Independence Realty Trust Inc (IRT) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Independence Realty Trust Q4 earnings conference call. (Operator Instructions)

I will now hand today's call over to Maddy Zimba.

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. On the call with me today are Scott Schaeffer, Chief Executive Officer; Jim Sebra, Chief Financial Officer; and Janice Richards, Executive Vice President of Operations.

Today's call is being webcast on our website at irtliving.com. There will be a replay of the call available via webcast on our Investor Relations website and telephonically beginning at approximately 12:00 p.m. Eastern Time today.

Before 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 IRT's current views with respect to future events and financial performance. Actual results could differ substantially and materially from what IRT 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 and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.

Participants may discuss non-GAAP financial measures during this call. 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 direct comparable GAAP financial measure is attached to IRT's current report on the Form 8-K available at IRT's website under Investor Relations.

IRT's other SEC filings are also available 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 Schaeffer.

Thanks, Maddy, and thank you all for joining us this morning. 2024 marked another strong year for IRT, both in terms of operational performance and in achieving strategic milestones that position our company for growth. Regarding operations, core FFO 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 3.2%.

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 while 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 1.3% increase in average effective rental rates. These gains were supported by a solid resident renewal rate of 62.7%.

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 on investment of 15.1%. For the year, we completed 1,671 renovations that drove a $239 average increase in monthly rent per unit for unrenovated comps and equated to a 15.7% return on investment.

In 2025, we look to capitalize on our solid occupancy levels and an improving rental rate environment by significantly accelerating value-add renovation volumes. During 2024, we also strengthened our portfolio and future growth potential by investing $240 million at a blended economic cap rate of 5.7% to acquire three properties in high-growth markets. These properties contain 908 units and expand our presence in Charlotte, Tampa, and Orlando.

Additionally, we are under contract and expect to close this month 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. 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 would also improve our portfolio's overall quality and operating efficiency; and second, to significantly deleverage our balance sheet, thereby broadening our access to capital. 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 by nearly a full turn to 5.9 times at year-end. As a result, we received a BBB flat rating with stable outlook from both S&P and Fitch. Our investment-grade ratings provides us with access to new forms of capital and as demonstrated by the terms of our new unsecured credit agreement, significantly improved our cost of debt capital.

We entered 2025 with high sustainable occupancies, strong leasing momentum and a balance sheet geared for growth. Our business plan for the year is very simple: drive NOI and core FFO growth by delivering rental rate growth at our existing properties and deploying capital into new strategic investments.

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 5.4% on a combined basis this year.

On balance, however, we expect a steep decline in new deliveries across our markets in 2025 and for the pace of new deliveries to decline even further in 2026.

Looking at Costar data, new supply in our same-store markets increased 6.2% in 2024, with 2025 now forecasted to increase by only 2.1%, a 60% decrease in apartment unit deliveries. In 2026, the pace of new deliveries is forecasted to further decrease to 1.5% of existing units. Across our top 10 markets, which generate nearly 75% of total NOI, supply increased 5.8% during 2024, but is forecasted to increase by just 1.8% and 1.3% in 2025 and 2026, respectively.

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.

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. In terms of deploying capital, in 2025, we have nearly $0.75 billion of liquidity, including $156 million available on our forward equity commitments. This liquidity will be used to fund strategic investments and drive growth. 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. 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 2024. Your efforts made it possible for us to achieve the strategic milestones that are essential building blocks of our future growth.

I'll now turn the call over to Jim.

Thanks, Scott, and good morning, everyone. Core FFO per share during the fourth quarter of 2024 was $0.32 and grew 6.7% over the prior year period. For the full year, core FFO per share was $1.16 and came in at the top of our guidance range. Core FFO growth in 2024 was driven by solid same-store NOI, which grew 3.2%.

During the fourth quarter, IRT's same-store NOI increased 5.3%, driven by a revenue growth of 2.3% and a 3% decrease in same-store operating expenses over the prior year quarter. 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 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.

