Q1 2024 Independence Realty Trust Inc Earnings Call

Participants

Lauren Torres; IR; Independence Realty Trust Inc

Scott Schaeffer; Chairman of the Board, President, Chief Executive Officer; Independence Realty Trust Inc

Michael Daley; EVP Operations and People; Independence Realty Trust Inc

James Sebra; Chief Financial Officer, Treasurer; Independence Realty Trust Inc

Austin Wurschmidt; Analyst; KeyBanc Capital Markets Inc

Eric Wolfe; Analyst; Citi

Anthony Powell; Analyst; Barclays Investment Bank

John Kim; Analyst; BMO Capital Markets

Wes Golladay; Analyst; Robert W. Baird

John Pawlowski; Analyst; Green Street

Barry Oxford; Analyst; Colliers Securities

Omotayo Okusanya; Analyst; Deutsche Bank

Linda Tsai; Analyst; Jefferies

Presentation

Operator

Thank you for standing by. My name is Dee and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust first quarter 2024 earnings conference call. (Operator Instructions)
I would now like to turn the call over to Lauren Torres. Please go ahead.

Lauren Torres

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty First Quarter 2024 financial. On the call with me today are Scott Schaeffer, Chief Executive Officer; Mike Daley, EVP of Operations and People; Jim Sebra, Chief Financial Officer; and Janice Richards, SVP of Operations. We also have a special guest joining us today newly shaped brand child as it's bring your child to work day. Welcome, Lily. Today's call is being webcast on our website at ir.living.com. There will be a replay of the call available via webcast on our Investor Relations website and telephonically beginning at approximately 12 PM Eastern.
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. All results could differ substantially and materially from what IRT has projected. Payments are made in good faith pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 19. Please refer to IRT's press release and supplemental information and filings with the SEC for factors could affect the accuracy of our expectations or cause our future results could differ materially from those 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 eight K available at IRT's website under Investor Relations. Irt's other SEC filings are also available through this IRT does not undertake to update forward-looking statements on this call or with 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 Schaeffer

Thank you, Lard, and thank you all for joining us this morning. During the first quarter, we made notable progress on our initiatives to grow occupancy and increase resident retention, execute our portfolio optimization and deleveraging strategy and deliver on our planned value add improvements. We are pleased with the results of our efforts in the first quarter as we delivered an increase of 120 basis points in average occupancy to 94.4% lease renewal at 65.4% and resident retention at 54.3%, all above first quarter of 2023.
And we continue to see sequential improvements in April with same-store occupancy today at 95.4% with lease renewal at 66.7% and total resident retention at 55.7% year to date, our lead volume is up approximately 17.4% year over year due to our enhanced marketing initiatives as lead volume, along with the improvement in occupancy puts us in a position of strength to drive growth in the coming months and keeps us on track to deliver our full year operating guidance last October with the view that interest rates would stay higher for longer.
We announced our portfolio optimization and deleveraging strategy in which we identified 10 noncore properties for sale. I'm pleased to report we have closed on the sale of nine of these properties exiting four single asset markets and paid off 489 million of debt, thereby extending our maturity profile and eliminating all of our exposure to floating rate debt.
The 10th and final property targeted for sale under this program is currently under contract with hard deposits, and we expect to close on April 30. This puts us on track to achieve our six times net debt to EBITDA target in the fourth quarter of this year. To that end, we received an investment grade credit rating from Fitch ratings in early March. This is a significant milestone for IRT and reflects our efforts to fundamentally reset our leverage profile through profitable growth with lower leverage with this rating, we can further improve our cost of capital and gain access to additional capital sources to implement our business plan and invest in our portfolio.
Additionally, as part of our regular capital recycling initiative. We have identified an asset in Birmingham, Alabama as held for sale and may use the proceeds to purchase one of our new construction joint venture assets in Nashville. Jim will discuss this in more detail during his remarks, but the Birmingham property is now under contract and is expected to close in the third quarter of 2024.
With respect to value add renovations are program as well received by both current and prospective residents as we seek to improve the quality and value of the rental experience. We now continue to see significant premiums as compared to unrenovated comparable units despite current market dynamics that are impacting new lease rates.
With that, we completed renovations on 320 units during the first quarter and achieved a weighted average return on investment of 18% when compared to unrenovated comps throughout the rest of 2024, we expect to complete renovations at approximately 2,100 additional units. Please note this number could vary depending on resident retention.
And addition, we currently own over 12,000 additional units that are appropriate for renovation over the long term. We believe these efforts to drive strong demand and attract value-driven residents seeking an effective alternative to newer class A. communities. At a lower price point, we continue to believe in the strength of our portfolio and our team's ability to manage through difficult operating environment in 2024 for the Sunbelt region continues to see elevated levels of new supply IRT's predominantly B class portfolio is somewhat insulated from the resulting effects, and we are confident in our ability to navigate these headwinds.
Before I wrap up my remarks, I also wanted to highlight that we recently published our 2023 sustainability report, which details the progress we have made on our sustainability strategy over the last year and the initiatives we have in place to continue building a sustainable and inclusive future for our business and all of our stakeholders. We see continuing opportunities to further enhance our sustainability practice and look forward to continuing these initiatives, which support our long-term success and conclusion, our results demonstrate the strength and resiliency of our portfolio and the ability of our team during a challenging economic climate.
I'm confident these results will drive further growth throughout 2024, and we look forward to continuing to build on these successes going forward.
And I'll now turn the call over to Mike.

