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Independence Realty Trust Inc
Earnings Call Analysis
Q4-2023 Analysis
Independence Realty Trust Inc
The real estate company navigated a turbulent market and delivered on its operational targets in 2023, achieving year-over-year growth. The full year same-store portfolio net operating income (NOI) and core funds from operations (FFO) per share both saw substantial increases, with the core FFO hitting the high end of the provided guidance range.
Decisive moves in December led to the sale of four properties, contributing to a total of six properties sold. With four more expected to close by the first quarter's end, this portfolio optimization will bolster the company's leverage profile significantly.
Cautiously projecting market rent growth between 0% to 1% for 2024, the company anticipates balancing supply and absorption better than in earlier periods. Value-add programs remain a focus, driving demand and attracting cost-conscious residents amid a competitive rental landscape.
Despite the pressures of new supply on the market, the company plans to deliver growth in 2024 by focusing on occupancy gains and rental rate growth, leveraging robust employment and population migration trends.
By prioritizing tenant retention and reducing vacancies, the company aims to lower turnover costs and enhance NOI. Occupancy rates have improved year-over-year, contributing to a healthier bottom line.
The company closed 2023 with a solid liquidity position of $288 million. Their leverage ratio decreased from the previous year, and a very manageable debt maturity profile through 2025 bolsters financial resilience.
The sale completion of ten properties is anticipated to generate substantial sales proceeds, significantly reducing the net debt to adjusted EBITDA ratio, albeit with a minor dilutive impact on core FFO according to the company's calculations.
The company's 2024 outlook includes a same-store revenue growth range of 3% to 4.5%. Operating expenses are projected to grow between 5.4% to 6.4%, driven by various inflationary pressures. Consequently, property NOI growth is anticipated between 1% and 4%, with central administrative costs slightly up due to some one-time items from the previous year.
The business plan for 2024 is set on fortifying operations, advancing portfolio optimization and deleveraging strategies, and emphasizing value-add renovations to enhance occupancy and retention. The company is not accounting for additional transactions for the year and pledges to drive shareholder value and return capital to shareholders.
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Ladies and gentlemen, good morning. My name is [Abby], and I will be your conference operator today. At this time, I would like to welcome everyone to the Independence Realty Trust Fourth Quarter Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] Thank you, and I will now turn the conference over to Lauren Torres. You may begin.
Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's Fourth Quarter and Full Year 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.
Thank you, Lauren, and thank you all for joining us this morning. 2023 was a notable year for IRT as we achieved our operating targets under challenging market conditions. We continue to execute on our strategic initiatives, which included supporting occupancy, delivering on our planned value-add improvements and reducing our leverage. I'm proud of the results the IRT team achieved in the fourth quarter and full year of 2023. The reorganization implemented last year has paid off as evidenced by our year-over-year growth of 5.7% and full year same-store portfolio NOI and 6.5% of core FFO per share, the latter of which came in at the high end of our guidance range. For the fourth quarter, our same-store portfolio NOI grew 3.3% year-over-year, supported by a 70 basis point increase in average occupancy to 94.5% and a 2.4% increase in rental rates. These results reflected our ongoing efforts to achieve sustainable operating gains across our entire portfolio. Over the past year, we continued working with our regional leaders and frontline leasing teams to improve all aspects of our leasing and sales process. This enabled us to move more quickly and adapt to evolving market conditions, improving occupancy and maximizing rent growth. In particular, we enhanced the speed of our local market pricing feedback from our communities to the revenue management team, fully established our 24/7 call center, significantly expanded our sales training program and continued to maximize lead-to-lease conversion. These efforts are positively impacting our results as evidenced by our 94.9% average occupancy at our non-value-add communities in the fourth quarter of 2023. We will continue to enhance and streamline our operations to further maximize our performance and efficiency. In addition to our operational efforts, we also put into action our portfolio optimization and deleveraging strategy. Our stated goal was to sell 10 properties, reducing our presence in noncore markets while also significantly deleveraging our balance sheet. Since this announcement, we have made meaningful progress on this initiative. In December, we closed on the sale of 4 properties in 4 separate markets, and we recently closed on 2 additional properties, bringing us to 6 property sales. The remaining core assets are under contract through due diligence and have hard nonrefundable deposits. We expect the sales of these remaining 4 properties to close by the end of the first quarter. The blended economic cap rate for the entire portfolio optimization plan is 5.9% on total sale values, which is consistent with our initial expectations. Importantly, our portfolio optimization strategy will fundamentally reset our leverage profile, as we expect to reduce our net debt to adjusted EBITDA ratio by approximately