Same-Store Growth Defies Weak Market, Rent Trends Hint at 2026 Turnaround

Date of Call: Feb 12, 2026

Financials Results

• Revenue: Same-store revenue grew 1.7% for the year, led by an 80 bps increase in average effective monthly rents, a 30 bps increase in average occupancy, and a 70 bps improvement in bad debt year-over-year.
• EPS: Core FFO per share for Q4 2025 was $0.32; full year was $1.17, in line with guidance.
• Operating Margin: Same-store NOI increased 2.4% for the year, driven by 1.7% growth in revenues and a 50 bps increase in operating expenses.

Guidance:

• EPS guidance of between $0.21 and $0.28 per share for 2026.
• Core FFO guidance in the range of $1.12 to $1.16 per share for 2026.
• Same-store NOI expected to increase 80 basis points at the midpoint, driven by 1.7% same-store revenue growth and a 3.4% increase in total same-store operating expenses.
• Non-same-store NOI expected to be between $25 million-$26 million.
• G&A and property management expense guidance of $56 million for the full year.
• Interest expense forecast to increase by $8 million.

Business Commentary:

Financial Performance and Market Conditions:

• Independence Realty Trust reported same-store NOI growth of 2.4% for the full year of 2025, exceeding initial guidance despite challenging market fundamentals.
• The growth was driven by a 1.7% increase in revenues and strategic initiatives like adopting AI leasing agents and improving bad debt management.

Leasing Trends and Market Recovery:

• The company's new lease trade outs were -3.7% in the fourth quarter, but asking rents increased by 73 basis points since December 31, 2025, indicating a positive trend for 2026.
• This improvement is attributed to better market fundamentals, including job growth and population migration into their markets.

Capital Allocation and Strategic Investments:

• In 2025, the company sold two older communities and invested in three newer ones, achieving a profit of 15.3% on their value-add program.
• The strategic redeployment of capital was aimed at acquiring properties with higher rental rates and lower CapEx profiles.

Operational Efficiency and Cost Management:

• The company implemented new technologies, reducing the turn time for value-add renovations to an average of 25 days.
• This was part of a broader strategy to drive operating efficiencies and cost savings, enhancing overall operational performance.

Outlook and Guidance for 2026:

• For 2026, the company expects same-store NOI to increase by 80 basis points, with 1.7% same-store revenue growth.
• The optimistic outlook is based on expected market recovery, with job growth and population increases anticipated to outpace national averages.

Sentiment Analysis:

Overall Tone: Positive

• "2026 is meaningfully better than 2025." "We are excited about the strength in the asking rent growth so far this year." "We see the majority of our markets recovering this year." "Our company is stronger than ever and ready to capitalize on the growth opportunities ahead."

Q&A:

• Question from Austin Wurschmidt (KeyBanc Capital Markets): How does the new lease rate growth assumption of -75 basis points incorporate market rent growth, and how is it comprised for the first and second half of the year?
  Response: New lease growth starts negative in January, consistent with Q4, and improves through the year, with H1 down ~2.25% and H2 up ~75 bps, assuming capture of a vast majority of the 1.5%-2% market rent growth.

• Question from Austin Wurschmidt (KeyBanc Capital Markets): How does the non-same-store pool stack up versus the same-store pool, and is there any conservatism in the guidance?
  Response: The two development deals in the non-same-store pool are behind on lease-up and have higher concessions; guidance assumes some conservatism in NOI build-out, and one asset may be sold later in the year.

• Question from Jamie Feldman (Wells Fargo): What is the impact of concessions burning off on rent growth projections, and can you provide more color on confidence in moving from -2.25% to +75% new lease growth?
  Response: Lower concessions in H2 are expected to improve comps and support rent growth; confidence is based on strong asking rent trends (up 75 bps in January) and market rent growth assumptions, with H2 turning positive.

