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Independence Realty Inc Trust (NYSE:IRT)
Q3 2021 Earnings Call
Oct 28, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Independence Realty Trust Third Quarter 2021 Earnings Release. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Lauren Torres. Please go ahead, ma'am.

Lauren Torres -- Analyst

Thank you, and good morning, everyone. Thank you for joining us to review Independence Realty Trust's third quarter 2021 financial results. On the call with me today 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 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 financial performance and the proposed merger with Steadfast Apartment REIT, which will be referenced herein as STAR. Actual results could differ substantially and materially from what IRT has projected, and there can be no assurance that IRT will consummate the merger within the expected time frame or at all. 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 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 & Chief Executive Officer

Thank you, Lauren, and thank you all for joining us today. We're excited to review our third quarter results, which reflect the strength of our business and the opportunities that lie ahead. On today's call, I'd first like to provide some quarterly highlights and then update you on our proposed merger with STAR. In the third quarter, we experienced continued momentum due to the execution of our strategic plan and strong resident demand supported by positive migration trends as well as favorable population and employment growth in our markets. This has allowed us to achieve high occupancy levels at our communities and drive significant rental rate growth, which was clearly reflected in our third quarter results. Specifically, our same-store NOI increased 14.7% in the quarter, and our core FFO improved more than 25% compared to a year ago. Our same-store average occupancy increased to 96%, a 220 basis point increase on a year-over-year basis. Our average effective monthly rent per unit grew 7.3% in the quarter, and we collected over 98% of third quarter rents and have now collected 99.4% of second quarter rents. We are very pleased with these results, especially given that we generated positive NOI growth in each quarter throughout the the entirety of the pandemic. And with favorable demand trends continuing, we are seeing strong results so far in October. Our total portfolio average occupancy is 96.2%, a 130 basis point improvement compared to October of last year. We have collected nearly 96% of October rents, which is consistent with collections at this point in prior months. And given our high occupancy in the third quarter, we continue to drive rent growth, averaging 14.2% for leases signed so far in the fourth quarter on a blended basis. We also continue to execute on our proven value-add program. In the third quarter, we completed renovations on 330 units. And since commencement of our value-add program, we have now completed 4,419 units at an average cost of $12,783 per unit and generated average rent premiums of $188 per month, resulting in an unleveraged ROI of approximately 18%. As mentioned on our last earnings call, after the combination of IRT's and Star's portfolio, we will have a pipeline of approximately 20,000 units available for future renovation. In addition to our value-add program, IRT will continue to assess markets where we see long-term growth opportunities and reevaluate those that may not be attractive long-term investments, while engaging in joint venture relationships focused on new multifamily development. Most recently, we entered into a joint venture with a partner to develop three new communities in Nashville, an exciting market that we'll be entering at scale post-merger. Farrell will provide more details on this shortly.

But before I hand it over to Farrell, I would like to provide you with an update on our proposed merger with STAR. Last quarter, we announced our intent to join together two very similar high-quality businesses with complementary geographic footprints creating a 38,000 unit portfolio focused in the highly desirable Sunbelt region of the United States. I'm pleased to note that integration on the planned merger with Star is progressing well. We continue to have good visibility on realizing our projected annual synergies of $28 million and expect the transaction to be immediately accretive to core FFO per share by approximately 11%. We expect to close the transaction in the second half of December, pending shareholder approval at our Special Shareholders Meeting on December 13. This is an exciting time for both IRT and Star stakeholders as our business combination will create a leading publicly traded multifamily REIT in markets where we see substantial room for growth. And now 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. I also share Scott's excitement and optimism for our business. Our year-to-date results are strong due to the dedication of our team that is focused on servicing and retaining existing residents and attracting new residents to our communities. In the third quarter, our same-store occupancy grew 220 basis points to 96% from 93.8% a year ago. This has continued in October, with total portfolio average occupancy at 96.2%, up 130 basis points year-over-year. We've been able to achieve these levels while increasing our average effective monthly rent by 7.3% in the quarter. On a lease-over-lease basis for the same-store portfolio, new lease rates increased 19.8% and renewals were up 5% during the third quarter, yielding a combined lease-over-lease rental rate increase of 10.5%. Strong trends continue in the fourth quarter to date with new leases having increased 24.1%, led by our value-add communities, while renewed leases are up 9.4% with a blended lease over lease rental rate increase of 14.2% for our same-store portfolio. We are also seeing strong resident retention with a third quarter retention rate of 60.3%. So far in October, retention is 52.7%, up from 47.5% a year ago. To give you an update on our value add program, we completed renovations of 330 units in the third quarter. We are currently performing renovations at 20 of our properties having added our Meadows community in Louisville to our ongoing renovation program. As detailed on the value-add summary in our supplement, we are now adding 1,295 units at communities that we will begin renovating in 2022. We have designated seven communities completed as we have renovated 85% or more of their units. We will continue to work toward completing 100% of their units as leases expire. Year-to-date, 700 units have been completed, and we now expect to complete renovations on 1,000 units in total by year-end. This is less than our initial projections due to the higher-than-expected retention rates we saw throughout the year. As Scott mentioned, after the merger of Star is complete, we will have a portfolio of approximately 20,000 value-add units. In 2022, we expect to renovate 2,000 units from the combined portfolio and ramp up to 4,000 units per year thereafter. During the third quarter, we closed on the joint venture in Nashville to develop three communities totaling 504 units with a joint venture partner. We are investing a total of $14.4 million into the joint venture and have the right but not the obligation to purchase the communities upon their completion.

