Feb 16, 2017
Operator
Good day, ladies and gentlemen, and welcome to the Independence Realty Trust Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instruction] As a reminder, this conference is being recorded.
I would now like to introduce your host for today’s conference Mr. Andres Viroslav.
Sir, you may begin.
Andres Viroslav
Thank you, Bruce, and good morning to everyone. Thank you for joining us today to review Independence Realty Trust fourth quarter and fiscal 2016 financial results.
On the call with me today are Scott Schaeffer, IRT’s Chief Executive Officer; Jim Sebra, IRT’s Chief Financial Officer; and Farrell Ender, President of Independence Realty Trust. This morning’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 PM Eastern Time today. The dial-in for the replay is 855-859-2056 with a confirmation code 61132125.
Before I turn the call over to Scott, I would like to remind everyone that there may be forward-looking statements made in 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 in 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 directly comparable GAAP financial measure is attached to IRT’s most recent current report on Form 8-K available at IRT’s website www.irtliving.com 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 matter described herein except as maybe required by law. Now, I would like to turn the call over to IRT’s Chief Executive Officer, Scott Schaeffer.
Scott?
Scott Schaeffer
Thank you, Andres, and thanks for joining our call today. Independence Realty Trust ended 2016 as an internally managed equity REIT that owns 45 properties consisting of 13,000 units with approximately 400 employees.
2016 was a very productive year highlighted by the December 20 closing of the management internalization transaction. As we stated on our previous call with internal management we expect to save approximately $2.5 million per year on G&A expenses while eliminating the increase management costs related to growth under the external management contract structure.
As part of the internalization transaction we entered into a six months shared services agreement with RAIT, which affords us the time needed for smooth transition. I’m pleased to report that we are right on schedule with the transition and expect to be complete on or before the June 20 termination of that agreement.
Looking forward into 2017 we remain committed to our strategy of owning and operating a portfolio of apartment communities in primarily non-gateway markets. These market share attractive fundamentals including healthy job and population growth, limited editions of new supply resulting in strong demand from renters.
We believe that these market dynamics will continue to drive rents higher in our portfolio throughout 2017 while keeping a strong stable occupancy rate. For 2017, we’re focused on a number of strategies.
First, we are circling out of our Class C properties and reinvesting into higher-quality communities. Farrell, will discuss our capital recycling plans shortly.
Two: maximizing the operating efficiency of our properties. Three: reviewing and repositioning our financing structures for flexibility and liquidity while continuing to reduce our leverage.
And finally, delivering a tenant focus living experience throughout the portfolio supported by our strong experienced property management team. At this point, I’d like to turn the call over to Farrell to discuss IRT’s portfolio and capital recycling plans.
And then followed by Jim to go through the financial results. Farrell?
Farrell Ender
Thanks, Scott. We are pleased to announce another strong quarter results for the portfolio.
Focusing on the fourth quarter our same-store portfolio saw a revenue increase of 3.4% compared to the fourth quarter 2015. Increase in expenses was limited to 80 basis point generating NOI growth of 5.7%.
Rental rates increased 2.5% from $861 in Q4 of last year to $883 in Q4 2016. Average occupancy over the quarter was 93.2%, 1% increased over Q4 2015.
NOI margin for the same-store portfolio for the fourth quarter was 57.6%. When we look at the full year 2016 as compared to the full year of 2015, NOI for the total portfolio grew by 6.9%.
Same-store revenue growth was 3.2%, while the non-same store portfolio provided revenue growth of 4%. The same-store portfolio expenses grew by 1.5% while we saw savings of 3.3% on the non-same store portfolio.
NOI margin for the entire portfolio for the fourth quarter was 59.1%. The markets that outperformed were Memphis and Little Rock which experienced almost no new additional supply and provided revenue growth of 7.3% and 6.3% respectively.
We also saw strong performance at our Columbus Property, which experience revenue growth of 7.1%. This was attributable to the combination of both market fundamentals and operational upside as we transition the community onto our platform in late 2014.
