Independence Realty Trust Inc (IRT) Q4 2020 Earnings Call Transcript

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Independence Realty Trust Inc (IRT 1.28%)
Q4 2020 Earnings Call
Feb 11, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Independence Realty Trust Fourth Quarter and Full Year 2020 Earnings Release call. [Operator Instructions]

I would now like to hand the conference over to Lauren Torres. Ms. Torres, please go ahead.

Lauren Torres -- Investor Relations

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's Fourth Quarter and Full Year 2020 Financial Results. On the call today with me are Scott Schaeffer, our Chief Executive Officer; Jim Sebra, our Chief Financial Officer; and Farrell Ender, President of IRT. Today's call is being webcast on our website at www.irtliving.com. There will be a replay of the call available via webcast on our Investor Relations website and telephonically beginning 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 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 most recent 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 in 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 F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Thank you, Lauren, and thank you all for joining us this morning. 2020 was a year like no other for our company, our industry and our country. We were faced with unexpected challenges brought on by the global pandemic. But due to the perseverance of our team and focus on accomplishing our objectives, we were able to deliver strong fourth quarter and full year results and better position our company for long-term success. We prioritize the needs of our people, which included protecting the health and well-being of our residents and employees, while providing flexibility to those residents demonstrating financial hardship. We focused on growing occupancy and driving leasing traffic, while sustaining our financial flexibility and lowering leverage, thereby strengthening our balance sheet. As a result of successfully executing against these priorities, our same-store average occupancy increased 250 basis points to 94.9% in the fourth quarter on a year-over-year basis, with average effective monthly rent per unit growing 2.6% in the quarter. We have collected 98.7% of fourth quarter rents. Our same-store NOI increased 4.4% in the fourth quarter and 3.1% for the full year compared to a year ago. Our core FFO improved more than 10% in the quarter and for the full year 2020. And we notably reduced our leverage this past quarter having normalized net debt to adjusted EBITDA of 8.2 times at year-end. Reducing our overall leverage has been a long-term objective of ours, and I'm very pleased that we were able to make meaningful progress against this commitment during the year when we faced unprecedented market conditions. We are pleased to note that this momentum continues, seeing strong results so far into 2021.

Our total portfolio average occupancy was 95.2% in January and 290 basis point improvement compared to the end of January last year. We've collected 96.9% of January rents, which is consistent with collections of December rents and given our low lease expirations and high occupancy in the fourth quarter, we continue to drive rent growth. Another key component of our strategy is the advancement of our value-added capital recycling programs. While we paused these efforts in the first half of last year due to the pandemic, we resumed activity in the second half of 2020 after seeing more stable conditions in our markets and a rebound in demand for renovated units. Since the inception of our value-add program in January of 2018, we have completed renovations on 3,719 units through December 2020, achieving a weighted average return on investment of 18.3% on interior renovation costs. This momentum continues and we expect to renovate another 1,300 units in 2021, supported by an improving market environment with growing rental demand. Regarding our capital recycling program, we expanded our presence in markets where we saw attractive long-term fundamentals, like Huntsville, Alabama; and Dallas, Texas. And exited markets where we had a small presence such as Chattanooga and Baton Rouge. In addition to acquiring and divesting properties under our capital recycling program, we're exploring the potential for JV relationships focused on new multifamily development. This program will provide capital through preferred equity investments and joint ventures with third-party developers. We will target assets in core non-gateway markets where we see opportunity for growth, with a particular focus on the Southeast and broader sunbelt region.