For the full year 2024, IRT's same-store NOI increased 3.2%, and was driven by a 3% increase in revenue. Average effective monthly rent increased 1.3% during the year and average same-store occupancy rose 110 basis points. While several categories of operating expenses increased, we were able to secure lower property taxes on a year-over-year basis.

Regarding recent leasing trends, while supply pressures are reducing, they continue to impact new lease rental rates in the fourth quarter as well as so far in early 2025.Going forward, while we may provide 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.

With that said, on our like-term leases for Q4 2024, our blended rental rate growth was flat with new lease rates down 4.6% and renewal rents up 5.4%. 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. Our renewal rental rate growth in 2025 is also continuing the positive trends we've experienced in Q4.

In a moment, we will provide full-year guidance information and specifically cover our expectations for blended rental rate growth for 2025.

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 5.9 times, down from 6.7 times a year ago. This outperformed our goal to achieve 6 times at year-end. During 2025, we intend to further improve our net debt-to-EBITDA ratio to the mid-5s as NOI and EBITDA continues to grow.

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. As Scott mentioned and is worth repeating, during 2024, we achieved a significant milestone with respect to our balance sheet management.

Today, we are an investment-grade issuer with BBB ratings from both Fitch and S&P. As previously noted, while these ratings open up a new source of capital for IRT, 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.

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. As of today, we have nearly $0.75 billion of liquidity consisting of $21 million of unrestricted cash, $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.

During the fourth quarter, we classified a legacy Steadfast asset, which is our final property of Birmingham as held for sale and recognized an impairment of $21 million. 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 the acquisition front, we acquired $158 million in properties during Q4, using $112 million of equity from our forward equity raises and $46 million in debt. The blended economic cap rate on these acquisitions was 5.7% and as Scott mentioned, increases our exposure in Orlando and Charlotte.

Turning to our outlook for 2025. We entered the year with strong occupancy momentum and operating fundamentals that support market rent growth. Accordingly, we expect to drive value for IRT shareholders by optimizing leasing economics through capturing higher rates, diligently managing expense growth, and investing capital in our value-add program and new acquisitions.

We are establishing full year EPS guidance of $0.19 to $0.22 per share and core FFO guidance in the range of $1.16 to $1.19 per share. The bridge from a $1.16 starting point of core FFO in 2024 to $1.175 midpoint of our 2025 guidance includes the following components: $0.03 of accretion from NOI growth from our existing same-store portfolio; $0.005 of acquisitions completed in the fourth quarter of 2024 and the acquisitions we intend to complete in 2025, offset by $0.005 of increased overhead costs and $0.01 of dilution from 2024 asset sales and deleveraging. Our 2025 same-store portfolio consists of 108 properties, reflecting the addition of one property in Huntsville.

Our guidance assumes same-store NOI increases 2.1% at the midpoint, driven by 2.6% same-store revenue growth that factors in the following components: 30 basis points from higher average occupancy as we are assuming an overall occupancy of 95.5% for 2025 at the midpoint, 50 basis points from lower bad debt as we are assuming bad debt is 1.4% of revenue, 60 basis points of earnings from 2024 and lower concessions, 35 basis points of benefit from our value-add renovations, 25 basis points from other income; and finally, our expectation for blended rental rate growth of 1.6% for 2025.

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. For our value-add investment, we expect to renovate approximately 2,500 to 3,000 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. Looking at expense growth in 2025, at the midpoint of guidance, we expect same-store operating expenses to increase 3.5% based on a 3.8% increase in controllable expenses and a 3.1% increase in non-controllable expenses.

G&A and property management expense guidance for the full year is $56 million, reflecting standard inflationary growth. We forecast slightly higher interest expense of $89 million at the midpoint, reflecting the additional interest expense from future acquisitions. During 2025, we plan to use the remaining $156 million available under our forward equity agreements, along with low amounts of leverage to acquire approximately $240 million in properties at an assumed economic cap rate in the mid-5s.These acquisitions are modeled using the midyear convention and are incremental to the acquisition we are making in Indianapolis as that is a recycling of capital from the sale of our last asset in Birmingham.

