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Independence Realty Trust Inc (NYSE:IRT)
Q1 2021 Earnings Call
Apr 29, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by, and welcome to the Independence Realty Trust First Quarter 2021 Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you.

Lauren Torres -- Investor Relations

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's first quarter 2021 financial results. On the call with me today are Scott Schaeffer, our Chief Executive Officer, Jim Sebra, our Chief Financial Officer, and Farrell Ender, President of IRT. Today's call is being webcast on our website at www.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 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 most recent 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 in 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.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Thank you, Lauren, and thank you all for joining us today. This time last year we were faced with unexpected challenges brought on by the pandemic and were uncertain about the magnitude and impact of this crisis on our lives and our businesses. Since then we have come a long way and now have a clear view of the future making us more optimistic about realizing our growth potential for the balance of this year and beyond. At IRT we are encouraged by the strength of our portfolio and the progress made during the past 12 months, all leading to favorable demand trends at our properties. This demand is led by an acceleration in vaccine distribution, a healthier economic outlook, and favorable migration trends. We're clearly seeing the benefit of owning and operating properties in attractive non-gateway markets where there are notable near and long-term growth drivers. Our focus on the Sunbelt region has proven to be the right strategy as the pandemic has reset health and where people choose to live, work and play.

Given this improving outlook and our strong market presence, we're very excited for the year ahead and as a result are raising our 2021 guidance. Jim will address this later on today's call, but to give you a sense of our optimism we are raising the midpoint of our full year NOI growth guidance from 2.5% to 4.125%, a 65% increase. This encouragement is exemplified by another quarter of strong results, specifically in the first quarter our same store NOI increased 5.3% and our core FFO improved to more than 23% compared to a year ago. Our same store average occupancy increased to 95.3%, a 260 basis point increase on a year-over-year basis. Our average effective monthly rent per unit grew 2.9% in the quarter, and we collected over 98% of first quarter rents and now have collected over 99% of our fourth quarter 2020 rents.

And with favorable demand trends continuing we are seeing strong results so far in April. Our total portfolio average occupancy is 96%, a 330 basis point improvement compared to April of last year. We have now collected almost 97% of April rents, which is consistent with collections at this point in March, and given our low lease expirations and high occupancy in the first quarter we continue to drive rent growth averaging 4.6% so far in the second quarter. Another key component of our strategy is the advancement of our Value Add program. Since the inception of our value add program in January of 2018 through the end of the first quarter, we have completed renovations on 3,861 units achieving a weighted average return on investment of 18.5% on interior renovation costs. I'm excited to tell you that we have started renovations at three additional communities this year and will begin renovations on a fourth in the near future. In addition to our value add program, IRT will continue to focus on acquiring and divesting properties under our capital recycling program and exploring the potential for joint venture relationships focused on new multifamily development.

As mentioned on our last earnings call, we are looking to provide capital through preferred equity investments in joint ventures with third-party developers in core non-gateway markets. In particular, we are exploring developments in the Southeast and broader Sunbelt region where we see opportunity for growth. Our expectation is that these investments will deliver unlevered IRRs of approximately 20% while giving us the ability to purchase the newly developed community at attractive cap rates of between 5% and 5.5%. We are making progress on this front with three letters of intent signed aggregating total investment for us of $56 million. The closing of these transactions is expected to occur in the second half of this year. We are excited about our future whether it's through the communities we own in highly attractive markets, our high ROI value add program or accretive investments that we intend to pursue to preferred equity and joint venture opportunities. But I can promise you is that we will remain committed to staying focused on what we do best and look to maintain our strong and simple balance sheet.

At this time, I want to turn the call over to Farrell for an operational update. Farrell?

Farrell Ender -- President

Thanks, Scott, and good morning, everyone. To echo Scott's comments, this has been an extraordinary year that challenged our team with unexpected circumstances, but due to their dedicated efforts and focus on resident retention continue to report solid results and now a strong start to 2021. In the first quarter, our occupancy grew 260 basis points to 95.3% from 92.7% a year ago. This has continued in April with total portfolio average occupancy at 96%, up 330 basis points year-over-year. We've been able to achieve these levels while increasing our average effective monthly rent by 2.9% in the quarter. On a lease-over-lease basis for the same-store portfolio, new lease rates increased 6.8% and renewals were up 4.8% during the first quarter yielding a combined lease-over-lease rental rate increase of 5.9%.