The first community will be delivered in the first quarter of 2022 and and with the Star merger will enhance our exposure to this desirable market. Touching on our planned dispositions, we closed on the sale of King's Landing property in St. Louis this quarter, recognizing a gain on disposition of $11.5 million. In conjunction with the planned merger with Star, we have identified six assets to sell as we manage market concentrations, two are expected to sell this year and four during the first quarter of 2022. We expect the blended economic cap rates on these dispositions to be 4%. Once completed, proceeds will be used to repay debt of the combined companies. Now I'll turn the call over to Jim.

James J. Sebra -- Chief Financial Officer & Treasurer

Thanks, Val, and good morning, everyone. Beginning with our third quarter performance update, net income available to common shareholders was $11.5 million, up from $1.1 million in the third quarter of 2020. During the third quarter, core FFO grew to $22.7 million, up 25% from $18.2 million in Q3 2020. Core FFO per share during Q3 was $0.21, 10.5% higher than Q3 last year at $0.19 per share. Turning to our same-store property operating results, NOI growth in the third quarter was 14.7%, and driven by revenue growth of 9.4%. This growth was driven by a 7.3% increase in average rental rates and a 220 basis points of higher average occupancy. While this NOI growth includes value-add communities, we did see NOI growth of 12.8% at our same-store nonvalue-add communities. Again, this growth was driven by a 6.3% increase in our average rental rate and 230 basis points of incremental occupancy in the third quarter, both as compared to last year. To date, we have collected 98.4% of our third quarter billings. Consistent with past quarters, we evaluated uncollected amounts for collectability, and we maintain a reserve for bad debt. As of today, including collections subsequent to quarter end, we maintained a bad debt reserve of $1.2 million associated with the $1.6 million of gross receivables. As a result, we have a net receivable balance of $410,000 and believe that these receivables will be collected in the near term. From an earnings perspective, our bad debt expense was 1.1% of total revenue in the third quarter. On the property operating expense side, same-store operating expenses grew a modest 1.7% in the third quarter, as real estate taxes and advertising expenses declined on a year-over-year basis. The decline in real estate taxes was due to onetime assessments in the third quarter of last year, while advertising expenses were down as spend was higher last year. To recall, the pandemic started to wane last summer and leasing velocity increased, and as a result, our advertising costs increased last year. In addition, we experienced higher repairs and maintenance costs during the third quarter of this year compared to last year, when many projects were delayed due to COVID. Turning to our balance sheet. As of September 30, our liquidity position was $221 million. We had approximately $8.7 million of unrestricted cash and $212 million of additional capacity through our unsecured credit facility. In addition, we have $273 million of proceeds that we will receive upon settlement of our outstanding equity forward sale agreements, covering 16.1 million shares of our common stock. We expect to bring down the associated forward sale agreements during December 2021 in connection with the closing of our merger with STAR. On the dividend, IRT's Board of

