Q3 2019 Earnings Call

Greetings and welcome to the invitation homes.

For 2019 earnings conference call.

All participants are in listen only mode at this time.

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As a reminder.

Conference is being recorded.

At this time I would like to turn the conference over to Greg Van Winkle, Vice President Investor Relations. Please go ahead.

Thank you.

Good morning, Thank you for joining <unk> third quarter 2019 earnings conference call.

Today's call for invitation homes, our Dallas, Tatar, President and Chief Executive Officer.

Ernie Freedman Chief Financial Officer.

Charles Young Chief operating officer.

I'd like to point, everyone to our third quarter 2019 earnings press release and supplemental information.

Which we made reference on todays call.

This document can be found on the Investor Relations section of our website at Www Dot I envy age dotcom.

I'd also like to inform you that certain statements made during this call may include forward looking statements relating to the future performance of our business financial results liquidity in capital resources and other non historical statements, which are subject to risks and uncertainties that could cause actual outcomes. The result to differ material.

Away from those indicated any such statements.

We describe some of these risks and uncertainties are 2018 annual report on Form 10-K .

The other filings, we make but the FCC from time to time.

Invitation homes does not update forward looking statements expressly disclaims any obligation to do so.

During this call. We may also discuss certain non-GAAP financial measures.

And find additional information regarding these non-GAAP measures.

Great and reconciliations of these measures for the most comparable GAAP measures.

Our earnings release, and supplemental information, which are available on the Investor Relations section of our website.

I'll now turn the call over to our President and Chief Executive Officer, Dallas tax.

Thank you Greg the third quarter was another solid quarter for invitation homes, we feel great about position. We are into finished 2019 strong.

As we shared at our recent Investor Day in New York, We're ready to run as we look toward the future.

And my comments I'll start by discussing the drivers of our continued outsized organic growth well then transition to external growth.

Finally, I want to reinforce why we feel ready to run and what that means.

Organic growth remained strong and inline with our expectations in the third quarter as we continued to execute well to capture favorable fundamentals in our markets.

On the revenue side, we again saw year over year acceleration in both rental rate growth and occupancy.

And on the cost side, we drove another year over year decline in controllable expenses.

The market fundamentals underpinning these results remain terrific.

Across invitation homes unique market footprint focused in the western U.S. in Florida household formations in 2019 are running at over two times the U.S. average.

Demand is exceeding supply an invitation homes is helping to solve the imbalance by providing high quality well located homes with professional service to families that want to enjoy leasing lifestyle.

Put simply the growth drivers in our specific markets in Submarkets give us an advantage, but fundamentals are only the start it takes great execution to produce results and we are positioned our teams for success with industry, leading scale at a high touch service model that combined best in class technology with local presence.

This translates to a differentiated resident experience that is driving strong financial performance.

To that end given our consistent execution in 2019, we're increasing our full year 2019 same store NOI growth to 5.2% to 5.6%.

Or 15 basis points above our previous guidance at the midpoint.

Any will elaborate on our updated guidance later in the call.

Next I'll provide an update on our external growth.

As 2019 has progressed, we've seen more opportunity for accretive acquisitions and have reacted opportunistically to increase our pace of one offline.

In the third quarter, we purchased 578 homes for $183 million almost entirely in single asset acquisition sourced by leveraging our end market investment directors and our proprietary technologies.

By comparison this is more than double our pace of single asset acquisitions in the first half of 2019.

Buying in the third quarter was focused primarily in the western U.S., Dallas and select markets of the southeastern Florida.

We continue to see an attractive opportunity in these markets to buy well below replacement cost and generate attractive returns relative to our cost of capital.

We also continue to capitalize on our opportunity to enhance our portfolio through the sale of lower quality and less well located homes.

In the third quarter, we sold 668 homes for gross proceeds of $168 million.

This brings our year to date acquisition and disposition volume to 456 million and $527 million, respectively sourced via our channel agnostic approach I.

I'd now like to spend time looking ahead.

Those of you who attended or tuned into our Investor day earlier. This month heard us talk about being ready to run that's not just a fun tagline.

Ready to run isn't Itos, our whole team is embracing that will help guide the next several years an invitation homes.

Every good runner knows that their best performance has come when conditions on the tracker favorable and that they have a clear strategy for how they want to run a race they've done the work in advance to prepare themselves and they have the right team around them to support.

And specifically they've set goals of which they are trying to achieve.

For invitation homes being ready to run mean, something similar first our industry is an early stages of a long term growth story with favorable fundamental tailwinds at our back.

Second we have a strategically located portfolio and scale that create a mode and enhance growth opportunities.

Third we have a refined integrated platform position better than ever to optimize our performance.

And fourth we have an innovative team that is committed to the resident experience running toward common goals that should drive both organic and external growth.

Let me touch on those organic and external opportunities in more detail.

Earlier on the call I discuss the fundamentals driving organic growth.

Looking ahead, we are even more encouraged we believe our business has built in cyclical hedges and regardless of the direction of the macro economy from here the millennial generation is coming our way.