Strong trends continue in the second quarter to date with new leases having increased 9.6% led by our value add communities while renewed leases are up 3.7% with a blended lease-over-lease rental rate increase of 4.6% for our same store portfolio. To give you an update on our value add program we completed renovations on 142 units in the first quarter. We are currently performing renovations at 20 of our communities having added Rocky Creek in Tampa to our ongoing renovation program in the first quarter, and our Thornhill community in Raleigh in the second quarter. We also recently kicked off renovations at Walnut Hill in Memphis and will commence value add upgrades at Meadows in Louisville this summer. We continue to make progress nearing completion at five communities and believe there are additional communities within the remaining portfolio that will offer value-add opportunities.

Regarding this year, we continue to expect to renovate approximately 1,300 units with the bulk of these occurring in the second and third quarters when we experience the majority of our lease expirations. With regard to our capital recycling, we currently have two communities under contract to purchase. The two communities that we intend to acquire are both new construction in lease up and in markets that we currently operate. One is in Dallas and the other is in Charlotte, those markets where we've been actively looking to grow. The combined purchase price is approximately $140 million and represents a blended stabilized economic cap rate of 4.5% with both closing in the next 30 days. We believe that in the current environment these assets provide a better risk-adjusted return and the alternative of buying sub-4% cap rate value add communities.

I'd now like to turn the call over to Jim.

James Sebra -- Chief Financial Officer & Treasurer

Thanks, Farrell, and good morning, everyone. Beginning with our first quarter performance update net income available to common shareholders was $1.1 million, up from a net loss of $372,000 in the first quarter of 2020. During the first quarter core FFO grew to $18 million, up 23.5% from $14.6 million in Q1 2020. Core FFO per share during Q1 was $0.18, 12.5% higher than Q1 last year at $0.15 per share. As we highlighted earlier this year we changed our definition of core FFO during the first quarter, so that our definition is more consistent with industry norms. Our definition of core FFO now included the impact of stock compensation expense and the amortization of deferred financing costs. To help with this transition we've updated all of the historical periods in our financial statements and supplements to follow this new definition. Turning to our same store property operating results. NOI growth in the first quarter was 5.3% driven by revenue growth of 5.6%.

This growth was driven by 250 basis points of higher average occupancy and a 2.9% increase in average rental rates. While this NOI growth includes value add communities we did see NOI growth of 2.5% at our same store non-value add communities. Again, this growth was driven by 170 basis points of incremental occupancy and a 1.7% increase in our average rental rate for the first quarter as compared to last year. With regard to rent collections they have continued to be strong despite the persistence of the COVID-19 pandemic and extended eviction moratoriums. To date we have collected 98.4% of our first quarter billing. Consistent with last year we evaluated uncollected amounts for collectability and recorded a reserve for bad debt for those amounts we deem as uncollectible. As of today, we maintain a bad debt reserve of $1 million associated with a $1.5 million of gross receivables outstanding at quarter end. As a result, we have a net receivable balance of $500,000 and believe that they will be collected in the near term.

From an earnings perspective, our bad debt expense, which is the diff when arriving at revenue was 80 basis points in Q1. This is consistent with fiscal year 2020 and better than our original guidance. Therefore, we have reduced bad debt expense in our updated full year 2021 guidance from 1.25% down to 1% of revenue. On the property operating expense side same store operating expenses grew 6.2% in the first quarter, primarily due to higher insurance and real estate taxes, a trend that has continued this last year. Excluding these non-controllable expenses, controllable operating expenses increased 3.8% due to higher utilities, contract services and repairs and maintenance costs. High utility rates usage and snow removal costs are the primary drivers of the incremental increases. Before moving on our balance sheet, I'd like to cover the increase in G&A expenses.

In Q1 2021, G&A expenses included a one-time stock compensation expense for retirement-eligible employees. This is consistent with Q1 last year. This one-time expenses cause an increase when looking at the quarterly run rate of G&A expenses. If you remove these one-time expenses, the increase in G&A from Q1 2020 to Q1 2021 is 4.5%. As we've highlighted previously, we are making investments in our operating and technology platforms. Turning to our balance sheet. As of March 31st, our liquidity position was $206 million. We had approximately $8.7 million of unrestricted cash, $155.7 million of additional capacity through our unsecured credit facility and $41.2 million of proceeds that we will receive upon settlement of forward sale agreements covering 2.9 million shares of our common stock. In the first quarter we issued two million shares of our common stock under our At-The-Market sales program at a weighted average price per share of $14.50 and then enter into a forward sale agreement associated with the shares.