Directors declared a quarterly cash dividend of $0.12 per share, which was paid on October 22. This represents a payout ratio of 63% or $0.19 of AFFO during Q3 2021. With respect to our outlook, we are updating our 2021 guidance based on our third quarter results and favorable view of our portfolio performance for the remainder of the year. Our updated guidance does not take into account any impact of the pending merger with Star. Our revised guidance for 2021 EPS is a range of $0.18 to $0.23 per diluted share and for core FFO is a range of $0.80 to $0.82 per share, up from our previously guided range of $0.76 to $0.78 per share. Our core FFO per share guidance adjusts for depreciation and amortization as well as gains on the sale of real estate assets and merger and integration costs. For 2021, we now expect NOI at our same-store communities to increase 10.25% at the midpoint, up from our previously guided midpoint of 7%. This updated guidance reflects expected same-store revenue growth of 7.5% at the midpoint, given higher average occupancy rates, rental rates that have increased more than expected and bad debt expense that has trended lower than anticipated. Moving on to expenses. Our new projected growth in total same-store real estate operating expenses of 2.75% at the midpoint is a result of our expectation that controllable operating expenses should increase 4.25% at the midpoint and our noncontrollable expenses should increase only 50 basis points at the midpoint. Generally, our original expectation for a more notable increase in real estate taxes portfoliowide did not materialize this year. Regarding our transaction and investment volume expectations for 2021, we have a few updates. With respect to acquisitions, other than our pending merger with Star, we are not projecting any additional acquisitions this year. As of now, our pending merger with Star is expected to close in mid-December this year as the special shareholder meeting to approve the merger is scheduled for December 13. As for dispositions, we are now projecting a disposition volume of between $170 million and $180 million. This increase from our previously guided range is a result of the assets we have currently identified as held for sale. In connection with the pending merger of Star, we identified nine assets for sale, six from IRT and three from STAR. The proceeds from the sales of these nine assets will be used to delever the combined balance sheet at or shortly after the closing of the merger. Our original estimate of value for these nine assets was $340 million. Given the strength in the market, we are now estimating the value of these nine assets to be between $375 million and $385 million. Before I turn the call back to Scott, I wanted to briefly touch upon some preliminary thoughts looking into next year. Recently, there has been a lot of press and discussion about the potential impact of inflation, labor shortages and supply chain disruptions. We are clearly evaluating all these factors on our business as we work through our budgeting process for 2022. We are expecting to see more than an inflationary uptick in wages but expect that our investment in PropTech and automation will help to alleviate some of these potential increased expenses. We are also anticipating an increase in the cost of raw materials used in our value-add renovation program. We do expect that demand and rental premiums for these upgraded units will continue to be robust in 2022, such that our ROIs, even after the cost increases, will remain in the 15% to 20% range. Lastly, as we think about the interplay between rental rates and occupancies, some of the market data we read suggest that double-digit blended rent growth will continue during 2022. For 2022, our plan will be to continue to manage both rental rate growth and occupancies to generate the highest possible revenue. Thank you for your time today. As we head into the final months of 2021, we look forward to closing our merger with STAR, and we plan to provide full year 2022 guidance during our year-end earnings conference call in February. Now I'll turn the call back to Scott. Scott?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Thanks, Jim. In closing, I want to once again highlight how encouraged I am by our strong year-to-date performance, supported by favorable market trends and IRT's commitment to driving growth from our proven portfolio of assets. We're also excited about our future as we look forward to partnering with STAR and expanding our high-quality portfolio in markets where we see high growth potential. We thank you for joining us today, and we look forward to speaking with many of you at NAREIT's Virtual REITworld Conference at the beginning of November. Operator, we would now like to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question from the line of Neil Malkin from Capital One Securities. You may now ask your question.

Neil Lawrence Malkin -- Capital One Securities, Inc. -- Analyst

Thank you, good morning guys. Great quarter. First question from me relates to the merger. I think just in general, when you're dealing with these types of things, integration of the various things maybe get -- kind of take your eye off the ball or things might happen that are unexpected. I think something like that happened with a larger Sunbelt per a few years ago. took them, I think, a year longer to sort of get the revenue management system up and running. So just wondering what you guys are doing proactively to eliminate any potential hiccups with either regard to the synergies or getting all the culture onboarded and the various things that can potentially, again, sort of wrenching the system of an otherwise smooth process. Thanks.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Thanks, Neil. And obviously, it's a great question, and it's on all of our minds every day. So the integration is progressing well. Fortunately, for us and for Star, we have very similar operating systems and culture. So putting the companies together, while there will always be bumps in the road, we think we are well on our way to having a smooth integration process. We've just gone through the conversion of our operating system from Yardi to Entrada. STAR is on Yardi. So we now have great experience behind us because we did it for all of the IRT properties. So moving the Star properties on to Entrada, we think we have a very, very good handle on that. We've been very focused on not just the technology but on people. We're keeping all of the on-site STAR people. Most of their -- or I think all of their regionals and many, many, many of their operating people are coming along. We all have within both companies a good history of the different systems that we use. So working together and getting it on to one one platform, we think will be very doable within the stated time frame that we've laid out. And so far, I can tell you that we've had very good all hand integration meetings every week. We have a committee that's been formed to put this -- to monitor and to oversee the processes. And again, we do expect, obviously, there to be some bumps, but we're working very hard to minimize those and so far, so good.