Scott, back to you.

Thanks, Jim. I'm proud of our 2024 accomplishments, the portfolio we have created, and our dedicated team who continue to deliver outstanding results. We proved 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 FFO per share that was at the high end of guidance, and we reduced our net debt to adjusted EBITDA to 5.9 times, resulting in strong investment-grade rated balance sheet.

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 head into an even stronger growth opportunity in 2026. We thank you for joining us today and look forward to seeing many of you at Citi's Global Property CEO Conference next month.

Operator, you can now open the call for questions.

(Operator Instructions) Austin Wurschmidt, KeyBanc Capital Markets.

Jim, you flagged new lease rate growth remains negative early this year. I think you said it's gradually improving in early 2025. What does guidance assume for new lease rate growth this year? And how does that 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?

Yeah. No, great question, Austin. So in guidance, we've assumed a blended lease rate growth of 1.6% for the year. That excludes any benefit from the value-add and other -- obviously, other income benefits. Of the 1.6%, that assumes a renewal growth of 3%, a 55% retention rate and effectively a 0% new lease growth over the year.

Obviously, we're starting the year at slightly negative, and it will continue to move north to 0 by early leasing season in April. This is new leases, obviously, in early April and then obviously end the year positive.

That's helpful. And then just a question on investments I had. Can you just talk about the investment pipeline? Has that started to pick up, I guess, in terms of the transactions out there today? And how are you thinking about the markets that are most appealing as well as the types of assets? Are these Class A recently developed assets that may still be in lease-up? Or are they more of a Class B that you can continue to backfill the value-add redevelopment pool?

Austin, it's Scott Schaeffer. When we raised the capital last fall, we really were intent on building a pipeline then to put it to work, and we've accomplished that. We have a very fulsome pipeline of both new construction communities that are in lease-up and also some existing Class B.

We're actually starting to see a little bit of distress and the effects of the higher interest rates. So many of the communities that we have in the pipeline are -- we think are becoming available because of financing 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 are just much higher cost than what was underwritten.

And people are looking to move those assets more quickly than they might otherwise do. So we have a very fulsome pipeline. We're very confident at putting that capital to work very accretively.

Eric Wolfe, Citi.

Can you talk about why you're increasing the value-add spend in 2025? And I think your guidance is based around 30 bps of occupancy growth, if I got that right. So just how you're going to achieve that even with the sort of increase in value-add spend that I think typically brings a longer turn time and more downtime.

Because I think in the past, one of the things you've been hesitant about doing increasing the buyout spend is that lower occupancy that you get with it. So just talk about how comfortable you are predicting sort of occupancy growth with the increase in value-add spend.

Good morning, Eric. In past years, we've always targeted the 2,500 to 3,000 units. In 2024, we ended up doing less than that just because of this pressure from new supply. And we didn't want to spend the 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 and 2027, and rents going up, we intend on doing more value-add units and take advantage of those dynamics.

Yeah. 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 as significant -- but where we can still hit to 2,500 to 3,000 volume metric.

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, call it, around 50 bps of average bad debt improvement throughout 2025?

Eric, this is Janice. For bad debt, it's really more of a timing situation moving into the fourth quarter with seasonality. We've worked through the markets, Atlanta and Memphis were hit with that timing situation. I see that it's going to normalize, and we're going to hit that 1.4% through the year.

Yeah. And I think just as a follow-up, I think a lot of the things that we put in place over the past, call it, 1 year, 1.5 years to really 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 volume of residents moving into the eviction queue lowering such that we're pretty confident in our ability to hit the 1.4% this year.

Brad Heffern, RBC Capital Markets.

I know you said you didn't want to talk about spreads, but I'm curious if you can just qualitatively talk about how the start of this year compares to last year and maybe a normal year in the Sunbelt. Just trying to gauge how much the supply impact is fading.

Brad, sure. Great question. I would say that certainly, the new lease spreads are certainly lower this year than they started last year at. 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, rents are rising into February here. So we're seeing that improvement in the negative new lease trade-out.

