Q3 2022 Independence Realty Trust Inc Earnings Call
Good morning. Thank you for attending todays Independent Realty Trust incorporated Q3 earnings Conference call. My name is forum and I will be your moderator for today's call.
All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host Lauren Torres.
Thank you and good morning, everyone. Thank you for joining us to review independence Realty Trust's third quarter 2022 financial results on the call with me today are Scott Shafer, Chief Executive Officer, Ellen Kneeland, Chief operating Officer, Farrell Ender President of IR.
T and Jim <unk>, Chief Financial Officer, today's call is being webcast on our website at IR T living dotcom, there will be a replay of the call available via webcast on our Investor Relations website, and Telefonica <unk> beginning at approximately 12 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 financial performance and the merger with steadfast apartment, REIT, which will be referenced herein at star actually.
Our 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.
Irt's website under Investor Relations.
<unk> other SEC filings are also available through this link.
IRT does not undertake to update forward looking statements on this call 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.
Thank you Lauren and thank you all for joining us this morning.
I would like to begin our call today by thanking our onsite teams, who played an integral part in ensuring the safety of our residents and communities that felt the effects of hurricane in Florida, and the Carolinas I'm happy to report that we did not experience any significant damage to any of our properties.
Now onto our results in the third quarter, we delivered 11, 5% combined same store NOI growth and 33% core <unk> per share growth on a year over year basis, we attribute this strength to our portfolio concentration in non gateway markets in the attractive Sunbelt region, where demand continues to outpace supply. In addition, we achieve.
Double digit average rental rate growth of 13, 3% in the quarter.
We need to balance occupancy and rental rate growth to maximize revenue for the long term to that point. This rental rate growth combined with the start of eight new value add projects in the third quarter put some pressure on occupancy, but locked in attractive lease rates generating a strong revenue earnings for 2023 as of today, our occupancy is 95, 4%.
Our non value add communities.
Over the past quarter and as part of our capital recycling strategy, we entered into agreements of sale for two communities one in Louisville, Kentucky, and one in Terre Haute, Indiana. We also acquired a community in Charlotte North Carolina, and another in Tampa, Florida, expanding our footprint in these attractive markets and we entered into a joint venture for the development of a community in Las Colinas, Texas.
It's just part of the Dallas Fort worth Metropolitan area, and is experiencing strong job growth and population migration.
These are all exciting opportunities to grow the portfolio in core IRT markets that have favorable fundamentals. We believe it is important to be patient and selective as we allocate company capital in the current economic environment, and we'll only acquire new communities or invest in joint ventures as part of our capital recycling strategy.
We are also making progress with our value add program, having renovated 795 units this year and achieving a return on investment of 27, 1%.
We remain excited about our value add program and the increased units to be added from our merger with star We expect to moderate our plan in 2023 by delaying the start of renovations and communities and new value add markets until we have better clarity on the state of the economy. Currently we expect to complete between 2500 3000 units next year.
While acknowledging current macroeconomic uncertainty we had Iot remain constant in our portfolio and strategy that will enable us to continue to drive outsized returns our confidence is underlying by the following first real estate fundamentals remain strong and we are encouraged about our position in the multifamily sector second we have an optimal portfolio footprint.
<unk> key sunbelt markets that continue to see significant migration and job growth and we expect to outperform during all points of market cycles third disposition of strengths has been further bolstered by the star merger, which has added scale in our top markets as well enhanced our operating platform.
Fourth as you can see with our performance year to date, we continue to successfully execute our portfolio strategy, combining the accretive leasing activity with progress on our value add renovations and capital recycling initiatives, all which will ultimately drive long term value for our business.
And finally all of this has been done while achieving the most robust balance sheet and Irt's history, a true signal strength as we move forward through the current operating environment.
With all that said we are reiterating our full 2022 guidance that we previously raised for combined same store NOI growth of 13, 75% and core <unk> per share growth of 28% each at the midpoint of our guided ranges looking forward. It is important to note that we expect 2023 to be a year of continued NOI and core <unk> per share.
Growth.
Provide a more detailed outlook for the next year during our year end earnings call.
Now I'd like to turn the call over to Albert for an operational update. Thank you Scott we delivered a solid third quarter led by our ability to drive rent growth in our market.
