Independence Realty Trust, Inc. (IRT) Q4 2022 Earnings Call Transcript

Independence Realty Trust, Inc. (NYSE:IRT) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

Lauren Torres - IR, Edelman Smithfield

Scott Schaeffer - Chairman and CEO

Mike Daley - EVP of Operations and People

Farrell Ender - President

Jim Sebra - CFO

Conference Call Participants

Austin Wurschmidt - KeyBanc Capital Markets

Brad Heffern - RBC Capital Markets

John Kim - BMO Capital Markets

Nick Joseph - Citi

Anthony Powell - Barclays

Linda Tsai - Jefferies

Operator

Thank you for opinionated by. And invited to nan Independence Realty Trust Inc. Q4 Earnings Conference Call. My sanction is Sam, and I will beryllium your moderator for today's call. All lines will beryllium muted during nan position information of nan telephone was an opportunity for questions-and-answers astatine nan end. [Operator Instructions].

I'll now move nan telephone complete to Lauren Torres. Lauren, please spell ahead.

Lauren Torres

Thank you and bully morning, everyone. Thank you for joining america to reappraisal Independence Realty Trust 4th fourth and afloat twelvemonth 2022 financial results. On nan telephone pinch maine today, are Scott Schaeffer, Chief Executive Officer; Mike Daley, EVP of Operations and People; Farrell Ender, President of IRT and Jim Sebra, Chief Financial Officer. Today's telephone is being webcast connected our website astatine irtliving.com. There will beryllium a replay of nan telephone disposable via webcast connected our Investor Relations website, and telephonically opening astatine astir 12 p.m. Eastern Time today.

Before I move nan telephone complete to Scott, I'd for illustration to punctual everyone that location whitethorn beryllium forward-looking connection made connected this call. These forward-looking connection bespeak IRT's existent views pinch respect to early events, financial capacity and nan merger pinch Steadfast Apartment REIT, which will beryllium referenced herein astatine STAR. Actual results could disagree substantially and materially from what IRT has projected.

Such statements are made successful bully religion pursuant to nan safe harbor provisions of nan Private Securities Litigation Reform Act of 1995. Please mention to IRT's property release, supplemental accusation and filings pinch nan SEC for factors that could impact nan accuracy of our expectations aliases origin our early results to differ materially from those expectations.

Participants whitethorn talk non-GAAP financial measures during this call. A transcript of IRT net property merchandise and supplemental accusation containing financial information, different statistical accusation and a reconciliation of non-GAAP financial measures to nan astir nonstop comparable GAAP financial measurement is attached to IRT's existent study connected nan shape 8-L disposable astatine IRT's website nether Investor Relations. IRT different SEC filings are besides disposable done this link. IRT does not undertake to update forward-looking connection connected this call, aliases pinch respect to matters described herein isolated from arsenic whitethorn beryllium required by law.

With that, it's my pleasance to move nan telephone complete to Scott Schaeffer.

Scott Schaeffer

Thank you, Lauren. And convey you each for joining america this morning. 2022 was a beardown twelvemonth for IRT, arsenic we integrated nan STAR portfolio and exceeded our first synergies and afloat twelvemonth operating guidance during a challenging macroeconomic environment. Our expertise to present astir 30% halfway FFO per stock maturation successful 2022 was nan consequence of nan strategical positioning of our expanded portfolio concentrated successful non-gateway markets wrong nan Sunbelt region, wherever we proceed to use from affirmative proviso and request dynamics. Our squad delivered different twelvemonth of robust performance, which was reflected successful our 4th fourth and afloat twelvemonth results.

Specifically, our mean rental complaint accrued 12% successful 2022, supporting a double digit summation successful revenue. Our aforesaid shop NOI accrued 13% successful nan 4th fourth and 13.7% for nan afloat twelvemonth compared to past year. And we proceed to efficaciously trim our leverage from 7.7 times EBITDA a twelvemonth ago, to 6.9 times astatine twelvemonth extremity 2022 up of our low-70s guided target.

We besides made meaningful advancement connected our value-added program, arsenic we renovated 656 units successful nan 4th fourth and 1,451 units for nan afloat year, while achieving an yearly return connected finance of much than 24%. This positions america good to present nan 2,500 to 3,000 units that we've antecedently guided successful and 2023. We stay assured astir nan imaginable of value-add programme and proceed to measure nan economical scenery arsenic we find nan gait and scope of renovations of properties successful selected markets.

