Independence Realty Trust Inc

NYSE:IRT

Earnings Call Analysis

Firm Adjusts 2023 Guidance, Initiates Deleveraging

In a challenging macroeconomic environment, the company saw operating expenses increase by 6.3% in Q3, driven by inflation-related costs. To optimize the portfolio and reduce debt, it plans to sell 10 properties, aiming for proceeds of $521-$533 million and using the expected $232-$244 million in net proceeds to repay certain debts. This move is projected to result in a $0.02-$0.03 dilution to core FFO per share but should be breakeven regarding free cash flow. For full-year 2023, they lowered EPS guidance from $0.25-$0.27 to a loss of $0.07-$0.02 and reduced the revenue guidance growth rate from 6.35% to 5.6%. The company's strategy includes a focus on removing floating rate risk, reducing debt maturities, and targeting an investment-grade rating.

Strategic Portfolio Optimization and Deleveraging

The company is actively reducing its footprint in non-core markets, enhancing its strategy for portfolio optimization and balance sheet deleveraging. Key steps include selling 10 properties in seven markets, aiming for proceeds between $521 million and $533 million. The sales will lead to deleveraging, as they expect to repay various high-cost mortgages, resulting in a significant reduction of nearly one full turn in net debt to adjusted EBITDA. While the strategy is set to dilute core FFO per share by $0.02 to $0.03 annually, it should be neutral to free cash flow after accounting for CapEx.

Forward-Looking Financial Implications

For the year 2023, the company anticipates the EPS to change from a previous guidance of $0.25-$0.27 to a loss of $0.07-$0.02, due to estimated impairment losses from the new strategy. Core FFO per share guidance will see a minute adjustment, by approximately half a cent. The same-store portfolio will be reduced from 115 to 106 properties, affecting same-store revenue guidance, expected to drop to 5.6% from 6.35%. However, the outlook for total operating expense growth is more favorable at 5.7%, a reduction from the prior 6.1% guidance.

Operational Performance and Efficiency

With an average occupancy goal of 94.4% and a mix of 90-basis point rental rate increase, the company targets a balance between revenue growth and occupancy rates. Bad debt is set around 2% of revenue, and they foresee an increase in controllable expenses due to inflation and higher unit turnover costs. Non-controllable expenses, such as real estate taxes and insurance, are now expected to rise by 4.5%, less than previously guided 7.8%, thanks to early 2023 real estate tax appeal wins. Consequently, the adjusted projection for property NOI growth is 5.5%, down from 6.5%.

Debt Management and Interest Expense

Consistent with the deleveraging strategy, the company plans to cut net debt-to-EBITDA to mid-5s by the end of 2025, with potential for an earlier achievement in 2024. They have revised down their guidance on general and administrative as well as property management expenses to $50.5 million from $51 million, and interest expense guidance to $101.5 million from $103 million. These reductions further reflect the company's commitment to cost control and debt management.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust Q3 2023 Conference Call.

Today's conference is being recorded.

[Operator Instructions]

At this time, I would like to turn the conference over to Lauren Torres. Please go ahead.

[Lauren Torres]

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's Third Quarter 2023 Financial Results.

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.

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

Before I turn the call over to Scott, I'd like to remind everyone that there may be forward-looking statements made on this call. These forward-looking statements reflect IRT's current views with respect to future events and financial performance.

Actual results could differ substantially and materially from what IRT has projected. Such statements are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to IRT's press release, supplemental information and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations. Participants may discuss non-GAAP financial measures during this call. A copy of IRT's earnings press release and supplemental information containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most direct comparable GAAP financial measure is attached to IRT's current report on the Form 8-K, available at IRT's website under Investor Relations.

IRT's other SEC filings are also available through this link. IRT does not undertake to update forward-looking statements on this call or with respect to matters described herein, except as may be required by law. With that, it's my pleasure to turn the call over to Scott Schaeffer.

