Operator:

Greetings, and welcome to the Invitation Homes Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Thanks, Scott, and good morning, everyone. We're a little over halfway through the year, and we're pleased with the results we've posted to date. Our residents continue to stay longer with same-store average length of stay over 3 years. Our same-store portfolio remains effectively full with average occupancy of 97.5% during the second quarter. And we're pleased with our financial performance for the year-to-date through June with core FFO up 6.5%. It's an election year and housing is once again a focus on both sides of the aisle. We encourage elective officials and policymakers to have a complete understanding of the facts so that effective and long-lasting solutions to today's housing challenges can be enacted. Like many others, we follow the great work of John Burns and his team closely. I'd therefore like to start off this morning by reviewing some of their latest housing data. There are roughly 133 million households in the United States today. About 66% of those own their own home, a rate that is above the historical average during the last 6 years. And the other 34% lease something. Of those who lease, roughly 64% rent an apartment, while 31% lease a single-family home. This means there are about 14 million single-family rental homes across the country with our wholly owned portfolio, accounting for just 0.6% of total single-family rental supply. Against that backdrop, I'd like to focus on 3 topics during my prepared remarks today. First, we believe there has never been a more compelling time to lease a home than today. We've spoken a lot about the traditional reasons that millions of Americans choose to lease. These include flexibility and convenience as well as the desire for additional spaces, privacy and access to great schools. In addition to those, the past 2 years have opened an unprecedented affordability gap between homeownership and the cost of leasing. According to the Burns data, 2 years ago, it was just under $700 a month more expensive to buy than to lease on average in our markets. Today, the cost of homeownership is nearly $1,200 a month more expensive than it is to lease. High cost of homeownership has many causes. Chief among them according to most economists is the lack of new housing supply. Add that to the steady increases in homeowners' insurance and property taxes, among other costs of homeownership, and we believe the value proposition of leasing a home with us becomes even more attractive. Various experts estimate our nation's housing supply shortage is in the millions of units. So if we were to address these affordability challenges, it's imperative that the homebuilders continue to build more homes to meet that growing demand. That leads to my second point, which is that we're proud to be part of the solution by partnering with homebuilders to build new communities. We continue to expand our partnerships with some of the largest homebuilders in America as well as with regional homebuilders focused within our markets. Our partners understand that supported by our appetite for growth, they can build larger and more diverse communities and finish those communities faster than they otherwise might have alone. More homes delivered faster is a win for everyone including the 133 million households in America who are looking to lease or buy their next home. Our current pipeline includes nearly 2,700 new homes that we plan to make available for lease over the next few years in addition to around the 2,000 homes that we've already added since 2021. In total, that's nearly 5,000 newly constructed homes built or in our pipeline since we launched our build-to-rent efforts just 3 years ago. Furthermore, our attractive returns are leading the industry with current opportunities being underwritten at a 6% or better yield on cost, while mitigating most of the risks and costs of on-balance sheet development. My third and final point is that doing right by our residents means doing right by all of our stakeholders. We pioneered our professional service standards several years ago as a way to differentiate the worry-free lifestyle that we provide compared to the small landlords who make up the vast majority of this industry. In particular, we believe our 24/7 genuine care service and ProCare's offerings remain unrivaled. To highlight this point, through June year-to-date, our market teams turned and released more than 11,500 homes to new residents, nearly all of whom received a premove-in orientation as well as a 45-day post move-in visit. Both of these brand exclusive customer touch points are performed in person with the resident by our associates. We believe this level of service is feasible in part to our size and our scale and that our resident-centric approach helps drive our strong occupancy, customer retention and overall resident satisfaction. It's also why some of the largest and most respected portfolio owners have chosen recently our growing third-party management business to care for their homes and for their residents. We also leverage the size and the scale for the greater good of our communities. I'll call out 2 more recent examples. First is our support of the American Red Cross, and more specifically, their Sound the Alarm home fire and safety program. Our sponsorship helps the Red Cross install free smoke alarms and educate families on fire escape plans and home fire safety. Secondly, we continue to support local development and improvement of outdoor community spaces through our green spaces programming. This past spring, we funded 2 new brands

Jon Olsen:

Thanks, Charles. I'll begin by providing an update on our investment-grade rated balance sheet and the capital markets. At June 30, we had approximately $1.7 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Unsecured debt comprised over 3/4 of our total indebtedness and our net debt to adjusted EBITDA ratio was 5.3x at June 30. Virtually all of our debt was fixed rate or swapped to fixed rate and nearly 84% of our wholly owned homes were unencumbered at the end of the second quarter. As we previously announced on our last earnings call in April, Moody's upgraded our issuer and issue-level credit rating to BAA 2 from BAA 3 with a stable outlook. As we've discussed before, we have no debt reaching final maturity until 2026 when our IH 2018-4 securitization with a current balance of approximately $634 million reaches final maturity as does our 5-year credit facility, which is comprised of a $2.5 billion term loan along with an undrawn $1 billion revolver. While we have plenty of time remaining prior to 2026, we anticipate we'll address these maturities later this year. This is consistent with our historically proactive approach to managing our balance sheet and is also in consideration of various swap instruments that mature later this year and next. Specifically, we expect to repay the IH 2018-4 securitization later this year as planned, with cash that we had earmarked from our August 2023 bond issuance. We are also in discussions with our bank group regarding a recast of our 5-year credit facility, and we expect to be in a position to share further details on both prior to our next earnings call. Next, I'll review our second quarter and year-to-date financial results. For the second quarter, core FFO increased 7.3% to $0.47 per share, while AFFO increased 4.1% to $0.40 per share. Year-to-date, core FFO increased 6.5% to $0.94 per share and AFFO increased 5.4% to $0.81 per share. These year-to-date results mark a solid finish to the first half of the year, which included growing contributions from our third-party management business, a better than originally expected insurance renewal and some favorable early outcomes on property taxes in a few of our smaller tax markets. As outlined in last night's earnings release, we have maintained the midpoint of our full year same-store NOI growth guidance at 4.5% while moving the midpoint of our same-store revenue growth guidance down by 12.5 basis points, to 4.875%, and improving the midpoint of our same-store expense growth guidance by 50 basis points to 5.75%. In addition, we have raised the midpoint of our full year core FFO guidance by $0.01 to $1.87 per share. The full details of our updated [Technical Difficulty] are included in last night's earnings release. One area of our guidance where we think continued caution remains appropriate is property tax expense. As you know, property taxes represent our largest same-store expense line item by far with over half of the total being impacted by 2 states, Florida and Georgia. Georgia has provided us with limited information to date on assessed values while millage rates and final tax bills from both states aren't expected for a few more months. As we've previously discussed, we expect same-store property tax expense to remain elevated in the third quarter due to the under-accrual in the first 3 quarters of last year prior to a partial offset in the fourth quarter of this year. Our revised expectation for year-over-year property tax growth is 8% to 9.5%. As I mentioned earlier, we've received some favorable feedback from some of our smaller tax jurisdictions and in addition, some early signs from Georgia that are trending positively, but we believe it is prudent to remain cautious until better clarity exists later this year. In closing, we're pleased with what we've accomplished to date and are excited to maintain our momentum in the second half of the year. We remain committed to driving sustainable growth, serving as the premier choice in home leasing and continuing to create long-term value for our stockholders. That concludes our prepared remarks. Operator, please open the line for questions.

Michael Goldsmith:

I believe in the prepared remarks, Charles, you said that you were leaning in on occupancy. Should we interpret that as you're being incrementally cautious on occupancy? Is that driving the reduction of the high end of the same-store revenue guidance and then along those lines, are you seeing or expecting potentially more move-outs from tenants looking to purchase homes?

Jon Olsen:

Thanks, Charles. Look, we took what we thought was a conservative approach in reassessing guidance this quarter. In doing that, we fine-tuned both our revenue and expense guides. And we may have tried to put too fine a point on it, particularly with regard to the revenue revision. Ultimately, that was based on our desire to be as transparent as possible about what we're seeing in a couple of spots. So specifically, as Charles alluded to, Phoenix, Central Florida, where we've seen some moderation began around May and continued into June. So in particular, it seems as though there's a little bit of price fatigue setting in there and some supply sensitivities following what's been a fantastic run in those markets. We don't think there's anything to be alarmed about. The markets are still quite healthy, but maybe just not quite as strong as we had expected at the beginning of the year. All that said, the vast majority of our portfolio is firing on all cylinders. In particular, I'd call out Chicago, Southern California, Seattle, all of those had new lease rate growth above 5% in the second quarter. And on the renewal side, South Florida saw a 9.5% renewal growth. Atlanta was at 6.3% and over half of our other markets were in the 5%. So we feel really good about that. I think it's also worth noting that we do believe there's still some conservatism baked into the expense guide. In particular, we've talked about being cautious with respect to Florida and Georgia, Texas. And we'll know a lot more there in the next few months. So long story short, we're not seeing any kind of fundamental shift in the business, but we probably tried to be a bit too surgical in the revised revenue guide and we will own that.

Josh Dennerlein:

Maybe just a follow-up on some of the comments there. I appreciate the color on Phoenix and Jacksonville, maybe there's some price fatigue setting in there. Is there any kind of -- I think Phoenix has been a high supply market for SFR, just building in general. Is there any kind of like dynamic that's playing out from the supply front? Or is it just kind of like pricing has run and it's kind of at the upper limit of where people can afford it relative to incomes in those markets?

Operator:

Our next question comes from Steve Sakwa from Evercore ISI.

Dallas Tanner:

Steve, Dallas, I'll start, and then I'll hand it to Scott, who can add maybe a little bit more detail, real time. Look, we feel really good about our sort of guidance in terms of being in line with what we laid out at the beginning of the year, both from an acquisitions perspective and what we were generally seeing from a yield on cost point as well. I would say, and Scott can confirm this, that the majority of our relationships are expanding. We're seeing product in a lot of new areas. What's been sort of interesting has been maybe the regional operator wanting to lean in a little bit harder and figure out if there's ways to work together. It feels like yield on costs kind of on our numbers are in the 6 pluses. And we're looking at some creative ways to even maybe make that better over time. But it's -- we're certainly having more deal flow than I'd say we've seen even in the last couple of years, good opportunities.

Operator:

Our next question comes from Eric Wolfe from Citigroup.

Charles Young:

Yes. I'll start with July and August. We're not done. So we're not going to share the numbers in terms of July numbers. But going back to your original question, look, we were in the high 5s for all 5 months of the start of the year, 5.8, 5.7, 5.9. April actually came in at 6.0 and May was 5.9. What we did see, and this is part of what we're talking about here, there was a little bit of moderation in June. We ended up at 5.0 for a blend of 4.7. And so that's where that we just got cautious and we looked across the markets, and there were a few markets that, as we talked about, Phoenix in Central Florida that kind of dragged down a little bit. We do have some markets that are still high flying. We have South Florida, as Jon mentioned, is in the 9s and other markets are still there. So I think there's a couple of things. It's not always pushback. What -- I think we mentioned this at NAREIT as well, there's a bit of a thinner loss to lease in the summer because we've been pushing that time of year for years. And so as that portfolio turns over at that time of year, there's just not as much there. And as we're trying to stay focused on occupancy, we don't want to lean in too far. And -- but that loss to lease gets wider as we get into the end of the year. So you're going to see renewals start to come back up. And that's reflected in kind of what we went out for August in the mid-6s for renewal, September high 6s and October actually above 7. So you put all that together, you'll start to see the renewals come back. I think it's really more driven by loss of lease and seasonality of move-out season. And again, we're still going through some -- the lease compliance cleanup, and we're getting a little bit more move-outs now than we did in historical years, and we're trying to make sure we stay full. And so it's a balance as we optimize the revenue.

Austin Wurschmidt:

I guess I'm still just trying to reconcile a few things a little bit of the why and the fact that turnover was down this quarter, occupancy was stable throughout the quarter. So what was it that you saw happening from a demand or notice to move-out perspective that led you to dial back the renewal rate growth 75 to 100 basis points in June relative to the increases achieved in April and May. And I'm also curious, do you think that the onboarding and sort of pricing strategy of the third-party management platform had any impact on the in-place portfolio?

Operator:

Our next question comes from Brad Heffern of RBC Capital Markets.

Dallas Tanner:

Thanks. This is Dallas. You hit it. I mean we can't say much because it's a pending legal matter. As we disclosed in the summer of '21, we received an inquiry from the FTC requesting information about how we conduct our business generally and specifically during the COVID-19 pandemic. Since then, we've fully cooperated with the FTC. And as we've previously disclosed during the first quarter that we've begun some preliminary discussions with them about a potential resolution. Those discussions have continued since that time. They've been productive, and we certainly appreciate the dialogue with them to date. And as you know, GAAP requires a company to accrue for contingent liabilities when certain amounts or circumstances have been met, including consideration of a settlement offer that could be made in good faith. The amount we accrued as of the end of June reflects the amount that the company would consider paying to resolve the matter without any admission of liability and to avoid the inconvenience and expense of it continuing. And we do think a potential resolution of the matter will have -- the matter will have no material ongoing impact on our business. And that being said, presently, we can't say how it will proceed going forward or how it could ultimately be resolved.

Jamie Feldman:

Can you talk about the earnings impact from the incremental third-party homes added in the quarter? And what's in your guidance for the rest of the year?

Operator:

Our next question comes from Linda Tsai from Jefferies.

Dallas Tanner:

It's a great question. This is Dallas. Look, I think we've seen sequentially every quarter, our average length of stay continued to grow. And if you look at how the business was started, we started in the West Coast markets early on in 2012. Our West Coast markets are getting close to -- in some markets outside of California, almost 4 years. California is well into almost its fifth year of average length of stay. I wouldn't expect this to be a peak at all. As you look at the housing, call it, supply-demand imbalances, we would expect that as we bring on additional services, as we create the flexibility and efficiency of the scale of the platform that this leasing lifestyle outside of a cost differential is appealing to the masses in much greater scale. And I would just furthermore add that while this may be a tipping point or close to in terms of the bid-ask spread between ownership and cost of lease, we've operated in an environment where that differential was much less than it is today and continue to see that acceleration. So I think we think now it's sort of a minimum probably with the new customer that they're going to stay with us 3 years and well until fourth or fifth.

Juan Sanabria:

Just a question. You mentioned higher R&M costs both on the OpEx and CapEx line. So just curious if you can give more details around that and how maybe your CapEx budget has changed. I noticed the AFFO or FAD guidance didn't change despite the change in core, so if you could remind us what we should be assuming for CapEx, that would be helpful.

Jon Olsen:

Thanks, Charles. Yes, Juan, I think you hit the nail on the head. So if you look at the revision to the core FFO guide and the fact that we did not move AFFO, it's sort of reflective of the fact that with the peak temperatures of summer kicking in a little bit earlier, CapEx has been running hot. So in terms of the year-over-year increases there, they're sizable on both the expense and capital side, and so given where we are relative to where we expected to be, we just weren't in a position yet to make a move on the AFFO front. The teams are very focused on cost controls. Typically, what we see is when HVAC season starts, is you see a big pickup in work order volume as people start turning those systems on and discovering what sort of repairs or other maintenance might be required. And then once we've gotten through that, you see the volume of work orders sort of dissipate on the back end. The shape of that curve this year looks really familiar and very comparable to last year. It's been just shifted forward a little bit. So we're going to continue to watch that with respect to CapEx and the AFFO guide and more to come on that probably next quarter.

Jesse Lederman:

Nice job in the quarter. A quick one on acquisition guidance. So if I take your current spending year-to-date and incorporate roughly 700 homes you expect to be delivered from homebuilders in the second half of the year and normalize for a consistent number of existing homes that you've acquired the last couple of quarters, it looks like you'd still need to purchase about 800 homes beyond that to get to the midpoint of the $800 million. So I just wanted to ask currently, what do you view as the most likely source of these additional homes between additional deliveries from homebuilders, the existing home market, which seems to maybe have loosened up or a portfolio acquisition.

Operator:

Our next question comes from Haendel St. Juste from Mizuho.

Charles Young:

Thanks, Haendel. Yes, I think you called it out. Coming off of COVID, there was no seasonality. And the numbers, the supply/demand, what was going on with lease compliance and all that. The renewals were just high for a few years, and you didn't get the kind of up and down that we're talking or seeing in the normal seasonal curve that we're seeing this year. There's just not as much loss to lease in the summer because historically, that portfolio, we have a long length of stay, and we renew and we've been pushing and there's just not as much to capture and you balance that with trying to stay occupied, you don't see it. But what we do see is that you can look at the numbers, there's a lot more loss to lease as we go into the fall. And so -- I we're back to that normal seasonal curve. And we're past that the pandemic period that expect and already starting to see what the ask of October in the 7s coming up from the mid-6s that we're going to start to see that. So time will tell what it looks like, but this is kind of the normal historical that we've seen, and it's math in terms of the loss to lease and what we see in the portfolio.

Daniel Tricarico:

Charles or Jon, could you put some numbers around the change in growth expectations for those Florida, Phoenix and Vegas markets this year?

Jon Olsen:

Yes. I think the only thing I would add to that is to reiterate that we probably tried to get a little bit too surgical in terms of referencing what we saw in Phoenix and some of the non -- the Florida markets other than South Florida. But I think the reality is we felt comfortable that overall growth remains robust. We feel really comfortable with where the business is. As Charles mentioned, we see that loss to lease opens back up for us here in the next couple of months. But we want to be really thoughtful about striking a balance between rate and occupancy because as Charles said, occupancy is much more impactful and ultimately, our guide is to core revenue growth. And that is what we want to optimize and the levers we have to pull are the trade-off between rate and occupancy.

Adam Kramer:

Just on the property taxes. Wondering which kind of the markets that came in below expectations. I think you mentioned some of the kind of non-Florida, Georgia markets. Just wondering if you could call out the specific market that came in below expectations.

Operator:

Our next question comes from Omotayo Okusanya from Deutsche Bank.

Dallas Tanner:

Yes. I think I can't give you exactly a Florida-specific answer on absorption and new home starts in a succinct answer. But I think Scott and I would both agree, we're out in the market. We are seeing both build-to-rent operators in regional, and I'd even add national homebuilders that are much more willing to deal on pending pipeline. And some of that comes from a natural slowdown of the homebuyers with mortgage rates in the 7s or in the low 7s. And also there are some BTR operators that are -- we've seen it, Scott, even in some of our conversations where they're thinking about where they are kind of midway through a project and/or call it, entitlements delivery and rethinking things. And so there's definitely some new supply where we've been able to sort of cherry pick. It's hard to tell you how much of that is absorption. But like to re-echo or to reemphasize what Charles and Jon has said, you've certainly seen some supply sensitivity in Phoenix, Tampa and Orlando. Some of that's driven by average listings, some of it's driven by new product coming into the marketplace.

Unidentified Analyst:

Do you have any thoughts on whether the lower turnover recently is signifying a larger trend going forward? And if so, how should we look at quantifying the impact to OpEx and CapEx from the lower turn?

Jon Olsen:

No, I think the only observation I would share, Anne, and I think it's a good question, is that the lease compliance move out that we continue to see while we're seeing some moderation in the quantum of those. It's still a pretty good number, right? So about 17.5% of move-outs in the second quarter were sort of lease compliance backlog cleanup. That was down about 200 basis points from the first quarter, and it's about 100 basis points lower than what our average has been over the last 5. So we're seeing very reasonable turnover inclusive of some ongoing cleanup of the COVID hangover. And I would say the turn cost being down year-over-year, taking into consideration that we did have still a relatively sizable number of those lease compliance move-outs and the fact that those are typically in the neighborhood of 50% more costly than a standard turn. If we put it all together, we feel quite good about controlling the things that are within our control, as Charles said.

Jason Sabshon:

This is Jason Sabshon on for Jade. My question is, how much do rates need to come down for acquisitions to really accelerate?

Operator:

Our next question comes from Jamie Feldman from Wells Fargo.

Jon Olsen:

Yes. Well, I think that we were a bit surprised by the reaction candidly. And I think we were maybe too mechanical in how we approached the puts and takes that we saw based on what we learned in the first half of the year. And so I think it's a little bit of a mea culpa because we weren't trying to launch 1,000 ships and give people the sense that we see underlying weakness in our business because we don't. What we were trying to do is sort of acknowledge that, hey, we sort of alluded to this at NAREIT over the course of the balance of June, we saw that, that was a trend that was continuing, and that was moderation in certain of the markets that Charles referenced based on maybe a little bit of price fatigue on the part of the customer and in the interest of trying to be transparent, that was what was reflected in the guide.