As Scott mentioned, our average rental rate increased 13, 3% in Q3, which is even stronger in the 12% increase delivered in Q2 of this year more specifically markets, where we saw the highest lease over lease effective rent growth in Q3 were Tampa at 22% Myrtle Beach at 21.
Percent, Atlanta at 15% and Dallas at 14%.
To put in perspective, our markets with the lowest rent growth, where Chicago, Birmingham in Houston, but they were still averaging 9% to 10% rent growth in the quarter.
These rental rate increase has put some pressure on our Q3 occupancy levels along with the addition of eight new properties, which started value add renovations in the quarter.
In response, we offered some upfront concessions to fill vacant units and balance of our occupancy goal with our rent growth call. This was a strategic decision to lock in a higher rental rate as we head into the end of the year and considering the economic uncertainty. These efforts increased our occupancy at our same store non value add communities.
<unk> to 95, 4% as of today.
Looking at rental rate trends in the fourth quarter to date, new leases for our combined same store portfolio have increased seven 1%, while renewed leases are up 8% for a blended lease over lease rental rate increase of seven 7%.
Our favorable loss to lease at a 12% as of September 30th, giving us continued pricing power in 2023.
We continue to see good retention throughout the portfolio with the Q3 average resident retention rate of 57%.
Our Q4 resident retention rate of 50%, it's still a bit early and we expect it to rise over the coming months as our residents makes every noodle decisions.
For the residents who are moving into our communities. We continue to see good demand and demographic statistics.
New residents over the last 90 days have had an average income of approximately $90000 with 22% migrating into our markets from other states.
We continue to see migration from the West coast northeast and the Northern Illinois markets.
I Echo Scott's comments that we believe we are well positioned for continued growth into 2023 with our earn in loss to lease and solid renter demand fundamentals in our markets I would like to now turn the call over to Farrell to provide you with an update on our investment opportunities.
Thanks, Alex.
I'd like to first provide an update on our long standing value add program.
In the third quarter, we completed renovations on 457 units.
For these completed renovations our renovation cost was $14022 per unit and these units achieved on average of $262 per unit increase in monthly rents over comparable on renovated units.
This yields an unlevered return on investment of 22, 4%.
Year to date, we've completed 795 units and achieved a return on investment of 27, 1%.
For full year 2022, we now expect to renovate approximately 4500 units.
Down from our previously guided target of eight hundreds of units.
This change is primarily due to a significantly higher retention rate on our on renovated units at our value add communities.
Beginning in the fourth quarter and throughout 2023, we will be including an additional 10 properties to our value add program.
These 10 properties are comprised of 3350 units and we expect to achieve a return on investment these properties consistent with prior value add projects.
As Scott mentioned earlier for 2023, we now expect to renovate between 2500 3000 units.
We made the decision to delay some renovations at community, mostly located in new markets, where we do not yet have established renovation teams on the ground.
So starting these it's not a question of if but rather a question of when.
Now on to our capital recycling program, which is focused on building our presence in markets with strong fundamentals and exiting properties is less attractive growth opportunities.
As of quarter end, we had two properties one in Louisville, Kentucky.
Indiana classified as held for sale with the sale of the Louisville property closing yesterday.
These dispositions are expected to generate an aggregate sales price of approximately $103 million and expected blended cap rate of four 7%.
Regarding acquisitions, we expanded our presence in Charlotte North Carolina by acquiring in August a recently constructed 234 unit multifamily community for $80 million.
In September we acquired a 348 unit multifamily community in Tampa for $98 million.
This community was built in 2012 and is an ideal candidate for our value add program and a top market position for long term consistent growth.
Combined these properties were purchased at a blended stabilized economic cap rate of five 2%.
And lastly, we entered into a joint venture for the development of the 275 unit multifamily community to be built in Dallas, Texas.
More specifically the property is located in Las Colinas Master plan community with residential and retail space as well as 25 million square feet of office space, one to over 30 Fortune 500 companies.
We expect this product be completed in the third quarter of 2024 and has committed to invest an aggregate $25 6 billion into this joint venture.
Of which $9 three was funded last month.
Currently we have $100 million committed to six different projects with $71 5 million funded to date.
We expect the opportunity purchases community as they complete construction and stabilized between late 2023 in late 2024.
Before turning the call over to Jim I'd like to provide some brief information on our expectations for new deliveries in our Submarkets for 2023.