On the renewal side, renewals are slightly lower -- I'm sorry, 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. But we're quite excited about what we're seeing in the trajectory here, and we're looking forward to delivering on our guidance.

Okay. Got it. And then on the blend guide, 1.6%. I think that's just right in the middle of where Camden and MAA are. I guess I would have thought you might have been higher than them just given the Midwest exposure. I know you can't speak to exactly why they're guiding what they're guiding to, but do you think that's 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?

Yes. I think that's a fair assessment. We're always trying to manage rents and occupancy to maximize revenue through time. And given that 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 and obviously, we'll continue to manage it for -- to maximize revenue through time.

Rich Hightower, Barclays.

So I just want to go back to the same-store buildup really quickly. I think you said a 55% retention assumption for the year. And obviously, that's down materially from where you ended 2024. And so is that related to the value-add displacement? Is that something else driving that statistic in particular?

Yeah. No, I think we always 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, we are in that 55% zone.

Okay. Maybe I misheard earlier. Okay. And then just on the expense guide, maybe just help us understand on the -- especially on the controllable side of things, why that is, in particular, elevated relative to non-controllables this year?

In terms of 2025 guidance?

Yeah, that's right.

Yeah. I think it's more -- yes. No, I think it's more in our noncontrollable, we're assuming a 0% [insurance premium] (corrected by company after the call) increase, which is causing the, call it, the pace of growth to be slightly lower on the noncontrollable side than the controllable side.

[Ann Chen], Green Street.

Hey, good morning. Can you give us a rough sense of the NOI margin benefit to your existing properties in your subscale markets when you acquire an additional property and meaningfully expand that unit count in those markets on a percentage basis?

Yeah. I mean I think, obviously, from the standpoint of the acquisition, as we bring something in-house that was previously owned, maybe not managed well, once we get on our platform and then be able to benefit from the scale of better contract, it certainly is improving.

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 muted throughout from year-to-year when we start adding significant scale or even try to make them go down. But I can get back to you specifically with what we see as an NOI margin increase.

Great. One more for me. Can you help me break out the 2.6% expected revenue growth for 2025 between Sunbelt markets and Sunbelt and Midwest regions?

Sure. The other 2.6%, the Midwest is 3.4%, the Sunbelt is 2.2% and what we call West or Denver is 2.2%.

Barry Oxford, Colliers.

On the acquisitions, just to drill down a little more on that on the distressed properties that you're seeing. Are cap rates rising? And if so, by about how much maybe versus six months ago that you might have seen?

Cap rates, what we're seeing have been pretty stable in the mid-5s. The assets that we're buying in Indianapolis is about a 5.7% cap. The ones that we purchased in Charlotte and Orlando are similar. Obviously, the cap rates follow the 10-year up and down with a little bit of a lag. And while we might have seen cap rates drop at the end of last year and then increase this year with the 10-year, what we're seeing is just more properties and more opportunities come to market, but that cap rates are really pretty static in the mid-5s.

Michael Gorman, BTIG.

Scott -- maybe sticking with that question for a second there. When we think about the cap rates you're talking about on new investments, you talked about acquiring some of the properties in lease-up. I just wanted to make sure I clarified, is that a stabilized number? Or is that a going in number? And then how do you think about value-add potential in the future when you think about those investment yields on a going-in basis?

So when we typically buy in lease-up, we're really buying late in the lease-up process. So it's close to a stabilization, but we do look to have some benefit as we take occupancy from 80% or 85% up to that 95% level. So we're -- the 5.56%, 5.7% is really going in, and then we're looking to get it a little higher than that once the property is stable.

And as far as the value add, the value add has always been our best use of capital, and we've been able to generate those mid- to high teens returns on ROI, and that's what we're seeing continuing. And that's again on an unleveraged basis.

So we're excited about the supply pressure of 2024 and 2023 being largely behind us, but we really can ramp that value add back -- the value add -- the number of value-add renovations back to where we want it to be in that high 2,000 to 3,000 unit number.