• Question from Jamie Feldman (Wells Fargo): Which markets are standouts on the upside and where are the drags, particularly in the Midwest?
  Response: Midwest markets (Columbus, Indiana, Kentucky) are expected to remain consistent. Upside standouts include Atlanta (strong fundamentals), Nashville (pricing power), Dallas (stable occupancy), and Raleigh (building momentum). Drags include Memphis (slower growth) and Denver (elevated supply, slower lease-up).

• Question from Eric Wolf (Citi): Is the 75 bps increase in January market rent from December a normal seasonal increase?
  Response: It is a little faster than normal for January but slower than January 2025, giving confidence that asking rent growth can firm up in the 1.5%-2% range.

• Question from Eric Wolf (Citi): How is bad debt guidance set, and what is the expectation for 2026 relative to 2025?
  Response: 2026 guidance assumes 90 bps of revenue, starting around 100 bps in Q1 and stepping down to 80-70 bps range in Q4, compared to 110 bps at year-end 2025.

• Question from Brad Heffern (RBC Capital Markets): What gives you confidence that this year's January rent growth is not a head fake like last year?
  Response: Asking rent growth in early January 2026 is about three times lower than in January 2025, and demand appears more stable without the ebb and flow seen last year.

• Question from Brad Heffern (RBC Capital Markets): What is the likely use of proceeds from assets designated for sale?
  Response: Proceeds are expected to be used for acquisitions, deleveraging, or stock buybacks, with no defined specific use at this time.

• Question from Amy Probant (UBS): Can you break down the blended spread forecast into Sunbelt and Midwestern buckets and comment on the impact of value-add properties?
  Response: Value-add properties support overall blends by ~20-30 bps. Midwestern blends expected around 2.5%-3%, Sunbelt just under 2%, with Denver expected to have negative blended rent growth.

• Question from Amy Probant (UBS): How does the lower supply environment impact capital allocation for redevelopment and returns?
  Response: Lower supply provides better pricing power for renovated units; returns on investment have historically been in the high teens (18-19%) and even north of 20% in some years.

• Question from Omotayo Okusanya (Deutsche Bank): What is driving the higher controllable expense growth in the same-store OpEx guide for 2026, excluding Wi-Fi?
  Response: Primary drivers are inflationary payroll increases and utilities, with payroll up 6%-7% largely due to benefit program savings in 2025 not repeating and increased incentive compensation.

• Question from Omotayo Okusanya (Deutsche Bank): What is the development spending guidance for 2026?
  Response: No development spending is forecasted for 2026; the last on-balance sheet development (Flatirons) is complete, with spend already incurred.

• Question from Omotayo Okusanya (Deutsche Bank): What yields are assumed for the 2026 redevelopment guidance?
  Response: ROIs on the six new properties added to the redevelopment program are assumed to be consistent with historical trends, about 15%-16%, with potential for higher returns as market cycles improve.

• Question from John Kim (BMO Capital Markets): Where do you see occupancy stabilizing for the Flatirons development, and why has lease-up taken longer?
  Response: Occupancy is forecast to reach ~90% in June 2026, about a quarter behind expectations, due to high supply in the sub-market. Tours are strong, and stabilization is expected.

• Question from John Kim (BMO Capital Markets): Why is blended rent growth expected to pick up in the second half of the year, contrary to past trends?
  Response: H2 improvement is driven by better comps, lower concession expectations, and expected market rent growth as supply pressures ease and new deliveries are leased up.

• Question from John Pawlowski (Green Street): What is the target balance between fixed and floating rate debt over the next 2-3 years, and what is the strategy for upcoming maturities?
  Response: The company prefers floating rate debt currently to benefit from potential SOFR declines; for 2028 maturities, the goal is to access the investment grade market to improve rating profile and potentially secure better rates.

• Question from Mazen Ghaul (Baird): What are the thoughts on exercising the call option for the Mustang JV property in Dallas, and what is the forward NOI yield?
  Response: The call option is open, but the property trades at a cap rate that is not the best use of capital; it is anticipated to be sold this year, with proceeds used for deleveraging or share buybacks.