Michael Daley

Thanks, Scott. The priority of IRT heading into this year was to increase retention and reduce unit vacancies. We accomplished this in the first quarter, delivering a resident retention rate of 54.3%, which represented a 610 basis point improvement versus a year ago and a 330 basis point increase on a sequential basis Similarly, our same store average occupancy rate increased 120 basis points year over year to 94.4% for the quarter.
For April to date, same store average occupancy is 95%, improving another 60 basis points on a sequential basis as compared to the first quarter, which reflects our ongoing efforts to drive occupancy at our non-value add communities. Average occupancy was 94.6% in the first quarter and is 95.2% for April. To date, our same-store portfolio average rental rate increased 1.5% in Q1, contributing to 3.4% year over year property revenue growth for the quarter.
As mentioned on last quarter's call, we are reducing the use of concessions. In the first quarter, 15% of leases signed had a concession and the average concession was two weeks for April. To date, concessions are even lower at 10% of leases signed again with an average concession of two weeks. While new lease spreads remain negative in the first quarter due to lower seasonal demand and supply pressure, we are seeing a pickup in April, improving 190 basis points on a sequential basis due to more favorable demand and the reduced use of concessions. The benefit of higher occupancy is helping to mitigate the pressure on rents from the impact of new supply mentioned earlier.
Also, renting continues to be more attractive than owning for many people with persistently high interest rates and inflation continuing to make homeownership less affordable. Our top 10 markets owning a home is approximately 100, 4% more expensive than renting when factoring in all the cost of homeownership, including a mortgage payments, property taxes and insurance lease-over-lease.
Effective rent growth for renewals in the first quarter was 4.4% and for April to date is 3% we've also signed 86% of our expected May and June renewals with an effective rental rate increase of 3.5%. As mentioned on our prior calls, we continue to utilize technology to increase our operational efficiency and performance. One example of this is enhanced ID screening, which was fully implemented across the portfolio earlier this year, we have seen a meaningful positive improvement in our ability to identify potential fraud.
This technology, in addition to the enhanced income verification technology currently being rolled out will not only improve business results, but also deliver a better applicant experience and help drive efficiencies for our teams on site. These technologies are key drivers to improve our bad debt this year from about 2.1% last year to our interim goal of 1.5% by year end 2024.
Before handing it to Jim, I would like to thank our team for driving these results and progress on our key initiatives. We've made notable advancements over the past year despite the industry pressure we've described, the improvements we've made are systemic and sustainable, and we expect to continue driving strong results in high efficiency for 2024 and into the future.
I will now turn the call over to Jim.