Our expectation is that these investments would deliver unlevered IRRs of approximately 20%, while giving us the ability to own the newly developed communities outright at attractive cap rates. We're excited about developing this initiative, giving IRT another avenue for accretive capital allocation. Looking ahead to 2021, we expect a gradual market recovery and industry fundamentals to improve. We are confident in our resilient portfolio of assets and non-gateway markets that is well positioned to benefit from migration and employment trends, particularly in the sunbelt. We will remain focused on maintaining high occupancy levels while driving rent growth when appropriate and slightly managing our costs. And we will continue to engage in attractive investment opportunities under our value-add and capital recycling programs, supplemented by potential for preferred equity investments and joint ventures. In sum, we exited 2020 from the position of strength, with ample liquidity and reduced debt, and we look forward to executing on our strategic priorities and delivering value to our stakeholders. Before I turn the call over to Farrell, I'd like to once again thank our team and highlight their dedication and ability to adapt and learn from the challenges presented over the past year. While the pandemic undoubtedly impacted our people on the way we do business, it also enabled us to squarely focus on accomplishing our vision of being a trusted and respective provider of apartment communities by offering an unparalleled living experience for our residents and a world-class environment for our employees. This goes hand-in-hand with our recent announcement to increase the size of and further diversify our Board of Directors, with the appointment of Lisa Washington. Lisa brings to IRT more than 25 years of experience in corporate governance and public company compliance as an accomplished Legal Executive and Corporate Officer. We welcome Lisa and are assured that she will bring a valuable perspective to our company.

And with that, I'd like to turn the call over to Farrell for an operational update. Farrell?

Farrell M. Ender -- President

Thanks, Scott, and good morning, everyone. We are pleased to report that IRT closed out 2020 with strong fourth quarter results, led by the diligence of our on-site teams. Due to our ongoing effort to support resident retention and build occupancy during the pandemic, our occupancy grew substantially in 2020 and was 95.3% at year-end. We continued these efforts into 2021 and have sought to support occupancy, ending January at 95.4%. On a lease-over-lease basis for the same-store portfolio during the fourth quarter, new lease rates increased 4.5% and renewals were up 1.6%, yielding a combined lease-over-lease rental rate increase of 3.3%. Strong trends continue in the first quarter-to-date, with new leases having increased 7.7%, led by our value-add communities, while renewed leases are up 4.4% with a blended lease-over-lease rental rate increase of 5.4% for our same-store portfolio. While we are encouraged by these trends, we are also cautious as we continue to manage through the pandemic, and therefore, remain focused on maintaining occupancy. Given our occupancy in the fourth quarter of 2020 and into the first quarter of this year, we've taken a targeted approach to renewal rates at communities where we have high occupancy and very little exposure. We remain optimistic about our initiatives behind our value-add and capital recycling programs, which both experienced a pickup in activity in the second half of last year. First, on our value-add program, we completed renovations on 230 units in the fourth quarter and 1,004 units in the full year, realizing average rent premiums of 21% in the quarter and 18.8% in 2020 as compared to unrenovated units. We performed renovations at 17 of our communities, four of which are nearing completion, as we have renovated 85% or more of their units. What is really important to note is that we continue to believe there are additional properties within the remaining portfolio that will offer value-add opportunities and provide outsized rent growth in the future.

Prior to the pandemic, we had identified an additional six communities to enter the value-add program. We will commence renovations at four of these communities in the first half of 2021 and continue to evaluate the remaining two based on market conditions. We anticipate completing renovations on approximately 1,300 units in 2021, with the bulk of these occurring in the second and third quarters when we experience the majority of our lease expirations. In the third and fourth quarter of 2020, we reengaged our capital recycling program, which is focused on reallocating capital from markets where we have a small presence and do not plan to grow, and invest those dollars into markets with better long-term fundamentals where, we have a larger presence and are looking to expand. With that being said, we closed on the sale of three assets in the fourth quarter for a combined gross sale price of $59.7 million at an adjusted blended economic cap rate of 5%, thereby exiting the Chattanooga and Baton Rouge markets. We realized a net gain on sale of $7.8 million from these dispositions. On the acquisition front, as mentioned on last quarter's earnings call, we purchased a 421-unit property in Huntsville, Alabama, for a gross price of $94 million, which represented a 5.12% cap rate on our year one underwriting. This acquisition expanded our footprint in Huntsville to 599 units from 178 units and will allow us to unlock value through a combination of organic market rent growth as well as growth from the implementation of our revenue management and institutional ownership. Looking ahead, we will continue to grow and strengthen our presence in middle market suburban communities in non-gateway markets that have favorable demographics, job opportunities and population growth. We are particularly optimistic about our portfolio in the sunbelt, a region which accounted for 75% of U.S. population growth over the past 10 years, and is expected to add another 19 million residents over the next decade. While we have not currently identified any acquisitions or dispositions, we plan to continue our capital recycling efforts and expand in regions like the sunbelt, where we see outsized migration and employment trends.