a full turn by the end of this year. Looking ahead through 2024, we expect the operating environment to remain challenging, with elevated new supply still being delivered in inflationary cost pressure persisting. As a result, and as Jim will discuss shortly, our guidance for 2024 assumes market rent growth of 0% to 1% this year, with new supply continuing to be a headwind. To provide more color on deliveries, the Sunbelt region has seen unprecedented levels of new supply. And while our mainly Class B portfolio is somewhat insulated, it is not immune. Certain markets such as Nashville, Orlando, Dallas and Atlanta are forecasted to experience elevated deliveries, while Midwest markets such as Columbus, Indianapolis and Louisville will be better balanced on supply and absorption this year. IRT's portfolio has a 20% concentration in the Midwest, providing us with a unique hedge against new supply in the Sunbelt. When discussing supply, we must also consider the associated absorption levels and the strength of rental housing demand, and 2023 new supply significantly outpaced absorption levels. We expect that, in the second half of 2024 and 2025, new deliveries will stabilize near the level of absorption, resulting in a more balanced supply/demand dynamic. In 2023, we made notable progress on our value-add program, completing renovations of 486 units during the fourth quarter and 2,455 units for the full year, achieving an annual weighted average return on investment of 16.1%. For 2024, we plan to continue our value-add efforts. We continue to see strong demand at these communities, which attract value-driven residents seeking well-maintained communities that offer similar amenities and finishes to Class A properties but at a lower price point. However, the focus on increased residue retention could reduce the number of value-add completions in 2024 as compared to 2023. As I wrap up my remarks, I just want to reiterate my confidence in IRT's business model and strategy, which was constructed to succeed during all market cycles. Despite near-term market conditions, we expect to deliver growth in 2024, driven by a combination of occupancy gains and rental rate growth. Overall, we are optimistic as we have the right assets in the right markets that continue to perform well, supported by strong employment growth [and] population migration. I'll now turn the call over to Mike.
Thanks, Scott. At IRT, we have and will continue to take decisive actions to drive value. In response to current market dynamics, we're prioritizing higher retention and reducing unit vacancies. Ultimately, this will lower our turnover costs and drive NOI. This will put us in a position of strength to capitalize on an eventual market recovery in the back half of 2024 and 2025. Looking back at the fourth quarter, we achieved a same-store average occupancy rate of 94.5%, a 70 basis point improvement year-over-year. As of February 12, our first quarter-to-date same-store occupancy is 94.3%, lower on a sequential basis as compared to the fourth quarter due to normal seasonality, as well as the supply pressure highlighted by Scott that is 110 basis points higher than this time last year. At our non-value add communities, average occupancy was 94.9% in the fourth quarter and is 94.6% in the first quarter to date. Our targeted average occupancy level for our same-store portfolio in 2024 is 95%. Our portfolio average rental rate increased 2.4% in Q4, contributing to 3.7% year-over-year property revenue growth for the quarter. For the full year, our portfolio average rental rate increased 6.4%, supporting a 5.7% increase in revenue. We used targeted concessions in the fourth quarter, especially in markets such as Atlanta, Dallas, Charlotte and Raleigh, to remain competitive and drive occupancy. [For] Q4, total concessions offered equated to 2.3% of monthly rent. So far in Q1 2024, we have reduced the use of concessions and are offering targeted concessions at significantly fewer properties, equating to approximately 70 basis points of months' rent at those properties. This, along with lower seasonal demand and supply pressure, contributed to negative new lease spreads in Q4. New lease rates have improved 220 basis points in the first quarter of 2024 to date due to more favorable demand and the reduced use of concessions. Renting continues to be more attractive than owning for many people, and the recent CPI report from the Bureau of Labor Statistics showed more persistent inflation than expected, which continues to keep the cost of home ownership higher. Lease-over-lease effective rent growth for renewals in the fourth quarter was 4.8% and through February 12 is 4.5%, reflecting approximately 90% of our targeted Q1 lease renewals. Our blended lease-over-lease effective rental rate growth in the first quarter to date is 2.1%, up from 0.2% in Q4 2023. As mentioned on our prior calls, we continue to leverage technology to increase our operational efficiency and performance. One example of this is enhanced ID streaming, which was fully implemented across the portfolio at the end of January 2024. We have seen a meaningful positive improvement in our ability to identify potential fraud. We believe that this and other technologies will not only make us operationally more efficient but will reduce bad debt and contribute to our results. Finally, I'd like to thank our teams for delivering for our residents and helping drive our business results. We have a strong operations team, including very experienced leaders with a track record of performance. We are committed to supporting our community teams, including dedicated time to focus on employee development. The advancements made over the past year have allowed us to be more efficient and effective, and we will continue to innovate and explore further opportunities to strengthen our performance. I'll now turn the call over to Jim.