While coming up a beardown year, we admit location is much activity to beryllium done to thrust sustainable occupancy gains crossed nan full portfolio, and tin guarantee you that this is simply a apical privilege for america successful 2023. We are focused connected moving pinch our location leaders and frontline leasing teams to amended each aspects of our leasing and income process. As we mentioned previously, our target occupancy is 95% for non-value-add communities, and we will proceed to thrust rent maturation wherever appropriate.

Looking ahead, we are factoring successful a mild recession which we expect to beryllium much pronounced successful nan 2nd half of this year. Despite these uncertain conditions being good positioned. We're successful each points of marketplace cycles to our portfolio footprint crossed cardinal Sunbelt markets that proceed to spot important migration and occupation growth. And we expect to build upon our coagulated instauration and continues to present outsized maturation rates, arsenic shown successful our 2023 guidance, which includes a 6.5% NOI maturation astatine nan midpoint of our move range. This is connected apical of NOI maturation of 11.4% successful 2021, and 13.7% successful 2022. Our 2023 guidance besides includes 5.6% halfway FFO for shared maturation astatine nan midpoint.

We are disconnected to a bully commencement this year. And we stay very excited astir nan maturation opportunities for IRT and optimistic astir our early arsenic existent property fundamentals stay beardown successful our resilient maturation markets.

I'd now for illustration to present you to Mike Daley, our EVP of Operations and People. Mike is simply a halfway personnel of nan IRT squad overseeing each aspects of our day-to-day operations. Mike has been pinch IRT since 2019, and successfully guided america done nan pandemic consistently beardown operational performance. He is simply a seasoned executive, and returned to lead nan operations successful December 2022.

With that introduction, I'd for illustration to manus nan telephone complete to Mike.

Mike Daley

Thanks, Scott. I'm happy to subordinate today's telephone for nan first clip and stock successful greater detail, why we are excited astir our portfolio and its expertise to supply unchangeable maturation done different economical cycles. Our beardown 4th fourth and twelvemonth extremity results were driven by double digit rent growth, pinch markets for illustration Tampa, Myrtle Beach, Memphis, Atlanta, and Raleigh Durham, achieving mid to high-teens mean rent increases for nan afloat year.

We proceed to spot beardown migration trends into our confederate markets. This was precocious confirmed by nan U.S. Census Bureau, which reported that Florida, Texas, North and South Carolina, Tennessee and Georgia were nan states pinch highest nett home migration gains successful 2022. The six states correspond complete 60% of IRT's NOI and are not only good situated successful nan charismatic Sunbelt region, but besides person knowledgeable a robust occupation marketplace betterment aft nan pandemic averaging 5% occupation maturation since March 2020.

As Scott mentioned, we are laser focused connected driving improved occupancy successful nan 4th fourth mean occupancy astatine our full aforesaid shop portfolio was 93.8%, down 40 ground points from Q3 2022, driven successful portion by seasonality. As we've antecedently indicated, nan commencement of renovations successful our value-add communities wrong our aforesaid shop portfolio besides impacts occupancy, arsenic each portion comes offline for astir 30 days. We started renovations connected 10 communities during nan 2nd half of 2022 done today.

We besides admit that nan mean occupancy of our taxable shop non-value-add communities during nan 4th fourth was 94.6% beneath our antecedently stated target of 95%. Improving our leasing and income process is simply a privilege for nan full opportunity. And we are assured our occupancy will summation our targeted levels during leasing season.

We are pleased to statement that we are seeing affirmative momentum arsenic we statesman 2023. On a blended basis, we person achieved 4.8% lease-over-lease rental rent maturation done February 13, pinch a 4.6% summation successful caller leases and a 4.9% summation successful renewals for our mixed aforesaid shop portfolio. We person a 4.9% gain successful that will lend to 2023 gross maturation and our nonaccomplishment to lease crossed nan portfolio is 6%.

I'd now for illustration to move nan telephone to Farrell, to supply you pinch an update connected our finance opportunities.

Farrell Ender

Thanks, Mike. Starting pinch our value-add program. We completed renovations connected 656 units successful nan 4th quarter, and arsenic a consequence of nan 4 properties from our ongoing renewal database to complete nether nan program.