I'd now like to turn the call over to Jim.

James J. Sebra -- Chief Financial Officer

Thanks, Farrell, and good morning, everyone. Today, I'd like to begin with an overview of our fourth quarter and full year 2020 results, then provide a brief review of our balance sheet and capital structure, and wrap up with a discussion of our 2021 guidance. Beginning with our 2020 performance update. For the fourth quarter of 2020, net income allocable to common shareholders was $13.3 million, down from $23.8 million in the fourth quarter of 2019. The decrease was due to $9.4 million of gains on the sale of real estate assets in the fourth quarter of 2020 as compared to $20.7 million of gains on the sale of real estate assets in the fourth quarter of 2019. For the full year 2020, net income allocable to common shareholders was $14.8 million, down from $45.9 million for the full year 2019. Similarly, the decrease was due to the gain on sale of real estate assets of $7.6 million in the full year 2020 and $35.2 million in the full year 2019. During the fourth quarter, core FFO grew to $20.8 million, up 11.7% from $18.6 million in the fourth quarter of 2019. Core FFO per share during Q4 was $0.22, 10% higher than Q4 last year, at $0.20 per share. For the full year, core FFO grew to $75.9 million, up 10.8% from $68.5 million in 2019. Core FFO for the full year was $0.80 per share in 2020, up from $0.76 per share for the full year of 2019. Turning to our same-store property operating results. NOI growth in the fourth quarter was 4.4%, driven by revenue growth of 5.4%. Rental rates increased year-over-year with an average monthly rent of $1,117 this quarter, up 2.6% since the fourth quarter of last year, and has accelerated to an annualized 4% growth rate sequentially from the third quarter. While this included value-add communities, we did see rental rate growth at our non-value add same-store communities, with rental rates in Q4 increasing 120 basis points over the prior year. For the full year 2020, same-store revenue grew 3.6%, almost entirely driven by the 3.4% increase in average rental rates.

We have collected 98.7% of our fourth quarter billings, and we have collected 99.3% of our 2020 billings. As a result, we have evaluated our outstanding receivables for collectability to increase our reserve for bad debt by $124,000 during the fourth quarter to a total of $927,000. The $927,000 reserve for bad debt recorded as of December 31st reduces the future risk of any billed revenue that we have not yet collected. To put it in context, we ended the quarter with $1.9 million of gross receivables, including those that were part of our deferred payment plans. Subsequent to December 31st, we've collected $557,000 of those gross receivables and expect to continue receiving payments in future periods. After considering the reserve for bad debts, our net accounts receivable left over as of December 31st was $433,000, about $0.0033 per share. As a result, we feel that we are adequately reserved and feel good about collecting those remaining net receivables. On the property operating expense side, same-store operating expenses grew by 7.3% for the fourth quarter of 2020, primarily due to higher real estate taxes and insurance, a theme that continues from earlier this year, as well as increases in repairs and maintenance and contract services as a result of delays caused by the pandemic. For the full year, total operating expenses grew by only 4.5%, which was at the low end of our original 2020 guidance range. Turning to our balance sheet. As of December 31, our liquidity position was $186 million. We had approximately $9 million of unrestricted cash, $165 million of additional capacity through our unsecured credit facility and $12 million of proceeds from our November sale agreement. In November, we issued 900,000 shares of common stock under our at-the-market sales program at a weighted average per share price of $14, and then enter into a forward sale agreement associated with these shares. We have until December 15, 2021, to settle the forward sale agreement and receive those net proceeds after commissions of approximately $12 million.