Currently Costar is projected new unit deliveries in our sub markets based on a weighted average exposure at two 2% of existing inventory dropping to one 8% in 2024.
The vast majority of these new deliveries of class, a which do not compete directly with our well located infill class B communities.
Asking rents at newly built communities on average are priced $521 per month higher than our communities.
Additionally, we do not solely evaluate the growth in supply for our markets, but we also consider growing demand.
Over the past several years, our submarkets are experienced robust demand for apartments and that trend is expected to continue into 2023 and 2024.
Currently Costar expect demand for apartments in our markets to grow by two 3% in 2023 and by another two 4% in 2024.
I'd like to now turn the call over to Jim.
Thanks, Carol and good morning, everyone.
Beginning with our third quarter 2022 performance update net income available to common shareholders was $16 $2 million as compared to $11 $5 million in the third quarter of 2021.
During the third quarter core <unk> grew to $64 3 million up from $22 $7 million, a year ago and core <unk> per share grew 33% to <unk> 28 per share up from 21 per share in Q3 2021.
This growth is a result of the earnings accretion associated with our merger with <unk> as well as the sizeable organic rent and NOI growth we've experienced throughout the combined portfolio. This year.
We started 2022 with two key goals first we sought to fully integrate the operations of Saar and second security identified synergies and related accretion. We're excited to remind you that we've accomplished both of vehicles and they're delivering 33% core <unk> per share growth year over year.
Irt's third quarter combined same store NOI growth was 11, 5% driven by revenue growth of 10, 6%. This growth was driven by a 13, 3% increase in our average rental rates. While this NOI growth includes value add communities. We did see similar NOI growth of 11, 9% at our same store.
Non value add communities, which reinforces the fundamental strength of our core markets.
On the property operating expense side combined same store operating expenses grew nine 1% in the third quarter led by higher repairs and maintenance and utility costs as well as higher real estate taxes and property insurance the increase in repairs and maintenance as mentioned last quarter was driven mainly by the timing of projects as well as inflationary pressure.
On both supplies and services for unit terms.
The increase in real estate taxes is primarily driven by some appeals we won in Q3 last year, causing our expense last year to be lower than normal.
We continue to focus on managing expenses and inflationary pressure and are excited about some of the centralized initiatives. We're rolling out now that will save us approximately $2 million a year in future payroll costs.
Now turning to our balance sheet as of September 30, our liquidity position was $326 million, we had approximately $24 million of unrestricted cash and $302 million available on our line of credit.
At the end of September we settled into in full the 2 million shares that were previously sold on a forward basis under the ATM program. The forward shares were settled at the weighted average sales price of $25 per share and Iot received net proceeds of $50 million.
At quarter end, our net debt to EBITDA was seven two times down from eight two times a year ago.
And we continue to target low seven by the end of this year and mid sixes by year end 2023.
The proceeds from our upcoming sale of our to held for sale assets will be used to repay outstanding indebtedness and will increase our liquidity by approximately $50 million.
As you think about managing the portfolio through a dynamic macro environment in the near term. It is important to stress the strength of our capital structure. In addition to a strong liquidity position our debt refinancing that was completed in July enhanced our financial flexibility with 90% of our debt fixed and are hedged and with 90% of our maturities.
In 2026 and beyond.
Regarding our full year 2022 outlook, we are maintaining our guidance for combined same store NOI growth of 13, 75% at the midpoint, we are raising our core <unk> per share growth guidance by half a penny to $1 seven.
Okay.
While we are slightly lowering our property revenue growth guidance to 10, 7% at the midpoint. We're also lowering our projections for operating expense growth to five 5% from six 3%. Both also at the midpoint.
This better reflects our performance today and greater clarity on expenses for the remainder of this year.
Looking ahead to 2023, we expect inflationary pressures impact various expenses, including payroll repairs and maintenance and contract services.
Lease over lease rent growth moderate, but given our strong rent growth in 2022, we have a 5% to earnings that will contribute to 2023 revenue growth.
Our operating focus will include the further implementation of automation and realization of efficiencies within our business.
We will provide full year 2023 guidance in February but.
But can note that we expect 2020 to be another year of growth for both NOI and core <unk> per share now I will turn the call back to Scott Scott.