Omotayo Okusanya:

The pipeline, you talked about the 2,700 homes, which I think includes the 1,000 homes you just announced, how quickly do you expect that to be delivered?

Operator:

Our next question comes from Eric Wolfe from Citigroup.

Jon Olsen:

Yes. It's a good question, Eric. I mean, recall that our guidance is around core revenue growth, but we did articulate that we thought that blended rent growth would be high 4s, low 5s for the balance of the full year. As you know, we are 4.7 through the first half, the path forward from here is going to be a story of balancing rate and occupancy. And so we're going to take as much rate as we can when we can take it and where we can take it, but we're going to be conscious of wanting to stay full. So I think as I think about the leverage we have available to pull in order to maximize revenue and NOI, we react to the signals we see in the market. We try to lean in and be aggressive where we can. But at the same time, if we need to give a little bit to stay full and keep driving revenue and NOI contribution, that's what we'll do.

Austin Wurschmidt:

I appreciate you taking the follow-up as well as just kind of the thought around being transparent and just confidence in the underlying business. I guess it's just not providing a July update maybe send a little bit of a different message and so trying to understand what gives you the confidence around renewal rate growth reaccelerating during what is the seasonally slower part of the year. You highlighted, I think, mid-6% to 7% plus from August to October. So maybe just help us understand what you expect to achieve relative to that asking rate because there has been some giveback on the ask versus what was achieved here within recent months.

Operator:

This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.

Operator:

The conference has now concluded. You may disconnect.

Operator:

Greetings and welcome to the Invitation Homes First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Scott McLaughlin:

Good morning and welcome. I'm here today from Invitation Homes with Dallas Tanner, Chief Executive Officer; Charles Young, President and Chief Operating Officer; Jon Olsen, Chief Financial Officer; and Scott Eisen, Chief Investment Officer.

Charles Young:

Thank you, Dallas. Our associates really shined during the first quarter, delivering great results and preparing the business for our peak leasing and maintenance season, all while bringing 14,000 third-party managed homes into our operations.

Jonathan Olsen:

Thanks, Charles, and good morning, everyone. Today, I'll cover our financial results for the first quarter 2024, followed by an update on our investment-grade rated balance sheet before opening the line for questions.

Michael Goldsmith:

In the past, you've talked about starting to push rate around the Super Bowl, so mid-February. So it seems like this year, it kind of maybe took a step back -- maybe these spreads kind of took a step back in March, before your recent comment that they accelerated in April. So just trying to get a sense of kind of the sequential trajectory of the new lease rent trends during the quarter and into April? And if there was any factors that was influencing maybe some of the choppiness, which has resulted in where it is, now it seems kind of on pace.

Eric Wolfe:

I know you get asked this question a lot but The Wall Street Journal article the other day brought up regulatory risk again and then generated some more questions. So I was just curious from your perspective, what you're advocating for that you think would help the housing affordability issues. If it's not limits on ownership or rent control, what do you think would improve housing affordability and what role are you going to play in that?

Operator:

Our next question next comes from Brad Heffern from RBC Capital Markets.

Jonathan Olsen:

Sure. So I think it's important to note that, as you point out, we had guided to $0.02 of earnings contribution from third-party management. Included in that guide were both the Starwood and the Nuveen agreements. The Upward America agreement that we announced yesterday is not in there. I think it's also important to note, however, that only 1 of those 3 portfolios has been onboarded at this stage, just the Starwood portfolio. The Nuveen portfolio is scheduled to be onboarded in mid-May and then Upward America, sometime in the third quarter.

Operator:

Our next question comes from Steve Sakwa from Evercore ISI.

Charles Young:

Yes. I had mentioned it. We went out for May and June in the mid-7s, which was similar, maybe just slightly lower from what we did with April and we ended up April at 6.0%, which was accelerating from all of Q1. So still healthy as you look back on any historical means.

Austin Wurschmidt:

Just have a question related to transaction activity. And I was hoping you could provide some additional comments around the more significant entrance into Nashville; whether or not you're looking at other new markets to enter; and then just more broadly, about activity in the transaction market and whether you think there's enough in the pipeline to kind of hit that full year acquisition guidance?

Scott Eisen:

Sure. And just to address your questions about markets. I mean Nashville is a good example where we're adding new homes in that market, both through third-party management agreements and also some communities that we are buying as well. And so that's just an example of something that we're trying to take the market where we were undersized before but clearly, we're getting some good scale in the near run and we hope to grow there more over time. We have other markets that we're also eyeing that we're going to get exposed to through the third-party management contacts and -- contracts and we're hoping to see more like in Austin and San Antonio, for example, as markets.

Operator:

Our next question comes from Juan Sanabria from BMO Capital Markets.

John Pawlowski:

Charles or Dallas, do you have an internal view of -- I know you guys are prioritizing occupancy, but this is a question on market rents. And so do you have an internal view of why market rents aren't growing at a much, much faster clip than they are given the affordability gap you referenced in some of your markets, Dallas, is supplied more than we think? Or is migration into the Sunbelt slower than we think? Just curious what you think the culprit is?

James Feldman:

So I just wanted to shift gears a little and just talk about the balance sheet and debt strategy. Can you just talk through your plans for the rest of the year? And then as you think about next year with the $3.5 billion of interest rate swaps coming due, just what are you thinking about planning for those? And just how should we think about potential earnings accretion, dilution, as we look through the rest of the year and into next year, just based on how you're currently thinking about your strategy and rates being higher for longer?

Haendel St. Juste:

So Dallas, sorry, one more on third-party management here. I guess I appreciate your comments earlier on the state of housing in the U.S. and the role that SFRs have historically played. But what's different in the latest article from The Wall Street Journal is that it's coming from the Republican governor of Texas, a large and deep red state calling for legislative -- some things to be added to the legislative agenda in Texas to protect families. So you guys are based in Texas. I'm curious what you're hearing and potentially expecting on that front and how it might impact your plans to potentially add to your portfolio in Texas, which is still only about 6% of your total revenue?

Operator:

Our next question comes from Josh Dennerlein from Bank of America.

Jonathan Olsen:

Yes. Look, I think as we onboard these portfolios, obviously, we need to add some heads in the field; we need to add some heads in the back office; and we need to make some technology investments. I don't anticipate that we're going to be perfect at this coming out of the gate. The good news is, as we've talked about, this is a really attractive, high-margin business for us. But just as we spent years optimizing our balance sheet, optimizing our operating platform, iterating towards a better outcome and sort of a better structure, we're going to be doing the same with respect to the third-party property management business.

Operator:

Our next question comes from Adam Kramer from Morgan Stanley.

Jonathan Olsen:

Yes. Thanks for the question. I think, obviously, we have not revised guidance. We continue to feel very comfortable with our expectations for where blended rate growth will shake out over the course of the year. What we've said is, we expect the blend to be high 4s, low 5s.

Charles Young:

Sorry, the April blend of 5.2%, just to clarify.

Daniel Tricarico:

On the acquisitions in the quarter, you quoted a 6.1% cap rate in the sup. Curious if you could break down what percentage of those are from homebuilder pipeline versus the traditional MLS and what the spread on cap rates looks like today between those 2 channels?

Jesse Lederman:

Nice job during the quarter. You noted at a recent conference, you expect new move-in rent growth to exceed renewal rent growth this summer consistent with your typical trajectory, maybe pre-COVID. Can you discuss what you're seeing in the market that gives you confidence new move-in rent growth will accelerate roughly 300 basis points from April and how that 300 basis points relates to the typical, call it, April to summer peak acceleration?

Operator:

Our next question comes from Michael Gorman from BTIG.

Operator:

Our next question comes from Linda Tsai from Jefferies.

Charles Young:

I'll let Jon answer anything in terms of the kind of margin expansion. But for us, if you go back and look at our business pre-pandemic, we were moving turnover down year-over-year. It really kind of bottomed out during the pandemic. But we're back on that track where we're just really healthy turnover and a lot of that is driven by having high renewals. And it's a balance of some of the tailwinds that we've talked about in the industry, but also a big part of our Genuine Care and how we serve the resident and people want to stay with us longer, getting over 3 years now, with California getting closer to 5 years. It's a really healthy position.

Operator:

Our next question comes from Conor Peaks from Deutsche Bank.

Dallas Tanner:

This is Dallas. And anything I don't cover, Scott, if you would like to add anything, please do. I think taking a step back, one thing that's come full circle and been evident to us as we've started growing a lot of these relationships over the last several years has been sort of the following. One, I think the homebuilder industry recognizes a need for for-lease product. They have a number of customers that come through that can't qualify for mortgage but they want to be in great communities with access to good schools, et cetera.

Buck Horne:

I just want to follow up on that a little bit here because I guess the question from my mind on this topic is that you're not the only one in the market trying to negotiate deals with builders and it's obviously a really hot topic. And so there's a lot of capital chasing deals with builders. But I guess you're talking about still being able to negotiate those 6% yield on cost numbers when everyone else is kind of saying maybe those numbers are in the 4s.

Dallas Tanner:

Really good question. And I appreciate you following up, Buck, because maybe I didn't answer this very well in the question before. It centers around predictability. We have predictability in our operating margins. We have predictability in showing up and closing. We have a really great track record in the market with M&A and with the ability to close when asked to. Our operating margins, which, by the way, I think would add to a lot of the inbound interest we've had in 3PM, are an attractive thing for investors and I think they're an attractive thing for operators in the marketplace.

Dallas Tanner:

We thank everyone for attending our call. We're grateful for your participation. We look forward to seeing everybody at Nareit in June. Thank you for your time today.

Operator:

Greetings, and welcome to the Invitation Homes Fourth Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode at this time. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Good morning, everyone, and thanks for joining us. Our customers' needs are straightforward. They want to lease a great home in a safe neighborhood with great schools and easy access to jobs. They want professional services and genuine care, and they want flexibility and convenience that allows them to live more freely. 12 years ago, a lot of these options either didn't exist or weren't readily available. Today, they all do, thanks to the hard work and the commitment of our associates, thanks to the mission of this company that together with you, we make a house a home, and thanks to the hundreds of thousands of residents who have put their trust in us to do exactly that. Last year marked many important milestones for Invitation Homes. We returned to a more sustainable growth profile, while continuing to expand and improve on the overall resident experience. It was a year in which we helped our homebuilder partners start construction on thousands of much needed new homes across the country. It was a year in which we recycled over $500 million of capital, selling nearly 1,500 homes on the MLS, predominantly to homeowners. And it was a year in which we executed one of the more significant portfolio acquisitions in our company's history. We are excited to continue this momentum into 2024, as we expand on what it means to live in an Invitation Home. By this, I'm referring to last month's announcement that our industry-leading operating platform is now available to not just our residents and joint venture partners, but also to large portfolio owners who are seeking the best in single-family property management for their residents and the best in single-family asset management for their investors. Let me be really clear here. We believe providing professional property and asset management services is both a logical next step for our business, as well as a strategic significant leap forward. It empowers us to accretively leverage our platform in a capital-light manner, while helping us to achieve further scale, increased efficiency and additional margin expansion for our company, and substantial savings and convenience for our residents. It all began with last month's inaugural agreement to become the property and asset manager on over 14,000 single-family homes. We expect this agreement to drive incremental AFFO of a couple of cents per share in 2024. This results from meaningful property management and asset management fees that we believe fairly compensate us for our unrivaled capability, scale and expertise. In addition to this, we'll also earn an outsized share of value-add service revenues such as from smart home, bundled Internet and other initiatives we may roll out in the future, along with potential future incentives, based on the operating and financial performance we're able to drive over time. We believe this inaugural agreement is the first of what could be many such arrangements. As we pursue additional opportunities, we expect professional management to help us build and grow strategic relationships, while we continue to become even more efficient through greater density, improved procurement, better resident engagement and thoughtful use of data and technology. Most importantly, as in other REIT subsectors, we expect professional management can help us create a pipeline of potential future acquisition opportunities for homes about which we'll have an information advantage. In the meantime, we believe the fundamental tailwinds for our business will continue to drive outsized NOI and earnings growth relative to other REIT property types. This includes a well-documented lack of new housing supply across our markets, as well as the strong demand from a surge of young adults who are just starting to reach our average new resident age in their late 30s. These younger generations often favor experiences over possessions and prefer convenience and flexibility over financial anchors and 30 year contracts. It's also important that we underscore the massive savings from leasing a home today versus owning. Using John Burns' fourth quarter data as weighted by our markets, it is $1,200 per month less expensive to lease a home than to own it. That's an average savings for our residents of over $14,000 a year. We see this reflected in our latest surveys, in which a substantial majority of our new residents say that our rents and services are affordably priced. One of these services, which we just started to provide last year completely free of charge, is Esusu's positive credit reporting program. Already, over half of our residents have improved their credit score since enrolling, with the average credit score improvement of about 35 points. This could help our residents achieve thousands of dollars in lifetime savings on their borrowing costs, further enhancing the value proposition for leasing a home with us. In summary, we're very proud of the choices we offer individuals and families to live in a great home without the high costs and burdens of home ownership. We remain committed to investing in our technology, systems, value-add services and other tools to help our residents thrive. And we're excited by how we can continue to grow our business, further enhance the resident experience and meaningfully broaden the professional services we offer. In this regard, we truly believe we are just getting started. With that, I'll pass the call on to Charles Young, our President and Chief Operating Officer.

Jonathan Olsen:

Thanks Charles. Today, I'll cover the following topics

Michael Goldsmith:

Good morning. Thanks a lot for taking my question. A question on the guidance, and what does the guidance assume in terms of new and renewal lease spreads as we move through 2024? And new lease spreads were flat in the fourth quarter. That's kind of below historical levels and was negative in January. What gives you confidence that you can kind of maintain your renewal spreads in this sort of environment?

Operator:

Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.

Charles Young:

Yes. So you're probably calling out Phoenix, a little bit of Vegas. Two things I'd highlight. One, we -- some of that confidence comes from our current level of occupancy. We're in that position of strength, so we can kind of hold and know we're not trying to solve for the occupancy and we can lean in. We're also seeing that we've gotten occupied in those specific areas. So the demand is still there. That's what's great. We're still seeing strong demand. We wouldn't have been able to move occupancy from a low of 96.8% up to 97.5% if that demand wasn't there. So, as you go into spring -- and we're also -- when you bring up to build-to-rent relative to our infill portfolio, that puts us in a really strong position to think about the same store able to hold, given that we're in that position of strength. And we're already seeing some acceleration from January into February.

Eric Wolfe:

Hi, thanks. For your bad debt guidance, can you talk about where you expect to start the year and how you get comfortable with that? So, do you start at over 100 basis points and then kind of end around 50 basis points? Or is just some point in the year where the bad debt should step down?

Operator:

Our next question comes from Jeff Spector from Bank of America. Please go ahead. Your line is open.

Charles Young:

Yes. No, great question. This is Charles. As we mentioned, seasonality has returned. During the pandemic, it was really high occupancy, high demand. It was abnormal. And if you go back and think about our pre-pandemic years, 2018, 2019, 2020, when we were full like we are now, we're really seeing that similar type of demand. That's seasonal. That slows down typically in and into Q1 and picks up right after the Super Bowl, which just happened. So we're in a place now where we're looking across the portfolio. We're seeing that we're occupied. We did what we wanted to there. And we see the demand. It's not the same exact levels that we saw during the pandemic, but those are artificially high. When you go back and you compare it to our 2018, 2019, early 2020, we're right in line with what we've seen historical, and we're in really good shape in terms of our occupancy and our blended rent growth going into now accelerating spring leasing season.

Austin Wurschmidt:

Great. Thanks. Good morning, everybody. Charles, how have you been -- have you been offering any concessions to drive some of the traffic and build occupancy here during the softer part of the season? And maybe just to push back a little bit on your comment on renewal rates remaining steady, if I recall, you were sending out renewal notices in the 9%-plus arena and ended up kind of below 7% for the quarter. So how is that dynamic also playing out early in the year as to where you're sending out increases and what you're achieving? Thanks.

Operator:

Our next question comes from Steve Sakwa from Evercore ISI. Please go head. Your line is open.

Jonathan Olsen:

Yes. Thanks, Steve. It's Jon. Good question. I think you're right. If you look at it, our expectation is that we will see some moderation in controllable expense growth. Last year was a very heavy year in terms of turnover, in terms of all the things that we're doing in the background to work through our lease compliance backlog. And so, from a comparability standpoint, year-over-year, we don't anticipate seeing sizable increases in those line items. I would also note that the operations team has done a fantastic job over time of continuing to make the R&M portion of our business more and more efficient. And I think as we look at the controllable side of the house, we feel really good about where we are. I think a big part of what makes our platform so powerful is the ability to continue to drive more efficiency. And I would also note that our entree into third-party management will, over time and distance, have benefits for the operating efficiency of our owned portfolio. But I would also point out that, that is not factored into our guidance for 2024.

John Pawlowski:

Hi. Thanks for the time. I want to talk through the guidance for it sounded like blended rent spreads of high-4% to low-5% expected for this year. But then, you marry that with, Dallas, your opening remarks, and the massive affordability gap between the cost to own versus cost of rent, so I guess, why aren't we seeing larger rent spikes or the ability to push rents in a much higher clip? Is there true price sensitivity among tenants? Or is there any self-governing of rent increases going on in the platform?

Operator:

Our next question comes from Haendel St. Juste from Mizuho Securities. Please go ahead. Your line is open.

Dallas Tanner:

Thanks, Haendel. So first, I think what I'd sort of take a step back and if you look at multi-family, professional management has been in place for decades. There are wonderful companies, both in the public and private sector, that do a really good job managing scale and creating services and predictability of experience that I think the single-family rental space has yet to achieve, except for a couple of us larger operators. I think our goal has been over time to be methodical in our approach to would we do this and what would be the reason for doing so. One, you called out appropriately, which is I think there is an adverse ability to drive efficiencies for other professional owners of single-family rental, but to do it in a very deliberate and purposeful way on our behalf. So I think we've been pretty clear from the outset, as we've talked about this over the last couple of quarters and conferences, that we believe the size and scale of our platform is meaningful. We believe as the sector starts to develop professional services and ancillary opportunities for our customers that you can provide that at a much better cost and help drive down the cost of living for people, but you need scale. And so, for us, I think we want to work with professional capital, professional size, and create those efficiencies that we already enjoy in our portfolio for our customers. But by and large, over time, that will also have a compounding effect for us that we can go out and price and procure opportunities that will be beneficial to our residents as well. In terms of kind of what that scale could be over time and those factors, look, we wouldn't do it if it wasn't an effective way to create shareholder earnings for our company and for our shareholders. But we're not in the business of looking at doing this in small scale. We want to work with professional capital of scale. And it ultimately becomes, I believe, a good opportunity for us as the manager of those assets to be -- obviously have better market intel on what those portfolios are doing. It can inform us of better opportunities of how we can actually enhance our own businesses, and we can certainly drive efficiencies in our future pipelines for growth. The last comment I would make is, as you look at our platform today, we now have two markets that are well into the tens of thousands of units. That in itself will allow us to get creative on services we provide residents, efficiencies and economies of scale, and how we deliver those services. And I think ultimately, we're going to learn a whole heck of a lot more about how our platform gets more and more efficient over time to drive further margin expansion.

Juan Sanabria:

Hi, good morning. Just a question on the acquisitions. You previously talked about maybe some freeing up of portfolios with some of the debt maturity issues, so for caps kind of wearing down or running out. Just curious on what you're seeing on the portfolio acquisition opportunity set to start the year. Thanks.

Operator:

Our next question comes from Adam Kramer from Morgan Stanley. Please go ahead. Your line is open.

Jonathan Olsen:

Thanks, Adam. It's Jon. That's a great question. I think firstly, the $0.02 that we outlined in the bridge, just to be clear, that is the net contribution based on the property management and asset management fees that we will earn net of the incremental cost that we expect to incur to manage those additional 14,000 homes. As far as what the opportunity could be over time and distance, yes, as we talked about, we believe that this will allow us to enhance the efficiency with which we manage our owned portfolio. I would say that those efficiency gains are not factored into our guidance. I think the reality is that we are going to, over time and distance, figure out how do we adjust our gearing model, how do we take advantage of the opportunities to scale, which are going to vary by market, and how do we think about ways to drive incremental opportunity both for us and for those third-party portfolio owners. As far as what it could be down the line, I think time will tell. I would say since we announced this transaction, there have been a number of inbounds from sizable owners of portfolios interested in exploring ways to achieve better operational and financial performance. And that's what we're here for. We're here to drive value for our stakeholders and for our customers by doing what we do, which is leverage the best platform in the business.

