portfolio under contract, and in due diligence we became aware of some significant structural issues, and it was an all or nothing. We walked away from it. At this point, we clearly recognize the disconnect between where markets are trading, where properties are trading relative to our implied cap rate at our share price. We have a strong appetite for buybacks. We want to be disciplined, obviously. Clearly, it's a very good use of capital at this point. We also continue to work on our leverage. We're going to do it with retained earnings and other capital. It won't impact our EBITDA.

Speaker 4

Understood. I guess I was trying to think through, like, to what extent you could sell, you know, additional assets and try to take advantage, you know, of that spread if you thought it was material. I know there's sometimes tax implications from that. There's also sort of a descaling of.

Speaker 1

The enterprise that you have to.

Speaker 4

Be sort of careful about, but was just curious to what extent we could see you sort of ramp up the dispositions next year and then try to use those proceeds to be a bit more aggressive on a buyback in a leverage neutral manner.

Speaker 1

I think it's a balance and it's a balance with the deleveraging strategy. We still want our leverage to come down, which it has been doing, and we want it to continue to come down. The thought of selling assets and giving up the EBITDA of that asset and then using the capital to buy back stock, while it might be a great return, is going to increase our leverage and I'm not sure anyone wants to see that. We have the $60 million on the forward available to us and we also have some of the JV programs that are not EBITDA producing during the construction. As those funds come back to us, that's available for us to use as capital for share buybacks.

To clarify, the $61 million on the forward, we can net share settle that today. We don't actually issue a bunch of shares and have to buy back.

Speaker 4

A bunch of shares.

To Scott's point, that forward was issued at, I think, an average price of $20.60, and we're trading well below that. There's an opportunity there to take some of that "gain" and buy back incremental shares.

Understood, thank you. Thank you.

Speaker 5

Next question comes from the line of John Kim with BMO Capital Markets.

Speaker 4

Good morning. I want to go back to your renewals that you signed this quarter back in September. In your presentation, you talked about the renewal trade-off being in line or tracking expectations. I'm wondering if something happened in September where it decelerated quicker than you had thought, or was this the 2.6% you anticipated?

I think the point I was trying to make earlier is that we actually anticipated the renewals to go down in the third quarter. When we kind of talked about them tracking in line with their expectations, that was clear that that was our expectations. Certainly, as we mentioned earlier, we are obviously working in a very competitive environment and we are obviously looking to renew and retain as much of our residents as possible because not only are you saving a negative lease trade out, but you're also saving the vacancy costs, turn costs, and all the other stuff that goes along with it. I would say that the 2.6% was very much in line with our expectations.

Just to clarify, that is 40 basis.

Speaker 1

Point improvement, is that what you're sending?

Speaker 4

Out, sending renewals out today or what you're signing?

Based on what we signed.

Okay, my second question is the cap rate on the Aurora sale. I'm wondering if you could disclose that. I think you said in the prior call that this was related to the Steadfast portfolio. I'm wondering if you're looking at Denver as a market that you're.

Speaker 1

Looking to potentially sell more assets.

Speaker 4

Of just given the supply pressures.

Yeah, I don't have the cap rate on the Aurora Denver Health for sale asset that is not closed yet. Obviously, it's not even under contract. I would say it would be a cap rate based on our internal view evaluation, but I can get back to you on that specifically.

Okay. Denver as a market, we're.

Speaker 1

Not looking to exit the Denver market. The property in Aurora was a Steadfast property. It's an older property, expensive to run, high CapEx. That's why it was identified as for sale.

Speaker 4

Got it. Thank you.

Speaker 5

Next question comes from the line of West Golladay with Baird.

Speaker 4

Hey.

Speaker 1

Good morning everyone. I want to look at your number two market, Dallas. It looks like your same-store revenue growth is accelerating, but I believe I heard you in the commentary talking about more concessions in the market. I'm just trying to see what's going on there.

Speaker 3

Yeah, I think in Dallas what we're seeing is targeted markets and submarkets that have had high supply are becoming more concessionary as we go into the slower seasonal months in order to maintain that occupancy. We're just making sure that we're staying competitive within the market. Concessions are increasing as we've kind of seen a lingering effect of that supply. We're still able to maintain our occupancy. The demand factor is still stable. It's just making sure that we can work through that supply and a timing factor.

Yeah, I think west specifically was down. Specifically with Dallas, I think you saw the average occupancy this quarter up 40 basis points over the third quarter of last year. That's a contributor to the acceleration.

Speaker 1

Okay, thanks for that. Looking at this year, you're talking about your tech contributions being a bit of a tailwind. Do you think that momentum continues into next year? Will the bad debt expense coming down lower be a tailwind again next year?

I'll start with the last one, bad debt. Yes, we expect that the bad debt will continue to be, as I mentioned in the prepared remarks, we're working to keep that sustainably below 1%. That should be a nice tailwind or support to 2026 and beyond. I would say that on the technology side, yes, obviously we've implemented a series of pieces of technology both on the kind of front of house leasing and sales and tours as well as back of the house. Payables, processing, other things that we are definitely working on. We're going to continue to expand that to continue to drive lower expenses and better property improvements throughout the chain.

Okay, thanks for that. That's all for me.

Speaker 5

Next question comes from the line of Ami Probandt with UBS.

Speaker 2

Hi, I'm wondering were there any moving pieces within the same-store revenue guide such as blended rent assumptions, occupancy changes, bad debt.

Speaker 1

Amy?