We identified significant operational upsides when we were looking to acquire the community, implemented our standard operation procedures immediately after acquisitions, and saw the benefit in 2016. Two of the more challenging markets have been Oklahoma City and Charlotte.
As we’ve mentioned on previous calls the impact of the energy downturn on Oklahoma City has been mitigated the economy has diversified over the past decade, but still accounts for 6% of the overall economy and does have an impact. Throughout the year, we have been able to manage occupancy in the low 90% range with little to no rent growth and saw a slight drop in rents in the fourth quarter.
To combat the softening market we offer concessions averaging half a month of free rent. While the need for most of these concessions has passed, we continue to offer a half a month selected units at three of the five properties.
We expect Oklahoma City to see improvement in 2017 with positive job and population growth and limited new additional supply. We’re forecasting revenue growth at 3.3% for 2017 over the full year of 2016.
Fountains Southend is our community in Charlotte requires part of the three acquisitions. There is a new classic community located on South Boulevard in the popular Southend neighborhood.
Property benefits are being directly on the light rail line that connects the neighborhood to uptown Charlotte. The significant amount of new construction this sub-market, which is impacting the property.
In the fourth quarter, we offer concessions averaging one month of free rent stay competitive with the new lease of special being offered in the market. Property is currently 96% occupied and concessions are no longer needed.
Long-term, we feel good about the communities’ prospects as it is located in one of Charlotte’s most desirable neighborhoods. We have forecasted 2.9% revenue growth for this community in 2017.
Our core Class B properties, which represent 58% of our total portfolios revenue provides consistent stable revenue growth. This group consists of 29 communities and 8,000 units with revenue growth at 4.2% for the fourth quarter as compared to 1.6% for a Class A portfolio, which contains 12 communities and 3,500 units.
We continue to believe that the Class B apartment market offers the most opportunity to consistently increase rents and is much less likely to be impacted from construction new apartments apply. We also believe that Class B apartments sectors much less exposure to homeownership as we see far fewer move outs due to home purchases on a Class B portfolio as compared to our Class A portfolio.
The balance of the portfolio four Class C properties have intent to sale by the end of the second quarter and reinvest the proceeds in Class B communities. These four properties account for 1,300 units with a book value of $61 million.
We anticipate total sale proceeds of approximately $85 million at a blended 6% economic cap rate. The property sales will generate $45 million in net proceeds for reinvestment after retiring the underlying property level debt.
We currently have two properties under contract to purchase totaling $44 million. The first we’ll close this month it is located in the north [indiscernible] section of Tampa.
The acquisition price is $29.75 million and equates to a 6.3% economic cap rate. The second property, which we have managed for state ownership groups since 2009 is located in Lexington, Kentucky.
We will be purchasing this community for $14.4 million, which equates to a 6.75% economic cap rate. We believe we’ll be able to create additional value by performing our typical upgrades in the community common area amenities.
Additionally upon closing we’ll begin a unit upgrade program, which we anticipate will provide rent premiums generating a return on equity and excess of 20%. Current ownership is not able to take advantage of these opportunities because the ownership structure and a lack of capital investment in the community.
In addition to these two acquisitions we have ample capacity to acquire an additional one or two communities as we execute on the property sales that we have identified. Looking towards 2017 we started the year on a positive note.
The same-store portfolio which now includes all of our communities except the four held for sale, so revenue growth of 4.6% for January 2017 as compared to January 2016 and NOI growth of 5.5% over the same time period. I’ll now hand the call over to Jim to discuss the financial results.
Jim Sebra
Thanks, Farrell. GAAP earnings this quarter was a loss of $0.61 per share or $41 million driven by the internalization cost of $45 million.
The core FFO this quarter was $0.17 per share or $11.7 million up about 9% from $10.8 million for the same quarter of last year. As Scott mentioned, we completed the internalization of IRT during Q4.