Thanks, Jim.
As we enter the last two months of our calendar year and the anniversary of our merger with star I'd like to reiterate the confidence we have as a team and our expanded portfolio, which has undoubtedly strengthened over the past year as we seamlessly integrated star and exceeded our initial expectation for annual synergies I'm proud to say that we have successfully executed our strategy.
Under volatile market conditions and continue to invest in our business, while delivering 33% core <unk> per share growth on a year over year basis, and our most recent quarter.
Going forward, we will remain disciplined in our capital allocation efforts, which will be focused on continued debt reduction and selective investments in our value add and capital recycling programs. We are also committed to driving shareholder value and returning capital to our shareholders. This was proven earlier this year when we increased our quarterly dividend payout and put into place to share repurchase program.
IRT is incredibly well positioned to succeed in the multifamily space due to the strength of our dedicated team and our 121 communities across resilient high growth markets. We thank you for joining us today and look forward to seeing you at NAREIT REIT World Conference in San Francisco next month.
Operator, we would now like to open the call for questions.
Absolutely. Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason you would like to remove that question. Please press star followed by Tim again to ask a question press Star one.
A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Brad Heffern with RBC capital markets. Brad Your line is now open.
Thanks. Good morning, everyone can you walk through how demand looks currently are we are we at a normal sort of seasonal level and then on the concessions are are those are what you would consider to be a normal seasonal level as well.
Yeah on the demand side as I mentioned in the call I mean, what we're seeing from a high level is demand matching up with supply overall, obviously every market is a little bit different than we're seeing in some of our smaller markets Youre Myrtle Beach, Wilmington, Huntsville, maybe getting a little bit ahead on the supply side, but our <unk>.
Larger markets, like Dallas, and Atlanta and Denver.
Theyre seeing 2% to 3% supply with <unk>.
Significant population growth that should be able to more than more than meet the supply.
Yes, I think Brad. This is Jim this is just timing there I think.
But I think with respect to Q4, I think certainly the level of normal pre COVID-19 seasonality has returned to the business, but we still see good leasing demand for our units given our lower exploration curve in acute in Q4.
We do we certainly do kind of obviously track of SaaS and look at it every every period. The concessions that were offered for offered in September and early part of October and we are not offering concessions currently.
Okay got it thanks.
And then Jim maybe sticking with you.
Fourth quarter guide implies a pretty low opex figure I know you mentioned that the third quarter number was affected by the comps from the prior year or so is that improvement largely just comps and then you gave a little commentary on 2023 Opex, but.
Is there any sort of direction that you can give us or would you expect it to be higher than this year lower than this year.
Yes. Good question I want to try to not answer the 2020 for your question.
But I think for 2022.
The Big change is just real estate taxes, we receive some relatively high assessments, we pushed back pretty aggressively and are getting some good feedback and some good results from those assessments with the tax assessors.
And as a result, we've modified guidance for the year given that new intelligence around real estate taxes, that's a real kind of big change in terms of 2023, we certainly see the inflationary pressures continuing on some of those key categories categories repairs and maintenance utilities et cetera.
Probably in the kind of the mid single digit growth ultimately for next year, but I would say that's kind of in line with where we are this year, but as I mentioned.
We're excited about all of these efficiencies that we're rolling out some of the essential aviation services that will even help us further kind of keep those inflationary pressures in check.
For next year.
Okay. Thank you.
Thank you for your question. Our next question comes from the line of Austin, where Schmidt with Keybanc capital markets. Austin. Your line is now open.
Hey, good morning, everybody I just wanted one quick follow up to Brad's question on concessions were those concentrated within the value add pool or any specific markets just any additional detail you could offer up.
No they werent really well, yes, let me start over they were concentrated in our properties, where we saw.
Higher vacancy.
And they were upfront concessions in order to jumpstart.
Occupancy and get it back to where we are.
It's historically been which we've accomplished and the important thing is that those concessions have now ended and have largely burned off so from this point forward.
Full rent collection for the next 12 months.
Got it I appreciate the detail and then Scott you kind of highlighted that economic uncertainty.
Drove the decision to dial back the renovation goals for 2023, but is the 2500 to 3000 units the rice right pace of redevelopment just for the current size of the portfolio or do you envision ramping to that 4000 units, if and when sort of the fog of uncertainty.