Daniel Tricarico:

Hi, good morning. Another guidance question, a few quick related ones. I don't believe you've given this detail so far, but what was the revenue earn-in at the beginning of the year? Where is the loss to lease in the portfolio today? And if you have it, what is the embedded market rent growth for the year?

Operator:

Our next question comes from Brad Heffern from RBC Capital Markets. Please go ahead. Your line is open.

Jonathan Olsen:

Yes, great question. I would say that as we talked about on past calls, we have made some adjustments in terms of how we think about property tax. And I think ultimately, as we've talked about, we are not assuming any improvement in millage rates. I think we are taking a somewhat more conservative approach as I think our experience over the last couple of years warrant. And as we sort of work our way through the year, we'll be able to report back on what we're seeing in a variety of markets. I do think it's important to remember that two of our three biggest markets, we don't actually learn the final answer until fairly late in the year. So I think we want to be mindful of what our experience has been in the last couple of years. And I think that's reflected in our current guide, and that's going to be reflected in how we may or may not adjust that over time.

Keegan Carl:

Yes, guys, thanks for the time. So I noticed Pathway sold a home in the quarter, which I believe gives you three total homes sold in the program. Just curious if you could give an update on progress in general, how you see it scaling over time, and what sort of expectations are baked in for more residents potentially buying that home.

Operator:

Our next question comes from Anthony Paolone from J.P. Morgan. Please go ahead. Your line is open.

Charles Young:

So, this is Charles. As we talked about, we set ourselves up here at the start of the year with occupancy at 97.5% that we can start to capture that new lease demand that shows up here in February. And so, when you go back, yes, this is in January, a little lower than we've been, but we explained why we did that. That was a conscious effort. But we're set now to start to capture the demand that we expect will historically always shows up in the summer. We'll see where that goes to. But right now, we're already seeing the acceleration. And I think we're in good shape, given our occupancy now, to capture that. That being said, we've also been really holding steady on the renewal side at pretty healthy rates. Again, came down slightly as we were following for occupancy, but we're still seeing steady renewal rates when you go back to anything that's pre-pandemic. And with that loss to lease, that's what gives us the confidence with our current occupancy to try to capture what's in the market. We'll see where it ends up, but we're seeing acceleration from January to February, and we expect that will continue into spring and summer demand.

Linda Tsai:

Yes, hi. What is the breakdown in the guide between new and renewal?

Operator:

Our next question comes from Anthony Powell from Barclays. Please go ahead. Your line is open.

Dallas Tanner:

It certainly feels -- and I'll let Scott add any commentary to this. It certainly feels like we can continue to sell our dispositions back into the MLS kind of in the mid-to-high 3s, low-4s, depending on the marketplace. Again, we have a much -- typically, a much more expensive home than most of our peers. So when we go to market with some of that product, there's massive demand from home buyers. And I think that's a little bit subject to where mortgage rates are at any given time. But that feels like a very accretive way for us to recycle capital. Scott, anything you'd add to that?

Operator:

Our next question comes from Jesse Lederman from Zelman. Please go ahead. Your line is open.

Dallas Tanner:

Good question. I think between me and Scott, we can give a little bit more color on what we're seeing there. I think Scott summed it up nicely, which is our homebuilder pipeline is continuing to grow. Now, we've talked about this over the last couple of years. I think a year or so ago, our deliveries were like 350, 400. This past year, it was 700-plus. We -- the number that you just quoted in the mid-700s is what we have currently on schedule to deliver. We'll certainly see other opportunities in closeouts with some of our current partners and new partners that will happen throughout the year that aren't on schedule would be our best estimate. Those cap rates are typically 6-plus in today's environment. Now, Scott can talk and give a little bit more color, but strategically speaking, we're on the record that we have a terrific partnership with Pulte Homes. We continue to evaluate opportunities. Scott, you're talking to a number of other builders about some other pipeline additions. And I think I mentioned earlier in the call or yesterday with some media, we've got about 1,800 homes under contract, plus or minus another 1,000 that we're close to putting in our pipeline.

Operator:

Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead. Your line is open.

Jonathan Olsen:

Yes, Steve, it's -- I think the main drivers, when you think about how the delinquency backlog flows through the P&L, there's obviously a bit of an impact at the occupancy line. We talked about that last year. I think the other primary areas are things like property admin expense, which is really the property-level legal cost to sort of manage through the process of enforcing the terms of our lease. You've seen substantial growth in 2023 over 2022 in that area. And the other area is sort of turn OpEx. As we've talked about, when we get some of these turns back from homes that had delinquency move-outs, those turns can be 50% more expensive and they can take some number of days longer to work our way through. I think when you look at 2024 versus 2023, I think the important thing is that it's not that those costs are going down, but that we don't anticipate substantial year-over-year increases. Really, the costs are stabilizing. We're going to work to try to improve upon what our experience was last year, but we still got some wood to chop.

Unidentified Analyst:

Thanks. It's [Nick] (ph) here with Eric. Just a quick question on the balance sheet. Was hoping to get your early thoughts on the plans for the $2.5 billion term loan maturing early next year. Will you extend it for another year into 2026? Or would you look to put new swaps in place to refinance with longer-term debt?

Operator:

Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.

Jonathan Olsen:

Sure. So, in guidance, you have $800 million of bonds outstanding for seven months of 2024 that weren't in place in 2023. So we did that deal in August of last year. That would, on its own, represent about $0.04. And then you're absolutely right, the $640 million 2018-4 securitization is freely pre-payable at any time. We have held off on paying off that debt even following that bond deal because we like having excess cash on hand. It gives us flexibility to use that cash either to retire debt or for growth opportunities. In the current market, I think it's important to point out that we're earning on average about 5.3% on those excess cash balances. And you can compare that to the rate at which we've swapped that 2018-4 securitization, which is around 4.20%. So in our guidance is the assumption based on the forward curve and sort of extrapolating what we think our money market yields could be for timing of when we would pivot to potentially paying off that debt. Now, I think the reality is, we're going to do exactly what I just said in response to the prior question, which is we're going to watch the market and we're going to take what the market gives. So I don't want to give a sense that a specific path forward is prescriptive, but that's how we got to the $0.03 in the bridge.

John Pawlowski:

Thanks. I'm sorry to belabor this rent growth question, revenue growth guidance, but I'm still confused. Jon, I want to make sure I understand you guys' math on loss to lease and earn-in. So if you just take the midpoint of revenue guidance, 5%, you strip out the benefit of bad debt, you get to low-4%. Then you say lost to lease is high-single digits. I know you only capture a portion of that. And the earn-in is 2.5% to 3%. So how do you not get well above 4% kind of organic revenue growth for this year? Am I misunderstanding you guys' lost to lease and earn-in definition?

Operator:

Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead. Your line is open.

Jonathan Olsen:

Thanks, Juan. It's Jon. I think from a turnover perspective, similar to our occupancy guide, when we articulated that we expect it to be generally similar to what we saw in 2023, I think the same holds true for turnover in 2024. The reality is, we've still got sort of the tail of the lease compliance backlog to work through. But I think in the grand scheme, we feel very comfortable with the fact that turnover is trending much lower than it was pre-pandemic, and we think that's emblematic of a really strong demand backdrop, a favorable sort of affordability picture relative to homeownership. That should benefit propensity to rent, duration of stay and likelihood of renewal. With respect to CapEx, I think that, that is going to continue to grow at sort of an inflationary rate. I think we have done a particularly good job in making smart asset management decisions about where and when it does make sense to reinvest capital into our portfolio and in places where it does not pencil. What we found is, we can sell those homes into an incredibly liquid end-user market at cap rates inside 4% and then recycle that capital into newer assets that are going to have less of a CapEx demand over time.

Keegan Carl:

Yes, guys, thanks for the follow-up. Just curious, did you have any material impact in your Greater Los Angeles area assets from the recent flooding? And if so, was that embedded in your guidance at all?

Operator:

Our next question comes from Michael Goldsmith from UBS. Please go ahead. Your line is open.

Charles Young:

Yes. I'll take the second question first. The pushing of occupancy is what we've typically done, especially as we've had more experience in the portfolio on what's the best way to operate in a seasonal business, where in the winter and early spring, the demand is lower as you go into the winter and then it picks up going into the spring and summer. Getting full in that period is important because it gives us that position of strength to capture the demand of new lease rent growth. And what's great about renewals, which is the majority of what we do is pretty steady throughout the year. So this is in line with what we've done historically during the pandemic. We did not see that seasonal pattern. And what we're recognizing now is we're back to that seasonal pattern. Going to your first question, look, build-to-rent portfolios, when you take down 100, 200 homes at once, it's like a lease-up, and there's going to be a -- kind of an aggressive stance to get momentum to get that project going. It's a moment in time for that project or those that are within kind of driving distance that you may be competing. My point is the majority of our portfolio that we've acquired over the 10 years is really more infill, closer into job centers. And the majority of the build-to-rent are typically further out. Now we're really smart around what projects we take and how they balance to us. But you have to recognize that when there are a number of build-to-rent projects that are hitting a community or MSA at one time, and we may have other homes there, it has an effect, especially when we're pushing on occupancy. And we wanted to make sure that we got to a place where we could get -- to the second part of this question -- we can get occupied and make sure that we're capturing the best rent growth out there. So it's something that we're going to pay attention to. Scott knows, and team, they are understanding what these build-to-run projects are. But long term, they're fantastic because it's a great experience for the resident, the amenities that come with it. For us, it's going to be less capital on repair and maintenance over the short period of time. So this is a balance that you get with the opportunities to take on build-to-rent projects like this.

Dallas Tanner:

Thank you. We look forward to seeing many of you in South Florida in a couple of weeks. Please reach out to Scott or Jon with any questions if we can help. Thank you very much. We hope everyone has a great day.

Operator:

Greetings, and welcome to the Invitation Homes Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Good morning, and thanks for joining us. At Invitation Homes, we've worked hard to build and enhance our platform over the last dozen years, the foundation of which is our people, our systems and our unmatched scale. We believe our platform is industry-leading and difficult to replicate and, as a result, offers significant value for our stakeholders, residents and partners. It allows us to drive strong performance across diverse, geographically dispersed assets while delivering meaningful returns. We've invested heavily in our platform to provide the highest level of professional service, flexibility and convenience to our residents, helping them to live in the home, neighborhood and school system of their choice. We're proud of what we have achieved in this regard. And in addition to the power of our platform, favorable fundamentals have continued to drive strong tailwinds for our business. In particular, these include the continuing supply and demand imbalance we frequently mention. By most estimates, the United States continues to face a housing shortage of several million units. At the same time, the demand for single-family homes for lease continues to remain robust due to favorable demographics, a growing desire for flexibility and convenience and soaring mortgage rates that make leasing one of our homes much more attractive and affordable than owning a similar home. According to John Burns, it's now over $1,100 a month cheaper to lease than to own on average in our markets. That's over $13,000 a year in savings that our residents can use to help their families thrive while at the same time benefiting from the choice and flexibility of leasing a home. We believe we remain well positioned to meet this growing demand for single-family homes for lease. In addition, we remain committed to bringing new supply to the marketplace through our extensive homebuilding relationships. Our multichannel growth strategy allows us to nimbly deploy capital across a variety of acquisition channels, which allows us to be opportunistic, depending on the channel that's most attractive in the various real estate cycles. During the third quarter of 2023, we took advantage of several unique external growth opportunities. This included our previously announced portfolio acquisition of 1,870 wholly owned homes for a contract price of $650 million in July. As we disclosed, we acquired the portfolio at a year 1 yield in the mid-5s. And we anticipate this to grow into the 6s within the next year. Progress to date on marking the portfolio's rents to market, increasing occupancy and selling non-core homes has been right in line with our expectations. In addition to the large portfolio transaction, we also acquired another 387 wholly owned homes during the third quarter through those various channels at an average cap rate of 6%. We effectively funded these acquisitions through the sale of 397 wholly owned homes at an average disposition cap rate of approximately 4%. The 200 basis point spread between acquisitions and dispositions once again illustrates our unique ability to accretively recycle capital out of older, higher-dollar value homes and into newer, higher-quality product. We believe our portfolio makeup affords us this opportunity to accretively recycle capital in this way for some time to come. In closing, I'd like to express my thanks to our dedicated associates. Through their hard work, Invitation Homes has continued to achieve significant milestones and deliver strong financial performance. As we move forward, we remain confident in our ability to navigate these challenges, capitalize on opportunities and leverage our platform in order to drive sustainable growth and value for our stockholders. Thank you for your continued trust and support. With that, I'll pass the call on to Charles Young, our President and Chief Operating Officer.

Jonathan Olsen:

Thanks, Charles. Today, I'll cover the following topics

Michael Goldsmith:

My question seeks to frame the factors that caused the deceleration in occupancy and the slowdown in lease rent. So how much is attributable to normal seasonality, a return to more long-term pre-COVID averages, lease compliance and moderating underlying demand? I guess, where is the business structurally better now? And where is it reverting back to pre-COVID averages?

Operator:

The next question comes from Eric Wolfe with Citi.

Jonathan Olsen:

Thanks for the question. It's Jon. While we're not prepared to talk about 2024 at this time, I think you really hit the nail on the head when you tied together what's been happening with asset appreciation, what's been happening with home values and what the outsized year-over-year property tax expense growth has been for the last 2 years. I think it's interesting, if you look over a trailing 5-year period, our annual same-store property tax growth averaged around 5.5%. But within that time period, 2021 was sort of an outlier to the low side. So I think we've seen a bit of a catch-up factor. As we look and think about property tax, we've always been pretty good at predicting where values were going to come in. Values haven't been the problem for us. The challenge for us is that we have assumed that as values increase, and those increases have been substantial, that we would see some degree of relief on millage rates. That was our experience over much of our history. That is what we expected last year. Obviously, it didn't come to pass. This year, we did not expect that same pattern to unfold. So as it turned out, I think the revenue need in municipal budgets was greater than we anticipated, probably based on inflation. And we saw little to no relief on millage rates in Georgia and Florida. So as we look to 2024, we're going to be reassessing how we think about property tax. I think we'll be less reliant on what our historical experience has been, at least for the intervening period. But as I said, we're not prepared to give a sense for 2024. We'll talk about '24 in February.

Jeffrey Spector:

I just want to, I guess, clarify the comments on seasonality and how we should think about that heading into the fourth quarter, what that may mean for new lease rate growth. And maybe you could talk about historically what you would normally now see, let's say, from September to October, from 3Q into 4Q. Like what should we be expecting?

Operator:

The next question comes from James Feldman with Wells Fargo.

Dallas Tanner:

Yes. This is Dallas. And look, as we look at the overall landscape of the marketplace, there's no doubt that the elevated mortgage rate and mortgage rate environment is certainly shifting behaviors in the home buying and selling arena. Now our view of that landscape currently is, as Charles pointed out, it's probably going to impact to the positive our renewals business because there is less transaction availability in the marketplace overall. The lock-in effect and things that we're hearing as we talk with economists out there and homebuilders, and we obviously have a lot of great relationships there, is very real. And I think the resale environment is evidenced by, I think, NAR's number on annualized sales are predicting somewhere around 4 million, which is off by like 30% in terms of how you think of normal transaction volumes. What does that mean for the rental business? And I think, by and large, if you look at all the data, there are less single-family homes for rent on market today than there were 2 or 3 years ago. Many homes get sold back in as MLS inventory. And candidly, it's not enough. And I think what we've experienced, we see it on both sides of the transaction, right? We are active in the MLS market as a buyer trying to buy assets at what we think are clearing price of capital is at any given point. We are not finding a lot of transactions in that environment because we get outbid. And so there is ample demand for homes in the marketplace on a resale basis as evidenced in the data that we have around selling. And that's been really consistent. So we feel really comfortable. As Jon talked about before, our values are up dramatically over the last several years. As we go to sell homes in the market, we're having little to no problem selling a home for any particular reason that we deem from an asset management perspective. And we're selling those at really great marks. And then being able to accretively invest that capital back into homes at much higher cap rates, as we talked about in the release, we view as a very good capital allocation strategy for our business going forward. We're selling older homes, maybe they have some form of CapEx risk and generally recycling those into newer homes with very little CapEx long-term risk at much better yields on cost. So I don't know the answer as to how long that can -- that market can be out there. But it feels like there is a homebuyer market even at today's mortgage rates, albeit it's much more muted. However, the absolute lack of supply in the marketplace is a very real factor. And we don't see that changing anytime soon.

Austin Wurschmidt:

You guys have highlighted some of the unique challenges this year from kind of normalizing conditions. And you've had tough year-over-year comps in lease rate growth. You've had the lease compliance backlog to work through and just higher turnover. I guess, are those challenges behind us? And when you referenced occupancy and lease rate growth above the 2018 and 2019 period, do you expect you can sustain occupancy above those periods as well as lease rate growth, given some of the tailwinds to the business?

Charles Young:

Yes, this is Charles. I'll just add a couple of thoughts. You're asking around some of the tailwinds. Look, there's more positive that we're seeing. We knew for this year, we had the least compliance backlog to go through and it was going to elevate turnover temporarily. Given that backdrop though, we've had tremendous new lease rent growth all year long. We're just returning to normal seasonality, as I discussed. We've been in occupied north of 97% all year long. Q3, normal seasonality, 96.9%. As I look at the portfolio going forward, this is what typically happens, Q4 will bottom out on occupancy and start to rise back up. And we are doing this in a backdrop where we've had higher turnover that will ultimately start to -- we see it as transitory and start to normalize as we go into next year. So there's a lot of really good things going on. And we're seeing good -- still seeing really good demand across the way. Again, it's around the balance of new lease and renewals. And just to highlight the renewals, for November, we went out at over 9% for November and December on new lease -- renewal asks. So ultimately, I think that leads to the steadiness of the business, the demand that we have. And ultimately, I think it puts us in a more kind of stable footing that we know what to expect, especially as we work through this lease compliance backlog. And as Jon said, many of our markets are back to normal. We're still working through it in a few markets like Atlanta and California and a couple of others. And once we do that, then those tailwinds will get even better as easier comps for next year.

Stephen Sakwa:

I guess, I've got a -- just a follow-up because I'm getting hit by a few people on this number and just trying to nail this down. You've been very clear about where, I guess, renewals are coming in and where they're going out. But it seems like there's a little bit more opaqueness on the new leasing. So Charles, I think you said that historically this time of year, the range would normally be in kind of the 1.5% to maybe 3% range. So are you in that range for, say, October? And are you kind of towards the higher end of the range or the lower end of the range? Because I think folks are just trying to get their arms around where new leasing is today.

Operator:

The next question comes from Juan Sanabria with BMO Capital Markets.

Jonathan Olsen:

Juan, it's Jon. That's a good question. I think a couple of things to bear in mind. Historically, bad debt for us has run, give or take, 50 basis points if you go back to the pre-COVID period. For the third quarter, we came in at 133 basis points, which was down materially from what our experience has been over the last several quarters. So we're absolutely heartened by that. We do believe that over time and distance, we can get back to those pre-pandemic levels. That said, it's hard to predict the timing. There are a lot of factors that come into play. Certain of those factors are out of our control in terms of how quickly courts can work through their backlogs. The various steps in the process of resolving those delinquency issues can sometimes take longer than we would hope. That said, I think we do see a path to a return to normalcy. I think the other thing I would note is turnover has been elevated for all the reasons Charles talked about. I think roughly 19% of our move-outs in the third quarter were related to skips or eviction move-outs. That's up, I think, 400 basis points year-over-year. And those skip and evict turns can cost 50% more than a regular way turn. So if you adjust for sort of the -- both the elevated turnover, the higher cost of a larger subset of those turns, the fact that those skip and evict turns on average are going to take a few days longer, which has an additional impact on occupancy beyond the impact of turnover already, I think when you put it all together, we feel really good that as we continue this march towards a return to normal, if you will, that we see a path to getting back to a portfolio that operates in a manner very similar to what we experienced before the sort of anomalous last few years of COVID.