During the fourth quarter, we took down the remaining portion of our February 2020 forward equity raise and issued the remaining 6.9 million shares of common stock, receiving $99 million of net proceeds. We used these proceeds to pay down borrowings on our line of credit. As of December 31, 2020, our normalized net debt to adjusted EBITDA was 8.2 times, down from 9.1 times in Q3. We will remain focused on reducing leverage and achieving our midterm net debt to adjusted EBITDA target of around the mid-7. Regarding our dividend, IRT's Board of Directors declared a quarterly cash dividend of $0.12 per share, which was paid on January 22. With respect to guidance, we've decided to provide some parameters for 2021 based on increasing visibility on business, industry and economic conditions. Our guidance for 2021 EPS is a range of $0.04 to $0.08 per diluted share, and for core FFO is a range of $0.78 to $0.82 per share. Our per share guidance is based on the assumption of 102.6 million shares and units outstanding in 2021, which is an increase of 8.2 million shares from our 2020 weighted average share count. This increase is a result of the shares issued during 2020 as part of February 2020 forward equity raise, where the proceeds were used to fund a portion of our Huntsville acquisition and to delever our balance sheet down to 8.2 times, as previously mentioned. For 2021, we expect NOI at our same-store communities to increase between 1.5% and 3.5%. This reflects expected same-store revenue growth of between 2.75% and 4.25%. This revenue growth assumes that our average rental rates grow by 2.4% and our bad debt expense is 1.25% of our revenue. For 2020, our bad debt expense finished out the year at about 90 basis points of revenue.

For 2021, while we believe our properties will continue to perform well, we are conservatively increasing our bad debt assumption as we expect further pressure from eviction moratoriums and/or other government regulations in response to the COVID-19 pandemic. Moving on to expenses. Our projected growth in same-store real estate operating expenses of 4% to 5.25% is a result of our expectation that controllable operating expenses should increase between 2% and 3% and our noncontrollable expenses, including real estate taxes and insurance, should increase between 7% and 9%. Lastly, we would like to note that beginning in the first quarter of 2021, we plan to change our definition of core FFO and will no longer exclude stock compensation expense and the amortization of deferred financing costs. Our currently issued 2021 core FFO guidance does not reflect these adjustments. But we will provide all historical results and update our 2021 guidance when we report our first quarter results.

Now I'd like to turn the call back to Scott. Scott?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Thanks, Jim. In closing, I would like to highlight that our strong full year results reflect IRT's commitment to retain residents, maintain high occupancy levels and provide quality homes and communities during a time of uncertainty. We're proud of the efforts of our team and thank them for their dedication. Looking ahead, we remain confident in our operating and investment model that was built not only to weather near-term volatility, but also to grow and strengthen over time. We thank you for joining us today and look forward to speaking with many of you at Citi's Global Property Conference in early March.

Now -- operator, we would now like to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Neil Malkin with Capital One Securities. Your line is open.

Neil Malkin -- Capital One Securities -- Analyst

Great, good morning. Thanks guys for taking my questions and nice quarter. First one, you mentioned -- sorry, JV -- commentary on JVs, potentially other structures to more aggressively pursue acquisitions. Can you just maybe elaborate on that? And then why that seems like an appropriate endeavor given your favorable stock price currently issuing equity to delever and grow as opposed to doing, sort of, I guess, complicated JV structures? Thanks.

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Well, thanks, Neil. Well, first, we don't look at it as being overly complicated, and we do look at it as an additional avenue to grow. I'm confident or I'm comfortable looking at it at this time relative to looking at it in the past when we were able to just go out and acquire properties directly because I think I've mentioned this in prior calls that some of the values and cap rates and pricing of our historical type asset, the B plus, A minus, some of the prices are, we think, getting a little bit sloppy. So you look at the situation where you can buy brand new at very similar cost to what people are paying for 12- to 15- to 20-year old product. And we think there's a real opportunity now to have some new construction within the portfolio. So not only do we see this as being a benefit pricing-wise, but we also see it as a way to build pipeline for future growth. It's a situation where the company is now, with the delevered balance sheet, I think, in a stronger position, and we're willing to take on some limited risk at this time.