Begins to lift.
I do anticipate ramping to the 4000 once the uncertainty is behind us.
And we just felt Austin that occupancy is it's obviously a headline risk and when you look at all the questions that we've received on occupancy.
And the value add clearly puts pressure on it I mean, if you think about it every unit turns when we start the value add process within our community every unit turns goes vacant for 30% to 35 days and that clearly has a downward pressure puts downward pressure on occupancy so.
In the current environment, we decided that we were going to dial it back a little bit and all we did was we eliminated largely the markets, where we were we were beginning to value add process and didn't have any historical.
Experiential work going on so that way, we did not have to go out and build teams to do that because remember we do it all in house largely in house, we didn't have to go out and build value add teams.
In those markets again with the <unk>.
Doug of uncertainty that you mentioned.
So you've talked historically about stabilized occupancy I think in the mid 95% range. How do we think about that that value add pool of what the right level of occupancy is as sort of the size of that moves around.
And you look to manage occupancy for the overall portfolio.
Well I think if you look at if you look at the portfolio.
Excluding the value add we're at 95, 5% today.
We are 94, Jim was 94 two.
Average average for the third quarter. So it's about 120 basis points on the portfolio as a whole, but I think if you then look at the value add.
It's about 92, so it's about a three to 350 basis points.
Reduction in occupancy because of the value add.
Process.
Right right. Okay, and then just last one for me I guess, you've referenced returns on redevelopment you expect them to be consistent with the prior value add projects.
<unk> did come down a bit this quarter.
And from the elevated levels you've achieved so one can you remind us what the targeted returns are for redevelopment.
And could we potentially see those returns reaccelerate to where you were previously achieving I think 30% plus given sort of concessions have been dialed back at this point.
So historically, our target has been 20% and we have.
<unk>.
Seeded that over the last 18 months.
As you point out by significant amount.
We think it will normalize in that 20% range.
And the reason the real reason that I believe that it got as high as it did was because we saw obviously tremendous rent growth across the portfolio, including the value add and we didn't had not yet experienced some of the inflationary pressure.
On the expenses were on the cost. So now we have a little bit more cost.
And some of the rent growth is moderating, but we fully expect it to stay in that 20% range.
And again, it's unlevered, so it's still very attractive returns.
No understood. Thanks, Scott.
Thank you.
Yeah.
Thank you for your question. Our next question comes from the line of Nick Joseph with Citi.
Your line is now open.
Hey, guys. Thanks, Good morning, it's actually Nick on for Nick Joseph Right now and.
So two quick ones for me first you touched on a little bit of a 5% earn in.
I was just wondering what the current loss to lease looks like as well.
Yes, Karen loss to lease in the portfolio is 12%.
Yeah.
Okay, Great and then sort of on the renovation. So just wondering if those returns do come in lower than expected how easily can you guys pull pull back on that if say theres like occupancy disruption or something along those lines.
They are pretty easily I mean, it's definitely it's heavily managed.
As we did during Covid, we were able to pull back pretty significantly and we would do the same if we see cost increase significantly or premiums and drop.
Great. Thanks, and then just one last quick one is.
What are you seeing on cap rates on dispositions and sort of where those are in the market today.
Yes, I would say in the third quarter.
We're seeing cap rates between four and 5% is not a lot of data points, there are transactions, but obviously substantially less than they have been in past quarters.
It's a little bit trickier now with the run up in in the tenure is people don't really know what their debt costs are.
So we'll have to see but our capital recycling, we sold at a blended.
545 on the two deals and were buying at a blended five.
Got it.
Super helpful. Thanks, guys.
Yeah. Thank you.
Thank you for your question. Our next question comes from the line of Neil Malkin with capital one.
Your line is now open.
Thank you good morning, everyone first one.
Uh huh.
The demand side, I guess, particularly the in migration you mentioned, you're continuing to see on <unk>.
Wrong inflows, which is great.
Awesome.
Conversation or rhetoric about potentially a reversion of that in migration is as companies kind of reinstitute return to office I do not think that's going to happen.
But.
Can you maybe talk about.
That I guess in migration as a whole.
Anecdotally or from.
People on the ground in data or something you are seeing that there might be some.
Little bit of a reversion in migration or if it continues to kind of chug ahead there.
At a very impressive rate.