Ami, are you there?

Speaker 2

Can you hear me now?

Speaker 1

Yes.

Okay, great. Would you mind restating that? You broke up there.

Speaker 5

Sorry about that.

Speaker 3

I was wondering if there were any.

Speaker 2

Moving pieces within the same-store revenue.

Speaker 5

Guidance such as changes in blended rent.

Speaker 4

Occupancy or bad debt for what, fourth quarter?

Speaker 2

Within the guidance, if you had maybe.

Speaker 3

Yeah.

Speaker 2

Increased your assumptions on occupancy and decreased on rent. Any moving pieces to get you?

Speaker 3

To the guidance midpoint.

Sure. The assumptions in guidance for occupancy was 95.5% in the fourth quarter. Blended rent growth of 20 basis points, other income growth of about 3%. We've assumed a similar improvement in bad debt as we saw in the third quarter. Bad debt in fourth quarter last year was about 2%. If you kind of reduce that by that roughly 70, 80 basis point improvement we saw this quarter, that's kind of what's factored into Q4.

Speaker 5

Got it, thanks. You mentioned materially lower supply delivery levels.

Speaker 2

I'm wondering if you think that we may see extended lease up periods, and if you're factoring that into your thought process at all.

We are thinking about that. As you can imagine, we have not put out 2026 guidance yet. We are evaluating that with respect to what that budget will look like for next year and how significant it will be. The deliveries have come down quite significantly, even throughout 2025. Even though the deliveries are higher than we all anticipated, the level of deliveries in 2025 is still significantly under 2024. We are expecting to see a lot of the lease ups, if not done. If there is some extension, it should be a very small effect in the early to mid part of 2026.

Speaker 5

Got it, thank you. Next question comes from the line of Omotayo Okusanya with Jefferies.

Speaker 4

Yes. Good morning everyone. Really good color in regards to kind of supply and what's happening in your market. Curious if you could talk a little bit on the demand side. I mean is some of the pressure on blended rates really more because there's just a lot of supply and people have options, or is there like an actual demand issue where, you know, whether it's because of slowing job growth or things like that, you're getting a little bit more pushback as well in terms of asking rent and renewals. Sure.

I think you've heard us previously as well as a lot of our apartment peers, the leasing season kind of started a little earlier, ended a little earlier. I would say just generally speaking on the demand side, if you look at just our submarkets and you look at absorption levels and demand levels, in second quarter and third quarter, they're peaks right over historical recent history in terms of what they were. Obviously that's because of lease ups, everything else. I would say the demand is still quite healthy for apartments. A lot of our resident base that we cater to in our differentiated class B product is not the white collar jobs that might be experiencing job losses. It's hospital workers, it's nursing home workers, it's retail workers, it's not the typical white collar including, we have factory workers and blue collar workers.

It's a much, what we think, more defensive, in the AI era than what folks appreciate or think might be affecting apartments down the road. We do track reasons for move outs because of job losses. I would say there's really no elevation there over the past six to nine months. It's not something we are watching. It's not something that we're overly concerned about at the moment, but we are watching and paying attention to it.

Gotcha. My last one for me, just because it's election season at this point, anything on any ballots in any of your key markets you're kind of watching that could potentially impact your business? The school district in my.

Local town I don't like very much.

That is a different story.

No, we're not aware of anything in our markets where we should be concerned.

Great, thank you.

Speaker 5

Our final question comes from the line of Anchan with Green Street.

Speaker 2

Hi, good morning.

Speaker 5

Are you seeing any labor availability?

Speaker 2

Issues resurfaced for any type of employees or geographic markets?

You mean inability for us to hire employees?

Speaker 5

Yes.

Speaker 4

Yeah.

I would say generally speaking, from our renovations team to our onsite teams to our corporate teams, jobs are filling in the expected timeframe. There is no real concern or issue there with availability.

Speaker 1

We've also seen a marked reduction in the turnover within our on-site, which is encouraging going forward.

Speaker 2

Great, thank you. Second question for me. I know you mentioned earlier that you haven't seen any larger demand shift with the tenants. I'm just wondering if you've observed in 3Q and over 2025 any kind of emerging shifts in just general tenant behavior that might influence rent growth, differing between the markets, such as shorter lease terms or higher concessions, move-in timing shifts toward the class B product type or anything like that. From that perspective, which markets appear more resilient versus more vulnerable to these types of tenant behaviors?

Yeah, we haven't seen tenant behaviors in terms of payment patterns or work order developments that would cause us any level of concerns. I would say that the one thing that continues to shift and we continue to try to be on the leading edge of it is the whole, you know, how does a prospect find us? Right. The whole marketing engine, the advertising engine. You see us spending more money on advertising dollars between iOS services, paid search, as well as just pure organic SEO. Also, getting deeper into how the AI tools are working, where you can type in the ChatGPT, show me an apartment for whatever in Atlanta, and how do we show up in that list each and every time? Today we're ranking on page one of some of the Google searches, just organic searches for many, many keywords.

We still have more room to go. We're going to keep pushing on that, but that's an area that we're spending a lot of time and energy on.

Great, thank you.

Speaker 5

Seeing no further questions, I would now like to turn the call back over to Scott F. Schaeffer for closing remarks.

Speaker 1

Thank you all for joining us this morning, and we look forward to speaking with you again next quarter.

Speaker 5

Ladies and gentlemen, that concludes this call. Thank you all for joining. You may now disconnect.