Neil Malkin -- Capital One Securities -- Analyst

Yes, that makes sense. Just to clarify, that's -- is it mostly focused on development or just sort of newer five years or younger vintage? Yes, I know you mentioned preferred. So how does that go in terms of priority for you?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

It's both. I mean we're looking at both. I mean, we're going to look at what is giving us the best risk-adjusted returns. But we haven't done any transaction yet, and that's why we said we're exploring.

Neil Malkin -- Capital One Securities -- Analyst

Got it. Okay. Other one for me. Just in terms of guidance, it seems, to be honest, pretty conservative just given you're accelerating from already strong levels of blended leasing spreads. Obviously, you've taken your balance sheet to, I think, the lowest leverage in your history. So congrats on that. But do you -- I mean -- I guess how do you -- what position do you take to sort of get to that current range? I mean, just given kind of the things you've talked about on the call in terms of strength, in terms of what you're looking at from a growth standpoint, in terms of favorable stock price to get you to the current range and not a little bit higher?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

So I'm going to let Jim answer the question completely. But I just want to start out with saying that we feel that we're in a very, very good place right now. Our portfolio is well positioned. We're in the area of the country that's growing, jobs and population with limited regulations. But there is still some uncertainty. So the eviction moratorium's still out there. We don't know how long it will be. We don't know how it will end. We've done a very good job of collecting rents, and we continue to collect rents from last year and from January still to this day, as people are able to catch up. So again, we feel we are in good place, but there is some uncertainty. And the guidance we put out, I think, reflects a little bit of that. Jim, do you want to expand on this?

James J. Sebra -- Chief Financial Officer

Yes. No, I think that's absolutely right. I mean I think we've done a good job of continuing to build occupancy. We feel like we're in a strong position. But there is aspects of the next few months that are unknown and certainly time will tell. As Scott mentioned, collections continue to be good, velocity continues to be good, good rent growth so far in the month of January and specifically the first quarter, but we're just being cautious about kind of what the aspects were that we don't know. As Scott mentioned, we did a nice job of collecting so far January rents, and we continue to collect rents every day for January. And January rents are actually slightly -- the collection is actually about 30 basis points better today than they were as of yesterday. So life continues to improve and, obviously, we will continue to evaluate market conditions and update guidance throughout the year as time unfolds.

Neil Malkin -- Capital One Securities -- Analyst

Thank you, guys.

Operator

Austin Wurschmidt with KeyBanc. Your line is open.

Austin Wurschmidt -- KeyBanc -- Analyst

Hey, good morning. Thanks guys.Yes, I just wanted to hit again on some of the new news around the preferred equity and joint ventures. And just hope you could talk a little bit more about how you're underwriting these deals? And how large this investment or platform could become as a percent of enterprise value or however you're thinking about it? And then you also mentioned that this is a source of potential future acquisitions and help building that pipeline. But how much would you guys be willing to expand into kind of more A type assets, as this really hasn't been the focus historically?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Thanks, Austin. So we've identified or targeted no more than $100 million at this time for this program. We think, ultimately, it would be and will be very accretive as far as new construction and is not being what we've done. Remember, we were looking at in both portfolio of fee assets really because we felt that it was a better investment -- better long-term investment with better opportunities for good share accretion and growth. That equation becomes a little more difficult to say when you see, again, 15- to 20-year-old product trading in some of our markets, some forecast. So we look at it as a good alternative way to allocate capital at higher returns and a way to continue to grow within the markets that we like. And as far as the competition, don't forget the areas that we are in, sunbelt, are growing tremendously. I mean there's one report out there that there will be a $19 million -- 19 million, excuse me, people of population growth in the sunbelt region over the next ten years. Well, that's 19 million homes that's on excess. So we think there's an opportunity. Obviously, it's going to be somewhat limited. As I said, we're still exploring. We haven't done anything. But we think it could be a very good way to allocate capital accretively, again, looking at risk-adjusted returns, but not getting out for our seats. We're going to do it in a limited and measured way, and make sure it's the right thing to do for our company.