I'll, let Alex talk about anecdotally, if theres anything she's hearing about from our teams on the ground, but just looking at the data that we're looking at we don't see a slowdown in.
The Carolina markets of Florida markets Dallas Atlanta.
And everything we're looking at showing that population and job growth is going to be pretty consistent to continue in those markets.
To follow on on that also pre Covid, there was already a positive and migration to our markets for all the reasons that people solid jobs are being created businesses removing their they tended to be business friendly a lot of our states had no state income tax. So during COVID-19. There was an acceleration of that as people moved into those markets and basically worked.
And Todd and exercise from home that will probably moderate but will still continue to say and we still continue to see people moving in from other markets to find a quality of life and also to find a good job opportunity.
Yes totally agree thanks other.
The other one.
Is on leasing trends so.
Two things first.
What are you sending out for renewals in November December January and the second part is now that you've kind of got an occupancy backup and there is less exposure.
<unk> are gone.
What do you what are you getting on or asking for for new leases.
Could we actually see a slight uptick.
To close out the fourth quarter.
With those sort of short term pressures alleviate it.
Yes. Good question I think we're.
We're seeing kind of generally speaking similar.
Rent growth trend in terms of what we're what we're sending out renewals and new leases is what we've already previously disclosed for the fourth quarter there might be something now that occupancy is back to that kind of mid 95 level.
Excuse me.
We will probably see a slightly kind of uptick in that but it will be on the margin in terms of overall changing the ultimate kind of lease over lease effective rent growth for the quarter.
Okay. Thanks.
Thanks, a lot.
Thank you for your question. Our next question comes from the line of John Kim with BMO Capital markets. John Your line is now open.
Thank you.
Can you comment more on the discrepancy between occupancy between value add and the overall portfolio. When you look at prior quarter.
On slide 20 basis points 400.
Yes, I think I.
I think what Scott said normally we look to see that.
Our management of occupancy manage occupancy that kind of mid 95% range value that does have an initial kind of.
<unk> to it so in response to Austin's question earlier.
How we think about occupancy at the value of that portfolio as you know typically the averaging 92% range, but certainly Scott.
The the important factor is that it's when you start the value add process at a community every unit turns becomes vacant and since we started eight new projects every unit to turned at those communities was vacant for the better part of a month or a little bit beyond whereas a couple of years ago or last year most.
Of the value add work was being done at communities that were in the program for a number of years, so that we're less and less units.
Turning and being vacant for the value add process, because we had already done a lot of them.
Hope that makes sense.
Okay.
Yes. It does I was wondering if it was taking longer to turn the units over.
Supply chain issues related to the issue.
It's not by much.
It's not so much where the volume now.
When you talk also about reducing the renovation program for next year due to higher retention.
But I was wondering if there was reluctant to renters to paid.
The higher rent today then.
Maybe.
We're not seeing any pushback from renters.
On the value add because we're delivering a quality home where in essence, delivering an apartment home it looks like in AG, but pricing. So there's a lot of demand for them.
Okay.
On the acquisitions you discussed.
You just hit the cap rates those closed August September .
Pen rate moved up I think 60 basis points or more can you just comment on where pricing would be today on those.
Assets and how deep the competitive bidding process was.
Yes, I mean, so for high quality assets in good markets, there's still a pool of buyers.
There is definitely not as many I mean, I would say that.
Cap rates trail the treasury, so I would imagine that there'll be some increase in cap rates there just haven't been.
Any any real data points, you're closing in the past two weeks as a 10 years run up.
It's pretty it's pretty challenging because now dropped back down to four so again it's.
We're seeing it as market as buyers just don't know what their debt costs are going to be.
So it is challenging to commit to any price when you don't know.
What your overall returns are going to be so that's what's limiting the amount of buyers.
But theres still some opportunities out there there are people that if you didn't buy in the second half of last year.
There's still a lot of profit to be taken so we do see people testing the market on its just unclear right now where cap rates are going to settle out in this quarter with the run up in the treasuries.
Just one final question in a couple of weeks, there's going to be even a lender vote on the ballot Orange County.
The rent control ordinances does on it I'm just wondering.
How involved you are in the fight against the proposal and any other commentary you can have.
So Fortunately we have one only one asset in that in that county.
<unk> of landlords got together and did challenge.
That ballot initiative.