On the dividend, IRT's Board of Directors declared a quarterly cash dividend of $0.12 per share, which was paid on April 23rd. This represents a payout ratio of 71% on $0.17 of AFFO during Q1 of 2021. With respect to our outlook, we are increasing our 2021 guidance based on our first quarter results and increasing visibility on business, industry and economic conditions for the remainder of this year. Our revised guidance for 2021 EPS is a range of $0.05 to $0.08 per diluted share, and for core FFO is a range of $0.72 to $0.75 per share, which I will remind you now includes stock compensation expense and the amortization of deferred financing costs. For 2021, we now expect NOI at our same store communities to increase between 3.25% and 5%, up from our previously guided range of 1.5% to 3.5%. This updated guidance reflects expected same store revenue growth of between 3.75% and 5% as our average rental rates have been increasing higher than expected and our bad debt expense has been trending lower than expected.

Moving on to expenses. Our new projected growth in total same store real estate operating expenses of 4.25% and 5.5% is a result of our expectation that controllable operating expenses should increase between 3% and 4%, and our non-control expenses including taxes and insurance should increase between 7% and 8%. Lastly, we are now providing guidance around transaction volume expectations. We are projecting a disposition volume of up to $100 million as well as an acquisition volume between 100 and $200 million for the full year of 2021. To follow up on a comment made earlier by Farrell, we have ample liquidity to fund the pending acquisition that we mentioned. It is also important to note that our core FFO guidance does not assume that these transactions occur. The ranges are meant to be indicative of the potential magnitude as we currently see it.

I'd like to turn the call back to Scott. Scott?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Thanks, Jim. In closing, I want to highlight how encouraged I am by our strong start to the year. This reflects our team's continued efforts to provide well-managed, quality homes to our residents while continuing to strengthen our balance sheet. We want again to thank our team for their hard work and dedication, and thank you for joining us today. We hope you all stay well and look forward to speaking with many of you at NAREIT's Virtual REIT conference at the beginning of June. Operator, we would now like to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Neil Malkin with Capital One Securities.

Neil Malkin -- Capital One Securities -- Analyst

Thank you and good morning guys.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Good morning.

Neil Malkin -- Capital One Securities -- Analyst

Real nice quarter. First, you mentioned progress on the JV side or pref side three letters of intent, three deals. Can you just maybe talk about that how that progressed maybe appetite for total size and what the breakdown is between I guess, JV developments versus the preferred or mez opportunities?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Sure. Thanks, Neil. So our appetite hasn't changed. We're still looking to limit the investment in this type of program to $100 million, and we've entered into, as I said, three LOI's for new construction communities in our target markets where we have management capability and we think at returns and with ultimately purchase options that are going to be very attractive. So again this program is meant to use a limited amount of our capital today to build a pipeline of future acquisitions in the markets where we want to grow.

Neil Malkin -- Capital One Securities -- Analyst

Scott, so your -- is that -- you're doing preferred lending on those development deals, is that what you're saying or might not?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

These are our joint venture relationships, but there will be preferred investments in this program as well.

Neil Malkin -- Capital One Securities -- Analyst

Okay. But these three are the -- are basically just JV equity essentially looking at further developments, correct?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Yes, correct.

Neil Malkin -- Capital One Securities -- Analyst

Okay, great. And the other one, can you just maybe on the operation side, I've been hearing a lot about out-migration from the coast and your markets being the clear beneficiary or beneficiary. Can you talk about what you're kind of seeing on the ground or from your property managers in terms of in-migration? Have you seen consistent and steady increase since, call it, like early or middle of last year from a percentage of people from out of state who have signed these new leases kind of how to think about what that looks like on the ground?

Farrell Ender -- President

Yes. It's Farrell, Neil. Anecdotally, I mean when you're in the market everybody is talking about it and you're seeing Northeastern license plates more so in the market. When we look at the data, it's been fairly consistent over the past year. So our Carolina properties are really seeing the majority of it. It's about 6% to 8% depending on the community of inflow from the New York, New Jersey, PA markets but we're watching it very carefully. Okay. And then just to be clear the deals you have under contract, the acquisitions, the two deals that's separate in parts in the three LOIs, right? So that's incremental?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Yes.

Neil Malkin -- Capital One Securities -- Analyst

All right, Thank you guys.

Operator

The next question comes from the line of Austin Wurschmidt of KeyBanc.