[Scott Schaeffer, executive]

Thank you, Lauren, and thank you all for joining us this morning. On our last earnings call, we specifically noted 4 areas of focus at IRT, drive occupancy, deliver planned value-add improvements, further manage our cost structure and reduce our [indiscernible]. Since then, we have made progress on each of these fronts and have recognized ways to further optimize our portfolio, which will accelerate our deleveraging and better position IRT for the future. Let me take them one by one.

First, our same-store occupancy in the third quarter improved 40 basis points to 94.6% on both a year-over-year and sequential basis, reflecting our team's ability to continue to implement operational enhancements; second, we continue to invest in our communities, particularly through our value-add renovation program, where we renovated 709 units in the third quarter and 1,969 units in the first 9 months of 2023, achieving an un-levered return on investment of 16%; third, we continue to better manage our cost structure by reducing overhead costs by $2 million this year as compared to our original guidance issued in February. This is in addition to the $2.5 million in annual savings associated with the centralization of resident services and sales performance management teams. Looking into 2024, we are rolling out several new technology initiatives that will create further efficiencies; and fourth, we are now announcing a program to accelerate the sale of noncore properties and immediately delever more on this strategy in a minute.

While we remain encouraged by our strategic initiatives to support continued growth at IRT, we and other multifamily operators are facing an increasingly challenging environment. Specifically, we have seen a slower rate of occupancy gains than expected due to the softening economic environment, along with pricing pressure as new supply is offering aggressive concessions. These factors are affecting some of our markets such as Atlanta, Dallas and Nashville.

So as a result of these recent trends, we are adjusting our 2023 guidance. Jim will provide greater detail behind our guidance update later on this call. We firmly believe that our core markets are well positioned to continue to see strong absorption in multi-family units. Further, we will continue to benefit from our market diversification, in affordable, defensive middle-market communities that are more resilient, but not immune to current elevated supply pressure.

While we work to navigate the current environment, we must also think strategically to ensure that we are well positioned for the future. Accordingly, we are initiating our portfolio optimization and deleveraging strategy, which is focused over the near term on reducing our presence in noncore markets, while also significantly deleveraging our balance sheet. We are accelerating this plan due to the broad view that interest rates will remain higher for longer, which will continue to impact property values.

Our plan is to sell 10 noncore properties with the proceeds used to immediately reduce debt. The plan reduces near-term maturities and better positions IRT for an investment-grade rating. Before handing the call over to Mike, I'd like to stress our continued confidence in our core markets where demand fundamentals remain favorable and supply pressure should begin to abate over the next 6 to 12 months. We expect to continue to benefit from positive migration, demographic and employment trends. This is a core strength to the IRT portfolio and will position us favorably going forward. I'd now like to turn the call over to Mike.

[Mike Daley, executive]

Thanks, Scott. As Scott mentioned and has been noted by other companies and multifamily economists, we are operating in a challenging environment with the impact of new supply and the impact of inflation on consumers. These factors have led to more options for renters in the near term and higher sensitivity to price than we've seen in recent years. This has created headwinds for us and for the industry. Despite these challenges in the third quarter, we delivered a same-store average occupancy rate of 94.6%, a 40 basis point increase on a quarter-over-quarter and year-over-year basis and a 150 basis point increase from Q1 of this year.

As of today, our same-store occupancy is 94.6%, and our same-store non-value-add occupancy is 95%. Our portfolio average rental rate increased 4.4% in Q3, contributing to 5.4% year-over-year property revenue growth for the quarter. New lease rent growth in Q3 reflected changing market conditions with new lease rates of 80 basis points higher. This includes the impact of concession activity to counter those conditions.

In the third quarter, we increased the use of concessions, especially in markets, such as Atlanta and Dallas to remain competitive and to prioritize occupancy. Lease-over-lease effective rent growth for renewals in Q3 2023 was 4.8%. And in Q4 2023, to date, is 5%, which reflects approximately 82% of our total expected Q4 lease renewals. Our Q4 2023 today blended lease-over-lease effective rental rate growth is 2.3%. We continue to achieve double-digit NOI growth in the third quarter in a number of markets, including Houston, Tampa, Louisville and Lexington. These markets have displayed increases in average monthly rent, benefiting from strong job markets.