Thanks, Mike, and good morning, everyone. Beginning with our 2023 performance update, for the fourth quarter, net loss available to common shareholders was $40.5 million, down from a net income of $33.6 million in the fourth quarter of 2022. For the full year 2023, net loss available to common shareholders was $17.2 million, down from the net income of $117.2 million in the full year of 2022. The decrease in the quarter and for the full year was a result of the previously-disclosed asset impairments associated with our portfolio optimization and deleveraging strategy. During the fourth quarter of 2023, core FFO increased to $0.30 per share from $0.29 per share in the fourth quarter of 2022. For the full year, core FFO per share increased to $1.15 per share, up from $1.08 per share, or 6.5% growth year-over-year. IRT same-store NOI growth in the fourth quarter was 3.3%, driven by revenue growth of 3.7%. This growth was led by a 2.4% increase in average monthly rental rates to $1,551 per month and a 70 basis point increase in average occupancy during Q4, both as compared to Q4 of 2022. For the full year 2023, IRT same-store revenue and NOI each increased 5.7%, with rental rates increasing by 6.4% to $1,537 per month. On the operating expense side, IRT same-store operating expenses increased 4.5% during the fourth quarter and 5.6% for the full year 2023. While we were able to keep real estate taxes in check during 2023, operating expenses increased for property insurance, contract services, repairs and maintenance, 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 December 31, our liquidity position was $288 million. We had approximately $23 million of unrestricted cash and [$265] million of additional capacity through our unsecured credit facility. We continue to make progress against our leverage, as we ended 2023 at 6.7x net debt to adjusted EBITDA, down from 6.9x in 2022. In addition, I'd like to highlight that we only have about 7% of our pro forma debt maturing through year-end 2025, with only $22 million of maturities in 2024. This is pro forma after the deleveraging associated with our portfolio optimization strategy that will be completed later this quarter. We have and will continue to maintain sufficient liquidity to address these maturities using our unsecured credit facility. We also have adequate hedges that have effectively converted our floating rate debt to fixed rate debt such that our floating rate debt exposure as of year-end is only 3% of our outstanding debt. After the effects of the portfolio optimization and delevering strategy, we expect to have 0% of our outstanding debt exposed to floating interest rates. Before I wrap up my remarks with the discussion of our 2024 guidance, I'd like to provide a further update on the portfolio optimization and deleveraging strategy. During Q4, we sold 4 communities for $201 million and used all of the net proceeds to repay $197 million of debt, which was comprised of $112 million of property level debt associated with the sold properties and $85 million of borrowings outstanding on our line of credit. On these 4 properties, we recorded a loss on sale of $35 million. As Scott mentioned, we had an additional 6 assets held for sale as part of the strategy as of December 31, 2023. 2 of these 6 assets were sold earlier this week for $128 million. The final 4 assets, aggregating $197 million, are under contract and expected to be sold before the end of Q1 2024. All of the proceeds from these 6 sales will be used to reduce debt. Once the sale of all 10 properties are complete, we expect to generate $525 million in gross sales proceeds and to have used those proceeds to reduce our debt by approximately $519 million. This will reduce our net debt to adjusted EBITDA by approximately 0.8x with a $0.03 dilutive impact to core FFO, which is already included in our 2024 guidance. This strategy will further improve our unencumbered asset ratios as we work towards achieving an investment-grade rating. With respect to our full-year 2024 outlook, we are introducing our EPS guidance range of $0.40 to $0.44 per share, which reflects $0.87 per share related to depreciation and amortization and an $0.11 per share gain, which we expect to realize in Q1 due to the disposition of one of our assets held for sale. As a result, our 2024 core FFO per share guidance midpoint is $1.14 per share. When thinking about our core per share guidance for this year, the bridge from our $1.15 starting point for 2023 would include $0.04 of accretion from additional NOI growth in 2024, offset by dilution of $0.03 from our portfolio optimization strategy and $0.02 from increased expenses, bringing us to our guided midpoint of $1.14 per share for 2024. For 2024, we expect our same-store portfolio will be 109 properties after reflecting the impact of our portfolio optimization and deleveraging strategy. Our guidance range for the same-store revenue growth in 2024 is from 3% to 4.5%. This range reflects the following assumptions: an average occupancy of 95.2%, a blended net effective rental rate increase of 2.2% and bad debt at approximately 1.75% of revenue. On the expense side, our guidance range for full-year 2024 total operating expense growth is from 5.4% to 6.4%. Controllable operating expenses are expected to be up 5.4% at the midpoint, driven by higher payroll costs, inflationary pressure on services and higher advertising expenses as we continue to drive occupancy during a softer macro environment. Noncontrollable operating expenses for real estate taxes and insurance are expected to be up 6.6% at the midpoint. As a result, for 2024, we expect that property NOI growth will be between 1% and 4%, or 2.5% at the midpoint. At the midpoint, our G&A and property management expense guidance for the year is $53 million, while the midpoint for full-year interest expense is $84 million. While G&A and property management expense is up $4 million, approximately $1.5 million relates to one-time items in 2023. Excluding the effect of these items, the increase in our G&A and property management expense is about 5%. Lastly, other than the completion of our portfolio optimization strategy, we are not assuming any additional transaction volume during 2024. Now I'll turn the call back to Scott. Scott?