We are currently in the six-month shared services period with RAIT and plan to move into new office space with completely separate IT and back office staff before the end of Q2 2017. As a result of the internalization, we updated our financial statement presentation and separated property management expenses as a line item on the space of our income statements.
Additionally, we’ve updated our definitions of property NOI and the same store portfolio’s to be more consistent with our internally managed peers. From a balance sheet point of view we ended the quarter with $1.3 billion of gross assets representing 12,982 units, $21 million of cash and $744 million of debt.
IRT’s debt is 100% fixed rate with a well staggered maturity profile at an average interest rate of 3.6%. As of year-end, as Farrell mentioned, we identified four assets as held for sale aggregating $61 million of net book value.
We are active in the sale process and expect these sales to close during Q2. During Q4 IRT completed a $25 million common share offering in early October netting proceeds of $213 billion.
Additionally, the underwriters exercised the over allotment on October 21. This exercise provided IRT with $32 million of additional proceeds.
The total proceeds plus balance sheet cash were used to deliver our balance sheet by $147 million, repurchase all of RAIT’s 7.3 million shares for $62 million and pay the $43 million to complete the internalization in December. As of year-end IRT’s leverage has decreased with debt to gross assets declining from 64% historically to 54.3% and IRT’s net debt to EBIDTA improving from 11.6 times historically to 9.4 times after including the approximately $2.5 million of cost savings we expect post internalization.
Before handing the call back to Scott let’s discuss our earnings guidance for 2017. For 2017 our GAAP net income is estimated to be between $0.40 and $0.44 per common share.
Core FFO for 2017 is estimated to be between $0.72 and $0.76 per share, $0.74 at the midpoint. This guidance reflects the sale of the four properties previously mentioned and using the estimated $45 million of proceeds to acquire approximately $85 million in properties.
Our guidance also assumes that our same store portfolio NOI will increase between 3.5% and 4.5% during 2017 as compared to 2016. The earnings release and the supplement does contain some additional information on the assumptions inherent in that guidance.
Scott, thank you
Scott Schaeffer
Thank you, Jim. Operator at this point I’d like to open the call for questions.
Operator
[Operator Instruction] As our first question comes Drew Babin from Robert W. Baird.
Your line is now open.
Drew Babin
Good morning
Scott Schaeffer
Good morning, Drew.
Jim Sebra
Good morning.
Drew Babin
Couple quick questions. First one on your portfolio composition obviously the properties held for sale classified are ones you would classify as C type assets.
What are some of the redeeming qualities within your Oklahoma City portfolio it seems your lower rent assets that would cause you to break them out as B assets rather than C.
Scott Schaeffer
We use our own judgment as well as CoStar which helps back it up and it’s really a percentage of the overall market rents. If you fall below 75% it usually deems class C and the age in the quality as well.
Jim Sebra
Drew ahead of the equity offering last fall, we asked CoStar to review the portfolio and to rate the assets A,B. or C.
And the four that we have identified were the four that CoStar had, those four we are holding for sale the four that CoStar identified as C class assets.
Drew Babin
Okay, is it really just a product of Oklahoma City having lower overall rent?
Jim Sebra
And one of the properties Drew has a significant amount of one-bedroom units which skews the overall average rent.
Drew Babin
Okay. That’s helpful.
And then one more question just on external growth. Last call you talked about a pipeline of I believe it was about $220 million of potential acquisition opportunities.
I would assume that the properties under contract are within that, should we assume you’re your remaining opportunities set is sort of a 219 minus 44 going forward are there more opportunities that you’re currently evaluating.
Jim Sebra
Obviously ebbs and flows as we underwrite transactions. In addition to the two that we mentioned we have five properties on the current pipeline.
Approximately $130 million. Obviously we won’t close on all of that.
Were doing our due diligence to figure out which ones best suit the portfolio.
Scott Schaeffer
The plan is to match up the acquisitions with the proceeds from sale. So that really the net effect will be an increase in asset class, will be rid of the C asset and have more B assets within the portfolio.