Adam Kramer:

Just wanted to kind of talk about the -- kind of the cash on the balance sheet. I know you did the debt offering in the quarter. I think cash is kind of sitting higher than it has historically as a result. You took up the kind of the acquisition guidance by a little bit. I think it only kind of implies maybe, I think, $100 million or so of acquisitions from here on the wholly owned side. So maybe just walk us through kind of what the opportunity set is like in terms of acquisitions now. And just in terms of the capital deployment, anything else that we're maybe not thinking about that some of that cash can be used for?

Jonathan Olsen:

Yes, Adam. With respect to cash, I mean, the thing that feels really good at the moment is the fact that we can sell assets at a 4% cap, put the cash in the bank and earn 5.35%, right? So we don't need to have an immediate sort of capital redeployment opportunity. We can basically park the cash, and it is still accretive, up until such a point that we find something that is interesting to go after on the acquisition side. So in this moment in time, being liquid, having a lot of capital just makes sense to us, right? So a portion of that cash on the balance sheet is, if not directly earmarked, it's certainly, in our minds, circled to take care of one of our 2026 maturities, which is the $615 million 2018 for securitization. But I think all things considered, right now, we want to maximize flexibility. We want to maximize optionality. And that means sort of having as much dry powder on hand, particularly if holding that cash is accretive. It just makes sense.

Keegan Carl:

Just wondering if you could provide any color on recent news that you're entering property management, given the articles that came out.

Operator:

The next question comes from Buck Horne with Raymond James.

Dallas Tanner:

Buck, thanks for the question. On the second one around builders, yes, I mean, we are definitely -- we have existing relationships already with some of the bigger builders in the country that I think everybody on this call is aware of. Those relationships have been excellent for us. I hope they've been equally as excellent for them. We are all looking to expand those pipelines and create additional, what we would call, deal flow through the channel of partnering with our homebuilder partners. And just by sort of a way of kind of reminding everyone, one of the things we love about that, just call it C of O, C of O-plus-type relationship is we get meaningful discounts. We can put sort of limited deposits out there. And we manage that business in that pipeline, which today sits at roughly $1 billion or more, in a way that is very effective and efficient for us. As we look for other opportunities, I think one of the areas that we've been pretty vocal on, especially in light of where the capital markets are treating equity prices for REITs, is doing more in and around ventures with partners that are sophisticated and also have sort of the same ambition around the single-family space that we do. And so we don't -- while we don't have anything sort of new to announce on that front, we are always having inbounds and active dialogues with potential partners. One of the areas of which that seems to be the most appealing is around our new construction business. And that, to me, feels like a natural fit for us as we continue to build out our JV businesses over time that we could bring on strategic capital and still be a partner with them with our balance sheet capital, to Jon's point, and put meaningful opportunities to work over time. And I think that business will continue to develop and evolve for us. And we'll obviously keep everybody posted if or when there's anything to talk about there as well.

Daniel Tricarico:

Question on the JV acquisition guidance coming down, Dallas, can you talk to what you're hearing from your partners and how their outlooks or expectations have changed over the last 90 days?

Operator:

The next question comes from Alan Peterson with Green Street.

Charles Young:

Yes. So we ran no concessions through Q3. But as we're looking at the landscape now, and to your point, thinking about occupancy and trying to go into 2024 on a solid footing, we're looking to go selectively while the market is still kind of pumping. We feel the demand is here. But things slow down typically on the holidays. And so I would expect that we'll run some select concessions in markets that have been a little softer. As I look around Vegas, I've talked about this before, it softened a little bit. We're seeing a little bit of softness in Phoenix lately. Those two markets sometimes run similarly. But a lot of it will be around thinking about homes that may be on the market a little longer. And so we'll try to move that product. So it's a balance. And it's really, just to your point, around trying to make sure that we are in good footing going into the start of the year. At 96.9% occupancy, I expect October to kind of be at that same level, plus/minus, and then will rise from here. That's what typically happens in the seasonality. And we want to push to get that back over 97% as fast as we can. And that's how we'll use concessions as need be.

Tyler Batory:

A follow-up question on your builder relationships. Can you remind us what your underwriting for cap rates in that channel? And then when you look at some of the homes that you've taken down already, especially from Pulte, with that relationship, can you talk a little bit about lease-up trends, maybe you're getting better unit economics on those assets and comparable homes?

Operator:

The next question comes from Jesse Lederman with Zelman & Associates.

Charles Young:

Yes, it's a good question. I think I'd start with the majority of our renters come from single family. So there's not a lot of overlap. It's somewhere around -- the number that are coming from historically that have been coming from multifamily is 10% or less. And so it will vary market-by-market in terms of the size of the market. But generally, we'll not see that have a direct impact on us and -- but we'll pay attention to it. I think a couple of years ago, we felt it a bit in South Florida, when there was a bunch of condo product out there. And so I think again, each market will have its own nuances. But given that most of our folks are families, pets, looking for school districts, having a backyard and having extra space for a Zoom call, all of these things drive people that are looking for single-family homes, as Dallas said, moving their kids for the good schools. That's the driver. And so the multifamily isn't a direct competitor most of the time. And that's not in all the cases. But generally, we're looking at kind of the mom-and-pops that are out there that are offering homes. And that's been our main competitor throughout. And what we know is, given our marketing kind of platform and universe, we do well against that, given our professional ProCare service and all that we provide.

Bradley Heffern:

Jon, I was wondering if you could give the size of the true-up for the under-accrued property taxes that fell into the fourth quarter. I think the implied growth guidance for the fourth quarter is roughly 6.5% for OpEx. Just wondering what that figure would have been without the out-of-period taxes.

Operator:

The next question comes from Anthony Paolone with JPMorgan.

Jonathan Olsen:

Thanks for the question, Tony. As I said, we're not in a position where we're going to start talking about '24 yet. I think we are going to evaluate everything in totality. I think when we are prepared to talk about 2024 in February, we will give you a sense for what our expectations are around both of those line items. Because look, we certainly understand that we have seen outsized growth in both of those over the last few years. And I think as we take a step back and think about where we are, we are in the midst of a return to "normalcy." I think there have been a lot of factors in our business and other businesses that have had some temporary structural impacts that are going to take some time to resolve. How long that is, I think, remains to be seen. And we'll be happy to chat about that a little bit more when we release our '24 guidance.

Jason Sabshon:

This is actually Jason Sabshon on for Jade. So at current cap rates, what do you think the IRR is on single-family rental acquisitions over a 5- to 7-year hold? And do you view that as attractive? And separately, what's your outlook for home prices over the next year?

Operator:

The next question comes from Haendel St. Juste with Mizuho.

Dallas Tanner:

Haendel, good question. One of the things, and Jon mentioned it, is we have sort of a high-class problem right now. And it's that we have assets that have really good valuations to them, a market that is starved for product if you're selling a home. But we also have a business that's got really amazing growth fundamentals behind it. And so anytime homes come up for a renewal where we reprice, we call it, a rebuy analysis and we look at the portfolio as a whole, and there's a lot of different reasons for holding an asset, and there's a lot -- there can be several different factors to why you may consider selling an asset. I think in today's environment, with equity being so precious, I think if there are opportunities to recycle capital, expect us to be probably a little bit more aggressive there. And we've certainly shown that the last couple of years. I think the company itself generally has gotten really good high marks for being good capital allocators. We've sold probably 13,000, 14,000 homes back into the market over the last decade. And we look at the U.S. single-family housing market as the most liquid asset class in the world. And there -- our homes are generally located in areas where if we want to sell that home, there are a lot of buyers as well as there normally would be a lot of renters for that home. And so that's a high-class problem. I think we'll evaluate our capital opportunities over time. If we think that, that makes sense to keep recycling because of sort of the spreads between where values are and where we can reinvest accretively, expect us, as I mentioned before, to be a little bit more aggressive there. But in terms of issuing like a guidance on that, we'll update our thinking in February again. We did that at the beginning of this year. We've been a little bit more of a seller relative to what we laid out at the beginning of the year. And that's been based on the market opportunity.

Anthony Powell:

Could you update us on your views on the risk of shadow supply and mortgage rate lock-in? I think this comes up from time-to-time, question to us. With mortgage rate at 8%, people may want to hold on to their current mortgage for longer. Do you expect to see more supply from, I guess, accidental landlords going forward? And is that something that you underwrite when you buy properties or when you look for developments?

Operator:

Our final question comes from James Feldman with Wells Fargo.

Dallas Tanner:

To your question on markets -- this is Dallas. To your question on markets, we love the markets we're in. I think one of the reasons that we've had the sort of performance that we've had historically, and we've been one of the top 5 -- we've had probably the best numbers in the residential space the last 5 years running, is in large part because we've been very deliberate about where we invest capital and why. And if you look at our concentrations, we've been in some of the highest-growth parts of the country, and I wouldn't expect us to change that philosophy. In addition, I think one of the reasons we get the operating margins that we do, and right now we're in the high 60s and we have markets that are well into the 70s, is because of our focus on scale, density and being able to lay out services that people are going to want for longer periods of time. And so as we continue to focus on being in not just the right states but the right markets within those states and then building out scale and product density that allows you to meaningfully impact your service model, that is a winning proposition for Invitation Homes over the long term. And don't expect us to change from that. Now to your question around product type, we've certainly experimented a little bit as we've done more and more infill with some townhome-type product and some product that was a little bit higher density. One of the purchases we made in Q3 was a community like that in Arizona. That was a little bit higher-density product, really good location, right off a meaningful transportation quarter in the west side of Phoenix. I think you could see us continue to try to experiment a little bit on townhome-type product. But remember, square footage matters and amenities matter in those situations. We certainly aren't an apartment investment -- an apartment investor today doing 800 to 1,000 square foot units. That's not our business. We want to be 1,500, 1,600, 1,700 square feet minimum and preferably a little bit bigger than that. That lends to the demographic that we think we cater to the best. In terms of your question around fee management, look, I think you've seen us as a company over the first decade prove out a couple of things. One, we have an ability to take on scale in a meaningful way time and time again and integrate that into our platform and see margin expansion in our numbers. We've done that last quarter with the 2,000 units we added with that trade meaningfully. It will add to additional scale and density and what we believe will be margin expansion over time. I think as we start to consider things around -- we get the question around property management and as we've expanded our JV businesses, we want to look for things that are accretive, that are going to give us scale but that won't take away from the disciplined approach we already have to our business. And so if it has scale, if it's meaningful and if it can actually lend to our own operating margins in a way that we think that our business becomes more profitable, especially in a capital-light way, those are things we're going to look at in the future and continue to evaluate. So focused on controlling the controllables right now within our business. I feel like Charles talked about this. Our business from a controllable perspective is running really, really well. I think as we get through some of this near-term noise and what we call kind of the pandemic transitory winds of property tax and bad debt, our business is set up for success for the future. And we feel really good about where we are.

Dallas Tanner:

We want to thank everyone again for joining us today. And we're going to look forward to seeing many of you again in a couple of weeks at Nareit. Thanks again.

Operator:

Greetings and welcome to the Invitation Homes Second Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode at this time. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Good morning. And thanks for joining us. These continue to be exciting times with Invitation Homes once again demonstrating our ability to deliver strong results. Fundamentals remain very favorable for our industry and in particular for our markets product and price points. Our teams are providing a great resident experience every day and we continue to seek and find fantastic value creation opportunities through our sound capital allocation strategy. I'd like to discuss a few of these in more detail during my prepared remarks with you today. First, let's begin with value creation and our recent purchase of nearly 1,900 single family rental homes for approximately $650 million. As we've demonstrated over the last 11 years, we approached external growth opportunities with a strategic, disciplined and accretive focus. And I'm pleased to share with you why we believe this transaction continues in that approach. Essentially, this is a high growth portfolio of exceptionally well-located homes that we bought at a pretty attractive price. We believe our purchase price represents a meaningful discount to end-user market values, giving us immediate benefits of scale, a value that would have been impossible to replicate through one-off buying in today's environment. Further, we expect our best in class platform to help us achieve enhanced returns. Starting with the year one yield in the mid-5s that we anticipate will grow quickly thereafter. In addition, the quality and location of the homes we acquired are right in line with the type of product we'd like to own more of. In particular, these are great homes within desirable infill neighborhoods that we believe will provide strong rent growth and value appreciation. Over 90% of these homes we purchased overlap with our existing Sunbelt footprint, including within our Florida and Texas markets along with Las Vegas, Phoenix, Atlanta and the Carolinas. Outside of this transaction, we continue to work with our outstanding homebuilder partners across the country. During the second quarter, we took delivery on a 157 of these brand new homes and added an additional 173 homes to our new product pipeline. Our expected future deliveries remained at just under $900 million at the end of the second quarter. Moving forward, we remain focused on smart external growth through our multi-channel acquisition strategy. And as we previously announced, Scott Eisen joins us next week as our Chief Investment Officer, and we're excited to add his insight as we further explore disciplined growth opportunities, including additional bulk, purchasing from smaller operators and an expansion of our homebuilder pipeline At the same time, we will continue to keep our heads down and create more meaningful experiences for our residents. So just growing our ancillary services business and developing new ways for us to engage with our customers. The second topic I want to discuss is the ongoing fundamental tailwinds for our business. We expect these to continue to support our growth objectives for many years to come. Nearly one-fifth of the U.S. population or almost 60 million people are between the ages of 23 and 35 years old. We believe this to be a strong indicator of the future demand for our business as they form families and approach our average new resident age of 38.5 years old. Demand for single family homes for lease has been further enhanced by the rising cost and the burden of homeownership. According to the latest data from John Burns, leasing a home is nearly $1,000 cheaper per month on average than buying a home in one of our markets. This is a reflection of not only an increase in mortgage rates, but also the overall lack of new housing supply. In addition, for-sale inventory remains well below demand, which continued to help support home prices. This in turn aids our ability to sell non-core or underperforming assets at attractive cap rates, and use those proceeds for accretive capital recycling. Moving on now to my third topic, which is how we continue to improve the resident experience and reinforce our commitment to resident choice and flexibility. The most recent example of this is our partnership with Esusu. We're proud to help our residents build good credit by offering positive credit reporting to all our residents using Esusu's platform at no cost to our residents. This partnership helps to remove barriers to housing choice, allows our residents to improve their credit profile in order to achieve their financial goals faster. In closing, I'm excited by how we are executing and driving growth today. I would like to express my thanks to our dedicated associates for the hard work and commitment, which have been instrumental to our successes. We believe the increasing demand for single-family rentals, favorable demographic trends and the flexibility and choice that we provide our residents position us well for both sustained growth and value creation, which we will continue to relentlessly pursue. With that, I'll pass it on to Charles, our President and Chief Operating Officer.

Jon Olsen:

Thanks, Charles. Today, I'll cover the following topics. First, an update on our investment grade-rated balance sheet, along with a few additional details regarding our recent portfolio acquisition. Second, financial results for the second quarter. And lastly, updated 2023 full year guidance. I'll start with our balance sheet. At the end of the second quarter, we had over $1.4 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Our net debt to EBITDAre ratio was 5.3x as of the end of the second quarter, down from 5.7x at the end of 2022. Just under three quarters of our total debt is unsecured and over 99% of our debt is fixed rate or swapped to fixed rate. We've often emphasized how we believe our strong balance sheet positions us well for desirable growth opportunities, should they arise. Our acquisition last week of nearly 1900 homes for approximately $650 million offers an example. With an average cost per home of $346,000, the acquisition reflects a meaningful discount to market value. This attractive entry point is underscored by the portfolio's outstanding quality and location, which are typically the two best indicators of potential future growth. In addition, the acquisition further enhances our significant scale in many of our premier Sunbelt locations, which we believe has the potential to drive even greater efficiencies and higher margins over time. We funded the acquisition primarily using cash on hand, including dry powder we accumulated through outsized dispositions in the first half of this year at an average stabilized cap rate of 3.8%. The remainder was funded by our revolver. Pro forma for the acquisition, our net debt to EBITDAre ratio at June 30 remains comfortably within our targeted 5.5x to 6x range. We expect this portfolio acquisition to have an immaterial effect on AFFO per share for the remainder of this year and to be accretive to AFFO per share in 2024 and beyond. Next, I'll touch briefly on our second quarter 2023 financial results. Second quarter core FFO increased 5.3% year-over-year to $0.44 per share, primarily due to an increase in NOI. Second quarter AFFO increased 6.8% year-over-year to $0.38 per share. The last thing I'll cover is our updated 2023 full year guidance. After maintaining strong execution through much of our peak season, and with favorable fundamentals expected to remain in place, we are increasing our full year 2023 same-store NOI growth guidance to a range of 4.5% to 5.5% or an increase of 25 basis points versus the midpoint of our prior guidance. This is driven by increased same-store core revenue growth guidance of 5.75% to 6.75%, an increased same-store core expense growth guidance of 8.5% to 9.5%, both of which are up 50 basis points at the midpoint from our prior guidance. The increase to core revenue guidance is primarily due to outperformance in rent growth and occupancy in the first half of this year, balanced against our expectation that turnover will trend higher in the second half, resulting in some moderation to occupancy. As a reminder, this is primarily the result of us continuing to make good progress in working through our lease compliance backlog, which has the near-term impact of higher expected turnover and property administrative expenses, but also the longer-term benefits of releasing the homes to stronger credit residents and improving revenue over time. We're pleased with the progress we've made so far this year and as a result, our expectations for full-year bad debt have improved by 50 basis points at the midpoint to a new full year range of between 125 and 175 basis points. Our updated guidance also narrows the range and increases the midpoints of our ranges of expected core FFO and AFFO per share. We now expect full-year 2023 core FFO in a range of $1.75 to $1.81 per share, which is an increase of $0.01 per share at the midpoint. AFFO was also increased by $0.01 per share at the midpoint to a revised range of $1.45 to $1.51 per share. Updated assumptions regarding full year acquisitions and dispositions are included in the guidance section of last night's earnings release. I'll wrap up by restating our excitement for what lies ahead in the second half of this year and beyond. We will continue to focus on our strategic priorities, deliver exceptional service to our residents and drive sustainable growth and value creation for our shareholders. With that, operator, please open the line for questions.

Josh Dennerlein:

Yes. Hi guys. Thanks for the time. Just wanted to touch base on the portfolio of acquired, I guess how long will it take to kind of integrated into your portfolio. And is there any capital recycling that you're planning off the bat?

Charles Young:

Dallas said it well. We've been through this before, just want have to see a little bigger and across multiple markets. But on an individual basis, we've been able to take in portfolios like this and Vegas and Phoenix and other market and it's just more of the same for us. We have a great team essentially that manages how we roll it into our systems, we get eyes on assets, we make sure that we're providing genuine care to the residents. As it - as it turns out now we just - we roll them in on kind of a media basis and we're getting out there and we're working with them where they are in their process and some of them are in lease. Some of them are moving in soon, we just pick it up from there and then we communicate with them well. So it's kind of an ongoing process, there's no real timeline because their homes are in different positions, but I am proud of how the teams are taking it on and it's - we're in the middle of it right now. Its exciting.

Eric Wolfe:

Thanks. Just to follow up on Josh's question there. If I look at as Streets website it looks like the occupancy of their SFR portfolios are in sort of the 92% to 93% range on average. I'm just curious, what sort of occupancy is the portfolio you bought, if there's an opportunity to get that higher expand margins. Where the yield on acquisition go and then - I know that's a long question but is this sort of representative of the type of opportunities that you're looking at across other portfolios?

Operator:

Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.

Charles Young:

Hi, this is Charles. Thanks for the question. Yes, as we said, we thought that we were going to see a little heavier work in the first part of the year in regards to the lease compliance backlog. I think, as we look back at Q1, it was a little quieter and things started to pick up in Q2. We've made good progress and you can see it in our numbers going down 50 basis points quarter-on-quarter. The major markets are where we wanted to see the movement. And so we see this as a positive sign that's SoCal, Atlanta, Vegas has made some nice progress and so as NorCal. And the flip side of that is that we're getting a little bit of a spike in turnover, and that's expected, we do - it's hard to know when it was going to come through, but the good news is the backlog is breaking with the courts and all that. And so that allows us to kind of move these homes through and you'll see some pressure as I mentioned in my comments on occupancy, towards the back half of peak season. But the good news is, demand is still really strong. And so we are able to release quickly, teams are executing well. So we're turning homes quickly, [Phase 3] residents are in a healthy place. So all that is good. This is - signs are positive, we still have things to work through, we're not there all the way yet, but we like where we're going. And ultimately, we ended Q2 here at mid 97s. I expect that will come down to the low 97s in Q3, we'll see where we end up. But with this demand I think we're going to roll back up and we're going to be in the mid 97s overall for the year, we started the year strong, we'll work-through this backlog. The one thing I will mention is, I think we worked through most of the markets this year. That's the goal and hope. But there could be some bleed into next year markets like Southern California, and we'll see how we do in the others. Atlanta has a lot of work to do. Those are our two biggest markets, if you - to your question, the biggest markets that have the largest impact on our portfolio due to size and due to the backlog are Atlanta and Southern California.