James Sebra

Thanks, Mike, and good morning, everyone. Beginning with our first quarter performance update, net income available to common shareholders was $17.6 million, up from $8.6 million in the first quarter of 2023 primarily due to gains on the sale of real estate. During this quarter, core FFO was $61.5 million and core FFO per share was $0.27 per share IoT. Same-store NOI growth in the first quarter was 2.4%, driven by revenue growth of 3.4%. This growth was led by a 1.5% increase in average monthly rental rates to $1,551 per month and a 120 basis point increase in average occupancy to 94.4%, both as compared to Q1 of 2023.
On the operating expense side, IoT same-store operating expenses increased 5% during this quarter. This increase was primarily driven by higher property insurance expenses due to the notable increase last year, as well as higher advertising and personnel expenses as we increased our efforts to drive occupancy, contract service expenses flat in the quarter, while repairs and maintenance expenses decreased 11% due to timing of repair and maintenance projects and a continued focus on managing expenses regarding property management expenses and G&A Our Q1 results were in line with the guidance we previously provided.
Turning to the balance sheet. As of March 31, our liquidity position was $412 million, an increase of approximately $124 million from year end and 2023, we had approximately $21 million of unrestricted cash and $391 million of available capacity through our unsecured credit facility. As noted earlier, we're pleased to have received our investment grade credit rating from Fitch, assigning IRTD., a long-term issuer default rating of triple B, flat with a stable outlook. This is yet another example of our strong underlying fundamentals and as Guy mentioned, opens up additional sources of capital for IoT as we seek to operate, grow and be a leading apartment company in the United States.
For Q1 2024, our leverage was 6.7 times on a net debt to adjusted EBITDA basis. This is down from 7.3 times in Q1 of last year. Clearly, we are beginning to see the impact of our portfolio optimization and deleveraging strategy. On a trailing 12 month basis, our leverage is 6.5 times, and we are still on target to be closer to six times net debt to adjusted EBITDA in Q4 of this year, we still have only about 7% of our pro forma debt maturing through year end 2025 with only $20 million of maturities in 2024. We also have adequate hedges in place that have effectively converted our floating rate debt to fixed rate debt such that our debt as of March 31 is 100% fixed and or hedged.
Before I discuss our 2024 guidance, I'd like to provide an update on our portfolio optimization and deleveraging strategy. During the first quarter, we sold five properties that were included in our portfolio optimization plan for a combined sales price of $296.1 million, and we recognized a net gain of $25.6 million in total. And as of the end of the first quarter, we sold nine of the 10 properties, which were part of our plan for a gross sales price of $496.8 million.
Proceeds from these sales were used to repay $488.9 million of debt, including $218 million paid back on our credit facility to date from this plan. As part of our initial plan, we have one remaining asset to sell in Chattanooga, Tennessee, which we expect to close next week. The sales price for that asset is $28.5 million, which when aggregated with the other nine sales achieves our targeted gross sales proceeds of approximately $525 million.
As mentioned by Scott, in connection with our capital recycling program, we have also identified a legacy steadfast asset in Birmingham, Alabama as held for sale and recognized a loss on impairment of $15.1 million. This property is now under contract an economic cap rate of 5.2% for sales expected to close during Q three 2024, and the proceeds may be used to acquire one of our properties developed by our joint venture partner in Nashville, Tennessee. This capital recycling transaction will reduce our exposure in Birmingham while adding to our Nashville portfolio. It allows us to realize the benefits of our joint venture and preferred equity investment strategy.
With respect to our full-year 2024 outlook, we are reaffirming our FFO and core FFO per share guidance that we provided on our year-end conference call in February, but we are updating our EPS guidance range, given the planned sale of the Birmingham community and the associated impairment loss we recorded in Q1 2020 for our revised EPS range of $0.34 to $0.38 per share.
Relatedly, we also updated our same-store portfolio to be 108 properties, down from 109 properties as we updated our transaction volume guidance, the midpoint of our 2024 core FFO per share guidance remains at $1.14 per share. As mentioned last quarter, when thinking about our core FFO per share guidance for this year. The bridge from our $1.15 per share starting point at the year end 2023 would include $0.04 of accretion from additional NOI growth in 2024, offset by dilution of $0.03 from our portfolio optimization strategy and $0.02 from increased expenses, bringing us to our guidance midpoint of $1.14 per share for 2024.
While our same-store portfolio has changed, there is no impact to our operating guidance as we are reiterating our previous outlook for same-store revenue and operating expenses. Our guidance range for same-store revenue growth in 2024 remains at 3% to 4.5%. And on the expense side, our guidance range for full year 2020 for total operating expense growth continuing to be between 5.4% and 6.4%. Controllable operating expenses are expected to be up 5.4% at the midpoint with noncontrollable operating expenses for real estate taxes and insurance to be up 6.6% at the midpoint. As a result for 2024 we continue to expect that property NOI growth will be between 1% and 4% or 2.5% at the midpoint.
Moving to our full year guidance is acquisition volume, which reflects our potential plan to acquire a property in Nashville that was developed by our joint venture partner and where we exercised our right of first offer. We are also increasing our disposition volume guidance to reflect the additional asset held for sale and Birmingham.
Scott, that's it. Back to you.