We continue to focus on driving operational performance through process improvement, role specialization and ongoing technology enhancements. These initiatives include a pilot program to build on organizational improvements that have increased the speed of our response to local market changes. Another example is in the screening and qualification process for new residents. Across the industry, efforts to ensure screening effectiveness and to fight fraud are a high priority.

We are deploying new technology solutions to improve the accuracy and confidence of prospect ID verification and are preparing to deploy a new robust income verification solution in early 2024. We expect these technology enhancements will improve the speed and effectiveness of resident screening. In addition, our specialized teams focused on sales and resident's account management have had a positive impact on staffing efficiency, resident experience and reputation, streamlining the collections process and greater efficiency and focus for our community teams. As we look ahead, our focus is on prioritizing occupancy throughout our portfolio, while optimizing rent growth where possible. Our results in Q3 show the success of our initiatives, and we will continue to explore opportunities to increase efficiencies and drive results.

I will now turn the call over to Jim.

[James Sebra, executive]

Thanks, Mike, and good morning, everyone. Beginning with our third quarter 2023 performance. Net income available to common shareholders was $3.9 million as compared to $16.2 million in the third quarter of 2022. This decrease is a result of an asset impairment we recorded this quarter associated with the portfolio optimization and deleveraging strategies Scott mentioned.

During the third quarter, core FFO per share increased 7.1% to $0.30 per share from $0.28 per share a year ago. This growth reflects the organic rent and NOI growth that we experienced in the quarter on a year-over-year basis. IRT same-store NOI growth in the third quarter was 4.8%, driven by revenue growth of 5.4%. This growth was led by a 4.4% increase in average monthly rental rates to $1,549 per month. On the operating expense side, IRT same-store operating expenses increased 6.3% during the third quarter, led by higher property insurance and contract services due to inflation as well as higher advertising expenses as a result of our increased efforts to drive occupancy amid a slowing macroeconomic environment.

Turning to our balance sheet. As of September 30, our liquidity position was $276 million. We had approximately $17 million of unrestricted cash and $259 million of additional capacity through our unsecured credit facility. Before turning to 2023 guidance, I'd like to provide more details behind our newly initiated portfolio optimization and deleveraging strategy.

As Scott mentioned, we are focused on reducing our presence in noncore markets, while also delevering our balance sheet. In particular, we plan to sell 10 properties in 7 markets for estimated gross proceeds between $521 million and $533 million, which equates to a weighted average economic cap rate of approximately 5.9% at the midpoint. After repaying debt at the property level associated with the sold properties, we estimate that we will have between $232 million and $244 million of remaining proceeds and we'll use those remaining proceeds to repay unhedged floating rate borrowing and various other high-cost property mortgages that mature in 2024, 2025 and 2026.

The weighted average coupon of the debt we plan to repay is approximately 6.1%. As we saw all these properties, 9 of which were acquired from our merger with STAR in late 2021, we are expecting to record a net loss on sale of between $39 million and $51 million, which includes a $20 million to $24 million gain on a single legacy IRT asset that is expected to be sold. We expect this strategy will result in $0.02 to $0.03 of annual dilution to core FFO per share. And after the effect of annual CapEx, we expect it to be breakeven on a free cash flow basis.

In addition, the related deleveraging is expected to reduce our net debt to adjusted EBITDA by almost 1 full turn and further improve our unencumbered asset ratios as we work towards achieving an investment-grade rating. We also expect that this strategy will remove all floating rate risk from our balance sheet and will significantly reduce our debt maturities in 2024 and 2025, as we disclosed in our earnings supplement.

With respect to our full year 2023 outlook, we are lowering our EPS guidance range from $0.25 to $0.27 to a loss of $0.07 to $0.02, which now reflects estimated impairment losses of real estate assets just as discussed, as a result of our strategy. Our 2023 core FFO per share guidance midpoint changes by roughly $0.005. We are reducing our same-store portfolio from 115 to 106 properties as a result of this portfolio optimization and deleveraging strategy as we just discussed.