And the judge Thats their rules.
To allow us to go forward on the ballot, but also ruled.
That it's contrary to existing law and basically told the landlords that if it's if it's approved youll have your opportunity to put it in court because it is contrary to two existing law.
In that state so it remains to be seen.
I think you can look at this valid initiatives throughout time and it really is a sales initiative. So.
If it passes it will.
It'll be bought.
And again, Fortunately, we only have one asset so we're just watching it closely.
Yes.
I appreciate it thank you.
Sure.
Thank you for your question. Our next question comes from the line of Anthony Powell with Barclays. Anthony Your line is now open.
Hi, good morning. Thank.
I think you mentioned that the average income for new residents to $90000, which seems like the top quartile top quartile income so I'm curious where that hasnt been in the past and where do you think that metric can go in the future.
Yes, good question.
Is the statistic for all of the newly just for the new residents that have moved into our communities over the last 90 days that statistic has been generally rising slightly historically, maybe a year ago was 78000 I think was the number.
And before that maybe early part of 2020 was 72000.
So it's been steadily rising as I.
I guess wages have been rising as well.
Okay.
Great. Thanks, and maybe one more on supply I think you've talked about kind of a broader supply metric the demand metrics in your markets are there any markets, where you think supply could actually be a challenge or and also are there any markets, where you think supply risk overstated.
So again, our smaller markets Youre Huntsville, you Wilmington Myrtle Beach is.
Our having elevated supply and we are seeing that I think it's short lived I mean, I think by 2024.
It will be through that some larger markets that have some supply concerns or Nashville and in Houston.
But again the amount of people moving to those markets.
Should absorb that but they are elevated in those markets or larger markets are Atlanta, I guess they are Atlanta.
Okay.
Dallas and Denver are really only seeing 2% to 3% supply growth, which is which is pretty healthy.
Okay.
But thank you that's all I have.
Okay.
Thank you for your question. Our next question comes from the line of Linda Tsai with Jefferies. Linda Your line is now open.
Hi, Good morning, what's your sense of real estate taxes next year, I know increases our appeals and volatile, but any view of how we should think about this heading into 2023.
Yes.
We'll give formal guidance in February 2020, but some of the initial indications is that real estate tax growth for next year is going to be in that kind of mid single digit range again, 456%.
There was some talk earlier this year, where we're seeing some of the high.
Reassessment is coming from the tax assessors that given the movement in the market that you could actually see maybe.
Okay.
Negative tax growth next year, I don't think thats likely, but we're thinking it's kind of in that mid single digits right now.
Got it and then in terms of the 2500 to 3000 communities you're renovating in 2023, what's the process of getting a renovation team in place.
Well, we have them in place that's the beauty in and these are markets like Atlanta.
That Tampa that we have teams build out in place. So it's just a matter of.
Growing those teams slightly to absorb the additional properties that were added to the to the value add portfolio.
Got it thanks.
Thank you for your question. Our final question comes from Nathan <unk> with Baird. Your line is now open.
Hey, good morning, everyone. Thanks for taking my question.
Okay.
We're always looking to balance the occupancy with the rent growth and we have.
Our revenue management system and team in place.
That is constantly looking at.
<unk> units in the market.
<unk> is competitive pricing and our pricing and just making sure that we balance the two while still capturing.
The rent growth that's available.
<unk>.
As we look back into the third quarter.
We we kind of saw the volatility and we saw the tail off coming in the fourth quarter, and we pushed rents a little bit harder through the end of the third quarter in order to capture.
As much as we could and to build that earn in in 2023, and it put a little bit of pressure on occupancy, but as we've indicated we were able to quickly rectify that and.
We're now again at a.
A very stabilized 95%.
Occupancy in the non value add communities and Thats. Our goal is to stay in that 95% to 96% range, while capturing as much revenue growth as the market will allow.
That's all for me thank you.
Thank you.
Okay. Thank you for your question. This concludes our Q&A session and I will now pass back to our management team for closing remarks. Thank you.
I want you all to have a.
Good rest of the week, Jim wants me to say <unk>, because obviously, we're here in Philadelphia and we're very excited about our baseball team.
But again, thanks for joining us and we'll talk to you again next quarter.
Okay.
This concludes today's conference call. Thank you for your participation you may now disconnect your lines.