Scott Schaeffer

Thanks, Jan. our performance in the first quarter gives us a solid foundation to drive further growth of our business in 2024, which includes supporting increased occupancy, which in turn will give us the ability to drive rent growth in the coming quarters and allows us to remain confident in delivering our full year guidance and completing our portfolio optimization and deleveraging strategy by selling the 10th and final property fundamentally resetting our leverage profile and reducing our exposure to non-core markets.
As we focus on these initiatives throughout the organization, we also maintain our commitment to delivering shareholder value and returning capital to our shareholders. We thank you for joining us today and look forward to seeing many of you at the most annual Real Estate Conference in May and may reach Week Conference in June.
Operator, you can now open the call for questions in queue.

Question and Answer Session

Operator

(Operator Instructions) Austin Wurschmidt, KeyBanc Capital Markets.

Austin Wurschmidt

And Mike, you highlighted in your prepared remarks that you've signed, I believe 85% of the renewals for May and June at 3.5% increase. What's the retention related to that 85% figure? And would you -- what's sort of the thinking on the remaining 15% as it relates to what you think you can achieve on the renewal rate growth. Just wondering how changes that 3% figure retention at 55%.

Scott Schaeffer

We are continuing to focus very, very consistently on retention. In terms of our renewal rent growth. We do have, as I mentioned, some pickup in April in terms of our momentum on retention. And I expect our based on the renewals that are going out now we've got our first batch of renewals for July have gone out at about 3.5%. And so I do feel good about the strength of those renewals.

Austin Wurschmidt

So based on then the month to date for April, what you achieved in May and June, I mean, it feels like you think you can achieve that 55% retention target with renewals holding around the 3% to 3.5% range. Do you think that this gets offset by softer than expected new lease rate growth or good blended rate growth, see the 2.1 that you assumed in your initial same-store revenue?

Scott Schaeffer

I don't think we wanted to we would want to say that it the blended rent growth is going to exceed the guidance? I think the guidance is solid. The balance that we have taken between the two really is the way that we approached it was balanced between our retention focus and the renewal rates for retention, retaining renewed leases as opposed to the new leases. So overall, our focus on retention is just that our focus on occupancy is just that. I think that we're comfortable with the guidance that is out there now.

Operator

Our next question comes from the line of Eric Wolfe from Citi.

Eric Wolfe

Please ask your question and thanks for actually Joe superior with Eric on sort of just wondering, Nick, good morning. I just want to dive in on some of the capital allocation, the additional asset sale? And how are you thinking about additional asset sales from here?
Just trying to understand kind of the framework of what would make you want to transact at about that either further deleveraging are kind of noncore markets, use of proceeds, kind of how you're thinking about additional asset sales beyond that, what's announced thus far?