The midpoint of our new same-store revenue guidance is 5.6%, down from 6.35% previously. This reflects the following assumptions for the fourth quarter of 2023. Average occupancy of 94.4%, a blended net effective rental rate increase of 90 basis points and bad debt at approximately 2% of revenue. On the expense side, our guidance for full year 2023 total operating expense growth is now more favorable at 5.7%, down from 6.1% at the midpoint of our ranges.

Controllable operating expenses are now expected to be up 6.5% at the midpoint versus previous guidance of 5.1%, driven by higher inflationary pressure on services as well as higher cost to turn units associated with evictions. Noncontrollable operating expenses for real estate taxes and insurance are now expected to be up 4.5% at the midpoint. This is down from our previous guidance of 7.8%, driven by lower assessed value than expected and early successes with 2023 real estate tax appeals. As a result of these changes, our revised midpoint for property NOI growth is now 5.5%, down from 6.5%.

We are reducing our G&A and property management expense guidance to a midpoint of $50.5 million, down from $51 million previously. And we are also reducing the range and midpoint for full year interest expense to $101.5 million, down from $103 million. While we're still not assuming any acquisition volume for this year, we are maintaining our disposition guidance of [ $124.5 ] million at the midpoint as we are not expecting the additional sales from our portfolio optimization strategy will occur this year, but rather in early 2024.

Now I'll turn the call back to Scott. Scott?

[Scott Schaeffer, executive]

Thanks, Jim. In closing, we feel very good about our position despite the near-term environment. First, we have the right assets in the right markets that will continue to benefit from favorable demographic trends. Second, value-add is core to who we are and will remain a consistent source of organic growth with the portfolio throughout the cycle. And lastly, we are now taking decisive action to optimize the portfolio and fundamentally reset our leverage profile. We are committed to this strategy as we believe it will deliver sustainable earnings growth.

We thank you for joining us today, and we look forward to speaking with many of you at NAREIT's regrowth conference in the coming weeks. Operator, you can open the call for questions.

[Operator]

[Operator Instructions]

We'll take our first question from Austin Wurschmidt at KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

Are the 10 assets being marketed as one-off sales? Or are you attempting to sell as a portfolio? And can you give us a sense how far along you are in the marketing process and just how deep the pool of buyers has been so far?

[Scott Schaeffer, executive]

Sure, Austin. Thanks for the question. They're being marketed as one-off transactions because they're in varied markets. And we started this process a little bit ago and are well along. We have a couple under agreement. There's a third agreement ready to be signed. There's a couple more LOIs. So we're well into the process. And that's what gives us confidence that we'll get this done.

[Austin Wurschmidt, analyst]

And I guess just what gives you the confidence that you can execute a sale at the pricing you've alluded to in your prepared remarks? I mean, other than -- it does sound like you've made some progress here before. But then upon executing a sale. I'm also curious what the ultimate target is now for net debt to EBITDA over, call it, the next 24 months or so?

[Scott Schaeffer, executive]

Well, I'm going to let Jim answer the last part of that question. But there was good demand for these properties as we took them out to market, multiple bids, very qualified and well-heeled buyers that we know is because we went -- we took them through buyer interviews. So it gives us confidence that we'll get it done, and we intend to sell these assets.

[James Sebra, executive]

And Austin, on the question on the net debt to EBITDA, we've given our perspective that we expect it to be kind of mid-5s at the end of 2025. We fully expect that we'll be pulling that up into certainly 2024, if not maybe mid-2024. So we expect our net debt to EBITDA to ratchet down by that almost that entire full turn and continue to make additional progress as debt to EBITDA grows.

[Operator]

We'll go next to John Kim at BMO Capital Markets.

[John Kim, analyst]

Can you discuss where bad debt was during the third quarter? And how you see that improving or progressing over the next 12 months?

[James Sebra, executive]

Yes. So bad debt in the third quarter was about 1.9%. We expect -- right now, in our initial guidance for the year, we expect it to be about 1.5%. We think that will be kind of hovering for the full year rate around 2%. And then as Mike alluded to in his prepared remarks, as we make additional progress on the ID verification as well as an improved income verification tool that we'll continue to see that bad debt ratchet down next year.