But at the same time, not need any new equity in order to close on those purchases and keep the leverage situation the same.
Drew Babin
Okay. Great.
That’s helpful. Thank you.
Scott Schaeffer
Thanks Drew
Operator
And our next question comes from Vincent Chao from Deutsche Bank .Your line is now open
Vincent Chao
Hi guys. Just curious now that you have done the equity offering internalized and now it sounds like you will be funding your acquisitions with dispositions.
Do you have guys have any explicit leverage targets that you would like to be at by year-end?
Scott Schaeffer
Well we want leverage to be lower and that’s our goal. By year-end we just naturally we think we will be down below nine times EBITDA, on an asset, percentage of asset value it won’t come down as quickly because it’s just or organically, without raising new equity which we are not interested in doing at current share price.
It will only come down relative to the amortization on some of the existing debts. So it will come down from an asset leverage basis just a little bit slower.
But I’d like it to be in the sevens on a debt to EBITDA and down in the low 40s ultimately. But that is going to take us some time.
Jim Sebra
Yes over the long-term
Vincent Chao
So there’s no explicit actions that you are taking to try to get it to seven times other than the natural growth in the EBITDA?
Scott Schaeffer
Correct at our current share price that is correct.
Vincent Chao
Right. Okay.
And just the assets held for sale in addition to being C assets I guess as you think about being internally managed today you’ve got a portfolio that’s a bit diversified but just to maximize efficiency and things like that, I guess should we expect you to also consider selling some of the smaller markets that you are in are you specifically seeking out to expand in particular markets I’m assuming that emphasis is probably in there but just curious how you are thinking about that?
Scott Schaeffer
Is a great question. We are constantly reviewing the portfolio as a whole.
And we always will be interested in trading out of some of the assets that we feel do not have potential that something that we can acquire new might have. So yes you may see a cycling out of something even as we classify as a B today if we think the market does not have the growth potential that other markets may have.
And as far as the other point, we’re always looking for growth and efficiency in operations. So we have identified a number of markets where we have exposure but would be interested increasing that exposure just to enhance the efficiency of the management.
Vincent Chao
Right. I guess as we think about 57% margin I think for 2016 where do you see that going over the next couple of years?
And would that require significant re-jiggering of the portfolio in terms of scaling up certain markets and scaling down in others.
Scott Schaeffer
Yes we certainly see that margin continue to increase through 2017. I mean the portfolio as a whole was 59% margin.
So we definitely look at that that margin getting better once the full portfolio together in 2017, and we sort of look to rent growth et cetera that margin creeping into the low 60s through to the end of 2017 and certainly a part of early 2018. And sure we are always are looking at a portfolio for operational upside and ways to continue to manage expenses down.
Vincent Chao
Okay. Thanks
Scott Schaeffer
Thank you
Operator
Thank you, and next question comes from Daniel Donlan from Ladenburg. Your line is now open.
Daniel Donlan
Thank you and good morning. Just going back to Vince’s question.
It looks like you had 21 markets 10 markets you have less than 400 units that represents about 22% of NOI so I’m just curious as to why these aren’t considered more on the chopping block in terms of sales. You don’t have the benefit of having a large property management group that was in somebody’s market that didn’t necessarily own the asset they managed them.
Now efficient can you really be in the some of these markets where you have just one asset there might six or seven markets that really have one asset?
Scott Schaeffer
We like those markets generally and were looking to grow more into those markets rather than exiting them. We just think over the long-term these are areas that have better-than-average growth potential.
So at our current size instead of selling to be smaller we would rather grow into those markets that we like and bring efficiency that way.
Daniel Donlan
I mean are there any of those 10 markets that, there is – then could all ten markets that are under 400 units or handful or?
Scott Schaeffer
We’re obvously very focused on growing out profit – markets really on the one property on the pipeline, the three of the properties are in Columbus, the markets we’d like to expand into once in St. Louis.
It’s the product of where the opportunities are going to come from. We can always predict that.