For nan afloat twelvemonth we completed renovations connected 1,451 units, achieving a return connected finance of 24.1%. This was done pinch an mean costs per renovated portion of $13,659 and an mean rent summation of $270 complete unrenovated costs. As Scott mentioned, we expect to renovate betwixt 2,500 to 3,000 units successful 2023. Currently, we person 18 properties successful 10 markets included successful our ongoing value-add program. Over nan people of 2023 we scheme to adhd different 9 properties comprising 2,654 units, and expect to execute an mean ROI connected interior costs of 22% astatine these caller projects.

In relationship pinch our ongoing superior recycling program, we sold 2 antecedently held-for-sale properties successful nan 4th quarter. Meadows Apartments successful Louisville, Kentucky, and Sycamore Terrace successful Terre Haute, Indiana. The aggregate waste value was $99 cardinal and we admit nan $17 cardinal nett summation connected waste from these 2 communities. The blended economical headdress complaint connected these dispositions was 4.5%.

We besides moved 1 spot to held-for-sale status, a 277 portion organization successful Indianapolis. The spot was built successful 1976 and requires a precocious level of yearly CapEx walk comparative to our different communities located successful nan aforesaid market. We expect nan waste of this spot to adjacent astatine nan extremity of this period pinch proceeds from a disposition to beryllium utilized to trim debt. Due diligence is complete, nan buyers deposit is difficult and they complaint locked connected nan indebtedness they're utilizing to finance nan purchase. The economical headdress complaint connected this disposition is 4.8%.

Regarding caller supply, deliveries are expected to summation successful 2023, but declined successful nan years following. CoSTAR [ph] has projected caller deliveries successful our sub markets based connected our weighted mean vulnerability astatine 2.8% of nan existing inventory, dropping to 2.4% successful 2024, and perchance declining further arsenic galore projects not triple already person been put connected clasp owed to respective factors included elevated costs of building and accrued liking rates.

While prime submarkets successful Atlanta, Dallas, Tampa and Nashville will person elevated caller deliveries successful 2023, we expect that this will person constricted effect and are chiefly Class B communities, pinch monthly rents substantially little than comparable caller construction. Longer term, proviso request imbalance expected to proceed successful our markets, pinch building will not meet nan wide lodging needs.

Lastly, I would for illustration to stock pinch you 1 of our larger superior projects for 2023. In anticipation of nan continued maturation of electrical vehicles complete nan people adjacent decade, we're committed $2 cardinal connected our first shape of our EV charging position program. The first measurement of installing 192 charging stations astatine 32 communities will beryllium utilized to amended understand resident request and usage of this amenity. We judge that these charging stations will beryllium good received and expect to proceed rollout successful nan pursuing years passim nan portfolio.

I'd now for illustration to move nan telephone complete to Jim.

Jim Sebra

Thanks, Farrell. Good morning, everyone. Beginning pinch our 2022 capacity update, for nan 4th fourth of 2022, nett income disposable to communal shareholders was $33.6 million, up from $28.6 cardinal successful nan 4th fourth of 2021. For afloat twelvemonth 2022, nett income disposable to communal shareholders was $117.2 million, up from $44.6 cardinal successful nan afloat twelvemonth 2021.

During nan 4th fourth halfway FFO much than doubled to $66.8 cardinal from $31 cardinal a twelvemonth agone and halfway FFO per stock grew 20.8% to $0.29 per share. For nan afloat year, halfway FFO grew to $247.4 cardinal from $92 cardinal and halfway FFO per stock grew 20.6% to $1.80 per stock connected a year-over-year basis. This maturation reflects nan net accretion associated pinch our merger pinch STAR arsenic good arsenic nan sizable integrated rent and NOI maturation knowledgeable passim nan mixed portfolio during 2022.

IRT same-store NOI maturation successful nan 4th fourth was 13%, driven by a gross maturation of 9.8%. This maturation was led by a 12.2% summation successful our mean rental rates. For nan afloat year, IRT aforesaid shop NOI maturation accrued 13.7% supported by gross maturation of 10.7%, pinch rental rates expanding by 12%.

On nan spot operating disbursal side, IRT same-store operating expenses accrued 4.6% successful nan 4th quarter, led by higher existent property taxes and inferior expenses, while repairs and attraction costs and advertizing expenses declined compared to a twelvemonth ago. For nan afloat year, IRT same-store operating expenses grew 5.9%, mostly reflecting increases successful spot insurance, existent property taxes and statement services. While ostentation continues to thrust higher costs for products and services, we are continuing to rotation retired efficiencies utilizing exertion and procurement efforts to thief trim nan ostentation burden.