Scott Schaeffer

So I think there's nothing planned at this point, Nick, on it's the additional asset sale in Birmingham was part of our recycling strategy on we're looking. We're looking at our markets in the portfolio long term and where does it make sense for us to be to be growing and or contracting? And we do have now two assets in our joint venture program in Nashville that are completed and our purchase options are in play. So we decided that we would sell the asset in Birmingham.
We are happy with the price at a 5.2 cap rate and reallocate that money if we can reach a reasonable price on the national asset. And when I say that agreeable price, it's because the way the program is set up is that we exercise our right and then we get an appraiser. The developer gets an appraiser, those two appraisers pick a third appraiser and then it's the average of those three.
And we then will decide we're not committed if whether or not we want to buy it. And if we don't, the developer can sell to anyone else for less than what that number was, what that appraisal number was. And we have and if it does or wants to then we have a last look so on is this is all part of our strategy of focusing the portfolio where we wanted to be long term. And frankly, we would rather be in Nashville and Birmingham.

Eric Wolfe

Thanks. And then just from that, portfolio strategy perspective, which other markets would you look to gain exposure to? It doesn't sound like in the near term. But as you look over the next few years, either from a job growth and population growth expectation. Where could we expect you to kind of rotate in and out of?

Scott Schaeffer

Yes, I'm still a believer in the Sunbelt long term. I think that's where you will see above-average population and job growth and on, we're coming through a bit of a rough patch here because of all the new supply. But that's coming to an end, and I believe you'll see a continued above average growth in the Sunbelt markets. So that's where our focus will be. And we have a couple of markets where we have only one or two assets in the Sunbelt, and we would look to expand there.

Operator

Our next question comes from the line of Anthony Powell from Barclays. Please ask your question.

Anthony Powell

Good morning. A question in terms of your Midwest versus Sunbelt, I guess, performance in the quarter, I guess how much higher were Midwest, I guess, lease spreads on the new side, both in the quarter and April kind of given the lower supply?

Scott Schaeffer

Yes, it does stand on its own, but we're always seeing supply relatively a 2% spread between the Midwest and the Sunbelt area. We continue to see a sustainable growth opportunity in the Sunbelt. Now that we've stabilized. Occupancy is at 95 four. We will continue to maintain, but, ultimately, it's all about that balanced approach will be, you know, of rationing, the levers of new lease and renewal to ensure that we're able to maintain that occupancy through the rest of the year and APUs as Jim on the on the NOI. growth kind of between the Sunbelt and the Midwest, the Midwest certainly outperformed the roughly 4.5% NOI growth in Q1 with the Sunbelt or roughly 2% kind of fashion.

Anthony Powell

And then maybe on value add, I mean, there's a pretty good results for lease spreads there, our cost training and evaluation program? And what do you think about maybe adding more or less as you go forward this year and next to the program?

Scott Schaeffer

Yes, no. So I mean, we've given guidance that we were kind of targeting roughly 2,500 because retention has a little bit and been a little stronger there so far that kind of numbers, roughly about 24 hundred. And it will continue to kind of moderate again, depending on what the ultimate retention is.
We love the value add program. We think it continues to provide great long-term value to IoT shareholders, and we'll continue to add there as that as appropriate. As we kind of talked about in our investor decks, we have 12,000 plus or minus additional units that are right for value add that will continue to give us many years of runway.

Operator

John Kim, BMO Capital Markets.

John Kim

Maybe a follow-up to Austin's on on the new renewal. So it was little bit surprising to see that new and renewal spreads compressed during April and signing of 3.5% renewal would imply, I would think maybe minus 200 basis points or so on new leases.
I just wanted to ask how you how you view new leases trending during the year and what you've seen so far in leases signed?