Thanks, Jim. At IRT, we are focused on executing our 2024 business plan, which includes solidifying our operating gains and driving further on-site efficiencies, further executing our portfolio optimization and deleveraging strategy, and continuing our value-add renovations with a focus on supporting occupancy and improving resident retention. And while we expect certain industry headwinds to persist this year, we are confident in our portfolio of solid renter demand fundamentals and our ability to implement our strategic initiatives, which will strengthen our business over the near-term and long-term. We remain committed to driving shareholder value and returning capital to our shareholders. We thank you for joining us today and look forward to seeing many of you at Citi's Global Property CEO Conference next month. Operator, you can now open the call for questions.
Thank you. [Operator Instructions] And we will take our first question from Eric Wolfe with Citi.
I was just curious how you came up with your occupancy forecast, obviously, a large increase there. So just trying to understand what gives you the confidence that you'll see this increase even with certain markets being impacted by supply.
This is Mike. I think in terms of our occupancy, we're starting the year significantly above where we were last year, about 110 basis points quarter-to-date. We think that that is going to be sustained through the rest of the year in terms of our renewal strategy that we've been discussing, our retention strategy. And just compared to 2023, we're starting out in a much more favorable position. And we think, based on the waning competition at the end of 2024 in terms of the new supply, that we'll be able to sustain that.I think a big factor in all of this is we are significantly focused, as we have said, on renewals and retention. But in addition to that, we're being very purposeful about our new leases. So in terms of our lead volume quarter-to-date in 2024, we're well above the rate of leads that are coming in from 2023. So a combination of all of those things, spending more on advertising on the front end, very aggressive on our retention strategy, we are confident in our numbers for occupancy.
And just mentioned how you're prioritizing retention. I guess where do you think we'll see sort of retention go from current levels? And what does your sort of lease rate look like when you include leases signed versus [now] move-out, sort of your forward exposure?
Yes. So right now, our guidance includes a 55% retention rate on average throughout the year. And right now, for all the leases that were set to expire in the first quarter, assuming we're trying to target that 55%, we've already renewed 90% of them. So we're well on our way to hitting that 55% target.
And we'll take our next question from Brad Heffern with RBC Capital Markets.
The leverage reduction plan is obviously almost wrapped up. Do you think we'll see another plan at some point to either reduce leverage further or to reduce some of the remaining single-asset exposures?
Thanks for the question. We're always looking at the portfolio and analyzing what markets we want to be in and when we should be exiting. And at this point, we haven't made any announcements, but I think capital recycling for opportunistic reinvestment and/or leverage reduction is going to be part of our strategy, going forward.
And then, Jim, I think a couple of little remaining underlying pieces for the revenue guide that you didn't give. Could you give earn-in loss-to-lease and the impact of value-add, if you have it?
Sure. So loss-to-lease, 80 basis points; earn-in, 70 basis points. And then for new leases on the value-add, the premium we're assuming is roughly about 13%. So it [pulls] kind of the blend because, obviously, new leases we sign both second-generation new leasing on value-add as well as first turns. The blended new lease growth that is including new leases and second gens, about 7% for 2024.
And we will take our next question from Austin Wurschmidt with KeyBanc Capital Markets.