Steve Sakwa:

Yes, great. Thanks. Charles, I was just wondering if you could talk about kind of where the leasing spreads are in the third quarter, where did renewals go out, say, for July and August and I guess, what are your expectations for third quarter and for the back half of the year.

Operator:

Our next question comes from John Pawlowski from Green Street. Please go ahead. Your line is open.

Dallas Tanner:

Yes, hi, John, thanks for the question. It's certainly something we think about and what would move the needle over time and distance. And while we have events and things that happened inside of the quarter, we really do try to have a long view in terms of how we want to create meaningful external growth and also what I would say is better-quality cash flows for the company over time, which we would view as, call it, have far more of an impact in the things we want to do strategically with the business and maybe some near-term stock buybacks, which we've never done as an organization, we've certainly talked about it. With this particular portfolio look we think what's inside of a year-ish kind of time period, we're going to be in the 6's in terms of call it yield on cost that doesn't take into consideration things like ancillary and some of the other things that we can do and then it also is part of our consistent process around capital recycling and you look at these things that we're selling kind of call it a four-ish cap rate on average, you'd be able to recycle them to something that's pretty high-quality getting us to a six pretty quick. It's an area where we want to continue to probably lean in if anything, try to find ways to create better, kind of long-term growth for our current shareholders. So we'll consider everything, but we're managing with a long view here.

Austin Wurschmidt:

Great, thanks. On the portfolio acquisition what rent growth did you underwrite in year one to achieve that mid-5% cap rate that you quoted and I know you have the revolver availability to fund a portion of that deal, but what are sort of the plans to permanently finance the transaction?

Operator:

Our next question comes from Brad Heffern from RBC Capital Markets. Please go ahead. Your line is open.

Jon Olsen:

Sure, so in the second quarter, property tax was up a little over 11% year-over-year. This was expected and we talked about this on the last call, primarily because we recorded a large catch-up entry in the fourth quarter of last year due to the fact that we've been under-accrued in the first three quarters. So as a result, we'll see elevated year-over-year property tax increases again in the third quarter and then we'll see some moderation in the fourth quarter. I would remind you that our three largest contributors to our total tax bill are California, Georgia and Florida, which represent about 70% of the total. While California is largely known. For Florida and Georgia, we won't know how millage rates change until we start receiving those tax bills in the fourth quarter. So I would say, big picture at this point, we haven't yet seen anything that would cause us to revise our full-year property tax guidance up or down. With respect to Texas, a couple of things there. Thus far, the legislation calls for a $0.107 decrease in tax bill per $100 of assessed value and then there is some additional compression available that's going to fluctuate by jurisdiction, based on how the redistribution under the Robin Hood laws worked for a school tax funding, but I would also point out that Texas isn't a big state for us and so I would expect that while this is certainly beneficial, I don't think in the grand scheme it's going to move the needle too much.

Daniel Tricarico:

Thanks. Jon or Charles, can you break down the components of the 50 basis-point increase in same-store revenue, rents, occupancy and bad debt. And maybe how that bad debt in 2Q compares to expectations for the rest of the year.

Operator:

Our next question comes from Haendel St. Juste from Mizuho. Please go ahead. Your line is open.

Jon Olsen:

Hi, Haendel. On the last question, I would say, look, I think there's going to be opportunities to talk to other operators in this space over the next year and I think a lot of those conversations will be dependent on what kind of the capital markets is allowing for. In terms of how we view, obviously, the return profile of any trade that we make, it's two-part, right? It's one part, call it going in yield on cost. The second piece on a risk-adjusted basis would take into considerations our expectations around HPA and things like that. This was obviously so far an unlevered transaction if you look at it in a binary way. We would expect healthy home price appreciation, so I call it on an unlevered basis, we'd probably see this in like the high-single digits, but it just depends and it's a mixture of markets and things like that, so yes.

Keegan Carl:

Yes, thanks for the time guys . So both in the press release, the commentary you called out increased turnover expense, a pretty big driver of your same-store OpEx going higher on a year-over-year basis. I'm just curious, one, how this is trending versus your initial expectations and then what your outlook is for the rest of the year on turnover and then do you think we're '23 end to be a good run-rate going forward on turnover?

Operator:

Our next question comes from Dennis McGill from Zelman & Associates. Please go ahead. Your line is open.

Dallas Tanner:

Yes, good question, Dennis. Look, on the last part of your question, I think it's fair to assume that the frictional costs when you're doing anything in scale is really hard. And I think we're as good as anyone in this - in terms of selling one-off in the end-user market. Even when we sell those kind of high 3s, low 4s, we have some frictional costs that are associated with those sales. If you're not doing it all the time, I think it can be a little bit more difficult to just say, hey, could I sell 1,000 homes tomorrow and what would - how would I think about that cost structure. Look, I think the home prices have largely been buoyed up because of the lock-in effect that there is a lot of really attractive mortgages in place that I think both homes - current homeowners or people that are owning real estate in the single family space, it's actually an asset, it's a liability on the balance sheet of the home. But the reality is, it's an asset, and there's a lot of - and we've talked about in some of our other calls, mortgage rates, call it inside of 80% of U.S. mortgages are inside of 5% which is really I think what's keeping the market supported. And that lack of volume is creating really still a feeding frenzy sort of mentality when somebody is selling a home. And we view that as an asset for our business when we want to call. And so homes - and we've talked about that, that you might see us be a little bit more aggressive selling some homes this year. But by and large, the market feels really healthy. I agree with you, we have not seen the degradation in home prices within our portfolio, but I think when we have these opportunities where we can take advantage of that sort of bid-ask spread being a buyer. We have a long view on owning great single-family residential and we want to own it with scale in the markets we operate in. So when those opportunities show themselves like this one, expect us try to figure out how to do that transaction, if it makes sense.

Derrick Metzler:

Hi, this is Derrick Metzler on for Adam Kramer. I was wondering if you could talk a little bit about market rent trends across your portfolio and do an update on loss to lease today. Thanks.

Operator:

Our next question comes from Anthony Powell from Barclays. Please go ahead. Your line is open.

Charles Young:

Well, I think we mentioned on the script that we're continually adding to our pipeline. I'd say, sort of the opposite, I think most companies would envy the position the public builders are in, they're lowly levered, they are taking a much larger share of overall home sales as it relates to call it U.S. housing stock. And it's because they're one of the few groups out there that can go out and build and create. Now that being said I think the playbook that we've built with Pulte is sort of our beginning sponsored partner is now actually starting to work its way through with several different relationships for us. I actually think it's sort of caught on that this is a really nice way for an operator of for-sale homebuilding business to be able to align some interest with professional management companies that want to be a natural buyer of some of this product over long periods of time. And so I actually expect that side of our business to grow, think our teams, largely led by Peter DiLello and now Scott Eisen coming in, have done a really nice job of starting to build up a frequency there. And I think the nice part about it is we were able to get under the hood early and really talk about our strategy as a company with these partners and helping them understand where we want to grow our footprint. And then I think over time, it also allows us to get under the hood and have an influence on things like portfolio composition and design and neighborhood fit and feel, which is an important part of our overall value factor for the customer is, they're thinking about choice. And I think what and it's still too early for us to really have a strong view on this, but I think the customer coming in to brand new product really does view that that move-in experiences their home. And my instincts, I can't prove this yet with any data, but I think they'll prove an even stickier customer over time as we bring out some of these newer product that has a little bit more of a focus. And lastly, the thing we love about it, which I can't emphasize enough is we are very G&A light in this program. So we don't have a lot of our balance sheet tied up in dirt or other kind of potential riskier parts of that business. We'd rather just continue to partner with proven operators in this space and be a good playing partner for them. That strategy is really working for us at this point in time.

Juan Sanabria:

Hi. A couple of questions. I'm assuming we're towards the end. I guess, I apologize if I missed it on the same-store expense guide, the increase what drove that? I mean it seems like the bad debt is lower, the churn has picked up but albeit temporarily and set to decrease in to year end and taxes. It's too early to tell and no change in expectations. Just curious on what drove the expense increase in guide. And then the second part is just on the renewals, why is that decelerated or the pace of increase has slowed and as the September, October numbers that you put out there, in the 8s, does that imply a reacceleration, or is there some get-back that would kind of keep that number steady for September and October expected.

Charles Young:

This is Charles. I'll just add on the renewal side. As you think through kind of portfolio mix and kind of the cohorts that come through for renewal in the summer or in the peak season if you will or off-season in Q1 or Q4, we've historically really been strong at pushing out trying to capture as much of that market that's out there and you think about the last couple of years on the new lease side, we've been in that high mid-teens, also on the renewal side. So when the summer renewals come through, they're coming off a pretty high base. So we're just realistic on kind of what we can do. And if you get into the back half while we still have good demand, there is an opportunity to capture where market is, and we didn't go out as high in those shoulder seasons, if you will. So that's some of what you're seeing, I think we can see how it all plays out and what it implies, but implies that generally we're still seeing good strong demand and we're going to do what we can to kind of capture where market is for these homes and that portfolio when it comes through of homes at that time.

Tyler Batory:

Good morning. Thank you. Few follow-ups on the acquisition conversation here. What do cap rates look like on the MLS channel? Where are you bidding? Where are deals clearly in the market? And Dallas, just given some of the commentary on portfolio deals, some of the scale, you can build pretty quickly on those, plus some of the attractive pricing with your builder relationships, does it make more sense to hold off on the MLS as an acquisition channel, perhaps conserve some of your capital for some of these other opportunities and traditionally channel-agnostic, location-specific has been a big part of the strategy, but wondering if maybe that might change, just given some of the opportunities that are out there?

Operator:

Our next question is from Linda Tsai from Jefferies. Please go ahead. Your line is open.

Charles Young:

So on your first question, basically in-place rents, as we took these homes all around $2,200, which for the markets that these are comprised of is about 10% greater than where our current average rents in these markets are. So all accretive in terms of that, but we do see the same embedded loss to lease in this opportunity as we do in our own portfolio, somewhere between call it 8% and 10% upside in our books, so and I'm sorry, I didn't get the last question, the last question, third part of your question.

Charles Young:

It's too early to tell, but like our Texas markets, we would basically grow the portfolio by 10%, and we would need to bring on really any headcount there. So we will see additional expansion kind of in those two markets, but in terms of like ancillary, that'll be a slow process because what we typically do is bring some of those services into play as leases revolve and renew. And so, as Charles mentioned earlier on the call, as we get into the book and as we're actually operating it and updating leases and lease agreements and updating our renewal pricing, that's when those ancillary services will be able to come in. And so that will integrate in over time.

John Pawlowski:

Thanks for taking the follow-up. Charles, I was hoping you could expand on the weakness in pricing power and the new lease growth rates in Vegas you alluded to. What do you think is driving that specifically? And then maybe on a somewhat related topic, are you seeing notable increase in shadow supply from conversions of short-term rentals, Airbnbs to traditional rentals in Las Vegas or other vacation-heavy destinations?

Operator:

Our next question comes from Jade Rahmani from KBW. Please go ahead. Your line is open.

Charles Young:

Hi, thanks for the question. I will say that similar to what we talked about on our last call, while we don't love the extent to which our property tax - sorry, our insurance bill went up year-over-year. I think we were very fortunate, relative to what we've heard from some of the other REITs and I think that's down to a couple of things. One, we have a very favorable loss history. Our insurers have never lost money on Invitation Homes, the worst year they ever had with last year when they broke even. Secondly, I would say that the geographic dispersion and the granularity of the assets compared to traditional commercial real estate which are big and chunky, certainly is a benefit in terms of risk mitigation. And lastly, I would say we're not coastal. So, I think if you put all that together, we feel really good about where we landed. I think for the third and fourth quarter, as we talked about on the last call, you should expect to see quarterly year-over-year increases in the neighborhood of 20% with the full-year insurance expense line item being up a little over 16%. As far as captives and other things of that nature, look we are going into next year's renewal, we're going to be evaluating a whole host of different alternatives, because I think this is not a - a one-and-done type of situation. We've seen a lot of capacity leave the market. And I think we've seen a lot of carriers who are trying to recoup fairly painful loss histories over the last several years, so I think it's something to stay tuned to, but I can't give you any particular insight into what our strategy is going to be for next year just yet.

Daniel Tricarico:

Thank you. Sorry, going back to Austin's question earlier and Jon, what do you think you could raise unsecured debt today? And you know, credit spreads have come in recently and you talked about your leverage being lower than your longer term targets. So, do you view this as a good time to raise that kind of capital or are dispositions going to stay the preference?

Operator:

Your next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.

Dallas Tanner:

Hi. Great question. I think in terms of expansion, and we were pretty consistent was saying this like we run 12,000 units or 13,000 units in Atlanta as easy as we run 3800 in Seattle. And so I think we'd love to see all of our markets get closer to 8000 units and 10,000 units. We see margin expansion, we see ability to offer different services, we can be pro care systems can all run a heck of a lot more efficient and we get better granularity and efficiency with scale in those markets. So I would expect - our first choice would be subject to an opportunity set, I guess, would be to just continue to build scale and density in the markets we operate. We've also been on the record that we would like to own and some other markets over time. And we see that there is a little bit of Nashville in this trade. And there are markets like Austin and San Antonio and Salt Lake City that we all find very appealing for variety of reasons. I think internationally it's a fun question to speculate on. But the reality is, most of these countries probably have more restrictive housing policies. And unless there were a real strategic opportunity or a reason to get it, I don't know why we would just stay in, this great country that we have an amazing space for housing and we can build it, we can buy it, we can improve it. It's just - it's a very good place to operate and be a REIT. In terms of equity, and Jon just answered this is how we think about the capital markets. Look, we think about our cost to capital daily in this business. And we try to hold ourselves accountable to being smart stewards of capital. I think we've gotten fairly good marks over time of being smart capital allocators. I like that we're disposing of homes that are non-core or in parts of the country, there may be a little harder operate and kind of a four or sub-four cap reinvesting that capital in the mid-5s pushing to a 6 on the new construction. That's a winning strategy right now, all the world sort of funky. It's been nice to see that our - call it our share price has gotten a little bit better, but it's not in the zip code that we're really thrilled about. And for kind of a variety of reasons, when we look at where kind of home prices are actually trading. And so, I think, to Jon's point you will probably watch the capital markets over time, see how those evolve, we'd certainly love to see good performance buoy up our stock price even further, but we're comfortable recycling capital and being smart and as I've said before, we're not going to be afraid to do this stuff off balance sheet with partners that want access to SFR. And so we have current availability in our second Rockpoint venture of about $700 million. I'd expect we'll start to deploy some of that over the coming year. We have an untapped revolver and we're going to still continue to generate good free cash flow in this business. So between dispositions and all that, I just remind I think we've got ample dry powder to go look at some of these opportunities to continue to try to grow the business.

Dallas Tanner:

We appreciate everyone's support, everyone being on the call. We hope everyone has a safe rest of summer and look forward to seeing some of you in the fall.

Operator:

Greetings. And welcome to the Invitation Homes First Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode at this time. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Good morning and thank you for joining us. We are pleased to report a strong first quarter result yesterday afternoon, reflecting a great start for a year. Average same-store occupancy improved 50 basis points over the fourth quarter to 97.8% and new lease rent growth has accelerated sequentially every month so far this year. We have encouraged by the execution of our teams and remain bullish on our industry and our business. As long-term fundamentals continue to be favorable, bolstered by our superior balance sheet and liquidity and backed by our best-in-class platform, we will seek to continue to deliver sector-leading NOI growth as we have done for the past five years. Since our inception, we have matured and performed through a variety of operating and macroeconomic environments, including a global pandemic and record high inflation. Throughout this time, we have witnessed the resilience and the relative strength of our business. This is illustrated by a great chart from John Burns Research and Consulting that we included in our March Investor deck. This data shows that over the past 40 years, national SFR rent growth has historically stayed positive even during recessions. In addition, in a recessionary period, we would expect that our business could see a reduction in move-outs and a benefit to occupancy and that external growth opportunities can become more attractive. For these reasons and more, we believe single-family leasing is one of the most stable property types in real estate. The Invitation Homes offers one of the best risk-adjusted return propositions compared to other commercial real estate sectors. To start, supply and demand fundamentals continue to favor our business. On the demand side, this includes the demographic surge of the millennial generation who have begun reaching our average resident age of 39 years old. But it also includes individuals and families of all agents who desire the flexibility and convenience of leasing a single-family home. Like all of us on the call today, our residents value great schools, proximity to growing job centers, access to transportation corridors in desirable neighborhoods for their families. They usually need or want more space with a garage and a yard to better fit their growing household and to have more room for a home office, a kids play room and their pets. And more importantly, today’s residents are requesting flexibility and choice along with the appeal of a down payment light lifestyle. Further driving the demand for single-family home leasing is the rising cost of homeownership, as well as the lack of inventory of for-sale housing. According to John Burns March data, and weighted by our markets, the monthly cost of owning a single-family home remain on average over $900 more expensive than leasing that same home. Others have calculated an even higher cost of average for ownership versus leasing. On the supply side, the U.S. continues to suffer from a shortage of housing. With the shortfall in supply relative to demand estimated to be in the millions of units. Like most economists, we think the best way to improve housing affordability is to grow the U.S. housing stock, and more specifically, by encouraging development of new housing supply. This important work really needs to begin at the state and local levels, including planning and zoning boards, and we stand at a strong support of those who want to bring positive change in this regard. In fact, we see ourselves as part of the solution to increasing housing supply through our new product pipeline that is now approaching $1 billion. We will continue to seek out responsible opportunities to add supply and as a result, help improve housing availability and affordability. In consideration of these fundamentals, we believe leasing a home is a great option for anyone who wants all the benefits of living in a home without the hassle or expensive homeownership. And we believe Invitation Homes offers the best service platform and locations for residents to choose from. One reason for this relates to core belief we have held since the early days of our business that we could revolutionalize the single-family resident experience by professionalizing resident service. In short, we took a decades old antiquated mom-and-pop model and transformed that based on the needs and desires of a 21st century resident. As part of that approach, we continue to expand our service offerings and look for new and better ways to enhance the simplicity and convenience of the leasing lifestyle. At the same time, we continue to explore ways to improve efficiency through size and scale. We also remain focused on growing our portfolio accretively over the long-term, and more importantly, in locations where we would expect the most favorable long-term fundamentals. With regards to growth, we have committed to being prudent capital allocators through all real estate cycles. For the first quarter of 2023, this meant being a net seller of homes disposing of 284 wholly-owned homes for gross proceeds of $95 million and buying 181 wholly-owned homes for $62 million. For the most part, we have recycled capital out of less desirable homes and into brand new well-located homes as part of our new product pipeline. We believe our strategy of partnering with the best homebuilders is a superior approach to investing on a risk-adjusted basis as it keeps development and its associated risk, including an expensive land bank and high G&A load off of our balance sheet. At the same time, our strong balance sheet and current liquidity, including JV capital allows us to remain nimble and as opportunities arise, we will be ready. Before I close, I want to speak to the continued dislocation between the retail pricing of single-family homes and public market valuations. Strong demand for housing continues to support home prices in our markets and at our price points. While the lock-in effect, which existing homeowners are discouraged from giving up their lower mortgage rates is keeping resale supply relatively low. We have seeing evidence of this supply and demand imbalance when we list our homes for sale and received multiple competing offers at great prices. We believe the resilience of the U.S. housing market in the current cycle has been underestimated over the past year and that the protracted supply and demand imbalance for single-family housing continues to provide good structural support for home prices just as it does for rent growth. Lastly, on the topic of sustainability. I hope you have taken a moment to read our new progress overview, which we published last month. It’s available on our sustainability webpage and includes information about our efforts to increase the quantity and the quality of our ESG disclosures. This includes new greenhouse gas emission disclosures and an opportunity for engage stakeholders to participate in an online survey to share their thoughts and their ideas with us. We welcome this feedback. My thanks again to all of our teams for their hard work, dedication and commitment this past quarter and for the remainder of the year ahead. Our associates are the heart and soul of Invitation Homes and we appreciate how they embrace the responsibility to deliver the highest level of service to our residents and strong results for our shareholders. Our plan is to keep pushing to be great here. With that, I will pass it on to Charles, our President and Chief Operating Officer.