• Question from Mazen Ghaul (Baird): What was the thought process behind repurchasing shares in the quarter?
  Response: The buyback was executed using proceeds from non-EBITDA-generating sources (JV asset sale and forward contract gains) to capitalize on perceived disconnects between market and implied cap rates in a disciplined, accretive manner.

Contradiction Point 1

Timing of New Lease Growth Improvement

The timeline for achieving positive new lease growth shifts from the first half of 2026 to an immediate negative start in January 2025, creating a significant discrepancy in the expected trajectory.

What are Austin Wurschmidt's key concerns from KeyBanc Capital Markets? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q4: The -75 bps new lease growth for the year starts negative in January... with H1 at -2.25% and H2 at +75 bps. - Jim Sebra(CFO)

Does the 75 bps decrease in the new lease rate growth assumption fully account for the 1.5%-2% market rent growth, and how is this 75 bps split between the first half and the second half of the year? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q3: New leases are expected to reach a breakeven point in the first half of 2026. - Scott Schaeffer(CEO)

Contradiction Point 2

Assessment of Non-Same-Store Property Performance and Guidance Conservatism

Contradiction on whether non-same-store acquisitions are performing as expected or if guidance is overly conservative, impacting the reliability of financial projections.

Can you provide an update on the company's performance? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q4: The non-same-store properties acquired last year are performing in line with expectations. Guidance assumes some conservatism in their NOI build-up. - Jim Sebra(CFO)

How does the non-same-store pool compare to the same-store pool in terms of growth, considering slower lease-up performance, and is there any conservatism in the figures based on recent experiences? - Brad Heffern (RBC Capital Markets)

2025Q3: Supply pressure is easing in most markets, but some softer markets... are still feeling the impact of new deliveries. Each of these markets has potential to see improvement in asking rents and work through supply in 2026. - Janice Richards(EVP of Operations)

Contradiction Point 3

Expected Timing for Flatirons Development Occupancy Stabilization

The timeline for occupancy stabilization at the Flatirons development shifts by one quarter between guidance periods, indicating inconsistent project outlooks.

What were the key factors driving earnings this quarter? - John Kim (BMO Capital Markets)

2025Q4: Guidance assumes reaching ~90% in June (a quarter behind), with stabilization at 93-95% desired. - Jim Sebra(CFO)

When do you expect occupancy at Flatirons to stabilize, and why has the lease-up taken longer than anticipated? - Brad Heffern (RBC Capital Markets)

2025Q3: The conversion of leads to leases has been improving month-over-month in Q3. - Scott Schaeffer(CEO)

Contradiction Point 4

New Lease Rate Growth Trajectory

Guidance on the direction and timing of new lease rate growth is contradictory, affecting the predictability of the company's financial performance.

What are your thoughts on the current market dynamics impacting the sector? - Austin Wurschmidt (KeyBanc Capital Markets)

2025Q4: The -75 bps new lease growth for the year starts negative in January... and improves throughout the year, with H1 at -2.25% and H2 at +75 bps. - Jim Sebra(CFO)

Does the 75 basis point decrease in the new lease rate growth assumption fully account for 1.5%-2% market rent growth, and how is the 75 basis point reduction distributed between the first and second halves of the year? - Austin Todd Wurschmidt (KeyBanc Capital Markets)

2025Q2: For the back half of 2025, new lease trade-outs are expected to improve sequentially from -4.4% in H1 to -2.7% in H2. - Jim Sebra(CFO)

Contradiction Point 5

Market Outlook for Dallas and Denver

Contradictory assessments of recovery and challenges in key markets like Dallas and Denver impact the company's regional performance expectations.

What are your key takeaways from the earnings call? - Jamie Feldman (Wells Fargo)

2025Q4: Standouts... Dallas (stable occupancy)... Weaker Markets... Denver (elevated supply, slower lease-up, higher concessions). - Jim Sebra(CFO)

Which markets are standout performers this year, and which are underperforming? - James Colin Feldman (Wells Fargo Securities)

2025Q2: The biggest challenges were in **Dallas** (supply pushed forward)... **Denver** (high new supply). The impact of single-family rentals is minimal... - Jim Sebra(CFO)