So at three years of age and growing the portfolio looks the asset was continue to grow into those markets where we only have one or two assets.
Daniel Donlan
Right. Any thought behind maybe using a third-party operator for some of the smaller markets or is that completely off the table?
Scott Schaeffer
It’s off the table. I don’t like third party operators.
I think they’re more interested in their own fees than creating value in cash flow for the own. And our management structure with the regional focus that we have the regional based focus handle these markets fine.
Daniel Donlan
Okay. So the capital recycling you plan on doing this year, you think you are going to be able to sell around the same – sell for around cap rates and around acquire or do you expect it to be throwing the timing of any type of recycling that when did you think the cap recycling beyond margin accretive, dilutive?
Jim Sebra
I think it would be accretive. I think we will be selling at lower cap rates than we’re buying.
The assets that we are selling – all viewed as value add. Typically when someone is buying as a value add they are paying a lower cap rate, because they believe that they can generate upside by additional investment.
It seems to be the real focus today. And I want to take advantage of that buyer philosophy.
While it still exists. So the assets that we have identified as I think from mentioned will be sold for an average of 6% cap rate and I think the acquisition one was at 6.3% one was at 6.7% and we expect that to continue.
Daniel Donlan
Okay perfect. And as far as Lexington and Tampa, I’m not familiar with the assets, I’m sorry if I miss this.
But would you classify them as Class B?
Scott Schaeffer
Yes, there 1997 and 2000 – I’m sorry the one in Tampa was actually a 1990 probably, it was completely renovated unit interiors or the exteriors classified as B and the property in Lexington is 2000 vintage, so I guess we’ve been managing for a while for a fixed indicator, I know the property very well.
Daniel Donlan
Okay. And going forward, how do you think you’re going to classify your strategy?
There seems to be – there is a growth of Class B focused apartment REITs out there. The only one that’s 100% focus on a tracer opinion in net asset value.
So I’m kind of curious, is that – you said that’s received the most opportunity. But do you still doing some Class A assets.
I’m just kind of curious if there’s a strategy maybe by Class A in your secondary markets and Class B in some more primary markets. So just kind of how should we think about IRT in the next two, three years in terms of what your Class B versus Class A make up will look like?
Scott Schaeffer
You should think about additional growth in the Class B space. That’s what we like.
I like the predictability and the stability that goes along with that asset class. The Class A that we have is largely through the Trade Street acquisition.
And that just was transaction that we felt could be very accretive and we were right. And that’s how we ended up of the majority of our Class A assets.
So if there is opportunity is out there like that again to buy Class A will try to take advantage of them. But going forward as we grow the portfolio and build it out, do you should think about it as more Class B plus acquisitions.
Jim Sebra
Okay, Scott, 11 of the twelve 12 Class A properties were through the Trade Street acquisition.
Daniel Donlan
Right, right. And then as we look at your value add CapEx $5 million to $6 million, what ROIs, are you projecting.
I’m sorry if I miss that too, if like it something on that, but I missed it.
Scott Schaeffer
The majority of that is the unit renovations were doing at the point of Canyon Ridge in Atlanta. We are already seeing 20 plus returns on the units were delivering upgraded.
Daniel Donlan
And then growing…
Scott Schaeffer
Sorry again it’s a $5,000 on average unit upgrade getting $138 rent premium for month.
Daniel Donlan
And as you look at the rest of the portfolio, what portion do you think of your NOI is value-added? And there is be a bigger part of your growth going forward or is it kind of – is it more selective in terms of maybe you look at one or two assets each year or is kind of look to become more comprehensive just kind of curious your thoughts there.
Scott Schaeffer
Yes. So right now, it’s obviously just a small portion.
We are doing property in Memphis and the Pointe at Canyon Ridge, I was mentioned, but I think going forward we are continuingly looking at where we can add value. We’re testing four other properties in the near-term to see if we can achieve the rent premiums we think we can.