Neil Lawrence Malkin -- Capital One Securities, Inc. -- Analyst

Great. I appreciate your commentary. The other question I have relates to the value-add platform, obviously, very successful, very accretive. You commented about materials, supply chain issues. And I've heard -- we've heard that some companies are saying, look, you can't order any more drywall or lumber for some sorts of things. And so I'm just wondering given that you're planning on ramping up your pipeline next year and these issues appear to not be abating, are you sort of preordering? Or what sort of things are you doing to ensure that you have enough materials to actually execute on your planned amount of turns?

Farrell M. Ender -- President

Yes, Neil. This is Farrell. Good question. So remember, we're not doing any real ground-up. So we're not experiencing any issues with lumber or drywall, but we're doing appliances and countertops and flooring and we strategically two years ago, built out a procurement supply chain team that is working tirelessly to mitigate any of those shortages. We do experience them. We had some appliance issues into last year. we expect material prices to rise in the future, and it's their job to leverage the scale of the platform to get the best prices that we can on materials.

Neil Lawrence Malkin -- Capital One Securities, Inc. -- Analyst

Okay. Great. And then maybe just another quick one real quick is you're seeing such strong demand. And I'm just wondering, can you attribute that to -- I mean, these are like historically strong levels here, I mean, is it just the sheer number of people coming into the market like in-migration from a lot of these higher cost legislatively troubled market? Or is it just more jobs, higher wages? Like what is driving this all-time level of pricing power?

Farrell M. Ender -- President

Well, we talk about the supply demand imbalance a lot. And I think just overall, the market fundamentals in the markets we're in are outpacing national average. You add on that compound the impact of COVID. And in the majority of our markets, you're seeing demand basically at twice the amount of supply. And that's -- we've probably got a decent amount of time that we're going to experience that again, because of COVID and market fundamentals, supply, new construction has slowed during that period. So we're just seeing a tremendous amount of demand for our product in the majority of our markets.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

We've always had this philosophy that people need a place to live, and that's why we look multifamily. Again, what Farrell said, our markets have had a supply demand imbalance for some time. growing population and job creation higher than in any other parts of the country. And that just creates a need for housing. And again, there's a housing shortage. So we've always had this philosophy if you provide a good clean well-located asset and you maintain it and you manage it professionally, you will keep good strong occupancy and be able to push rents. And now with rising wages, it really gives us the ability to continue to push rents. If you think about it, only $0.20 of every dollar that our residents earns on average goes toward rent with rising wages does give us, again, that tailwind to continue to generate higher rent.

Neil Lawrence Malkin -- Capital One Securities, Inc. -- Analyst

Thank you guys.

Operator

And speakers, our next question from Amanda Sweitzer from Baird. You may now ask your question.

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Thanks good morning guys. I want to start on guidance. Can you just update us on what the implied blended lease rate is in guidance today versus what you've achieved year-to-date?

James J. Sebra -- Chief Financial Officer & Treasurer

For the whole year? Or just for...

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Yes, for full year guidance and what you've been doing year-to-date?

James J. Sebra -- Chief Financial Officer & Treasurer

Yes. I mean the revenue growth that we have in our guidance, as I mentioned, is a kind of midpoint of 7.5 times -- or 7.5%. The rent growth that we've been seeing today, call it, 24% in the fourth quarter, 9% of renewals in the fourth quarter. It's got a blended lease growth in the fourth quarter, 14%. For the year-to-date, it's about 9% blended rent growth. We've got a -- meet the blended rent growth that we have heading into the fourth quarter in the whole full year guidance.

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. That's helpful. And then following up on the integration aspect. As you dug into the Steadfast portfolio, a bit more, do you have any update on expected capex investment either in terms of the ROIs you'll be able to achieve on that portfolio, in particular or any potential deferred maintenance issues that you've seen?

James J. Sebra -- Chief Financial Officer & Treasurer

Yes. We've -- something has obviously done our due diligence as part of the merger. There's no deferred maintenance. Their recurring capex spend is going to be very consistent with our recurring capex spend roughly $550 a door, plus or minus annually. And then as we mentioned, as Farrell mentioned, there is a large pipeline of value-add potential in the portfolio that we think we'll be able to continue to achieve roughly the same ROI that we've achieved.