That's great. And then maybe just one more on the value add. Are you seeing more competition for those assets in the market? Just with the challenges in getting new development going, are you seeing any traditional development players looking more at some of the value add since they can't get financing or approvals for new ground-up development? Is there more competition in that acquisition pool?

No. If anything, I would say there's less. 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 units then went lower than what a new construction A class unit was trading for. But now we're seeing it more in line. But I don't think there's any more competition to purchase a value-add community today than there has been in the past. If anything, maybe a little bit less.

Linda Tsai, Jefferies.

Could you remind us what bad debt was last year and how much it contributed to your same-store for '24?

Bad debt last year was 1.9% of revenue. I'm going to have to double check this, but I believe it was 2.2% in 2023. So it contributed roughly 30 basis points of growth in 2024.

Thanks. And then where do you expect to end the year in terms of leverage?

I apologize. The phone broke up there. Where do we expect to end the year in terms of leverage?

Yeah.

Yeah. We said mid-5%s. So that could be 5.6%-ish, probably 5.7%-ish or it could be 5.5%.

Omotayo Okusanya, Deutsche Bank.

So the same-store OpEx guidance for the year, again, it seems like there's a normalization of same-store OpEx growth. You guys did a fantastic job last year of controlling the controllables. I'm curious what initiatives are in place for '25 to control the controllables? 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?

Absolutely. So we have the fundamentals in place as we did in '24 and '25 to ensure that we are spending smart, and we are facing the dollars 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 there's any inflationary costs that we have to come into play, we may or may not see that, that comes in at the high level, but we anticipate it to come in, in the middle based on our guidance, and we will march forward as we did in '24 with a very controlled approach.

Yeah. Omotayo, just as a follow-up, we obviously use -- we have an internal procurement team that is constantly renegotiating things for us. So we have a lot of really good policies and I shouldn't say policies -- processes in place to really fine-tune and manage the expenses as best as possible. But of course, as Janice has mentioned, trying to keep the resident experience at the forefront of our perspective.

John Kim, BMO Capital Markets.

Jim, you mentioned on your guidance that you're expecting renewals of 3% and you signed 5.4% in the fourth quarter, you got over 4% for the year. So why are you expecting it to moderate so much? And maybe if you could tell us where you're sending out renewals today?

Yeah. We send renewals out for the month of April in the 3%, 3.5% range. The first half of May has also gone out in that same range. And it's just -- John, we just exited a period of time that was never really seen in history before. We're entering into a period of time where we've never necessarily seen the low supply. We're just trying to be thoughtful in terms of our guidance so we deliver on the guidance that we promised.

To the extent that we can deliver above it, we will.

And then when you look at your value-add versus your same-store performance, the spread on blended is about 100 basis points. It's positive 70 basis points versus negative 30 for your same-store. Historically, that spread has been wider, and I know you're still getting high returns on your invested capital. Is that low spread due to fewer renovated units per community? Or is there some other factor that's driving that lower? And do you expect that to -- the value-add unit communities to drive the blended stronger in 2025?

Yeah. Generally, when you look at that the new lease rate growth that we've disclosed in our supplement for the value-add communities, that obviously includes all leases in the properties as they're in the renovation program. So when you break that new lease growth out into that, which is, call it, first turn generation or what we call first-generation renovation leases versus second turn, meaning it's a unit that was renovated two or three years ago, and it's just turning because the resident left.

The new lease spread on the first generation in the fourth quarter was flat at 0%. And I think what you would see is if we weren't spending the money on the renovation, that rents would actually be more negative, right? And I think what we've tried to show over the years is even though we would do that would happen, we try to remove the market ups and the market downs from the calculation of the premium that we disclosed on the value add.

So we're looking at, okay, if we spend those dollars today, how would our rent fare versus an unrenovated comp.

That does conclude the Q&A portion of today's call. I will now hand today's event back over to Scott Schaeffer for his closing remarks.

Well, thank you all for joining us this morning. We look forward to speaking with you again in three months' time. Have a good day, everyone.

Thank you for joining today's call. You may now disconnect.