Sorry if I missed this. So how are you guys thinking about renewals trending out into the Spring leasing season as you're targeting that 55% retention? Because you have seen occupancy dip a little bit to start the year. So just thinking about sort of that kind of intentional strategy of growing occupancy, where do you think renewals need to be in order to drive that retention figure higher, as well as occupancy?
Austin, you're basically asking for where do we think the renewal percentage that is rental, the renewal rent growth for the renewals will be to achieve that retention?
Correct.
Yes. So we've built into our guidance an estimated 1.8% renewal growth rate. So we will see that it will normalize over the season as we see higher expirations based on seasonality, and we're confident in that number to be achieved.
Yes. And as you saw, we've already kind of started this year at, call it, 4.5% renewal growth. So we're certainly expecting that to kind of blend down a little bit as we continue to push retention into higher elements of leasing season.
And then how much of the blended rate growth year-to-date is really skewed by that 90% renewal piece that you flagged? And any sense what the blends would look like if you normalize for a more typical breakout for a full quarter period between new and renewals?
I'll follow-up with you offline with that question. I don't have that right off the top of my head. But you're right in that the volume of renewals is obviously much higher than the volume of new leases, and that new lease growth presented is only through effectively yesterday or maybe 2 days ago [actually at] the exact date, but it's not for, obviously, the whole quarter because we just don't know what all the new leases are.
This is Mike. I also want to be sure to clarify what you just said about the 90%. That's of the renewals that we expect to happen in the first quarter. We've got 90% in, not that we have a 90% renewal rate.
And we will take our next question from John Kim with BMO Capital Markets.
On the blended 2.1% growth that you had in the first quarter, which is on like-term leases, can you remind us what percentage of overall leases that is? And I just wanted to clarify, the 2.2% in guidance, that's also on a like-term basis, correct?
Correct. That's on the same 9- to 13-month basis. Historically, that 9 to 13 months kind of made up anywhere between 80% to 90% of our kind of leasing activity every month, every quarter. That number is roughly about 65% today as we're just kind of continuing to kind of tilt people from an expiration standpoint out of the [shoulder] seasons of the year and into the higher leasing velocity months, April through, call it, August
How should we read that remaining 35%? Is that above or below the 2.1?
Yes, I think it's probably slightly below that 2.1%, but again, I can follow back up with you offline with that exact answer. But it's kind of just, again, it's not significantly below. It's like rate probably, I'll guess, 1.8% to 1.9%.
My second question is on bad debt, how that trended in the fourth quarter versus 2.1% in the third quarter and where you see that going in 2024 and how you get there.
Can you say that again, John? I missed the first part of that question.
The bad debt, where it was in the fourth quarter and what's in your guidance for 2024.
So we ended the fourth quarter, about 2.1% of that is bad debt as a percentage of revenue. And we expect that, for the year, that will kind of average out to be about 1.75% in terms of what's in our guidance. We expect Q1 to be slightly underneath that 2.1% and then continue to kind of move down throughout the year into the fourth quarter.And from a bad debt perspective, I think we've talked about it in the past. We continue to look at additional technology solutions. And as we mentioned, or as Mike mentioned in the call, we've already implemented a better ID screening to really kind of pinpoint, identify the ID fraud since that is so prevalent some of these days in some of our markets like Atlanta, and we're excited about what that's going to have for the portfolio for the year.
We'll take our next question from Anthony Powell with Barclays.
I guess a question on the customer profile as you build occupancy up. Are you noticing any changes in your rent-to-income ratios? And also, where are you gaining share from Class A or Class B?
I can take the first part of that. I think in terms of our renter profile has not changed. We're still at about 22% in terms of the rent-to-income, which is very comfortable in terms of the financial ability of our average resident to pay. Janice, do you have any thoughts in terms of migration from A to B or some of the competition at the top end?
Yes. I think our value-add lent very well to the current market state where we have that opportunity to provide a product that is similar to at a value rate of that Class A at a lower price point. And so we look to see that be a significant benefit for us this year.
So maybe on the competitive environment, I know last quarter there was talk about some of the merchant developers being aggressive with concessions as the 10-year went to 5%. Has that changed at all as kind of rates have stabilized here? And how do you expect those developers to behave as you approach peak leasing season?
This is Janice again. I think we've seen concessions continue in the first quarter from those merchant builders at relatively the same level. I think we'll start to see that dwindle as demand picks up for the seasonal leasing pattern. And our use of concession has decreased sequentially quarter-to-quarter, and we will continue to be very strategic in our targeted concessions to maintain that 95.2% occupancy but look to maximize NOI at every point.