Scott Schaeffer

I mean, I think it's a good question. I think as kind of Mike was highlighting, we're very focused on driving occupancy and prioritizing occupancy. And depending on how that retention rate comes out, 55, maybe a little more. We'll continue to moderate that if that means that we're able to kind of get a little more renewal growth and give us a pricing power to begin to push new leases.
We're certainly going to be doing that. But I think what we've kind of given in terms of guidance in terms of midpoint, we're still very comfortable with that midpoint guidance as we continue to operate in a very balanced fashion throughout the year.

John Kim

And I think you guys mentioned that you're looking to get back down to 1.5% by year end. I just wanted to clarify that one seven five was still your guidance for the year?

Scott Schaeffer

Yes, the midpoint of our guidance has over 1.75% average for the year. That's right.

Operator

Wes Golladay, Baird.

Wes Golladay

Yes, good morning, everyone. Regarding the Nashville asset, would that be both the views of Music City and their pocket? And if you were to acquire, would you pay down the debt as well?

Scott Schaeffer

It's just fee the deal that we've exercised our right of first offer is to Crockett as part of a national portfolio. We have not done the PGUCD. music to yet and then our expectation and our expectation would be that, you know, again, given the proceeds from the sale of the Birmingham asset, there would be a little after that we would have paid out some debt.
So West, we have until October of we have until October of this year to exercise the option on our use of music Music City, excuse me, on. So we're just going to continue to monitor the properties, lease up performance and market, and we'll make that decision when we have to.

Wes Golladay

Okay. Thanks for that. And then regarding the value add program? Are there any particular quarters where the value add new leases will be a bigger part of the program? And maybe I know there's seasonality on new leasing but maybe a higher percentage of new leasing would be the first generation leases in any particular quarter?

Scott Schaeffer

Yes, mainly a second and third quarter. That's where the vast majority of the volume that will renovate what will happen specifically between those two, the third quarter, July and August are very heavy months attract to our lease expiration schedule and the lease expiration curve is heavier or higher, if you will, in the second later second and third quarters.

Operator

John Pawlowski from Green Street.

John Pawlowski

A few questions on the Atlanta market. The market saw a pretty large sequential decline in revenue this past quarter. Curious if you look at the full year 2024, what range of revenue growth do you think is reasonable to underwrite in your Atlanta portfolio this year?

Scott Schaeffer

Yes, as so we've added the scanners again, we've seen some some benefits in March and April. And where are we starting to see progress in the Atlanta market and even with the softening I think the implement implementation of the we can finish as well as the ID verification will help us offset some of the fraud that we were absorbing in 23 and we'll continue to see that benefit as it takes three to six months throughout the year. That will help.

John Pawlowski

Is that annualized for 24, Kevin, you ceded about 50 basis points year-over-year revenue growth in the quarter. What do you think is roughly reasonable this year alone?

Scott Schaeffer

And I think based on new lease rent growth, we'll still see some challenge or pulling towards the flat and the upside of the new lease. And it's really going to all be dependent upon that retention that we're able to achieve in Atlanta and whether we're going to have the pricing power as we see occupancy stable. So I think we'll come in in line with guidance that we presented holistically, and we'll see how it goes.

John Pawlowski

Okay. So final question for me. Can you just give me a sense how bad debt in the Atlanta portfolio has trended in recent quarters?What is it running as a percentage of revenue and it has it gotten worse or they got a better steward and refreshing last year for all of 2023.

Scott Schaeffer

Bad debt in Atlanta was about 5% of the Atlanta market revenue, and that is certainly trended better so far in the first quarter were down about 4% in the first quarter and getting better as the eviction processes kind of accelerating as well as our other things or ID verification income verification tools are it's speeding up.

Operator

Barry Oxford, Colliers.

Barry Oxford

You mentioned the natural asset as we are with the option of possible acquisitions. What else are you seeing in the acquisition market and our cap rates are at a point where you guys feel comparable trends.