[John Kim, analyst]

And that 1.9%, was that gross or net of resident relief fund?

[James Sebra, executive]

There really wasn't very much resident relief fund. So I would say it's both.

[John Kim, analyst]

On your value add, the 23 properties, the new lease growth rate decelerated, it was down 1.6% in the fourth quarter. Can you explain this dynamic? I thought the renovated units themselves were generating enough rents, I guess, the 20% uplift in rents to bring up the total average of the buildings.

[Scott Schaeffer, executive]

Sure. It's really a seasonality and timing issue. As we work to push occupancy, the value add was part of that effort. There is good demand. We're not carrying a lot of value-add units that have been completed. They're getting leased, and we expect that to normalize back to more historical levels next year. Now that occupancy is stable, it gives us the view that it will again normalize next year.

[John Kim, analyst]

Do you expect a return -- expectations to continue to moderate?

[Scott Schaeffer, executive]

To moderate? No. No. I expect it to be back towards that 18% in 2024.

[Operator]

We'll go next to Brad Heffern at RBC Capital Markets.

[Brad Heffern, analyst]

Can you talk about why you're pursuing this deleveraging program now? Obviously, you bought STAR a couple of years ago. So I guess, why not sell these kind of one-off cats and dogs immediately and what made now the right time to do it?

[Scott Schaeffer, executive]

So good question. We looked at the current interest rate environment. And with the broad view that now rates will stay higher for longer. We felt that cap rates probably were not going to go down in the near term. What kept us from doing it previously was that there was significant yield maintenance or defeasance costs associated with the property level mortgages on these properties.

Now those -- because of the increase in rates in the passage of time, that prepayment penalty, if you will, is gone. So with the view that the rate is going to be higher for longer and with no prepayment costs, now we decided it was time to just exit these markets. So we had always planned on exiting and to use the proceeds to delever.

[Brad Heffern, analyst]

Okay. Got it. And then probably for you, Jim. I guess some of the building blocks for 2024, I was wondering if you could give them like -- your current expectation for earn-in the thoughts on lease and any initial thoughts on whether we'll see market rent growth.

[James Sebra, executive]

So good question. Obviously, 2024 is still very much unknown. But the current building blocks, the current lost for lease is 1.8% across the portfolio. Our current expectations for earnings for next year are about 1.3%. And obviously, that's assuming kind of that kind of continue -- what we've seen rent growth so far now in the fourth quarter, that continues from November, December. And then right now, CoStar is reporting that our submarkets should experience 2.4% market rent growth.

[Operator]

We'll move to our next question from Anthony Powell at Barclays.

[Anthony Powell, analyst]

You talked in the past about how Class B apartments should benefit from trade down in a slower economic environment. Are you seeing any of that? Or is the supply environment may be making that more difficult this time around?

[Mike Daley, executive]

Thanks for the question. This is Mike. I think we are continuing to see that, A properties are being hit harder than B. I think those are the ones where we see the developers getting more aggressive with concessions. Obviously, that directly impacts the A market more so than the B market. And I think that our properties have definitely shown more occupancy and rent growth strength on our B assets.

As far as markets being impacted, I think 2024, we expect that to be better from an impression -- from a concession perspective, I think Atlanta, less pressure with the new supply, which is good for us. Obviously, that's a big market. Dallas, Nashville, the other ones, that were mentioned earlier, either very slightly up in terms of new supplier or even with...

[Anthony Powell, analyst]

And more generally, I mean, are you seeing any signs of stress in the consumer base in the outside of things like fraud? Are you seeing -- and is coming to you saying that -- just -- and just any kind of signs that consumers are being more stressed on a broader level than just more specific situations.