Turning to our equilibrium sheet. As of December 31, our liquidity position was $350 million. We had astir $16 cardinal of unrestricted rate and $334 cardinal successful further capacity for our unsecured in installments facility. Regarding nan ongoing taxable of leverage, we are excited to denote that we proceed to make important advancement since past year, we ended 2022 astatine 6.9 times nett debt-to-EBITDA down from 7.7 times a twelvemonth agone and came successful up of our year-end target of low-7s.

As Farrell mentioned earlier, nan proceeds for upcoming spot waste successful Indianapolis will beryllium utilized to repay outstanding indebtedness and puts america connected bully footing to execute our leverage target of mid-6s, our year-end 2023. While we do expect immoderate macroeconomic uncertainty successful nan coming months, I wanted to reiterate that we person nary indebtedness maturities successful 2023 and only $70 cardinal of maturities successful 2024. We person and will proceed to support capable liquidity to reside these maturities utilizing our unsecured in installments facility.

We besides person capable hedges that person efficaciously converted floating complaint indebtedness to fixed complaint that specified that a floating complaint indebtedness vulnerability arsenic of year-end is only 10% of our outstanding debt.

With respect to our outlook for 2023, our EPS guidance is successful nan scope of $0.23 to $0.27 per diluted share. And for halfway FFO successful he scope of $1.12 to $1.16 per share. For 2023, astatine nan midpoint of our guidance, we expect NOI and our same-store portfolio to summation 6.5%. This guidance reflects same-store gross maturation of 6.4%, which is comprised of an mean occupancy of 94.5% and earning of 4.9%, a blended rental complaint summation of 3% for each leases signed successful 2023, and a bad indebtedness disbursal of 1.5% of revenue.

Moving connected to expenses, our projected maturation successful same-store operating expenses of 6.1% astatine nan midpoint is simply a consequence of our anticipation that non-controllable expenses for existent property taxes and security will summation 8.6%. And our controllable operating expenses will summation 4.4%. This is chiefly nan consequence of inflationary increases and we will proceed to instrumentality various strategies including automation and centralization to amended our efficiencies passim 2023.

As it relates to our wide administrative and spot guidance expenses, we are guiding to $52.5 cardinal astatine nan midpoint, aliases an summation of 4.3%. For liking expense, we are guiding to a midpoint of $105.5 cardinal excluding nan effects of amortization of a indebtedness premium accommodation related to our STAR merger that we adhd backmost for [indiscernible] purposes. This is an summation of 7% complete 2022 and is wholly driven by nan expected summation successful floating rates during 2023.

For example, nan existent 2023 output curve for SOFR is an mean of 4.9% arsenic compared to 1.5% for 2022. Remember 90% of our indebtedness is either fixed aliases hedged thereby mitigating nan effects of this increase. Regarding our transaction and finance expectations, we are presently not assuming immoderate acquisition volume, but are providing guidance for disposition measurement of $35 cardinal to $40 million, reflecting nan plus held for waste successful Indianapolis, which we expect to adjacent later this month.

And lastly, regarding CapEx, we expect $20 cardinal successful recurring attraction CapEx $80 cardinal successful worth adhd and non-return expend and $85 cardinal successful improvement CapEx successful 2023 each astatine nan midpoint of our guided ranges. These incremental improvement and value-added CapEx will beryllium funded chiefly done our excess rate travel of $133 cardinal generated during 2023 which is aft paying our existent dividend of $0.14 per quarter.

Now, I'll move nan telephone backmost to Scott, Scott?

Scott Schaeffer

Thank you, Jim. As we move up successful 2023, we stay good positioned for continued maturation arsenic we execute our strategy and put successful our portfolio. Our assurance stems from IRT's expertise to build a starring beingness and charismatic markets pinch coagulated renter request fundamentals, which has been capable to withstand nan backdrop of macroeconomic uncertainty. We are afloat committed to enhancing shareholder worth and regularly returning superior to our shareholders.

We look guardant to different twelvemonth achieving our targets and strengthening our beingness successful nan multifamily sector. Thank you for joining america coming and look guardant to speaking pinch you again.

Operator, you tin now unfastened a telephone for questions.

Question-and-Answer Session

Operator

Absolutely, we will now statesman nan Q&A session. [Operator Instructions] Our first mobility coming comes from nan statement of Austin Wurschmidt pinch KeyBanc. Austin, your statement is now open.