Scott Schaeffer

And so I'll take the last part of your question first and succinctly know There still is a disconnect between public valuations and private market valuations. So the cap rates, for example, in Birmingham at 5.2 on that only that would make no sense for us to buy an asset at a 5.2 cap rate with our current cost of capital on, we're constantly looking at the portfolio as a whole and where we want to position it and we will continue to recycle some out of some assets and into some newer ones.
But that is then you're matching the cost of capital on the buying myself. And so we're looking to continue, as I said, to manage the portfolio for the long term, but we're not out there just seeking to acquire unless it's part of the recycling strategy.

Barry Oxford

Right, perfect. Thanks. Then go into the different markets and absorption. You feel like most of the market should be firming up as net absorption happens on the deliveries are there any markets that you're concerned about when it comes to net absorption and maybe maybe free rent might start to seep into the market?

Scott Schaeffer

It's up again. And so we've definitely seen some softening in the Raleigh, Charlotte and Charleston. Luckily, for us, these are some of our smaller and aligned markets, but definitely have seen an impact of the concessions on our assets in this market based on the new supply that's going to be delivered in 24 and 25. Raleigh seems to subside. Charlotte is going to continue for a little bit, but we've been able to really maintain a good Ally there as well as Charleston. So we'll be continuing to utilize those levers to make sure that we're prioritizing occupancy and maximizing revenue.

Operator

Tayo Okusanya, Deutsche Bank.

Omotayo Okusanya

Hi, yes, good morning. My question is specifically about the Sunbelt markets.
They seem to be some commentary regarding our feeling that maybe some of the supply issues, maybe kind of break-up moving more towards the rearview mirror in due time, but curious specifically how you're thinking through supply in the Sunbelt in terms of deliveries, ultimately absorption and when we may start to see things turn or Inflectra in those markets?

Scott Schaeffer

Yes, great question. And I had kind of we have some stuff in our investor deck, and we've kind of talked about, I think, on our year-end earnings call survey at our Citi presentation of our back in March that, you know, the expectation we have is that the vast majority of the new supply should be through by mid part of this year, and they'll still be a little bit of waiting until the back half of the year for sure such that we'll have pricing power as we head into the back part of the year.
The other thing that we expect, again, given some of the data we've seen and done some modeling is absorption this year should be much better relative to kind of the new supply growth, whereas last year the absorption wasn't as strong as Scott had mentioned earlier, we're still very bullish for the long term on the Sunbelt and that we think that job growth and population growth will continue to be very bullish there and outpace the United States. And we're quite excited about kind of how the new supply is trending this year so far and kind of how some of our more Class B product is why insulated.

Operator

Linda Tsai from Jefferies.

Linda Tsai

I can't remember if you track this, but how many of your residents moved out to buy a house a year ago versus in 1Q 24.

Scott Schaeffer

Great question and less in the first quarter of last year, the reasons for move out was as of the people that moved out 16% of data by home in the first quarter of this year. For those that moved out of them, 15% have moved out of favor.

Linda Tsai

Thanks. And then on new leases, would you expect to see new lease growth stay volatile or should we expect to see continued improvement for the rest of the year as we continue to maintain occupancy as we go into leasing season, we'll start to see some pricing power over the next few quarters, still prioritizing occupancy within that pricing power. So volatile know, our goal is to obviously sustain and to drive revenue where we can, and that would include pricing power and really working through that on a amalgamated.
And then I know you expected expenses to be higher this year. Is there a longer term NOI margin you'd like to target and there's no, we don't have a target obviously, in NOI margin.

Scott Schaeffer

I think we continue to focus on maximizing that margin through time, which as we've talked about in the past, using technology become more efficient, continue to obviously drive rent growth and occupancy. We won't be satisfied with any number except that it's going to keep going up.

Operator

There are no more questions. I will now turn the conference back over to Scott Schaeffer for closing remarks.

Scott Schaeffer

Thank you, for joining us this morning, and we look forward to seeing many of you at the upcoming conferences and then speaking again with you next quarter. Have a good day.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for participating. You may now disconnect.