Austin Wurschmidt -- Analyst

Everybody good morning. Wanted to jump back in the preferred equity or the development joint ventures you mentioned again on the $56 million. Can you provide some additional detail on the markets these -- that these deals are located in and what is the structure of the joint ventures? Are the developers contributing the land or will they have additional equity in the deals?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Hey, Austin. The three deals break down. One is just outside of Richmond, one is in Austin, Texas, and one is in Nashville, Tennessee.

Austin Wurschmidt -- Analyst

Got it. That's helpful. So should we view these as sort of new markets that you'd be interested in entering and gaining scale given sort of the -- my understanding of the thought process for this would be that this program could provide sort of that future pipeline of acquisitions. So what are the thoughts on sort of adding additional markets?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Yes, Austin, that's correct. These are markets that we've targeted, these are markets where we've looked at a number of opportunities and just have not for a number of reasons and the main one being pricing has jumped in. But through this program we think it will give us a foothold and allow us to build out in the future.

Austin Wurschmidt -- Analyst

And what was the structure again in terms of the joint ventures. I mean are they 50-50 joint ventures initially or something else? Can you provide any detail along those lines?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Sure. There are -- again, joint venture common equity where the developer is contributing the land, it's already been approved, it already has all of the zoning and other regulations work through, and addition -- and the developer is contributing additional equity as well. So I don't have the exact percentages right off hand, I think it's 80%, 20% but clearly, the developer is aligned and has capital at risk. And what we liked about this program is that the timing is -- they're almost shovel ready. So as soon as we close construction will begin.

Austin Wurschmidt -- Analyst

Got it. That's helpful and then just last one for me. On the new acquisitions, you mentioned in Dallas and Charlotte I think you said these were lease up deals. Is the 4.5% the initial cap rate and if so, what do you expect upon stabilization and the timing of stabilization?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

So they are lease-up deals. The Dallas property is in an area where we already have three other assets very, very close by. And again, I look at this as defenses as much is offenses in debt. I wanted to control this new construction, new delivery rather than having somebody else come in and it's also a market that has been very strong and seeing seen tremendous growth. So we're excited about that. The other property in Charlotte is a little bit different. We've been looking to grow in Charlotte.

It's an infill location very, very, very well located and we got comfortable with the new construction investment here because we think in this area, even though this one is new construction, it will not have a lot of competition from additional deliveries in the future. So one of the benefits obviously of being the B class investor is that we were insulated from new deliveries. And I look at this acquisition almost a little bit as a contrarian view where everyone else is running now to buy the Bs and driving down cap rates. We were able to find a brand new delivery in a very well located area that should be insulated from new competition because of where it is. And getting it at a much better price than the B class.

Farrell Ender -- President

And in regards to the cap rate that's a year two stabilized tax-adjusted cap rate.

Austin Wurschmidt -- Analyst

Got it. And so what sort of, on a going-in basis, where are you stepping in?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Just right around the quarter.

Farrell Ender -- President

We'll be taking these at about 70% occupancy taking about four to six months to stabilize. Thanks, Ferrel.

Operator

Your next question comes from the line of Nick Joseph with Citi.

Michael Griffin -- Citi -- Analyst

This is Michael Griffin on for Nick. Just curious that your occupancy this quarter remains above the historical average, are you seeing a better ability to push rents as a result of this, and are you seeing better pricing on the new or renewal side?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Well, we're definitely seeing better price on the new side because we have the value add program, which is generating very healthy returns. And on the renewal side there has been very good demand. We're seeing our renewal rate continually increase since the third quarter of last year and we will push rents where we can. We do have more lease expirations in the second and third quarters by design. So we are taking that into consideration with renewal rates, but we expect to continue to drive rates and drive them in a very healthy way as long as we can do that while still keeping occupancy in that 95% to 96% range.

Michael Griffin -- Citi -- Analyst

Are you seeing any markets where you're able to push rents more so than others?

Farrell Ender -- President

Yes, Atlanta has been a really strong market for us over the past couple of quarters and Memphis as you can see in the results.

Michael Griffin -- Citi -- Analyst

Got you. Just one more for me. Obviously, you announced the ATM program last fall, wondering what appetite there was, if any, for deleveraging through a larger equity raise?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

We look at that constantly but we have no plans at this point to raise equity to delever. We've -- if you look at where we were a year ago leverage was 9.2 x, so we're a full turn below that even through the pandemic while still driving the best portfolio returns in the industry. So just through organic growth without new acquisitions or other equity through organic growth, we expect the leverage to be in the 7s by year-end. So we have no appetite at this moment to raise equity to delever.