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Okay. Makes sense. And then last one from me. Just given the strong fundamental performance as well as the accretion you expect from Steadfast. Any update to how you and the Board are thinking about the dividend today?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Yes. The only update is that we want to get through -- and again, this is Scott. And as the Chairman of the Board, I have some insight, but I can't speak for the whole Board. We want to get through the merger, we want to get through the integration. We recognize that our payout ratio has declined dramatically with the bottom line. So it's something we'll be looking at, but not into merger and.

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Make sense, appreciate the time.

Operator

Speaker is our next question from the line of Nick Joseph from Citi. You may ask your question.

Nicholas Gregory Joseph -- Citigroup Inc. -- Analyst

Thanks. Maybe just continuing on the integration. How quickly do you expect to be able to add the Star assets to the redevelopment program and actually begin work on them?

Farrell M. Ender -- President

So pretty quickly, I mean, we're going to start with markets that we're already in. We anticipate being able to add a handful next year to the renovation platform and really 2023 really going full steam into their portfolio.

Nicholas Gregory Joseph -- Citigroup Inc. -- Analyst

And then just on the same-store guidance change. Obviously, you pulled, I think, about six properties out of the pool. What was the impact if those assets have remained in the pool? Was there any impact from the removal of the properties? Or was it just pure change for the portfolio overall?

James J. Sebra -- Chief Financial Officer & Treasurer

Yes. No, the same-store growth in the third quarter with 47% was 14.7%. If you included the six dispositions in the same-store pool would have been 14.2%. And so fairly consistent. And the guidance that we have from a disposition standpoint is that two of those six assets will sell probably in the second half of December. So from an earnings standpoint, very small effect on the year. Thank you.

Nicholas Gregory Joseph -- Citigroup Inc. -- Analyst

Is there any change to the full year guidance based on the removal?

James J. Sebra -- Chief Financial Officer & Treasurer

There's not, no.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

It's Michael Griffin here with Nick. I just had one question, and it sounds like you're trying to minimize many of the risks as possible in terms of systems and people that typically arise coming out of M&A. Given the fact that Star a non-traded REIT a lot of individual shareholders, what are you starting to do to sort of deal with the potential flowback of sales from that? Can you set up a program? Are you trying to get other institutional shareholders to come in? So just walk me through how you're thinking about dealing with that given it's so significant of an equity base.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Well, thanks, Mike. It's a question that we've thought a lot about, pre agreement to merge and since I don't know that there's a whole lot we can do. We're not going to do a buyback, especially with where the stock is trading. We don't think that's appropriate. But we've been advised that there will be, give or take, 20% to 25% of the retail shareholders will look to exit over the first six months post merger. But the index buying because of the larger size of the combined company should more than offset that. So we really don't believe that there will be any real pressure from the nontraded REIT shareholders getting liquidity for the first time. Also, if you think about it, they have -- many of them have a negative basis or a very, very low basis. So they're going to have a big tax problem, if they sell the shares. And the fact that they're getting liquidity forever, not for just a short period of time or a short window, also gives us some comfort that they will not all look to sell immediately, but they'll look to sell when it makes sense as they manage their own portfolio.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

And then just in terms of -- I know they have lowered their dividend a number of times. Where does that fit upon exchange when they come into your stock? Is that flat, up or down?

James J. Sebra -- Chief Financial Officer & Treasurer

Yes. So slightly down, considering the exchange the 0.905 exchange ratio.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

So they'll receive a lower yield upon closing as well.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Small. Very, very small.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

And so you won't -- you'll have a buyback program in place. I mean you don't -- I mean I know you don't -- I know where the stock is today, and I know that's not what you wanted to pay your capital for, but I assume you'll put that arrow in your quiver so that -- I mean we know where the market is going to be upon close and what could happen. The index by may not be at the same time as the nontraded sell down. and 25% of total and is almost 10% of your share base. So it's not insignificant. So I just want to ensure that you have the tools at the ready for that.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

We don't have a buyback in place. However, it's something that we have been discussing with the Board, and we'll continue to think about moving forward.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

Yes. I mean, you always want to have as many tools in the toolkit to deal with situations so that you're not caught flat-footed. So that would probably be something to have in place.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

We appreciate that advice, Michael.

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

Thank you.

Operator

And speakers, our next question from the line of Austin Wurschmidt from KeyBanc. You may ask your question.