Jon Olsen:

Thank you, Charles. I am excited to join you all today. I have been part of the Invitation Homes team since 2012 and I am honored to have been named CFO upon Ernie’s departure next month. Ernie has led our finance organization for the past 7.5 years, and in that time, he has overseen tremendous growth and many important milestones for the company. We have both here in the room this morning to answer any questions you may have following our prepared remarks. I will begin by covering our financial results for the first quarter and then provide an update on our investment-grade rated balance sheet and liquidity position, before wrapping up to open the line for questions. As we have stated, our first quarter results were in line with or slightly ahead of our expectations and offer a solid start to the year. Core FFO for the first quarter of 2023 increased 9.5% year-over-year to 0.44 per share, primarily due to an increase in NOI and AFFO increased 9% to 0.38 per share. Our full year 2023 guidance remains unchanged from the initial guidance we provided in February as we are still early in the year. Next, I will cover our balance sheet and liquidity position. We believe this is an area of strength for us, not only in comparison to how far we have come since our public listing over six years ago, but also relative to many of our investment-grade peers today. In the six years since our IPO and merger, we have applied a consistent and measured strategy to delever the balance sheet, improve the laddering of our debt maturities, refinance secured debt with unsecured debt, unencumbered assets and lower our net debt-to-EBITDA ratio. We ended the first quarter with over $1.3 billion in available liquidity comprised of our unrestricted cash and undrawn revolver capacity. We have no debt reaching final maturity before 2026, and at the end of the first quarter, over 99% of our debt was fixed rate or swapped to fixed rate, nearly three quarters of our debt was unsecured and over 83% of our homes were unencumbered. Our net debt-to-EBITDA ratio improved from 5.7 times at the end of 2022 to 5.5 times as of March 31st. In recognition of the great work by our team and the meaningful progress we have made -- in March, S&P Global Ratings upgraded our issuer and issue level credit ratings from BBB- to BBB flat. In addition, last week, Moody’s Investors Service revised our rating outlook from stable to positive. In closing, we have pleased to start the year strong and believe our favorable fundamentals, best-in-class operating platform, dedicated associates and strong balance sheet position us well to continue delivering solid results. On behalf of everyone at Invitation Homes, we extend our thanks to Ernie for the enormous impact he has made and look forward to furthering the legacy he helped build. With that, Operator, please open the line for questions.

Josh Dennerlein:

Oh! Hey. Sorry, guys. It’s Josh Dennerlein. Sorry about that. In the opening remarks, you mentioned demographics influencing demand and it sounds like you expect sector-leading NOI growth to kind of continue as a result. I guess could you maybe walk us through the demographics that you have seeing come through your portfolio today and how that’s impacting your outlook?

Operator:

Your next question comes from the line of Eric Wolfe with Citibank. Your line is open.

Dallas Tanner:

Well, I think, there’s two questions in that question. So, the first piece on the lock-in effect with 80%-some-odd of mortgages being sub-5%. It has probably caused a lot of us and people that are in the market for housing to think about staying put, which I think has also impacted some of the resale supply. It’s had a positive effect in our business, because I also think it’s helping support longer duration of stay, demand, et cetera. I think in terms of your question around the retail market and what we would expect from sellers? Yeah, there’s no doubt that if people are a mortgage today, if you acquired it or you refinanced in the last 36 months is an asset for folks and so that may have an impact on resale supply. Good news for us is our focus the last couple of years has been building out a much more robust new product pipeline, which today sits close to $1 billion and we have really excited about that product as it’s coming into our portfolio, both this year and years beyond. I think the resale environment has been limited the last three years to four years. It hasn’t really been a source of truth for people as they have trying to build up, call it, their base. Fortunately, for us, we have real scale in markets. I think where we may see other opportunities down the road this year could be as we see some of these smaller operators who are having trouble getting scale or sizing up, there could be opportunities where potential M&A over the next couple of years. So I think we will stay aggressive in our new product pipeline, we have obviously always looking at things as the resale market changes but just being ready and I think we have in a position to do that.

Austin Wurschmidt:

Great. Thanks and good morning. I am just curious if you guys are surprised at all by the strength in new lease rate growth year-to-date, which you highlighted has accelerated each month and surpassed renewals in April. And I am just wondering if that enables you to back a bit on renewals to limit turnover and help control costs and if you could provide an update on loss to lease, that would be helpful as well? Thank you.

Operator:

Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

Jon Olsen:

Sure. Thanks for the question. This is Jon. Our insurance policy period runs from March to February. So we have now put our new insurance policy in place. Recall that on our last call, we talked about our expectation for the property policy being up somewhere in the neighborhood of 20% to 25% year-over-year. The actual policy came in right in the middle of that range, actually a little bit closer to the bottom end and as we have talked about in the past, the other insurance line items showed smaller year-over-year increases. So our expectation for the balance of the year is that for the next three quarters, we will see the insurance line item be up in the neighborhood of 20% year-over-year and then for the full year, we would expect insurance to be up about 16% year-over-year.

Brad Heffern:

Yeah. Thanks. Good morning, everyone. On the property tax front, I noticed that it was down 3% from the fourth quarter. Can you talk about what that’s related to, is it lower appraisals or appeal wins or is there something else going on there?

Operator:

Your next question comes from the line of Haendel St. Juste with Mizuho. Your line is open.

Dallas Tanner:

Thanks, Haendel. I will comment briefly on your last, which is we don’t comment on any other legal matters other than to say that we always fully cooperate with any inquiries we get. In terms of new product pipeline and the opportunities there. Today, we have been really cautious and careful around not putting the balance sheet in a position where we would have to take maybe more of an egregious share of the risk in terms of how we want to build product. We really like our approach thus far. We are doing a lot of different underwrites and reviews on opportunities in the marketplace across a variety of builders and develop potential partners. It’s well noted that we have a really good partnership with Pulte Homes. We will continue to do as much with Pulte as we can. They have been terrific. And I would say that with the announcement of that partnership, what, roughly 18 months, 24 months ago, it’s expanded to many other builders and developers coming to us looking for opportunities to grow together. So we have been able to be deliberate, we have been able to be picky about where we want to invest and why, and I think we have been able to do it at a risk basis that is very variable to our shareholders in terms of not having an outsized portion of risk, a bunch of land sitting on our balance sheet, et cetera. And by the way, I’d just add, like very little G&A. It’s synonymous with our investment management team here. We have added a couple of people over time on the buss guest side and also on the project management side, but it’s going really well and we have coming into these homes a really accretive basis that we feel good about. Excited to see where that continued chapter for our company develops and has greater magnitude.

Adam Kramer:

Hey, guys. Thanks for the question and best wishes to you, Ernie. I appreciate all the help over the years. I just wanted to ask about bad debt on kind of a gross and net basis. Maybe just kind of walk us through how gross bad debt in 1Q compared to 4Q and then maybe the same for net. And then the areas where -- geographic areas, markets where you have still kind of worse than pre-COVID on kind of that gross bad debt line. Maybe just kind of highlight for us which markets are kind of still outliers on that basis?

Charles Young:

Yeah. So, as Ernie said, we have starting to see kind of a return to normal and all trends are generally positive and this is why rent assistance has gone, was half of last quarter and 20% year-over-year. So we have starting to get back into a normal rhythm. In terms of markets, about half of our markets are operating at their historic levels, which are great. There are a few markets that, because of kind of the lease compliance backlog in the courts and that it’s a little slower SoCal being kind of the largest of that. But the L.A. County, L.A. City adjustment is favorable and we will see how that plays out. There’s still kind of the courts are backlog there. So it will take a little bit of time to clean up. The other markets that are a little slower are Atlanta Vegas, but that’s changing and adjusting quickly in NorCal Vista, California courts as well. Then we have another handful of markets that are trending in the right direction, but not quite back to historical levels. So, we feel like we have moving in the right direction and things are kind of working themselves out. And as we talked about on the last call, we knew bad debt was going to be elevated in the first half of the year and we have trending nicely, and we will see if we can continue to keep that momentum, and by the second half, we will be trending back towards where we want to be in cleaning this in.

John Pawlowski:

Hey. Thanks for the time. Dallas, I want to circle back to the [inaudible] lawsuit. I know your views haven’t changed where you do not think it has merit, but curious if the internal views have changed at all when trying to size the potential impact, if you have wrong and things go South in court. So can you help us give us a sense of whether your views have changed on the potential financial impact for shareholders?

Operator:

Your next question comes from the line of Daniel Tricarico with Scotiabank. Your line is open.

Dallas Tanner:

It’s just timing on projects more or less than anything. I think, by and large, everything that we expected to take from a delivery perspective this year is on schedule and then some of it has to do with timing in P&C and some of the zoning commission things that we mentioned in my earlier comments.

Juan Sanabria:

Hi. Thanks for the time. Just curious if you could speak a little bit more on the acquisition side. Are you seeing any potential distress from some larger portfolio owners given the change in rates and some financing may be coming due? And as part of that question, maybe if you can just comment on where you see cap rates today for assets that are transacting and how does that compare to your implant cap are thinking about your own cost of capital?

Operator:

Your next question comes from the line of Keegan Carl with Wolfe Research. Your line is open.

Dallas Tanner:

On the JV disposition, the question?

Operator:

Your next question comes from the line of Dennis McGill with Zelman & Associates. Your line is open.

Dallas Tanner:

Well, I think, one, you want to have yields that make sense, right? I don’t think you want to see -- I don’t think our shareholders would want us to necessarily be super active buying yields that aren’t very accretive. I also think that there’s going to be, and look, you mentioned a stalemate. To be fair, the last year has been sort of tricky. I think it’s been tricky for private operators that are considering recaps or financing activities, et cetera. I think that will spur some opportunities for us. I also think we have got the right approach with our new product pipeline where those deliveries are going to start to stack at pretty meaningful yields even at today’s current cost of capital. So I think the opportunity will sort of play itself through the marketplace as either one of a handful of things happen. Your point on the long side of the curve comes in and credit availability maybe helps enhance some transaction activities, you see more in the retail space. But I also believe that the combination of our new product pipeline, potential M&A being a bit more active in the resale space as that starts to normalize will all lend itself to pretty normalized years for activity. It makes sense to me that a lot of single-family rental operators, you have read it kind of everywhere else have all taken a pause. We want to see what happens with housing prices. I think people are wanting to make sure that there’s stability and price durability in the marketplace. It feels like it’s there and I think now it’s just about identifying and executing on those opportunities.

Steve Sakwa:

Yeah. Thanks. I think Charles had provided maybe the April renewal. I am just curious if I missed it, did you talk about where renewals were going out for May and June? And maybe secondly, could you just maybe comment on some of the larger occupancy drops like Las Vegas, and I guess, what are you seeing in some of the markets where the occupancy drop more than the portfolio average?

Operator:

Your next question comes from the line of Sam Choe with Credit Suisse. Your line is open.

Charles Young:

Yeah. Overall funnel is really strong. I mean I think as you look at it, the general demand for our product, given our location, schools, safety, all of that. The other thing that does stand out is purchased -- move-out reasons to purchase a home is down, the lowest it’s been in a while. We have kind of balancing that with some of the turnover. But you look at current interest rates, it’s natural that people will -- who need a single-family home are going to come to us and that’s what we have seeing. About 80% are rented prior and about 77% are coming from a single-family home prior to coming to us. And so all of that is trending in a positive direction and gives us kind of good demand. And as we looked at kind of how we were able to accelerate through Q1, it does, as you said, put us in a healthy position going into the summer. Our thought, as we looked at this and we kind of set our perspective is that you got to be realistic to where we were the last couple of years and while we have going into it maybe a little ahead of time, we do feel like there’s going to be a peak here, it’s not going to rise to the sky like we did during COVID. But we like our position, given our occupancy and the acceleration that we have seen to date. So we feel real good about it.

Unidentified Analyst:

Hi. Good morning. This is Lee [ph] in on behalf of Chandni. Thanks for the question. So could you talk more about the turnover expense overall, especially on the resident turnover, like, how much of it was from normal seasonality and inflation and how much of it was impacted by working through the nice units in California? And what’s your expectation on the growth for the rest of the year? Thanks.

Operator:

Your next question comes from the line of Jade Rahmani with KBW. Your line is open.

Jon Olsen:

Look, I can defer some of -- this is Jon. But I would say we really like where our leverage profile is. We have worked hard to get it to a level where on a risk-adjusted basis, we have far better than we were 5 years ago when we -- when the business went public. I think we have used more leverage in some of our ventures and that’s sort of been my design and we have been programmatic and thoughtful about how to do that and when to do it. But I think, by and large, the cost to debt out there isn’t that great right now even for an unsecured borrower like ourselves. So I don’t see leverage being a significant part of our near strategy to go fund our growth.

Jamie Feldman:

Great. Thanks for taking follow-up question. I guess I just wanted to get your thoughts on NOI margins. I mean year-over-year, they have clearly down in most markets sequentially, they have a little bit more mix, but definitely picked up for the portfolio overall. I mean, how do you see this trending through the course of the year or even beyond, now that you have got a better handle on the expense side, especially with insurance and taxes and a pretty good view on revenue as well?

Operator:

Your next question comes from the line of John Pawlowski with Green Street. Your line is open.

Jon Olsen:

I think they have trending generally in line with what we have expected. I think, overall, we have performing relatively well, maybe a little bit ahead of our expectations for the year, but it’s early in the year, right? So we want to continue to see how things develop, but I would say that, we feel good about what we have seeing on the cost to maintain side of things.

Nick Joseph:

Thanks. It’s actually Nick Joseph here with Eric. One of your Sun Belt or one of the Sun Belt department companies mentioned on their call that you thought the starts had come down about 60% from current levels. So wondering kind of historically, when you have seen big swings in apartment deliveries, what’s the impact on single-family rental operations?

Operator:

Your next question comes from the line of Michael Gorman with BTIG. Your line is open.

Jon Olsen:

No. I don’t think we have anticipating a material impact related to weather patterns. I think right now what we have seeing in the business is a business that is sort of recalibrating as some of the structural impediments to us operating the way we normally would work themselves out over time. I think weather is something that we are always going to have to deal with. I think we feel good about the processes we have in place, the ground game that we rollout to make sure that we are protecting our assets and that we have well insured in the event of some sort of catastrophic events. But I would say that the impact is not expected to be significant.

Anthony Powell:

Hi. Thank you. Question on Phoenix and Tampa. I think two markets that people were concerned about given a lot of the supply growth both on the multifamily and the single-family side. Are you seeing very strong rent growth there, so maybe comment on those two markets?

Operator:

This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.

Operator:

The conference has now concluded. You may now disconnect.

Operator:

Greetings, and welcome to the Invitation Homes Fourth Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode at this time. [Operator Instructions] As a reminder, this call is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Vice President of Investor Relations. Sir, please go ahead.

Dallas Tanner:

Thanks for joining us this morning. I'd like to start by thanking all of our teams for their hard work last year. Yesterday, we posted 2022 year-over-year core FFO growth of 11.6% and same-store NOI growth of 9.1%. Strong demand for our business continued throughout the year. And despite some headwinds from inflation and an evolving regulatory environment, we believe our business continues to stand on solid footing. As you all know, Ernie recently announced that he'll be stepping down as CFO in a few months. I'd like to thank him for his extraordinary vision and strategic insight over the past seven years, and I look forward to celebrating his achievements later this year. At the same time, I'm excited for Jon Olsen, who joins us here in the room this morning, to lead our finance team beginning in June. Jon has been part of Invitation Homes from the beginning with deep involvement in all of our strategic and financial activities. We expect this to be a seamless transition. Before turning it over to Charles and Ernie to provide more details about our 2022 performance and our expectations for 2023, I wanted to take a few moments to discuss the current housing environment in the United States and how we believe Invitation Homes is well positioned to help support the country's housing needs. It has been reported that the U.S. needs to add more than 13 million housing units over the next seven years in order to accommodate new household formation and address the undersupply of the past decade. Today, however, it remains challenging to deliver new supply in desirable locations, because of state and local restriction, as well as labor and material shortages. In addition, today's macroeconomic environment of higher inflation and higher interest rates may discourage investment in new supply. On top of these supply pressures, the largest demographic group, the millennial generation, is now aging in the life stage of needing more space to accommodate their families and their lifestyles. Add to all of that, the increased flexibility of many to work part-time or full-time from home, and we believe demand for single-family housing should remain strong for many years to come. At the core of our business is a straightforward yet critical goal. We seek to be a meaningful part of the solution for high-quality and flexible housing options. We provide quality homes for lease in desirable locations with access to great schools and employment centers. We offer best-in-class service, allowing residents to focus on their lives. And we're proud that we partner with 150 public housing authorities and serving thousands of our residents who participate in a housing assistance program, including HUD's housing choice voucher program. And we're delivering new homes to marketplace through our previously announced builder relationships. Today, that builder pipeline exceeds 2,300 homes that we expect to deliver over the next few years, and our plans are to continue investing in new construction in the future. As a reminder, our approach to bringing new housing to the marketplace keeps development risk off of our balance sheet and avoid any related G&A burden, while also allowing us to partner with some of the best homebuilders in the business to select and buy new homes in great locations. We think this approach is a real differentiator and allows us to maximize flexibility and optionality while remaining opportunistic and minimizing risk. All of this is important because the lack of available supply of single-family housing and strong demand from those who wish to live in a single-family home have made homeownership much more expensive today. This supply and demand imbalance is further aggravated by inflation and elevated interest rates, leading to the widest dislocation we've seen between the cost of homeownership and the cost of leasing since starting this business. We're therefore very proud to provide our residents the opportunity to live in neighborhoods and school districts that might not otherwise be accessible at a cost that is often significantly more affordable than any other housing option. Let me pull on that string a little bit further. Based on the John Burns December data, leasing a home cost nearly $900 less each month than owning a home across our markets. This means that leasing home can save a family nearly 30% a month on their housing costs on average. These savings are even more compelling on a per square foot basis where single-family rental homes currently come out as the most cost-effective housing option compared to not only homeownership costs, but also apartment rent. That being the case, we believe today's macroeconomic environment and the current supply and demand fundamentals make the Invitation Homes value proposition compelling for both our residents and our shareholders. This is on top of several differentiators of our business that we have noticed in the past. For residents, these benefits include a recently renovated, refreshed or newly built home in a desirable location; ProCare, which is our resident service model that provides for consistent interactions with our residents throughout their time with us; best-in-class technology tools of the most recent example being our mobile maintenance app, offering residents an even more efficient process to submit service requests; and a growing list of resident services designed to elevate their living experience. For our shareholders, we believe there are numerous absolute and relative advantages to the single-family rental industry, including single-family homes are the most liquid real estate sector within the United States. There's typically much lower turnover in single-family rental than in multifamily with residents often staying much longer. And there's a long track record of rent growth within SFR even during recessionary periods. With a nod again to the Burns data, national average single-family rent growth has never had a meaningful decline in nearly 40-years of tracking that data. Lastly, we believe there are numerous advantages to the Invitation Homes way, including our hallmark scale; location and ISO markets, overseen by the best operators in the space as evidenced by our 46.6% cumulative same-store NOI growth rate from 2017 to 2022, nearly 2,500 basis points greater than the average of our residential peers; our strong balance sheet with no debt coming due until 2026; and our builder partner growth pipeline that maximizes flexibility and contributes to new housing supply while also avoiding big investments in land and a large G&A load. In closing, we couldn't be more excited about our real estate, our teams and the underlying fundamentals here in 2023, a year with some uncertainty and also a year we believe full of opportunity to continue delivering a premier resident experience to anyone who chooses to live a more flexible and worry-free lifestyle. With that, I'll pass it on to Charles, our Chief Operating Officer.

Ernie Freedman:

Thank you, Charles. This morning, I will cover the following topics

Josh Dennerlein:

Yes. Hey guys, thanks for the question. Just kind of thinking about your AFFO midpoint guide with the FFO midpoint guide, it looks like it's kind of 83% of FFO. I think it was 84% for 2022 actuals. What -- it looks like before that; it was kind of running at a smaller gap. Kind of what's driving that, but maybe it would have shrunk given lower turnover the last few years?