Austin Wurschmidt

Thanks and bully morning, everybody. Scott and Mike, admit each your comments astir nan attraction connected ramping and stabilizing occupancy. But I'm curious, do you consciousness for illustration you person nan correct unit successful spot connected nan operations team? Have location been immoderate different caller changes to nan squad that are worthy highlighting? And do you consciousness that nan squad really has benignant of a grip connected quickly reacting to changing marketplace conditions successful bid to support occupancy wrong a tighter set moving guardant particularly, wrong that non-value-add pool?

Scott Schaeffer

Thanks, Austin. Good, bully question. This is Scott, arsenic you know. I deliberation nan champion measurement to reply your mobility is to commencement pinch a small spot of really we sewage to wherever we are. So, arsenic I've said, successful nan past, I wasn't happy pinch our occupancy trends successful nan 4th quarter. We pushed rents a small excessively hard, which had a antagonistic effect connected our resident retention, and our expertise to motion caller leases.

The marketplace was changing, and frankly, we were -- our squad was slow to adapt. On nan bully broadside of this is we had 1 of nan highest increases successful lease rates of each nan multifamily REITs. But, I've ever stressed nan value of balancing rent increases pinch occupancy, truthful that we tin present nan highest imaginable revenue. And frankly, we sewage distant from that formula. And this happened astatine nan aforesaid clip that we were expanding nan number of properties going done nan value-add program, which we said successful nan successful nan telephone previously, has that adding properties to nan value-add programme has a important antagonistic effect connected our occupancy.

The 656 units that we completed successful nan 4th fourth reduced wide occupancy from 50 to 60 ground points. So it really does person an effect. So we decided to make immoderate changes successful our operations squad successful nan 4th quarter, including adding further elder leaders pinch support pinch proven way records and multifamily operations. We conscionable brought connected Janice Richards, who heads our operating platform, 16 years of acquisition pinch Camden, and we really look guardant to her being and having her sound successful complaint of operations.

We made nan changes, I wanted to make these changes during nan slowest play and leasing, nan 4th fourth starring into nan first 4th of 2023. And also, truthful that we were prepared arsenic we headed into an uncertain 2023. And arsenic you tin see, from our 2023 guidance, we're assured that we've made -- we're competent successful these changes. Our guidance is I think, beautiful strong.

To database retired immoderate of nan changes that we've made, we've improved nan travel of accusation from nan communities, connected our pricing -- to our pricing squad comparative to marketplace rents, truthful that we will not beryllium down nan curve going guardant arsenic nan marketplace changes. We've opened a 24/7 telephone halfway to make judge we're capturing each nan telephone leasing leads. That's caller to us, we had started that process, correct earlier nan STAR merger, and past it was put connected clasp because we were focused connected nan integration.

We've expanded our income training, we've brought connected typical income coaches. The leasing professionals astatine nan properties is wherever we person nan highest turnover. And I deliberation that's aforesaid for each multifamily REITs. So you perpetually person to proceed to train them. And now we're making judge and we thought we were making judge earlier but now we are making judge that they are coached, and they are appropriately fresh to do nan leasing.

And we're improving our exertion to streamline really our teams activity our leads, truthful that we tin maximize nan lead to lease person conversion ratio. This is simply a attraction for us. We will person occupancy backmost up to that 95% level successful non-value adhd communities. And, we want to get we wanted to make judge I wanted to make judge that we had each of these changes done again during nan slowest leasing clip were period, and past again, arsenic we caput into a leasing play present successful 2023.

So I dream that answers your mobility you.

Austin Wurschmidt

Yeah. No, I appreciate, you know, each nan item that you provided there, I guess, tin you stock really you were interacting aliases overriding benignant of nan gross guidance strategy previously. And, really overmuch I conjecture nan effect of nan frictional vacancy redevelopment you highlighted? But possibly really that's impacting successful a pricing to immoderate extent?

Scott Schaeffer

Well, I'm not judge nan overriding was right, location is nan correct description. The pricing team, I judge was not getting existent clip marketplace information. And nan marketplace changed dramatically past year. I mean, if you deliberation astir it, each of each of nan REITs were getting 12-15 moreover up to 20% aliases much rent increases, and it changed successful nan 3rd 4th going into nan 4th quarter. And our squad was a small spot slow to react. And we nonstop retired our reappraisal letters 90 days successful beforehand to our tenants arsenic leases are expiring.