Michael Griffin -- Citi -- Analyst

Okay, that's it for me. Thanks for the time. Thank you.

Operator

Your next question comes from the line of John Kim of BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thank you. You increased your guidance pretty sizably ahead of the peak leasing season, I was wondering what surprised you the most so far in this year relative to your initial projection just a couple of months ago?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Well, I mean I don't know if it was a surprise. When we crafted our initial guidance, it was before the vaccine was being distributed. There were still a lot of unknowns with where the economy was going to be in 2021. So as we look at it today we felt it prudent to rethink what the balance of 2021 will look like. We did it still with erring on the side of caution or conservatism. But as we look through the balance of the year we feel that the guidance that we put out is reasonable. And again with an eye on we're erring on the side of conservatism. But there are still some unknowns. I mean the eviction moratorium is still out there and we don't know if that will be extended to be beyond June and we don't know how many residents may want to take advantage of that. Right now we have about 100 residents who are deferring their rent because of the moratorium. We don't expect that to grow but that's something that we don't control.

John Kim -- BMO Capital Markets -- Analyst

I know the data is less than a month but you had new leases, accelerating growth and renewals slowdown, how should we read into this? Are the new leases driven by market strength or your renovation programs where it's just a question amount of those leases coming that were signed or what should we take out of that?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

So we feel that until this pandemic and its crisis is over for good that the strong occupancy is the best way to protect the portfolio and continue to deliver results like we have. So as we look forward at our lease expiration schedule again, it is skewed toward the second and third quarter during leasing season. We're adjusting our renewal rates in order to make sure that we're maintaining occupancy in that 95%, 96% range. On new leases, once the unit is vacant we are out there and you want to drive as much rent as you possibly can or once you know it's going to be vacant, I should say, or the tenant's going to leave. And it's also helped dramatically by the value add program. And in the value add program we're getting 18% to 20% premiums over expiring lease. That's very powerful from a rent growth perspective.

Farrell Ender -- President

And in regards to what Scott mentioned in terms of lease expirations, for your perspective, we probably saw close to as many leases in April as we did in the first quarter. So given the pandemic we want to be very and the track for occupancy is going to be very cognizant of the amount of leases that are rolling in this quarter.

John Kim -- BMO Capital Markets -- Analyst

On the JVs, I know you probably don't want to go too much into detail but you quoted the unlevered IRRs of 20% and I'm wondering if you could break that down between the current income component versus the fee to promote and capital appreciation?

Farrell Ender -- President

John, I don't have that in front of me but I'll grab that and give you a call back with it.

John Kim -- BMO Capital Markets -- Analyst

But do you expect the yield or income to be paid in cash or in equity?

Farrell Ender -- President

We think it will be paid in cash, certainly. Obviously the details, I'll come back to you with the specifics.

John Kim -- BMO Capital Markets -- Analyst

Okay, I appreciate it. Thank you.

Operator

Your next question comes from the line of Amanda Sweitzer of Baird.

Amanda Sweitzer -- Baird -- Analyst

Thanks, good morning guys. Following up on your capital allocation kind of the nice improvement in cost of equity you've seen, can you just provide an update on how you're ranking your sources of capital are there between disposition, incremental leverage and then additional equity issuances?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Yes. I mean I think it's a good question. We've continue to stack our current capital. We obviously we have retained earnings that we are funding back into the business through the value add and then we kind of look at dispositions given the high cap rate or the low cap rate where five is the high pricing. That's another good source with kind of equity costs being the lower ranking one.

Amanda Sweitzer -- Baird -- Analyst

Okay. That's helpful. And then as a follow-up to that, what kind of cap rates you think you could achieve today for some of the assets you're targeting for disposition or at least what spread could you achieve on capital recycling between the buyer and sellers?

Farrell Ender -- President

I mean we're seeing in the market -- like I mentioned in the call sub 4% cap rates on some of the value add deals. So I would think 4% right now is the market across the markets that we're in.

Amanda Sweitzer -- Baird -- Analyst

Okay. That's helpful. And then last one from me. You focused recently on some of the newer construction acquisition today, which I get given value add cap rates, but what levers are you looking to pull to drive value as you're underwriting the deals or where do you see your competitive advantage with some of those newer vintage deals? Is it some of the clustering benefits that you talked about or is there any other areas that you think you can drive value?