Josh Dennerlein:

Thanks, Ernie. Appreciate that.

Operator:

We now have Nicholas Joseph of Citi. Your line is open.

Dallas Tanner:

Yes. Nick, Dallas. Let me answer your second question first, and then I'll talk a little bit about what we're seeing in real time. I think there's plenty of appetite with our JV partners to continue to grow and find compelling ways to invest capital. I think the -- well, I know that to be the case. I think what I would add from a supply perspective is things are still relatively tight. If you go back to a year ago, we were kind of buying in the kind of low to mid-5s from a cap rate perspective. I think we've seen that move on the ground in the resale environment, maybe 20 or 30 basis points is kind of a mid-5-ish kind of market, 5.5, 5.6 for kind of like-kind product. Now that being said, there's also the least amount of resale supply inventory in the market that we've seen in the last three to four years. So it's a really interesting moment. The newer build stuff that seems to be coming online, both things that we're taking from a delivery perspective, conversations we're having with builders, I think the return profile is a little bit better. But those are going to be fewer -- not fewer and far between, but there's just going to be, I think, more angst on the builder side to lean out in sort of an uncertain environment, given where interest rates and things are. So all things being equal, plenty of capital interested in investing, not a tremendous amount of opportunity real time. But we expect that to kind of moderate throughout the year. I think we got to see what happens with mortgage rates. I think as of yesterday, there were a 30-year was closer to like a [6.75] (ph) number. And I think builders have been able to basically buy down mortgage rates to stay pretty competitive in the near-term. Let's see what happens there. I think we may have more of an opportunity, hopefully, over the year if mortgage rates creep up. And then we're definitely going to watch resale supply and how that's impacted by the labor market. Operator?

Operator:

We now have the next question from Austin Wurschmidt of KeyBanc Capital Markets.

Charles Young:

Yes, this is Charles. Thanks for the question. Yes, we like what we're seeing on the ground right now. Our Q4 results showed a bit of the seasonality that we saw towards the middle of last year. And as expected, we kind of got back to that normal curve. During COVID, we -- it was kind of 98% across the board and really high rent growth. So we're seeing more seasonality. But what the reality of it is it's still really strong given the time of year. So looking at Q4 at 97.3% occupancy, that increased throughout the quarter. So we ended December at 97.4% and came into January 97.7%. So showing real strong demand that we're seeing on the ground. As we look at rates in Q4, a blended 9.1%, renewal at 9.9% and new at 7.4%. As you would expect with seasonality, January and December will be a little lower, but given that, a 4.9% new lease rent growth in January is really strong historically. Couple that with the 97.7% occupancy and 8.7% on the renewal side, we think the portfolio is really well positioned going into peak season, which typically starts right here after the Super Bowl. And we're seeing some acceleration in February on the new lease side. So across the board, it's looking good. There's more seasonality in the colder markets, the Denver and Chicago and the like, but we're still seeing a lot of strength in our Florida markets. Arizona had a bit of a slowdown with the seasonality, but it's starting to show some real momentum. So we're seeing some good stuff across the board. And we're leaning and feel good about where the portfolio is structured.

Brad Heffern:

Hey, good morning, everyone. Ernie, could you walk through the buildup to the revenue guidance as far as earn-in, loss to lease, occupancy, all the sort of moving pieces that get you there?

Operator:

We now have Sam Choe with Credit Suisse. Your line is open.

Charles Young:

Yes. We have no concessions running at all. I think we talked about on our last call, we had a short-term kind of small concessions going into the holiday to try to push up on the occupancy as we saw seasonality come back. That's typical that we run in that time of year, given the seasonal curve. But as of December, we had no concessions, and we don't see any need to do it, given our current occupancy and the demand that we're seeing right now.

Steve Sakwa:

Yes, thanks. Good morning. Dallas, I was just wondering if you could comment a little bit more on some of the builder relationships. And given the challenges that they're facing in actual home sales, I just didn't know if bulk sales and a bigger commitment from you to them to take down homes was more in the offering here and how those discussions have maybe unfolded.

Operator:

Thank you. We now have Juan Sanabria from BMO Capital Markets. Your line is open.

Ernie Freedman:

Yes, implicit in our guidance and when I walk through the pieces, Juan, is that we're looking at -- for growth on rate, blended rate to be kind of in the mid-single-digits. I think honestly, that's probably we have the best most upside opportunity with regard to our revenue. And we are going to be able to cautious is on the bad debt side. We got burned a little bit by that last year. I think we've built enough into our guidance that we're probably okay there, but I want to be cautious there and balance those two. So I do think on the renewal side, we certainly have the opportunity to continue to stay at elevated levels, but it's hard to say that I would say at the high-digits for the entire year. So I'd be cautious to say that would be more towards the high-end of our guidance range or even a little bit higher. We feel very good about having some strong renewal growth throughout the rest of the year. But -- and we put up some strong numbers here in January, and I wouldn't extrapolate that for the rest of the year. But it's certainly possible if the market -- the designs that we're seeing in the market is pretty strong. There's a possibility that could happen. But I think if you do the math and how things will play out and taking consideration the number of 2-year leases we have, you'd solve to a number that gets to kind of the mid-single digits for blended growth rate for 2023.

Adam Kramer:

Hey, I just want to follow-up on an earlier question around JVs. Look, I think there's been some kind of news in the press last kind of number of months about maybe JVs being more of an avenue that you guys would pursue. Certainly, a challenging environment for acquisitions in 2023 overall. Wondering just kind of the willingness or desire to maybe go that route. Obviously, you could pick up a little bit of fee income and change the economics a little bit in the model. So yes, I guess, just kind of generally around willingness to kind of go further down the JV path?

Operator:

Thank you. Your next question comes from Chandni Luthra of Goldman Sachs. Please go ahead.

Ernie Freedman:

Yes, Chandni, it's Ernie. Happy to talk about the real estate taxes. So as a reminder to everyone on the call, for us, when you think about real estate tax, you want to think about our three largest markets where we pay the most taxes, which are Florida, California and Georgia, and we talked about that in the last quarter. California, we can kind of take off the table because of Prop 13. So that's always going to be a lower rate year-over-year. And there'll be some noise around appeals and things like that even within California. For Florida, we're not -- I know we're wrong last year, but we're not anticipating another year of tax bills being up 20% or about 14% last year with assessments being up almost 30% last year. Similar story with Georgia. We're not expecting a second back-to-back year with it as high as it was before. In Florida, there is some relief for folks as to how much can get pushed through in one year. There are some caps on two-thirds of your tax bill. Said another way, because assessments were so high, we'll probably bump up against those caps again in Florida for that two-thirds piece. But when you kind of do the math on Florida, California and Georgia, we think we'll be in a better position than we were in 2022. And those three combined are about 70% of our tax bill. We do have some other areas that we do think we have some significant increases from prior year. But again, because they're smaller tax bills for us, it's not as impactful, Maciver County in Charlotte will be an example where we will see some pressure there, because revaluations happen not on an annual basis, but a multiyear basis. You say the same thing about Denver, where we'll have that challenge as well. Again, the tax bill is in Colorado as well as the tax bills in North Carolina aren't as material to us. And then finally, we did see large tax bills in Texas as well. But for us, Texas is not a material player. I wouldn't be surprised if Texas has another rough year in 2023. But again, for us because our exposure is small, it's not going to have the impact on us that it might have on others. So overall, that's why we basically come in with the year, Chandni that we think is going to be pretty similar to what last year. Last year was, as you pointed out, it was 7.8%. This year, we're guiding 6.5% to 7.5%. So those are still historically really high numbers for us, but we do see a path that things might get a little bit better. And then importantly, with taxes, in case I think people are thinking about it, we really haven't baked in very much in terms of appeal wins. So if we do see some material appeal wins, that could help us get us to the lower end of our range. But we'll just have to see how that plays out. Those are certainly very hard to predict, but we don't need to have material appeal wins to get to the range that we've provided in our guidance.

Keegan Carl:

Hey, thanks, guys. So I know you gave the percent breakout as far as shares go. But I'm just curious if you could give us a little bit more breakout on your growth expectations between growth, property management and G&A for ’23?

Operator:

Thank you. We now have Tyler Batory of Oppenheimer. Your line is now open.

Ernie Freedman:

Tyler, it’s Ernie. I appreciate you asking because if you have that concern, other people might have that concern as well. And the answer is no, we're not seeing any concerns with having dissynergies from the size of the organization. I think that's helping us. I can certainly walk through some of the details, but you're right to point out that we're guiding real estate taxes to be up about 7% at the midpoint, but we're guiding overall, which is a little bit more than half of our overall expenses. Overall, we're guiding to a number that's about 8.5% at the midpoint. So that means everything else is going up a little bit more. So I think most of that, and I'll walk you through the details, we believe are more transitory items based on the circumstances where we're at right now in the marketplace. I'll just go through some of the material items in there. One was insurance costs. I don't think anyone is surprised in the environment hearing, but others, but property insurance rates are certainly going to go up. We'll finish our renewal here in about three weeks. So we don't have the final numbers on that. But in the last two years, our property insurance only went up combined about 3% or 4%. It was 0% one year, about 7% or 8% the next year. So we did much better than the broader residential. But with the cost of reinsurance treaties going way up this year, and certainly, of course, the events that happened in 2022, insurance costs are going to go up. We don't think that's a permanent issue. We think that's a onetime issue. I wouldn't be surprised if property insurance rates go up as much as 20% to 25%, which would bring our overall insurance costs up somewhere into the low double-digits, because the good news on other insurance lines, we're not seeing those kind of increases. The ones that are more material for us, Tyler, are really around turnover. And a couple of things with turnover. One, there are inflationary pressures. We do think those will subside as you get later into 2023 and 2024, but we're still in an inflationary environment there. The other items that really point out with turnover are two important things. One, we do think turnover is going to go up. And we think that's a good thing. Turnover is going to -- because we think we're going to have a better opportunity in 2023 than we had in 2022 for residents who have been delinquent in making rental payments, not paying the rent, we expect to see more activity there in people moving out homes. And so we do think turnover is going to go up for that reason. We think that's more of a transitory item and work itself out as we get later into 2023 and maybe a little bit of hangover in 2024 because of Southern California. The other item, though, is those residents I just alluded to, they've typically been in our houses longer. Often, they don't allow us to come in to do repair and maintenance work. They don't call in service requests as often as our residents, who are keeping current in their rent. And so when we go in to do the turns on those homes, those turns are materially more expensive than a regular way turn, sometimes as much as 40% to 50% more on average than our regular turn. So as we're dealing with those residents, Tyler, that are -- have been treating the houses the way they have and have not been paying the rents, we again think that it's more of a 2023 event. It goes away in 2024 in terms of our cost per turn, having a much more higher growth rate than we've seen in the past. So we don't think that's an issue with -- if you think about the long-term thoughts about what expense growth is going to be. So summarizing real-quickly, we think that's more of a specific ‘23 issue. We think property taxes will revert back to more normalized growth rates as we get into ‘24 and going forward. We think turnover will certainly go up over the next period of time. We get to a more normalized rate for us going forward. And then the cost return, which I just alluded to, should actually see some deflationary pressures over time because of the type of turns that we're going to be doing. And that should all put us back on a path that you saw from us for a very long time, where we had expense growth that was within inflation or a little bit less than inflation.

John Pawlowski:

Thanks. Maybe just continuing that line of thought. It just feels like you're baking in a lot of inflation on the expense line items and not a lot of inflation on rents, because some of these costs are going to push up the cost of ownership. So Charles, what markets on the ground are you seeing as potential canary in the coal mine for new lease growth going to, whatever, 3%, which seems to be implied in the guidance? Where are you seeing cracks in demand?

Operator:

Thank you. We now have Dennis McGill of Zelman. Your line is now open.

Ernie Freedman:

Yes. And rough-rough, I think about -- when we looked at it, I'd say probably about a third of it, Dennis, was we were able to continue to earn into what's happening with leasing activity, but we did see a drop off of where market rate was in August, September of 2022 to where it ended up in December. We've certainly seen that already starting to work its way back up as we typically do in season, and Charles talked about our season starts a little bit sooner. But rough-rough was probably one-third, two-third, Dennis, in terms of what we were able to earn into versus where we saw some market declines from where they were in the stronger numbers in the third quarter.

Ernie Freedman:

That would be December 31st.

Ernie Freedman:

Yes.

Jade Rahmani:

Thank you very much. Can you comment on what you're seeing in terms of new supply? Generally speaking, I think you made some comments about Phoenix having bounced back, but there's still pretty record levels of both multifamily supplies expected as well as build to rent with nearly every homebuilder allocating maybe 5% to 10% of their production towards single-family for rent. What are you expecting from new supply? And I know you're generally concentrated in infill locations, mainly having sourced properties from the existing home market. But your thoughts there would be helpful. Thank you.

Operator:

Thank you. We now have the next question from Haendel St. Juste of Mizuho. Please go ahead when you are ready.

Ernie Freedman:

Oh, there definitely is. There's likelihood they're having some success. We'll just have to see whether it will be material or not. The Georgia process can take a little -- both process can actually take a little bit of a while. As a reminder, we appealed more than we ever have in Georgia. Florida, we appealed similar to what we've done in past years and maybe a little bit more. Florida is a relatively fair regime when it comes to doing assessments. And so there's not going to -- we didn't put in a material number of appeals but may have a material success rate in terms of what happens in Florida. So I think the bigger opportunity for us and certainly, where we've appealed more especially based on where we saw assessments came out are going to be in Georgia, which is our third largest state. So we'll just have to wait and see in terms of how that plays out.

Michael Gorman:

Yes, thanks. Good morning. Ernie, could I just spend another minute on the bad debt side of the equation? I think you mentioned exposure to Southern California. Is that the only market that's driving the 75 -- 25 to 75 basis points or are there other geographies? And then how much of that is related to potential softening on the economic side versus regulatory pressures that's making it harder to deal with those tenants who do get behind on their rent?

Operator:

Thank you. We now have Linda Tsai of Jefferies. Your line is now open.

Ernie Freedman:

Yes, we're not -- we're -- I'll tell you, Linda, is we're assuming it's going to be an environment that's kind of similar what we've seen for the last 12 months. So we're not expecting a significant improvement. It would be hard improve where unemployment numbers are for where they are today that it's so low. We're also not forecasting at the midpoint of our guidance a degradation or a material degradation from where they are. And of course, then our guidance ranges do capture the fact that if we aren't able to push rate as much as we want or we have some occupancy challenges because of the labor market, that would get captured somewhat in our numbers with regards to the lower end of our range. But as Charles talked about, early days, but we're feeling pretty good with where occupancy is. And we're certainly seeing opportunity to do well on rate and maybe a little better than our guidance implies. But overall, we're kind of assuming it's going to be just kind of an overall similar type market, whether it's unemployment, whether -- and all the other macros that we're looking at right now.

Tony Paolone:

Thank you. You've talked in the past that you've built Invitation Homes to run materially more than the 83,000 homes you currently own. And so I'm just wondering, what are the -- what's the biggest gating factor to turn external growth back on in a more meaningful way? Like is it really your capital cost? Is it the selectivity of what you want to buy? Or do you just think prices are going to come down, and you don't want to be in front of that?

Operator:

Thank you. We now have Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead, when you are ready, Austin.

Dallas Tanner:

Thanks, Austin. This is Dallas. First, like, obviously, as we said before, we don't comment really in great detail on ongoing legal matters. In relationship to the qui tam, this will be likely a long process. We're not even to a discovery phase. It's still kind of at the front end of the administrative side. I'll say what we've said before. We feel like we have really good facts on our side. We will and reserve the right to defend ourselves appropriately. And we'll obviously update The Street and you guys as -- or if we had new information when it, come to us, but no update there at this point in time.

Anthony Powell:

Hi, hello? Can you hear me?

Ernie Freedman:

We can.

Ernie Freedman:

No, no, it's across the board because we're still working through in all our markets, residents that haven't paying rent an issue in Southern Cal, there's certainly more there. So across the board, we're going to see an increase in turnover. And in fact, honestly, California may take a little longer for us to get there, because of the situation in the regulatory environment. So the bad debt number, and it's being elevated is going to be because of Southern California and because it's more difficult to move forward with residents who aren't paying there. But eventually, it's going to turn here with -- which hopefully continues to be with where the rules are. But it's going to be more across the board as we kind of clean up from the remainder of what was going on during the pandemic environment in most of our markets.

Ernie Freedman:

That is -- yes, absolutely. We're seeing our retention levels for people accepting and renewal increases being where they've always been. So it's just -- it's taking care of what you described.

Dallas Tanner:

We thank everyone for joining us on the call today. And we look forward to seeing everybody at the Citi conference in a couple of weeks. Take care.

Operator:

Greetings and welcome to the Invitation Homes Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin Vice President of Investor Relations. Please go ahead.

Dallas Tanner:

Thanks Scott and good morning. I appreciate everyone joining us today. It was a solid quarter for Invitation Homes with same-store NOI growth of 8.6% blended lease rate growth of 11.6% and average occupancy of 97.5%. Our continued low turnover high occupancy and high resident satisfaction scores remain a testament to the outstanding efforts of our associates. My thanks to them for providing another quarter of premier resident service especially those recently impacted by Hurricane Ian. I couldn't be prouder of the quick and caring response our team members provided in the wake of the storm as well as our role in helping the communities we serve. Across the country we provide housing choice and flexibility that residents desire and need, while the macro world we all live in has changed quite a bit in the past year we believe our business remains well positioned to succeed within it. Here's why. To start we believe professionally managed single-family homes for lease are an important part of the housing solution in the United States. We still face a housing supply shortage in this country by as many as several million units from some accounts. Today's elevated interest and mortgage rates haven't helped as seen by the pullback from builders in the last month's further decline in starts for single-family home. It's also harder for those thinking of buying a home in the near term. Recent reports have noted that monthly payments on new mortgages have increased by as much as 60% since the start of this year due to higher mortgage rates. According to last month's data from John Burns, this contributes to a cost of homeownership that is over 20% higher on average than leasing across Invitation Homes markets. That works out to an average difference of roughly $600 a month in savings from leasing a home. So, leasing remains a preferred choice for many families combining convenience and flexibility as well as value. These advantages further fan the favorable tailwinds of demographics especially among millennials who are just beginning to approach our average resident age of 39 years old. With our expectation that these favorable supply and demand dynamics will stay with us there's a call to grow our industry-leading scale technology and experience. We consider this in tandem with our cost of capital. Our updated acquisition assumption for the full year is $1.1 billion and through the third quarter we've acquired approximately $1 billion of that target. We have slowed our acquisition pace in light of the current environment, taking advantage of opportunities to recycle assets and weighing our cost of capital on balance sheet versus our joint ventures. As a result, we're continuing to explore all opportunities available to us to expand our investment management businesses and explore accretive growth, while at the same time operating as prudent capital allocators who remain nimble for when opportunities may arise. As we have continued to learn and grow so have many of our best practices, including how we address energy and sustainability. We recently deepened our bench with the hiring of two in-house experts to oversee our ESG and our energy initiatives. We have a responsibility and a commitment to be a leader in these areas among our industry, and I'm pleased to see us making good progress. Of particular note, we recently learned that our latest GRESB score increased over 13% year-over-year, a significant improvement reflects the great work by our ESG task force. Before wrapping up, I'd like to comment on our reported results and our updated guidance. Our revised full year guidance for 2022, is consistent with our prior expectations for the overall business with two exceptions

Ernie Freedman:

Thank you, Charles. Today, I will discuss the following topics

Derek Johnston:

Hi, everyone. Thank you. Can you discuss the supply growth or shrinkage in SFR homes available for sale? So what is the number of homes you were tracking on the MLS or Zillow? And I'm looking for supply growth of single-family listings and more importantly the measure of change in that metric over the past few months.

Operator:

Our next question comes from Nicholas Joseph from Citi. Please, go ahead.