So that's slow to react, has a guardant effect arsenic well. Because present successful January we're renewing leases aliases January expirations received letters backmost successful October-November connected lease renewals were -- we frankly were pricing supra nan market. So group left. And that had a antagonistic effect connected occupancy.

We saw it. I made nan changes. And going forward, we're successful a overmuch amended position.

Austin Wurschmidt

Just past 1 for me. I'm conscionable funny if you alluded to getting backmost to that 95% positive percent level. Maybe Jim, tin you supply a small spot of further item connected your occupancy presumption and benignant of nan milestones aliases cadence done nan twelvemonth really we should expect that to ramp?

Jim Sebra

Yeah, nan occupancy, nan mean occupancy presumption successful guidance astatine nan midpoint is 94.5%. That's expected to benignant of ramp up akin to for illustration immoderate of nan seasonal benignant of gains that we saw past twelvemonth done nan summertime months, and past benignant of tail disconnected successful nan backmost half of nan twelvemonth backmost to that seasonal benignant of norm. Like we saw pre-COVID successful October-November, November-December, but nan mean for nan twelvemonth is 94.5.

Austin Wurschmidt

Okay, thanks, everybody.

Operator

Thank you. The adjacent mobility comes from nan statement of Brad Heffern pinch RBC. Brad.

Brad Heffern

Yeah, convey you. So connected nan caller 6% nonaccomplishment to lease quote, I deliberation that's down a decent magnitude from nan past quarter. Can you talk astir what contributed to that change? And what gives you assurance successful nan caller number against this backdrop of declining occupancy?

Jim Sebra

Yeah. Great question, Brad. This is Jim. Our nonaccomplishment to lease is based disconnected of a comparison of our asking rents astatine our communities versus our mean successful spot rents fundamentally suggesting if we were to merchandise based connected our asking rents, really overmuch rent would benignant of turn by? There's a small spot of seasonality to rental rates successful nan 4th fourth that causes a flimsy decline. But astatine nan aforesaid time, arsenic Scott mentioned, we began to effort to thrust retired occupancy successful nan 4th fourth and surely early portion of this year, specified that nan estimates came down a small spot to effort to do so.

Brad Heffern

Okay, sewage it. And past connected nan gross maturation guide, is location an underlying presumption for marketplace rent maturation successful that? I deliberation nan 3% blend conscionable seems for illustration it's half of nan existent nonaccomplishment to lease. I'm not judge if there's thing that's being added connected apical of that.

Jim Sebra

There is simply a small spot of presumption connected marketplace rent growth. We talked astir marketplace rent maturation successful that benignant of nan low-single digits, 1% to 3% successful position of nan guide. So, our past astatine slightest typically, we've ever said takes america to benignant of 12-18 months to seizure it. But location is simply a small spot of a marketplace rent maturation assumption. But again, we're being -- we're looking astatine 2023 ever pinch a comparatively blimpish eye.

Brad Heffern

Okay, convey you.

Operator

Thank you. The adjacent mobility comes from nan statement of John Kim pinch BMO. John?

John Kim

Hey, convey you. I conscionable wanted to travel up connected that question, I didn't really rather get that. So your blended lease maturation presumption for nan twelvemonth is 3%. Your past lease is 6. You're expecting marketplace rental maturation this year, and connected apical of that your value-add programs stepping up. So I'm wondering really you get to that 3% lease maturation complaint assumption?

Jim Sebra

Yeah. I deliberation nan 3% these maturation shape is conscionable again, a blimpish estimate astir benignant of what nan leasing cadence will beryllium to proceed to thrust that occupancy. The worth adhd is surely supporting. A batch of nan worth adhd picks up successful nan summertime months erstwhile nan lease expirations are nan highest. But I deliberation ultimately, it conscionable comes down to a level of conservatism astir what will hap successful nan mediate mid-summer pinch respect to immoderate benignant of macroeconomic uncertainty.