Over 65 million people are roughly one fifth of the U.S. population is aged 20 to 34 years.

We believe many in this cohort will choose the single family leasing lifestyle as a form families and age towards invitation homes average resin age of 39 years.

With our strategically located portfolio best in class platform and industry, leading scale with over 4700 homes per market. We believe we are ideally positioned to benefit from these demographics.

Beyond capturing positive fundamentals there are a number of things we're doing to augment organic growth by enhancing the resident experience and improving efficiency.

The name of field.

We are continuing to refine our already best in class systems and processes for engaging with residents and carrying out our pro care service commitments.

We are expanding ancillary services, which we believe will bring an incremental $15 million to $30 million of incremental run rate in July into the business over the next few years.

And we're pursuing initiatives to lease faster, which we believe will reduce days or resident and add another 10 to 20 million of run rate in July .

In addition to organic growth, we're also running toward accretive external growth.

Hi, being disciplined about opportunistically buying in the right places and at the right times, we can enhance growth in earnings and an 80 per share.

At the same time, our asset management team can help us achieve a higher quality portfolio by proactively identifying and selling homes that no longer fit our long term goals.

By investing value enhancing capex in homes to enhance risk adjusted return asset durability and resident loyalty.

With all of these internal and external opportunities to create value for both residents and shareholders. It's a great time to be invitation homes.

From top to bottom I couldn't imagine a better team to partner with to run this race and we are grateful for your support.

With that I'll now turn it over to Charles Young our Chief operating officer to provide more detail on our third quarter operating results.

Thank you Dallas, we delivered another great quarter of residents service, which showed up not only on our resident satisfaction scores, but also in our piano.

During the third quarter, which is a busy period for leasing turns and maintenance the quality of our service translated to yet another record low and resident turnover.

For the first time turnover fell below 30% on a trailing 12 month basis.

Also continued to set new heights in our resident satisfaction survey scores I'm proud of my partners in a field and want to thank them for their daily commitment to January care for our residents.

I'll now walk you through our third quarter operating results in more detail.

Trouble fundamentals and strong execution led to same store NOI growth of 4.5% year over year in the third quarter of 2019 inline with our expectations.

Same store core revenues in the third quarter grew 4.4% year over year.

This increase was driven by average monthly rental rate growth of 4% and a 40 basis point increase in average occupancy to 95.9% for the quarter.

Same store core expenses in the third quarter increased 4.3% year over year continue platform refinement and efficiency gains resulted in a 0.4% decrease in controllable costs net of resin and recoveries.

Offsetting the improvement in controllable costs, where the 8% increase and fixed expenses net of resident recoveries, driven primarily by higher property taxes.

Let me add some color to the improvement we have made this year controllable expenses.

Foreign refinements has driven a year to date reduction in personnel leasing and marketing costs up almost 10%. This improvement has been in line with our expectations cost to maintain has been 0.4% lower year over year to date, even better than our expectations process improvements beginning in the summer of 2018 drove our.

Quick and sustainable turnaround and repairs and maintenance efficiency that resulted in a roughly 3% decreasing cost to maintain in the first half of 2019.

This was followed by a more inflationary increase in cost to maintain in the third quarter of 2019 as prior year comps become became less of a tailwind as expected.

In the fourth quarter prior year comps should again be less beneficial to be clear, though we continue to see further upside to cost efficiency over the next several years as continue Procare refinement may help offset some general inflation in cost to maintain.

As a reminder, procare as our unique proactive way we serve our residents from move in to move out including post move in orientations proactive service trips and pre move out visits.

Next I'll cover leasing trends in our third quarter.

Demand in our markets remain favorable through the end of peak leasing season, resulting in a 40 basis point year over year increase in average occupancy to 95.9% at the same time that blended rent growth increased 30 basis points year over year to 4.6%.

Renewal rent growth was 4.7% and the third quarter of 2019 compared to 4.8% third quarter 2018, and new lease rent growth was 4.3% in the third quarter 2019 up from 3.4% in the third quarter of 2018.

Importantly, our teams also did an excellent job managing leasing activity in the later stages of peak season to ensure that we carried high occupancy into the off season.

This has positioned us to finished 2019 strong and we'll remain focused in the last couple of months of the year to deliver that leasing lifestyle that our residents expect.

With that I'll turn the call over to our Chief Financial Officer Ernie Freedman.

Thank you Charles today, I will cover the following topics balance sheet and capital markets activity.

Financial results for the third quarter.

And updated 2019 guidance.

First I'll cover capital markets activity, where we completed a number of steps in the quarter to continue delevering our balance sheet.

In July we completed settling conversions of our 2019 convertible notes with common shares.

Also in July we voluntarily prepaid $50 million, a higher price secured debt that carried an interest rate of LIBOR plus 231 basis points.

In September we issued $19 million of equity through our newly implemented at the market program at an average price of $28 in two cents per share.

Proceeds were used primarily to fund acquisitions.

After the impact of this capital markets activity in the third quarter of 2019 net debt to EBITDA declined to 8.5 times.