Austin Wurschmidt -- KeyBanc -- Analyst

Got it. And I certainly think it could make a lot of sense. I appreciate the thoughts there. So as we think about kind of funding this investment, you guys did issue some shares under the ATM, some additional shares under the forward program. And curious what your thought is on how much appetite you have to do anything additional there on that front? And kind of related to, I guess, funding these initial -- this initial preferred equity investments, either through the ATM or just capital recycling?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

So we're looking at it really as part of the capital recycling initiative, that we're not going to go out and issue equity in order to fund this, but it would be part of the capital recycling. But again, money is fungible. So we are -- we do think there's opportunity for growth, notwithstanding the sloppy cap rate environment. We have very good relationships. We continue to monitor them. We have the ability to execute and transact quickly, which some sellers want. And we will continue to take advantage of those opportunities as we have in the past. But this is just an alternative use of capital and nothing different. And quite early as it will come from the recycling program.

Austin Wurschmidt -- KeyBanc -- Analyst

Got it. Thank you for your time.

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Nick Joseph with Citi. Your line is open.

Nick Joseph -- Citi -- Analyst

Thanks. Maybe just following up on that. It's obviously nice to see the leverage progress that we've made so far. But when do you expect to get to the target of mid-7 and given guidance and the new announcement this morning, where do you expect leverage to be at the end of 2021?

James J. Sebra -- Chief Financial Officer

Hey, Nick, thanks. As it relates to our mid to -- low to mid-7s target, we're still on target to hit that by the end of 2022. I think we'll continue to make progress on that front between now and the end of 2021. And obviously, we'll continue to work everything we can to kind of grow those earnings and reduce that net debt-to-EBITDA through just normal accretion. Obviously, there is aspects of future growth. It's still a little bit unknown, and we'll just continue to just moderate and update guidance throughout the year as that comes through.

Nick Joseph -- Citi -- Analyst

And so what is the current guidance for the end of the year?

James J. Sebra -- Chief Financial Officer

It's a slight downtick to the kind of upper 7s from where we are today, about 8.2%.

Nick Joseph -- Citi -- Analyst

Thanks. And then just following up on the -- on kind of the JV or this new external growth opportunity. Why is now the right time, not necessarily from the opportunity, but just given the uncertainty still from COVID and the eviction moratorium and everything like that, and the progress that you've made on leverage, why is now the right time to execute on that versus waiting a little while longer, until you have a little more clarity and stability?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Thanks, Nick. It's Scott. So that's one of the reasons. The -- I should say, the things you mentioned are the reasons that we're exploring and that we haven't jumped in headfirst. We're looking at it. We believe that the COVID will come to an end. There is an opportunity. Some of the lenders have pulled back, making capital a little more needed by the developers, and it gives us the opportunity for better pricing at this time. But we are exploring it. And we do recognize the uncertainties, and that's why we're going slow. But now with the leverage down where it is, and to Jim's point, you can see it in the 7s by the end of this year. I just feel a little more comfortable to add those different risks when you look at what the reward will be -- could be.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

Amanda Sweitzer with Baird. Your line is open.

Amanda Sweitzer -- Baird -- Analyst

Thanks. Good morning, guys. I wanted to start with your value-add pipeline and the two projects that are still on hold. Can you go through the fundamental triggers you're looking for to become more comfortable with restarting those projects? And then as we think further out, do you see opportunities in the existing portfolio to add properties to that pipeline beyond the six that you've outlined?

Farrell M. Ender -- President

Sure, Amanda. It's Farrell. Good morning. So the two properties that we haven't commenced on out of the six that we identified, one is our Asheville community. It's a market that is heavily dependent on tourism and service. So if you look at the results, we're down in that market, and we're looking to get an 18% to 20% return on any renovation project. So right now, we just don't feel that given where the market is that we would be able to generate those types of returns. The other property is a property in Raleigh. Same type of situation given the submarket. We are not confident right now, but we think in the future that we will probably add that to the value-add pipeline. And I think, as you know, we build out teams in all these markets that we're doing value-add, in the Columbus, Memphis, Tampa, Raleigh. So we're self-performing all the work and saving a considerable amount of money compared to somebody that would have to bring in a general contractor. So there's still several markets that we have not done this in, that have communities that we think will eventually be added to the value-add pipeline, such as ND and Indianapolis and Oklahoma City and Dallas. So it's just a matter of, again, building out those teams and not -- and doing this really thoughtfully.