John Kim

Okay. The nonaccomplishment successful occupancy you had this 4th suggests that your customers are possibly a small spot much value sensitive. But you are getting nan 20% uplift positive connected rents connected nan worth add. And I'm conscionable wondering pinch this occupancy nonaccomplishment and nan uplift you're getting, really do we construe this? Is it conscionable that you're getting a different demographic connected nan value-dd customers? Or is it taking longer to complete nan renovations? I'm conscionable wondering really we wed these 2 characteristics of your company

Jim Sebra

It's a different demographic. Our value-add programme improves our spot truthful that we compete straight pinch newer Class A building but astatine a value that's still beneath that Class A caller rent. So you cognize nan premiums that we're receiving is because we're fundamentally changing nan resident profile, and it's a resident who's consenting to salary a higher rent for a amended product. And they're choosing nan value-add communities, our value-add organization complete a newer construction, because our rent moreover pinch these premiums and pinch these returns is $300 to $400 beneath what a comparable caller properties rent would be. So that's what's driving that value-add premium.

John Kim

Okay. I deliberation you said past 4th that you were going to mean nan value-add this year, and it looks for illustration you're doubling it. Just wanted to understand that.

Jim Sebra

No. The moderation is because we had primitively targeted 4,000 units for 2023. And now we're we're targeting 2,500 to 3,000.

John Kim

Okay, convey you.

Jim Sebra

Thank you.

Operator

The adjacent mobility comes from nan statement of Nick Joseph pinch Citi. Nick?

Nick Joseph

Thanks, possibly conscionable connected that marketplace rent growth. Understand nan macroeconomic uncertainty, but really overmuch of a scope are variants is location betwixt markets that are expected? And if you tin talk, I cognize you touched connected proviso that benignant of apical and bottommost performing expectations for markets?

Jim Sebra

Yeah, I mean, I deliberation there's immoderate markets that are expected to person bully rent maturation from a marketplace standpoint. I deliberation astir apt nan apical extremity of nan scope is 3%-4%. And nan bottommost extremity is 1%-ish. I mean, I deliberation it's reasonably tight erstwhile you look astatine immoderate of nan position that existent page and others person put retired successful position of immoderate information sources.

Nick Joseph

Thanks. And which are those are 3 and 4 versus 1.

Jim Sebra

So I deliberation nan wide position is, if you look astatine immoderate of nan markets for illustration Tampa, we'll proceed to spot beardown marketplace rent growth. But again, I deliberation there's a batch of nan information sources suggest, truthful proceed to benignant of beryllium comparatively blimpish erstwhile it comes to macroeconomic uncertainties.

Nick Joseph

Thanks. So past conscionable commencement successful nan asset, wherever is it successful nan income process? And past if you tin talk astir thing from a pricing aliases request side, what you've knowledgeable pinch that connected nan market.

Jim Sebra

So, spot we person nether statement will adjacent successful nan adjacent mates of weeks. Through contingency, they person a difficult deposit and their financing lined up. So very assured that it will close. '

In regards to wide transaction measurement is down considerably. I deliberation there's still a important disconnect betwixt nan bid ask. We are seeing immoderate transactions hap for circumstantial reasons, whether it beryllium 1031s aliases indebtedness maturities, their pricing, successful nan high-4s, low-5 headdress range, but there's still a batch of people, including ourselves waiting to conscionable spot wherever nan marketplace settles in. A batch of this is owed to treasuries and indebtedness costs, and group don't cognize wherever they are. So we request immoderate stableness successful liking rates earlier it becomes much transactions.

Nick Joseph

Thank you very much.

Operator

Next mobility is from Anthony Powell pinch Barclays. Anthony?

Anthony Powell

Hi, bully morning. Just a mobility connected I guess, occupancy and turnover move out. When group are moving retired of your building owed to precocious rent, wherever are they going to different fancy apartments Class A? How's nan benignant of nan competitory scenery changing for you?

Mike Daley

Well, obviously, this is this is Mike. We're limited connected nan feedback from nan exiting resident to show america why they're leaving and wherever they're going. So, I deliberation we are seeing group going to a different people of community, because of nan conscionable affordability of those comparative to what they're presently paying.

We person benignant of a normal -- excuse me, a normal level of relocations. There's, there's immoderate moderation and group buying a caller house, which evidently is reflecting owe rates. But by and large, it is an affordability issue. We spot immoderate folks moving successful pinch a roommate business immoderate folks our younger demographic moving backmost home. But really, it's a operation of reasons that group are leaving, but a communal taxable is affordability and looking for personification pinch someplace to unrecorded pinch a little full cost.

We person astir a 22% aliases truthful benignant of rent to income ratio, which is affordable comparative to astir of nan options that group have. But we do spot that pressure. So, I deliberation that that is astir apt not nan only logic but decidedly influences nan reasons that group are leaving.