Austin Todd Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Great, good morning everyone. In the Star merger presentation, you guys had outlined what new lease rates were for the STAR portfolio. And I was just wondering if you could share some high-level thoughts on how that portfolio has performed in to the third quarter versus your existing portfolio so we can start to think about maybe the earn-in of Star as well? And then any thoughts on the performance relative to your initial underwriting?

James J. Sebra -- Chief Financial Officer & Treasurer

Yes. No, often, it's a great question. STAR did file their 10-Q last night as well as put out a press release on their earnings as well. I would just direct everybody to kind of take a look at that and read that. Generally speaking, their performance is very consistent with ours, a lot of their lease-over-lease growth are very consistent with ours. A slightly higher occupancy at 96.5%, but again, very consistent. And it just speaks to the fact that properties are located very close to ours, very similar business practices and cultures drive similar operating results.

Austin Todd Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Got it. Appreciate that. And then so with some of the NOI growth you're achieving, you mentioned in your comments about the disposition proceeds being greater than you had originally anticipated. One would think that you're tracking ahead of your pace as far as decreasing leverage closer to your medium-term target. So I'm just curious, when you balance that with where the stock is trading at all-time highs, what are sort of the latest thoughts around potentially accelerating deleveraging versus just remaining patients?

Scott F. Schaeffer -- Chairman & Chief Executive Officer

So as part of this merger, we identified -- and I think Farrell mentioned this in his prepared remarks, we identified $340 million worth of assets, nine communities, six IRT communities and three Star communities to be sold with the proceeds being used to delever. So our initial estimated value back in July was $340 million. But now that we're in the process and actually moving toward actual sales, we think that those proceeds will be as high as $380 million, maybe even $390 million. So that additional value, along with the fact of the strong growth from both companies now leads us to believe that we will hit our 7.5 or mid-7s net debt-to-EBITDA target in the middle to later part of next year rather than the end of 2023. So a full maybe 18 months earlier than what was originally projected. And that deleveraging will continue just through organic earnings growth as we move forward.

Austin Todd Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

Appreciate the thoughts Scott, thank you.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Sure, thank you!

Operator

And speaker, our last question from David Toti from Collier Securities. You may ask your question.

David John Toti -- Colliers Securities LLC -- Analyst

Hey good morning, thank you. Gentlemen, is there any expectation for additional synergies beyond the $28 million in the merger that you've preannounced?

Farrell M. Ender -- President

David, it's a great question. Obviously, we're still in the integration process. We're still very confident of delivering the $20 million of synergies, and we'll continue to look to generate even further is available. And we'll provide that full once we get through the merger and get it closed and then as part of our 2022 guidance.

David John Toti -- Colliers Securities LLC -- Analyst

Okay. Great. So that's moving target. And then my other question had to do with the dispositions. Can you provide a range on those assets? Was it a relatively wide range of cap rates implied by the sale prices? Or was it somewhat homogenous grouping?

James J. Sebra -- Chief Financial Officer & Treasurer

No, it's pretty tight. I mean, they'll all close between high 3s and 4% cap rates.

David John Toti -- Colliers Securities LLC -- Analyst

Okay. And then just lastly, were any of those assets part of the value-add pipeline or were they held out previously?

James J. Sebra -- Chief Financial Officer & Treasurer

A couple -- three of them were in the value-add pipeline. Yes, but they were pretty much almost complete from a value-add standpoint.

David John Toti -- Colliers Securities LLC -- Analyst

I see, thank you.

James J. Sebra -- Chief Financial Officer & Treasurer

Yes thanks David.

Operator

And we don't have questions as of this time. I will now turn the call over to Scott Schaeffer for closing comments.

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Thank you all for joining us today. We look forward to completing the merger come mid-December and then speaking with you after year-end. Thank you.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Scott F. Schaeffer -- Chairman & Chief Executive Officer

Farrell M. Ender -- President

James J. Sebra -- Chief Financial Officer & Treasurer

Neil Lawrence Malkin -- Capital One Securities, Inc. -- Analyst

Amanda Morgan Sweitzer -- Robert W. Baird & Co. Incorporated -- Analyst

Nicholas Gregory Joseph -- Citigroup Inc. -- Analyst

Michael Anderson Griffin -- Citigroup Inc. -- Analyst

Austin Todd Wurschmidt -- KeyBanc Capital Markets Inc. -- Analyst

David John Toti -- Colliers Securities LLC -- Analyst

More IRT analysis

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