Dallas Tanner:

Hi, Nick, this is Dallas. Great question. I think -- and going back to our call that we had in May, we talked about the fact that we had started to pull back on our acquisitions in terms of kind of level setting and we wanted to get a view on what the market was going to feel like towards the back part of this year. That being said, we've seen a little bit of softening, what I would say, in kind of normalized cap rates. Today it feels like, call it, the kind of product and in the parts of the markets where we typically invest capital, those prices feel kind of in the mid-5s to kind of the, call it, 5.25 in terms of where current pricing is today. We would like to probably be measured in our approach and just making sure that we feel like -- we're not trying to call a bottom, but I think we'd want to average in over time if there are new valuations that could give us on a risk-adjusted basis a much better return profile. As we think about how we're going to grow the portfolio over time, we obviously have the use of JVs. We have the liquidity that Ernie talked about in our opening remarks. And then, obviously, we've talked over the last couple of years about the need to expand our investment management businesses, because we look at that as extremely accretive growth when, at times, maybe the REIT's cost of capital isn't as good as we'd hope it would be. And certainly, right now, we're not thrilled about where the equity prices are today. So with that being said, I think, we'll continue to use our partnerships and JVs. We'll find ways to meaningfully invest. We generate a really good amount of, what I would call, outperformance through our fee structures and our management business around those joint ventures. And we've got partners who have been extremely reliable and that are also, I think, looking at the potential environment as you mentioned, Nick, as being quite appealing. So we actually are being measured, I'd say, in the near term but cautiously, I think, preparing for ourselves for maybe some good opportunities to continue to expand, our external growth opportunities in relation to what the market allows for going forward.

Jeff Spector:

Good morning. If it's okay, just two parts on the real estate taxes and assessments. I know you guys provided an update in September. I guess, first, if you can just describe the process. Ernie you said that, based on information available today that clearly the market is surprised by this update. When did this come to light? And then second, …

Jeff Spector:

…I guess, can you just talk about the normal appeal process or historically in Florida, Georgia the likelihood or success you've seen in the past, just to give us a feel for what may happen in the coming months? Thank you.

Operator:

Our next question is from Haendel St. Juste from Mizuho. Please go ahead.

Charles Young:

Hi Haendel, it’s Charles. Thanks for the question. Let me just step back and kind of set context around the environment. As we talked about on prior calls since early in the pandemic we were very conscious of working with residents that face the closer hardship and helped thousands of residents with flexible payment plans and the like. But in 2022, we purposely were focused in on getting back to our typical enforcement of the lease where we legally could. But what we're seeing in the process -- and it has been working is -- what we're seeing in the process though however is the states are taking -- and it varies by state they're taking two or three times longer to process non-payers through the system. And to your question, California, Southern California specifically is the most difficult area; the NorCal, Illinois, Georgia. That being said, at the same time, rental assistance has been a big part of what we've done to help our -- support our residents. And today we've supported over 12,000 residents secure rental assistance. And in 2022 alone, we've secured over $57 million to help them. And we knew that that rental assistance would slow down towards the back half of the year, but that acceleration in Q3 was a little faster than we thought it would be. The good news is, as that acceleration has come we have gotten better at being able to collect rent on normal non-rental assistance and that our residents are also seeing that. And we're starting to see them step up in terms of recognizing that kind of perverse incentive that they were waiting on the rental systems to show up that they need to pay now. So it is kind of across the board with the rental assistance but we saw the biggest slowdown in the California markets as well and that's where the biggest delay is. And we've talked about this before L.A. County and L.A. City are some of the more kind of slower to move off of the -- being able to go through the normal legal process. So we're moving through it and it's just going to be a little bit of a transition as we work through it over the next few quarters.

Brad Heffern:

Hey. Thanks. Good morning, everyone. Ernie a follow-up on the property taxes. So typically when you have one elevated expense quarter you get three more of them as it sort of flows through. Obviously, you're not giving 2023 guidance. But I'm curious should we expect to see some, sort of, teens operating expense growth in the first few quarters of 2023 as this increased property tax level flows through?

Operator:

Our next question is from Juan Sanabria from BMO Capital Markets. Please go ahead.

Dallas Tanner:

Juan no. Actually I'd sort of say the opposite. All things being equal I think if you look at our blended rate growth this quarter at roughly I think 11.6% we went back and looked at called pre-pandemic numbers from the third quarter of 2019 we're at like 4.5%. So we're still seeing call it accelerated demand and appreciating that in between the balance of home price appreciation and the amount of demand for product. Our occupancy still elevated in the mid kind of 97s. And so as you think about that on a kind of historical basis over the last 10 or 11 years that we run the business we're actually seeing more demand for this time of the year than we would typically see in a normal year. So I wouldn't say so. Now certainly there are other operators out there that are -- that probably have and are digesting new product as it comes to the marketplace. And some of your Sun Belt markets you might see maybe a little bit of additional more supply. But we're not seeing anything in our numbers and Charles to speak to this as well that would suggest that we're having any change in top of funnel or our ability to execute on leases. Now all things being equal this tends to be in a normal year the slower part of the year from a leasing perspective. So it is good to keep that perspective that as you get into the last quarter of the year and kind of early call it January that is where we have generally always have had our lowest leasing velocity outside of the two what I would call the 2021 pandemic year. So that -- those last two kind of fall months into the winter have not behaved as normal as what we are seeing probably a little bit more so this year. So we're not seeing any of the supply front at the end of the day that's causing us really any concern. It's just more about how can we execute the business fight the inflationary cost pressures and continue to kind of maximize efficiencies within our platform.

Adam Kramer:

Hi, guys. Appreciate it. Just want to ask about bad debt. Look recognize that there may have been some kind of rental assistance impacts in the quarter, but clearly kind of less than prior quarters. So just wondering if you can kind of quantify the rental systems received in the quarter. And then relative to kind of the 170 bps of bad debt in the quarter recognizing kind of pre-COVID normal was maybe 30 bps to 40 bps what's kind of the process from getting from here to there? How long could that take? And is there a chance that we kind of just structurally or maybe due to regulatory changes that maybe we never kind of get back to that kind of pre-COVID basis points 30 to 40 basis points?

Charles Young:

Yes. As I said on earlier question, the flexibility that we were showing while we're waiting and supporting the residents, with rental assistance and how we've been tightening this year, we're just going to continue to do that as residents recognize that the rental assistance going away. The partial payments and all that stuff, we're going really back to where we were before. And as Ernie just mentioned, we've seen improvement in terms of how residents are paying. A lot of it is just the psychology effect of them getting back to understanding we are at our normal way in which we enforce the lease. And we'll continue to do that to execute while the rental assistance, wanes and we're starting to see good improvement and we'll continue to push. And it will be like I said, a little bit of a transition period as we work through back to normal eventually.

Keegan Carl:

Hi, guys. Thanks for the time. Maybe, just wanted to clarify some things. Just kind of curious what percentage of your leases are month-to-month rather than annual? And how does this compare to pre-pandemic levels?

A – Ernie Freedman:

Yes.

Operator:

Our next question is from Chandni Luthra from Goldman Sachs. Please go ahead.

A – Ernie Freedman:

Yes. Chandni, this is Ernie. To be clear, with real estate taxes the question was pretty specific around just what's happened with the fourth quarter here and what things may look like on a year-over-year comp basis. I want to make very clear, we didn't provide any guidance for what we thought 2020, the overall real estate taxes would be. And Chandni, we're not providing guidance at this time for any 2023 items. So unfortunately, we're not the decline to answer that.

Brian Spahn:

Hi, Thanks. I might have missed this but could you talk about, where the loss of lease is today at the portfolio and just your expectations in capturing that today? And then also, what the earn-in looks like for next year just given the activity year-to-date?

Operator:

Our next question is from Neil Malkin from Capital One. Please go ahead.

Dallas Tanner:

Hi. This is Dallas. Yes, we definitely would want to stay opportunistic with any opportunities that come to us vis-à-vis homebuilders. There's certainly a lot of chatter out there. I think right now, it's sort of the early stages of what are homebuilders thinking with their future pipelines and call it, active inventory and things like that. It's safe to say, we've gotten a lot of phone calls and I'm assuming a lot of our peers are getting the same phone calls. I think it doesn't really change our strategy in terms of having a large desire to continue to stay infill buy opportunities that seem extremely accretive over the long-haul and put structures in place that will protect us, call from further downside risk that could happen in the marketplace. So, I still feel like it's pretty early in terms of kind of where some of this is shaking out. I think builders have done a nice job of trying to move some of their call it current sitting inventory. They've also got some tools in their tool belt from what I'm hearing on the kind of just conversations around buying down mortgage rates and things like that. So, I imagine a lot of the near-term inventory can get taken care of through kind of the use of buying down rate. Also, obviously, selling scattered sites to operators, like ourselves, we have done some of that. I think over the last couple of years, we've picked up a couple of hundred homes that way. So, we're going to continue to invest in it. It's part of our thesis. We have over 2000 homes in our pipeline that we're doing with Pulte and other partners. And we would view this as a very opportunistic moment for us say over the next year or two where we should be able to lean in and be a good partner with not only our current partners but maybe future partners down the road. So, from our advantage point, we've seen this once before. While my current belief is that we're not going to see housing move backwards like we did in 2007 and 2008. I think it could be a great opportunity for Invitation Homes over time to make additional meaningful investments that will add to our already, what I would call industry-leading scale and performance. So, we're viewing the next, call it, a couple of years as a great opportunity for growth.

Jason Sabshon:

Hi. This is actually Jason Sabshon, speaking on behalf of Jade. But there's a lot of chatter about multifamily demand slowing driven by a slowdown in housing formation. Do you view single-family rental as a substitute product for multi? And do you expect the sector to behave similarly?

Operator:

Our next question is from Adam Hamilton at Credit Suisse. Please go ahead.

Charles Young:

Yes. This is Charles. Thanks for the question. As I mentioned, geographically, California, Southern California specifically is where we're seeing both the kind of slowdown in the rental assistance, as well as the slowdown in the court systems, where historically it might have been 60, 90 days; it's taking 180 to over 200 days. That's in Southern California. NorCal, it's 120 to 180 days. The other markets that we're seeing a little bit of a change -- again, this isn't necessarily behavior of the residents, but it's around the process to move non-payers through are in Georgia, where it used to be 90 days its 150 days-plus. And Vegas is -- surprisingly used to be very quick it's 150 days. So -- and then when we have L.A. County and L.A. City where you're still -- we're not even able to file. That's going to show up next year as we work through some of this. So there's going to be a little bit of a tail in the California markets as we deal with this. But all the markets again, as we work through the legal enforcement, we're getting there and the residents are responding as they're seeing the rental assistance go away and slow down. I'll just step back on one question that Keegan asked earlier around month-to-month. I overstated the number. We're about 3.5% month-to-month. So I just want to make sure we got the number precise.

Dennis McGill:

Hi. Good morning. Thanks, guys. Ernie could you just maybe walk through a little bit more beyond property taxes? If we look at the full year guidance for expense growth back into something for fourth quarter, it seems like other categories as well would have to show some notable acceleration from where you were in the third quarter, which were already pretty elevated, unless I'm doing something wrong.

Operator:

Our next question is from Austin Wurschmidt from KeyBanc. Please, go ahead.

Ernie Freedman:

Yes. I would tell you, Austin, they don't really relate necessarily directly from a pricing perspective. The cost to rent and the value you get from renting relative to what it cost -- the price of home isn't how the pricing mechanism works for us with regards to how do we price our leases. We're pricing our leases based on what the market will bear. And sometimes the market bears more sometimes the market bears less. Specific then to how do we calculate our loss to lease and which is today is about 10%, is each month we price anywhere between 5% to 10% of our portfolio, because of what's coming due from a renewal and new lease perspective. It's a pretty good proxy of what we think the entire -- with the entire portfolio price, you understand we have a very homogeneous product and each house is very different. We don't go each month and say 80,000 homes in our portfolio repriced. We use that as a proxy to where market rents are and we're running that through our revenue management system. And then, we take that and on a weighted average basis then put that across our entire portfolio to calculate what we think estimated market rent is today. And again, it's not going to tie into an affordability metric for buying a house versus necessarily renting it -- renting in our markets. They're really two distinct things, but that's how we come up with our loss to lease.

Linda Tsai:

Hi. To the extent there's concern over the economy slowing, do you have a sense of how your rents compare to the market rents of single-family homes across your different markets?

Operator:

Our next question is from Alan Peterson at Green Street. Please go ahead.

Charles Young:

Yes. No great question. Look we -- 97.5% ended Q3 really strong. We know that it's Q4 as Dallas mentioned that we're seeing the seasonality return to the market that wasn't there the last couple of years. And so, this is typical as we go into Q4 and it's a push for the holidays. So the -- we're running limited concessions on select homes as really a push before Thanksgiving just to secure and make sure that we keep occupancy at a healthy rate which it is or 97%-plus for this time of the year is amazing. We're seeing good demand and healthy rent growth with the numbers that I gave you. Blended rent growth with the strength of renewals are really strong. So this is really just making sure we go into the slow period highly occupied as high as we can and then set us up well for 2023.

Anthony Powell:

Hi. A quick question on the bad debt. I wanted to confirm that it was all due to I guess COVID-era tenants who weren't paying versus newly delinquent tenants that may be finding some current issues given the economy?

Operator:

Our next question is from Juan Sanabria from BMO Capital Markets. Please go ahead.

Dallas Tanner:

Well, the structure is pretty easy to follow. We basically -- any time we look at a project we decide on basically a given range of where we think we could execute on pricing with them. And then we have callers to kind of protect them and us generally speaking on both sides so that if they have cost creep then there's another discussion beyond a certain limit and we have the ability more or less to walk away. If there are savings meaning costs come down or there's some market changes there, we have another discussion. So by and large we're pretty well protected with pretty limited what I would call earnest money upfront. And a lot of these projects tend to be inflight with updates along the way. So general structures have callers to protect both Pulte and us. And then we have -- we take those deliveries in different tranches over call it longer periods of time, so that we can have market dynamics come into that as well. So all I think generally I could say very favorable from a structure perspective. And obviously as we go forward as we look at new opportunities, we're also going to spend more time looking at just call it price volatility and how it could relate to the overall markets over the next year or two. So everybody's going to be eyes wide open on new opportunities to make sure that not only are we locking in great assets, good locations but that we'll be at pricing that is either favorable to call it current market, the conditions or future. So Juan I hope that answered your question.

Jade Rahmani:

Hi. I just wanted to follow-up quickly. So is the shortfall in home purchase demand directly benefiting single-family rental new lease demand, or is the impact not material at this point? In other words, are you seeing notable percentage of applications from people who otherwise would be looking to buy a home?

Dallas Tanner:

We appreciate everyone's participation today. We look forward to seeing everyone at upcoming conferences. Thanks.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to the Invitation Homes Second Quarter 2022 Earnings Conference Call. My name is Irene and I will be coordinating this event. I would like to turn the conference over to our host Scott McLaughlin, Head of Investor Relations. Scott, please go ahead.

Dallas Tanner:

Thanks Scott and good morning. I'm excited to speak with you today following the release of our second quarter results. The state of the business remains very healthy. Second quarter average occupancy was 98%. We set a new record with trailing 12-month turnover at only 21.3%. Lease growth continued to accelerate including a blended rate of 11.8% that was 380 basis points higher year-over-year and same-store NOI growth was 12.4%. These strong results and our improved expectations for the full year, as provided in our revised guidance, reflect the hard work of our teams and the impact of favorable supply and demand dynamics within our markets. I'd like to discuss these in more detail during my remarks today. First, let me begin with the hard work of our teams. We've been providing a high level of care to single-family residents since we started the business over 10 years ago. As you know we provide 24/7 customer service to our residents routine ProCare visits and a deep and wide bench of dedicated associates. We believe we offer a differentiated and best-in-class experience that is unique to an industry that is still predominantly comprised of smaller mom-and-pop operators. We know that satisfied residents tend to stay with us longer and take better care of their homes. And our customers are telling us they are very satisfied both by their comments and with their actions. We believe our high resident satisfaction ratings high resident retention and high occupancy are among the strongest indicators of our residents' trust satisfaction and loyalty. I, therefore, like to thank our more than 1,400 associates for delivering the best resident experience in the industry and for executing so well operationally again this past quarter. Second, the overall shortage of housing. By some estimates, the United States is undersupplied by as many as 2 million to 4 million homes today. Much of this traces back to the Great Recession and the resulting plummet in the number of single-family housing starts. While construction has gradually improved it remains insufficient to meet existing demand and is predicted to decline again over the next few years. Despite these supply challenges, we continue to offer a valuable choice for those who want to lease a home. This choice is broad-based and in addition to our legacy business now includes options for those preferring a lease-to-own opportunity through our investment in Pathway Homes as well as one for those desiring to lease a home that's been recently constructed by one of our builder partners. Third, I'd like to discuss the strong demand we continue to see for our homes. This is driven by job growth and household formation in our markets and continued migration and population growth particularly within the Sunbelt. It's also driven by age-based demographics. Millennials still represent the largest population segment in the United States at over 70 million people between the ages of 26 and 41 today. With our average new resident age staying really consistent at about 39 years old, we believe many of this generation are or will be attracted to the lifestyle and affordability that leasing a single-family home provides. This demand is further enhanced as a result of more recent and continuing trends, including the need for more space, such as a home office, the popularity of pets and a rise in mortgage rates that made leasing a home a more affordable option compared to homeownership in all of our markets today. I also want to say a few things relating to ESG. We recognize the strength of our business is directly linked to the strength of our communities. In this regard, we've led by our core values, including those of genuine care and standout citizenship. We live out these core values in many ways, including tens of thousands of company paid hours, that our associates spend volunteering in their local communities each year; our invitation to skill up project, which encourages and supports careers in the skilled trades; and also our green spaces programs, which develop and improve outdoor community spaces and promote conservation efforts. The call to be a standout citizen extends to our corporate government practices as well, where we recently moved up in Green Street's annual REIT governance rankings, from one of the top-rated REITs to the highest-rated REIT. Before I wrap up, I want to address the report released this morning by the House Select Subcommittee on the coronavirus crisis. While we have not had time to fully digest the report, there are a few things I'd like to share here. First and perhaps most importantly, the report clearly states that we did not engage in practices that were unlawful, the fact that we've known quite well, since we work hard to follow all the laws within our markets. Second, this report shows just a tiny fraction of the full picture of the work we did during the pandemic and will continue to do so today. We are proud of how we stepped out early to halt all evictions, to fully comprehend the impact of the pandemic and quickly moved to provide flexible payment plans for our residents; contacted residents who had fallen behind in order to help them with flexible payment options or assistance with government assistance; and overall, our team showed the kind of genuine care, we are proud to exhibit on a daily basis. Through these efforts, we provided help to more than 33,000 residents, who are in need of extra time or financial assistance, for a total of nearly $175 million. We also helped over 10,000 residents obtain government assistance payments, totaling more than $94 million. These are the outcomes that matter. At Invitation Homes, we believe everyone should have the choice to live in a great neighborhood. When they choose to lease from us, we're committed to providing the highest quality resident experience possible. We're pleased to have favorable supply and demand fundamentals as a tailwind for our business, and we work hard to offer a best-in-class resident experience, that allows our residents to live freer. With that, I'll pass it on to Charles, our Chief Operating Officer.

Ernie Freedman:

Thank you, Charles. Today I will discuss the following topics

Austin Wurschmidt:

Great. Thanks, everybody. Wanted to just hit on the guidance, first, specifically on revenue. And Ernie, within that revised guidance, I guess, how much embedded deceleration in lease rates are you baking in for the back half of the year? And do you expect the easier occupancy comps to be a modest tailwind moving forward?

Austin Wurschmidt:

Great. Thank you.

Steve Sakwa:

Yeah. Great. Thanks. I was wondering if you could just maybe talk about the development opportunities and whether you see the opportunity to further expand that, just given the housing shortage that we've got in the US, and just how you sort of see that unfolding over the next couple of years.

Operator:

Our next question comes from Nicholas Joseph from Citi. Nicholas, your line is open.

Dallas Tanner:

It's a little bit of everything Nick. First of all we don't love where our cost of capital is today to be fair on balance sheet. But we've done a nice job of building out our investment management business over the last couple of years, so we think that will lend itself to additional opportunities in the future. In terms of the market and pricing changing with particular assets, it's still a little early. I think we've taken a little bit of a cautious approach through summer wanting to see where supply could shake out. Because we're certainly long investors, so it's candidly impossible to be perfect in terms of how you buy an asset every day. But we do want to see where the -- some of these submarkets start to settle out. We think there could be some even better buying opportunities towards the end of the year. So we've been methodical in our approach. Ernie?

Nicholas Joseph:

Thank you.

Brad Heffern:

Hi everybody. Thanks for taking the question. Are you getting more calls from your homebuilder partners looking to offload supply? And how do you look at the attractiveness of that versus the traditional MLS channel right now?