And if we do, then we’ll continue to do them at these properties. And we will always to consider that maybe take a lot of feedback from our property on the ground, our property manage on the ground what’s going on the markets and always look to add value again.
Daniel Donlan
Okay. And then lastly for me, sorry for the questions, looking at the future acquisitions in Class B is, will they have more value add component to them or will it just kind of depend asset by asset some maybe have been recently renovated.
I’m just kind of curious your thoughts there.
Scott Schaeffer
Yes. I mean we are generally looking at stable cash flow in properties.
The Lexington opportunity is one that we just new to be managed it and we knew that the current ownership is somewhat capital constraint. We had a relationship with them.
So if those situations arise, we’ll definitely take advantage of it. But generally speaking, we are just looking for stable 10, 15 of properties that provide steady cash flow.
Daniel Donlan
Thanks, appreciate it.
Scott Schaeffer
Thank you.
Operator
And our next question comes from Craig Kucera from Wunderlich. Your line is now open.
Craig Kucera
Yes. Hey, good morning, guys.
I appreciate the color on Oklahoma City and your Charlotte asset. But I did note that one of your assets in Louisville had a pretty decent drop in rent.
Do you have any comments on Louisville? Are you feeling good about the market?
Or is that – was that really just an asset specific situation?
Scott Schaeffer
Yes, it really was. And overall the market did really well this year.
It is one that we’re pretty confident about there is some supply coming next year. Most of that supply 50% of its downtown.
The other 50% is in the Second Beltway. All of our communities are on the First Beltway close to the city, close to the employment drivers.
From that perspective I think we’re fine. We’ve noticed it as well we’re picking it up with our property management staff and we’re focused on it.
Craig Kucera
Got it. Just looking at your guidance, your same-store NOI was has been trending in the 6% plus range was near 6% here in the fourth quarter, but you are guiding towards 4%.
Is that just being conservative? Or are you seeing any softness in demand trends or pockets of supply that make you a little more concerned – overly concerned given that you’re still talking 4%, but I just would gets your thoughts there?
Jim Sebra
Yes, I think it’s conservative for sure. And we did see some positive movement in January.
To kind of just warrants, just being not cautious, but that our guidance is certainly on the conservative side. But we are not seeing any as Farrell mentioned we certainly see supplies picked up, but we’re not terribly concerned about, I think we’re all covered.
Scott Schaeffer
We have, there is one bit of wildcard in 2017 in its real estate taxes, which obviously we don’t control. A number of our markets have multi-year reassessments coming up this year.
And until we get those tax bills and we estimated for our guidance purposes, what I believe is to be a worst-case scenario and that obviously affects our NOI guidance.
Craig Kucera
Got it. One last one for me, I just wanted to follow-up on the acquisitions.
Did you – the cap rates that you mentioned at 6.3% to 6.7% are those on in place NOI or is there any sort of CapEx to bring to that. Can you give us some color on those numbers?
Jim Sebra
Their economic cap rate is based on the trailing 12-months as of December. So we think…
Craig Kucera
Okay.
Jim Sebra
They will be better going forward based on our underwriting.
Craig Kucera
Okay, thanks. That’s it for me.
Scott Schaeffer
Thank you.
Operator
Thank you. And our next question comes from Brian Hogan from William Blair.
Your line is now open.
Brian Hogan
Good morning.
Scott Schaeffer
Good morning, Brian.
Brian Hogan
Most of my questions have been asked and answered, but the property management revenue, obviously the internalization went into effect on December 20, so just 11 days there. How do you think of those revenues going forward?
Basically take that what we saw in the fourth quarter and kind of annualize it if you will?
Scott Schaeffer
For 2017, yes. The company really does not intend to be in the third party management business long-term, but the majority of those revenues come from the management of RAIT Financial Trust owned properties and we have agreed to continue to management themselves.
The management team has been managing it for sometime. We didn’t want to just cut them off and make RAIT go find a new manager.
So we have agreed to continue to manage them. And at some point I think that that will change, but for the time being we will continue to have that revenue, but it’s – again it’s not a business line that we’re looking to stay in or to grow.