Farrell Ender -- President

Yes. I mean I think it's a combination to what Scott said and that the Dallas deal I think we could definitely leverage the communities that we have in that submarket. Same thing in Charlotte, it's within a seven-minute drive of our community that we already had in that market, but we really feel like these are typically direct relationships and we're getting a slight discount in the market to take up, what we feel, is minimal lease-up risk. So that's where we think most of it's going to be driven from.

Amanda Sweitzer -- Baird -- Analyst

Great, thanks for the time.

Operator

And your next question comes from the line of John Massocca of Ladenburg Thalmann.

John Massocca -- Ladenburg Thalmann -- Analyst

Hear me?

Farrell Ender -- President

Yes, good morning.

John Massocca -- Ladenburg Thalmann -- Analyst

Given the kind of, investments that under contract are obviously kind of Class A new developments and your new build is where the JV kind of preferred investment program is going to focus. I mean, what is the runway you think left for kind of value add projects within the portfolio today and maybe within the platform at least over kind of the intermediate term?

Farrell Ender -- President

Again we have markets that we haven't even started value adding. I'm pointing out Indianapolis and Oklahoma cities, so I think there is still a deep amount of opportunity within the portfolio. We are still looking to acquire for that purpose. We've built out an incredible platform. I think our cost to renovate is probably the lowest among our competitors. It's challenging in this market to find ones that fit but we're still looking into the markets that we these -- build out these teams and to try to add to that in addition to what we have in the existing portfolio.

James Sebra -- Chief Financial Officer & Treasurer

Okay. And then specifically on the redevelopments but also maybe on of kind of maintenance capex as well. I mean are you seeing any pricing pressures given some of the movements in your cost of lumber, appliances, etc. and I guess, how successful have you been may be offsetting that with kind of rental rate increases?

Farrell Ender -- President

We have not seen cost increases. I mean, we're not really exposed to lumber with the renovations we're doing. I mean it's really flooring and to your point, appliances we haven't seen that much pressure on appliances to date. And granite or quartz counter tops are the main components of our renovation. I mean, labor is the biggest thing right now. If you were going to ask me what's the challenge in doing the renovation, it's finding quality labor.

John Massocca -- Ladenburg Thalmann -- Analyst

I guess that impacted kind of expected ROIs on budget these new redevelopments?

Farrell Ender -- President

No. We've created a pretty good machine. So we're actually seeing your costs come in a little bit because we're getting more efficient and we'll continue to see over the next couple of quarters. I think you'll see an increase in the returns on the renovated product.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay, that's it for me. Thank you very much.

Farrell Ender -- President

Thank you.

Operator

And your next question comes from the line of Neil Malkin of Capital One Securities.

Neil Malkin -- Capital One Securities -- Analyst

Hey guys, thanks for taking the follow up. So just a question on I guess valuation maybe for your stock, not just the base broadly. You're thinking about where cap rates are, thinking about where investor demand is, investor appetite potentially hurdle rates or internal IRRs across the board from all stakeholders within this space. Do you think that it's fair to say that your stock should be rerated even higher or you can call it cap rate compression, multiple expansion just given what's going on in the space, your market and your, I guess, sort of untapped potential or that built-in value from your still remaining value add opportunity or NOI creation?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Well, I think if you look at cap rates in the market clearly one conclude that our share price is undervalued. There is always this talk of the public company discount but we have a very compelling story and lots of opportunity for growth. As to Farrell's point has built an operating platform here, it is very strong and is scalable. So when you put all that together one wonders why there is a public company discount rather than private sector, but with cap rates where they are our implied share price should be higher.

Neil Malkin -- Capital One Securities -- Analyst

Yes, OK. The last one is, if you could just kind of going back to the JV, is that something where you're going to call it either 20% equity, are you getting fees for asset property management and then are you -- would that be something where you take it out upon stabilization or would you plan to operate that in a JV structure for X amount of years and then take it out down the road?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Our program is where we have the right to purchase on each transaction, and our plan would be to purchase it at completion. And of course, manage it from that point. There won't be any management until there's COs. Okay, yeah, I got it. Appreciate it, thank you guys. Thank you.

Operator

And there are no further questions at this time, and I'll now turn the call back over to management.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Well, thank you all for joining us today and we will speak to you again, some of you at NAREIT's REITWeek and the rest in three months. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Lauren Torres -- Investor Relations

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Farrell Ender -- President

James Sebra -- Chief Financial Officer & Treasurer

Austin Wurschmidt -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

Michael Griffin -- Citi -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Amanda Sweitzer -- Baird -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

More IRT analysis

All earnings call transcripts

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