[Mike Daley, executive]

Specific to our business, no. Our rent-to-income ratio has remained very consistent at 22%. We've not seen any upward trend and any inability to pay than we have in the prior periods. We do actually have better credit in our applicants than we did, say, a year ago. So we're seeing an upward trend in terms of creditworthiness of our applicants. And I don't think it's any surprise that any pressure on consumers generally impacts the residents in all multifamily, but nothing specific to our business beyond that normal consumer pressure.

[Operator]

Next, we'll move to Eric Wolfe at Citigroup.

[Eric Wolfe, analyst]

Can you talk about where you expect new and renewal rate growth to go through the rest of the year? And if you think we'll sort of see peak pressure from supply on your rate growth in the first half of next year, if there's going to be a bit of a lag there just given the time it takes to lease up all the new supply.

[Scott Schaeffer, executive]

Yes. I mean I think -- again, I think we'll continue to see a little bit of that. The rent growth that we've seen so far that we've reported in the fourth quarter, we think that will continue for November, December. I think the blend in our guidance that we have for the entire fourth quarter is about 90 basis points of blended rent growth.

[James Sebra, executive]

As far as the new supply, I think -- we are looking at our submarket new supply. I think that the -- as I mentioned earlier, Dallas, Nashville, Atlanta, we see that moderating, especially in Atlanta. And I think that in terms of the delivery, we do see that in the first half of next year. Obviously, there will be some absorption tail on that delivery, but definitely, to your point, first half.

[Scott Schaeffer, executive]

And I'd like to add that for the fourth quarter, as we sit here today, if you use a 50% renewal rate for lease expirations, 85% of that 50% has already renewed, and they renewed at an average 5% rent increase. So that gives you a good idea of how we see the fourth quarter finishing out.

[Eric Wolfe, analyst]

Got it. And I think you mentioned that one of your data providers is predicting I mean like 2.4% market rent growth next year. I mean do you think that's, I guess, reasonable given everything that's going on? I mean, I would say that the market would probably be pretty excited about that growth just given views around what Sunbelt Supply is going to do as sort of the compounding effect of it keeps increasing.

So I mean, just from your perspective, I mean do you think that 2.4% is reasonable. And when you're looking to set your guidance early next year, I mean, are you mainly looking at some of the third-party data providers? Or is it more of a sort of ground up, look, each of your properties put out a forecast and you build that into your guidance?

[Scott Schaeffer, executive]

So a long question. So let's break that into pieces. So in terms of our budgeting and forecasting process, it's very much a ground-up process with each one of our communities kind of having input into kind of what they think rents could grow by in terms of renewal and new leases.

As we can always say that our data providers certainly provide data, and we use multiple ones. The one I quoted was CoStar is kind of at 2.4%. I think it's probably certainly reasonable given what the data and how their economists have predicted. But obviously, 2024 is still very much unknown and we're all evaluating kind of what the effects of new supply will continue to have across -- certainly us as well as our markets.

[Operator]

We'll come next to Wes Golladay at Baird.

[Wesley Golladay, analyst]

As you look to next year for the value add program, I think you mentioned you're still going to get those high teens returns. Do you expect the same amount of projects next year?

[Scott Schaeffer, executive]

Yes. Our target next year will be for 2,500 to 3,000 units for next year.

[Wesley Golladay, analyst]

Okay. Fantastic. And then you mentioned operational efficiencies rolling out next year. How should we think about expense growth compared to this year? Is there any onetime items that will be hard to comp next year or easy comps? And how will these efficiencies benefit you next year?

[James Sebra, executive]

Yes. Good question. We're obviously not giving any color yet on 2024 expenses. We're still through the budgeting process. I would think that one of the big areas that we'll -- we expect to see some further progress on is bad debt. I realize that's not necessarily an expense is a negative to the revenue line. But that's a key area that Mike and Janice and team expect to see some progress on as we roll out these new technology tools. So I think we're very much still open on 2024, and we'll be prepared to kind of talk about it more in February when we give our guidance for 2024.

[Wesley Golladay, analyst]

Got it. And if I could squeeze one more in. Let me just -- commentary on other calls where the concessions were so low or so high that some people are moving from B to A assets. Are you seeing that in any of your markets where maybe a year from now when they can't afford A rent, they come back, trying to get a feel for the dynamic in some of these markets.