Brian Hogan
All right, so that will be about $9 million of revenue in 2017, is that fair or is that…
Scott Schaeffer
Jim?
Jim Sebra
No, no, keep in mind the management revenue is $28,000, there is some growth if that occurs because the reimbursement of expenses, property management expenses. So I think the revenue forecast for 2017 on that is roughly $500,000.
Brian Hogan
For the full year?
Jim Sebra
For the full year.
Brian Hogan
All right, and then just to be clear the property management expenses, are those disappear entirely or is that…
Jim Sebra
Well, the property management expenses are managing certainly mainly the portfolio property that IRT owns as well as the portfolio of properties that they manage with third parties. So certainly some of those expenses will go down as if management contracts move away over time.
Brian Hogan
So, I guess, how should we think about that line item and given that your new ownership thing and that was down quarter-over-quarter. What’s the appropriate run rate for that line item?
Jim Sebra
I think it’s just the reclass for moving that property OpEx down to property management expenses. It wasn’t that was new.
It’s just that we presented it to be consistent with where our industry peers or internally managed peers do it where we moved it from property operating expenses down into its own line item.
Brian Hogan
I appreciate that. I mean I really appreciate the additional disclosure.
But at the property management expenses, is it for the full year 2017 as I guess 6 million number a reasonable number, I am just trying to get a handle that’s a reasonable new line item.
Jim Sebra
Yeah, I mean, that’s certainly a reasonable number, maybe slightly lower than that, but it’s in that ballpark.
Brian Hogan
All right, I see. And then the commentary by market I appreciate that, but are you seeing anything from a home ownership that’s driving changes in mentality, I appreciate your heavy Class B properties and you’re kind of somewhat immune to that.
But can you discuss the homeownership trends you are seeing?
Scott Schaeffer
I mean they’ve been pretty flat. And we haven’t seen any change in terms of the percentage of move out based on home purchases, and so we’ve been as a combined portfolio around 19% to 20%.
When you look at the Class A portfolio, which again is primarily – when we acquired the Trade Street that jumped up to about 28%. It’s been pretty consistent throughout the period that we own that portfolio.
I don’t know if that answers your question.
Brian Hogan
Yeah, that’s perfect.
Scott Schaeffer
He’s saying 20% - 19% of our move outs are related to people purchasing homes. And if you look at just the Class A portfolio that would be 28%, so obviously in the Class B portfolio, it’s much lower than that, it’s probably in the…
Jim Sebra
17%.
Scott Schaeffer
Yes.
Brian Hogan
How much churn do you actually see in a year? I mean I appreciate the stable occupancy rates and filling the backup, but do you see a lot of turnover?
Scott Schaeffer
Q4 we had a 51% renewal rate, just a little bit lower than we like, we’re pushing to 53%.
Brian Hogan
All right and last question for me is the Trade Street portfolio, you’ve done very well at improving the performance. So is there more growth there more to do more than the, I would say, corporate average from a same-store sales perspective or…
Scott Schaeffer
I mean, the expense savings are basically being recognized, so from that perspective no. I mean, I just think we will continue to look at each market, look at each property and see 3% to 4% rent growth in most of them.
We have some, like you said some exposure to the new supply. So markets like Orlando and Charlotte, we may see lower see because of that.
Generally speaking it’s been a pretty stable portfolio.
Brian Hogan
All right, thanks for your time.
Scott Schaeffer
Thank you.
Operator
And our next question comes from Matt Boone from FBR Capital Markets. Your line is now open.
David Corak
Hi, guys. This is actually David Corak.
Good morning. I apologize if I missed some of these, but – and you just touched on one a little bit.
But looking at your market, can you just give us kind of the markets that you’re seeing actual supply pressure today, and maybe how you see that that’s shaping up and playing out in 2017?
Scott Schaeffer
Yeah, definitely Charlotte as I mentioned.
David Corak
Right.