We will take our next question from John Pawlowski with Green Street.
Curious if you can share what your market rent growth assumptions are for your average Sunbelt market versus Midwest markets this year?
Yes. So it's a good question. Overall in our guidance, the market rent growth, the blended market rent growth we have is about 60 basis points. And across our top 10 markets, which include obviously Sunbelt markets as well as Midwest markets, that's about, call it, 80 basis points. Our other markets kind of are a little bit lower, roughly 40 and 50 basis points.If you were to look at some of the real kind of core Sunbelt markets, like Atlanta, the market rent growth is actually about 10 basis points negative. If you look at some of our Midwest markets, like Columbus, we're about 2.2% market rent growth.
A question on property taxes. So curious, geography in the low- to mid-single-digit property tax growth rate, that seems to be embedded in the expense guide. Which geographies are expecting to see really, really high or particularly low property tax pressure around that average?
Yes. for our 2024 guide, we're assuming roughly about a 4.25% increase in real estate taxes. The markets that are continual kind of -- I won't say issues, but continual kind of increases, the Texas markets of Dallas and Austin continue to be obviously through the reassessment process annually, as well as we're expecting a little bit of additional pressure from some of the West markets, like Columbus and Indy.
And we will take our next question from Mason Guell with Baird.
On the G&A and property management expenses guide, could you speak to what is driving the 5% year-over-year core increase, given fewer assets in your portfolio?
Sure. I mean, I think it's just inflationary pressure on payroll for all of the teams, both on-site, obviously, in property OpEx as well as the corporate teams, just a higher basis. In terms of the 5%, obviously, the guide is roughly, I think, almost a 7.5% increase. But as I mentioned on my prepared remarks, there is about $1.5 million of one-time benefits in 2023 that, when you exclude that, brings it back down to roughly that 5% inflationary rate.
And on your 2 developments in Denver, what are the expectations for the initial yields and the stabilized yields on these assets?
So the Arista deal that's coming, that just got CO'd in the fourth quarter, and it's in lease-up at about 45% leased today. The expectation is that portfolio, or that asset, sorry, will deliver a stabilized yield at 7%. The Flatirons deal that's coming out of the ground, or is under construction today, is already out of the ground, that will be stabilizing at roughly a 6% yield.
And we will take our final question from Linda Tsai with Jefferies.
The new leases in first quarter, I know that's through February 12. What's the breakdown between new leases in January, I guess where you expect February to end up and then March?
The new leases in January and February are very close to that kind of negative 2.2%. I don't think there's a big difference. I'll have to just confirm that and come back to you. And in March, I don't know, Janice, if you want to kind of comment, but I think March, we expect the trend to kind of continue.
Yes. I would not see a difference between February and March with the trend.
And then the dilution from asset sales to de-lever is within your range but at the high end. Was that related to timing?
Not so much timing. It's just that our range was $0.02 to $0.03, so that was $0.025 at the midpoint, and the actual number is $0.27, so it's just rounding to $0.03.
And then in terms of the buyers, the assets that you're selling to, just curious, what are the buyers' sources of funding?
Most of them are using Fannie and/or Freddie financing, but also a number of them are assuming the debt that we had in place. I think there was 1 1031 transaction in the group, as well.
And then just on the technology that's helping you reduce fraud, how quickly can that impact fraud, going forward?
I'll ask Janice or Mike to comment, but we've been piloting the technology since October, and we've already seen a really good benefit where it's kind of pointing out ID that are clearly fraudulent. Since we do it at tour, those folks don't even get a chance to tour the units, and really, it helps our teams save time as well as prevents the opportunity for them [even] submitting an application. Mike, Janice?
I think we've absolutely seen a track with communities where we've had more of an issue historically with fraud. We've definitely seen a higher rate of alerts in terms of ID, potential fraud. So we have seen the impact really hit us where we needed it the most. But it has been very effective from our perspective. And we also believe, although you can't quantify it, that it is also in these markets sometimes you get fraud rings and folks who coordinate these activities. You build a reputation for these stringent ID checks, and you avoid some that never even come in. So it's been very beneficial, and we expect that to continue.
Does your bad debt expectation include the benefit of this technology?
Yes.
And we have no further questions at this time. I will now turn the call back to Mr. Scott Schaeffer for closing remarks.
Well, thank you all for joining us this morning, and we'll speak to you again next quarter.
And ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.