[Janice Richards, executive]

I think in this -- this is Janice. I think in the 3 markets that we mentioned, where we've seen that increased supply during a low seasonality, which is Atlanta and Dallas and Nashville. We've seen a sum of that, but we still see that our B assets are outperforming our A assets holistically.

[Operator]

Next, we'll go to Merrill Ross at Compass Point.

[Merrill Ross, analyst]

I wanted to just make sure I did calculate a rent concession. Do you expect them to alleviate early next year or continue to be high? And how does that change your focus in terms of tenant retention?

[Mike Daley, executive]

I think in terms of retention, this is Mike. I think in terms of retention, we've seen, as Scott referenced earlier, very strong numbers in terms of both renewals as well as the rate that those renewals are being accepted at. Concessions are going to go down. They're going down as we speak, relatively speaking. As we see that supply pressure continue to alleviate, obviously, the concession as a strategy would go down as well.

We think the approach that we've taken is very good from a renewal perspective in the future because our residents will not have that kind of sticker shock when they have moved -- those folks that have moved to A, are going to have to pay that additional amount if they've received a rent reduction, whereas with our concessions, they will pay 11 months at a higher rate, and we'll be not surprised when renewal time comes around.

[Merrill Ross, analyst]

That totally makes sense. So a separate question. Since the reception was relatively strong to the asset sales and the dividend coverage remains deep. Is it possible that you go for another round of maybe 5 more assets? Or are you done?

[Mike Daley, executive]

We're always looking to concentrate and better manage the portfolio as a whole. Right now, we've only identified these 10. But depending on demographic changes, there may be more in the future, but there's no plans at this point.

[Operator]

We'll take our next question from John Kim at BMO Capital Markets.

[John Kim, analyst]

On the dispositions, can you provide some more commentary on how many of the 10 assets have mortgage debt in place and what the average interest rate is?

[James Sebra, executive]

Yes. So 9 of the 10 assets have mortgage debt in place. One asset is pretty unclear. And the average interest rate of the debt that we will pay off because we're going to have about $240 million of excess cash after the sales pay off kind of line of credit, et cetera, is about 6.1%.

[John Kim, analyst]

I was more questioning the average interest rate on those assets and if that played a major factor in identifying those assets for sale?

[James Sebra, executive]

Yes. The average interest rate on the mortgages, there's 9 mortgages themselves are -- I don't have the exact number, low 5%, like 5%, 5.1%. I can come back to the specific.

[Operator]

And next, we'll move to Linda Tsai at Jefferies.

[Linda Yu Tsai, analyst]

Who are the potential buyers for the assets from your deleveraging program? And would you expect multiple bidders?

[Scott Schaeffer, executive]

We've had multiple bidders, and we can't identify who the buyers are. But each property was marketed independent of the others as one-off sales, and there were multiple bidders on each one.

[Linda Yu Tsai, analyst]

And apologies if I missed this. With the 10 assets for sale, are there other assets no longer subject to prepayment penalty that you would consider for sale?

[Scott Schaeffer, executive]

There are lots of other assets that are not subject to prepayment penalties, but that was really not the driving force. The driving force was that we wanted to exit certain markets. And we couldn't do it or we decided not to do it earlier because of the prepayment penalties. But the driving force is exiting the markets and then generating the capital to retire the debt.

[Linda Yu Tsai, analyst]

With the sale, are you exiting all the markets you would like to exit?

[Scott Schaeffer, executive]

All of the markets -- all of the -- let me start out, all of the sales are in markets that we want to exit. We will continue to view the portfolio going forward for additional markets. But at this time, we're exiting the ones we want to.

[Operator]

And that does conclude our question-and-answer session. At this time, I'd like to turn the conference back to Scott Schaeffer for closing remarks.

[Scott Schaeffer, executive]

Thank you all for joining us today, and we look forward to speaking with you next quarter.

[Operator]

And that does conclude today's conference call. Thank you for your participation. You may now disconnect.