Amanda Sweitzer -- Baird -- Analyst

That's helpful. And then following up on the most recent forward sale. Can you talk more about how you thought about your cost of capital at the $14 per share issuance price, I guess, relative to your NAV likely increasing sort of recent decline in private market cap rates?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Yes. I mean, I think when we look at kind of raising equity capital, we tend to look at kind of how we can deploy in assets that are -- what the cap rates are of assets and just making sure that it's accretive from an earnings standpoint and from an NAV standpoint. So that's kind of how we think about the cost of capital per se. And we always look at it also as a kind of incremental deleveraging. So we may not use those proceeds to fund something where it's leverage-neutral, but rather leverage improving through time to just kind of take that into account in terms of making sure it's accretive from an earnings and an NAV standpoint.

Amanda Sweitzer -- Baird -- Analyst

That's helpful. Thanks for the time.

Operator

John Massocca with Ladenburg Thalmann. Your line is open.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Good morning, John.

John Massocca -- Ladenburg Thalmann -- Analyst

So you mentioned that the Class B market appeared kind of frothy. But I mean how has that trended recently? Just curious if you've seen any impact on competition for assets from kind of some of the recent changes in interest rate expectations?

Farrell M. Ender -- President

Yes, John, good morning, it's Farrell. Yes, we've definitely seen some pressure on cap rates in our market. I mean, it's a pretty favorable asset class right now and the markets we're in are desirable. So we're seeing cap rates at 4.5% and trending down to, as Scott mentioned, even sub-four in certain circumstances where people are underwriting significant value add. So it's gotten pretty competitive.

John Massocca -- Ladenburg Thalmann -- Analyst

But I mean even -- has it even gotten more competitive since, say, like November, December as maybe there's been some expectation of a little bit of an interest rate increase on the long end of the curve?

Farrell M. Ender -- President

I would say that even before -- coming out of the summer, there was just pent-up demand because there was a lot of deals that just went sideways because of the market. So I would say the fourth quarter in general and into this year, you've just seen a lot more people get a lot more aggressive because they haven't been able to put out capital for six months.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then I know we've talked about the JVs kind of ad nauseam at this point. But in light of the discussions around JV, what is your view on kind of supply dynamic for Class A assets in your markets? I mean historically, there's been some headwinds to those assets from new supply that doesn't exist in Class B. And has the pandemic just kind of extinguished all that concern, given kind of population movement and some of the growth in some of your core markets?

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

I don't think it's distinguished that concern. But I think that we're going to come at this in a very targeted way and make sure that we are in locations and markets that will be able to absorb any new supply, and that you're well-located and appropriately managed. So it doesn't eliminate the concern, but we expect that we'll be doing it in a way that we take all of that into consideration.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then one last detail one on the balance sheet. As some of these kind of mortgage bullets come due, should we expect those to be refinanced as mortgage debt? Or are you kind of moving to a completely unsecured balance sheet?

James J. Sebra -- Chief Financial Officer

Yes. This is Jim. Yes, we'll be moving to a unsecured balance sheet. So we will not be refinancing those with mortgages.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. Well, that's it for me. Thank you very much.

James J. Sebra -- Chief Financial Officer

Thanks, John.

Operator

There are no further questions at this time. It's now my pleasure to turn the call back over to Scott Schaeffer for closing remarks.

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Well, thank you all for joining us today. We are excited for 2021 and look forward to speaking with you and giving you an update on our next call. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Lauren Torres -- Investor Relations

Scott F. Schaeffer -- Chairman of the Board and Chief Executive Officer

Farrell M. Ender -- President

James J. Sebra -- Chief Financial Officer

Neil Malkin -- Capital One Securities -- Analyst

Austin Wurschmidt -- KeyBanc -- Analyst

Nick Joseph -- Citi -- Analyst

Amanda Sweitzer -- Baird -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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