Scott Schaeffer
The property we have in Charlotte is kind of in the line of all that supply, because of where it’s located very close to uptown. So we will see a development come online, in fact the properties are leased up and then will be fine which is exactly what we saw in the fourth quarter.
We had to offer some concessions to stay competitive. Orlando is another market that we see similar type situations that market set tremendous job where the population growth and there is a lot of supply coming online because of that.
So just a similar thing that market where something will come online, product will come online and we will feel the impact over short-term and once we saw will stabilize. But they’re all very healthy markets with significant population job growth; it’s just that short-term when a new community gets delivered.
David Corak
Okay. But just from having boots on the ground, are you seeing anything come online in the next year in markets where maybe there isn’t anything now?
Jim Sebra
No. I mean, again, we selected markets that really are – don’t have the supply that’s coming online in Dallas, San Fran and New York.
David Corak
Right.
Jim Sebra
Our market maybe in Dallas, but again that’s seeing significant job in population growth, we haven’t been able to absorb that. We have 21 markets, only seven of them had negative absorption in 2016.
They didn’t absorb the amount of supply that was delivered. Of those only two had less than 80% of absorption which is Charlotte and Orlando.
So most of these markets are absorbing what’s being supplied, and again what we are offering isn’t computing directly with that new supply to begin with.
David Corak
Right. Okay, that’s fair.
And then I think the last analyst touched on this a little bit, but can you kind of comment on what your assumptions are in terms of top line growth for the Trade Street portfolio versus kind of the current 2016 portfolio – current 2016 same store pool?
Jim Sebra
I’m sorry, the top line guidance for 2017?
David Corak
Yes, yes. So how’s that broken out between Trade Street and 2016 pool?
Jim Sebra
We honestly incorporated them together and look as a one whole portfolio now. I mean, we can break it out and get back to you.
David Corak
Okay, that’s fair. All right, thanks guys.
That’s all from me.
Scott Schaeffer
Thank you.
Operator
Our next question comes from Vincent Chao from Deutsche Bank. Your line is now open.
Vincent Chao
Hey guys. I just had another question, just given all the uncertainties kind of out there today, a lot of policy changes being considered, just curious if you are seeing any impact in the investment markets.
You mentioned the cap rates that you are looking to sell out as well as some of the deals that are under contract, but just curious how the conversations have changed given some of the – again, some of the uncertainties out there.
Scott Schaeffer
Well, I mean, clearly in a rising rate environment cap rates are going to be moving. They move with interest rates just on a lag.
It’s one of the reasons that we are focused on as we are selling assets to be selling as what we believe to be as value-add marketing presentation, because they are in that situation, the cap rates are less of a focus. We are mindful of where our values are going and want to be careful not to be buying at cap rates that are looking to be increasing or buying before they’re looking to be increasing.
So we’re looking at it in both ways. The one that Farrell mentioned is 6.7% cap rate on trailing 12, we think that’s going to be a great acquisition and very good for the portfolio.
Even at – the one in Columbia is at 6.3% where it’s filling in a market that we already have exposure to. We think that with some continued rent growth we can mitigate any increase in cap rates from that starting point.
Vincent Chao
Got it. I guess beyond just the impact from rising rates as the sort of policy uncertainties.
Has that had any impact on discussions in terms of whether or not that’s border tax or immigration policy or GSE reform, things like that?
Scott Schaeffer
Yes. No, we really don’t have a lot of exposure to markets that would be affected by those issues.
And I think that if you look at where our portfolio sits, in the Midwest down into the Southeast, the talk of growing employment and growing wages only helps to support our model.
Vincent Chao
Got it. Thank you.
Scott Schaeffer
Thank you.
Operator
Thank you. At this time I’m showing no further questions.
I would now like to turn the call back over to Scott for any closing remarks.
Scott Schaeffer
Thanks for your time today and we look forward to speaking with you again after the first quarter. Have a good day.
Operator
Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program.
You may now all disconnect. Everyone have a great day.