Jim Sebra

I would adhd however, though, that ratio has aliases those reasons person not changed dramatically from anterior years. So moving retired to bargain a location is still nan number 1 reason, moving towards nan occupation relocation is still nan number 2 reason. And nan 3rd logic is to move to a single-family rental.

Pricing has ever been an rumor successful Class B apartments and will ever proceed to be.

Anthony Powell

Okay. And past I conjecture connected nan different side, you talked a batch astir benignant of nan people A nan Class B benignant of migration and benignant of tougher economical times complete nan years. Is that thing that we expect to commencement being a tailwind this twelvemonth successful a macroenvironment? Or are those Class A flat starting to beryllium much value accommodating truthful that whitethorn not beryllium arsenic large of a tailwind arsenic it whitethorn person been successful nan past?

Jim Sebra

No, I deliberation it is. It is going to beryllium a tailwind. It is going to beryllium a use for us. I deliberation you will spot that. If you look astatine nan multifamily peers pinch a larger portfolio of Class A assets, you'll spot that they're still continuing to summation nan rents. So I don't deliberation that nan Class A assets are successful a rent simplification mode. So we do expect to spot further request from group moving from Class A down specifically into our value-add communities, because they're getting a again, I judge they're getting a Class A merchandise astatine a a B positive A minus rent.

Anthony Powell

Got it. Maybe speedy connected a guidance. I deliberation he talked astir a mild recession being benignant of nan guidelines case. Is that for some nan precocious and debased extremity and guidance? And let's opportunity we person a soft landing, what's nan imaginable upside to rent and occupancy that you see?

Jim Sebra

Yeah, I would opportunity it's a guidelines lawsuit successful some scenarios. I deliberation if location is immoderate type of soft landing, I deliberation that nan eventual benignant of mobility will beryllium conscionable really to benignant of really overmuch nan marketplace rents statesman to re accelerate. And nan effect that has I mean, I deliberation that will besides proceed to thrust occupancy up a small bit. I don't deliberation a soft landing enigma thrust changes nan expenses to excessively overmuch unless possibly for illustration security expenses travel down a small bit. But that's much non-macroeconomic type drivers successful nan security category.

Anthony Powell

Right, convey you.

Operator

Thank you. Next mobility is from [Indiscernible] pinch Baird. Mason?

Unidentified Analyst

Hey, bully morning, everyone. Thanks for taking my question. Just 1 for me. We noticed that nan 4th fourth dispositions came successful astatine $99 million. But you mentioned expecting $103 cardinal for these dispositions aft nan 3rd quarter. Just wondering if this 99 was nan nett number aliases if nan purchaser retreated astatine a little value for these assets.

Jim Sebra

Yeah, nan marketplace changed liking rates went up and they came backmost astatine a value reduction. We really went done a mates iterations pinch different buyers and we wished that it was still a bully clip to waste nan asset.

Jim Sebra

That was nan sycamore terrace plus successful Terre Haute. And we made nan determination since it was a 1 disconnected plus for america successful a marketplace wherever we had nary liking successful increasing that we would proceed and dispose of nan plus moreover though we did get retreated. I will show you I don't for illustration being retreated. But I didn't for illustration this plus either. So it was a determination to move guardant and conscionable beryllium done pinch it.

Unidentified Analyst

Thanks for that. That's each for me.

Jim Sebra

Thank you.

Operator

Thank you. Our adjacent mobility is from nan statement of Linda Tsai pinch Jefferies. Linda? Linda, please guarantee you're not connected mute.

Linda Tsai

Sorry astir that. Thanks for taking my question. Just 1 speedy 1 for me. What would your anticipation beryllium for retention ratio by year-end?

Jim Sebra

I mean, we've ever targeted our retention ratio to beryllium successful that 50 to -- 50% to 55% range. So I deliberation a target of telephone it 53-ish would beryllium benignant of our anticipation for nan twelvemonth solely based connected nan guidance.

Linda Tsai

Got it. Thank you.

Operator

Thank you. We person nary further questions waiting astatine this time. [Operator Instructions] Seeing none, I'd for illustration to manus nan telephone backmost complete to nan guidance squad for immoderate closing remarks.

Scott Schaeffer

Thanks everyone, and we look guardant to speaking pinch you again adjacent year.

Operator

That concludes nan Independence Realty Trust Inc. Q4 net convention call. Thank you each for your participation. You whitethorn now disconnect your lines.