Down from nine times at the end of 2018.

Moving forward, we will continue to focus on de leveraging alongside our external growth objectives as we pursue an investment grade rating.

Our liquidity at quarter end was approximately $1.1 billion direct combination of unrestricted cash and undrawn capacity on our credit facility.

Moving onto our third quarter 2019 financial results core FFO was 29 cents per share and AFFO was 23 cents per share.

Third quarter core FFO and AFFO each came in about one penny short of our expectations.

Largely due to a timing shift whereby $3.5 million of expenses were accrued in the other net line of RPL.

Because this was a timing issue the $3.5 million bad Guy in the third quarter of 2019 will be offset by a $3.5 million good guy over the next two quarters.

In addition, we've increased our pace of capital recycling as Dallas discussed earlier on the call.

Our disposition volume has totaled $527 million through the first three quarters. The 2019 above the high end of our initial 300 to 500 million dollar expectation.

While this accelerates improvement in portfolio quality and enhances our ability to drive long term growth margin expansion and risk adjusted returns. It resulted in a slight short term earnings dilution in the third quarter as we cycled out of cash flowing assets and into new assets.

Lastly, I will cover in our update is 2019 guidance.

Given our year to date results, we are tightening in increasing our full year 2019 same store NOI growth guidance to 5.2% to 5.6%.

Versus 5% to 5.5% previously.

This is driven by same store core revenue growth expectations, a 4.25% to 4.5% up from four important to 4% to 4.5% previously.

In same store core expense growth expectations, a 2.25% to 2.75%.

Tightened from 2% to 3% previously.

We're also tightening our full year 2019 core FFO per share guidance to $1.24 cents to one dollar and 28 cents.

It is one dollar and 23 cents to $1.29 cents previously.

And our 2019 AFFO per share guidance to one dollar and two cents to one dollar and six cents.

Versus one dollar and one cents to one dollar and seven cents previously.

I'll wrap up by reiterating our new Montral, we are ready to run our portfolio is strategically positioned for growth. Our people are best in class in the operational refinements. We have made in 2019 of primed our platform for efficient execution.

Fundamentals remain compelling when we are poised to create value through our organic growth external growth.

Better leasing efficiency ancillary services active asset management and value enhancing capex with that operator would you. Please open up the line for questions.

Thank you well now begin the question and answer session.

Ask a question your press Star then one on your telephone keypad.

If we were using the speakerphone, please pick up your handset before pressing the keys.

Your question. Please first ordinance.

I'd ask you please limit yourself and your questions to two part time into Q. Once again, please limit yourselves to two for time in the Q.

Today's first question comes from Nick Joseph of Citi. Please go ahead.

Thanks, I appreciate the color on the external growth and maybe the shift to be.

Larger growth grower going forward.

Bob.

Well that be accomplished by accelerating the amount of acquisitions that you've been doing or slow in the dispositions. If you could just talk about the cadence of both those going forward.

Sure Nick Thanks for the question.

As we when we set out for the year and we started to see it really early in the second quarter, we thought we'd be a little bit more to net neutral on year as a whole, but we definitely started to signal. This summer that we're seeing some opportunities in markets I would expect that we maintain a knows towards being a bit more acquisition focused as we see some of these.

Good opportunity or in a unique environment, where we can incrementally add to the portfolio and continue to sell the nonperformers along the way and so.

As Ernie mentioned in his in his comments earlier, we've definitely had a little bit more disposition activity throughout the year, but I would play we've been equally benefiting by the current condition of the market and seeing additional opportunities for growth.

Thanks for that just in terms of funding you started using the ATM program, how do you think about.

Going forward in terms of potentially over equitizing deals to help lower leverage.

And if this is there any thats certainly an opportunity for us to consider in we have considered that we'll just continue to look for what is our most efficient use of capital our cost capital I should say for us to fund acquisitions as we chose to be more of a net net acquirer and because we are trying to get to investment grade balance sheet and bring leverage down you point out a very good.

Opportunity for us potentially to get their little faster by overexcited.

Thanks.

And our next question today comes from Russo of Morgan Stanley . Please go ahead.

Hey, guys.

Any start with you.

Trying to square away.

Three Q1 9.

Expenses versus maybe what guide implied for Fourq Your 19, I'm thinking back to our discussion.

In Two Q1 9 earnings where you had mentioned that for Q, what's going to be I think an easy comp. So so help me understand.

Maybe how property taxes are going to go down, but but your guide implied is still for a rise in expenses I'm, just trying to square that a little bit yes, our rich.

Talking all throughout the year, we have talked about with real estate taxes, specifically on that line that fourth quarter would be our easiest comp and still projecting to be that way year to date, we're at about 6% expense growth and real estate taxes, I think it's 5.9% and Weve provided guidance on real estate taxes, all year that we thought would be somewhere in the fives and we feel very comfortable with that so that doesnt apply and we do.

Expect that fourth quarter real estate tax growth will be less than we've seen year to date for other expenses than we just want to make sure. We've been cautious all year, we want to make sure we built and it probably amount of conservatism with our expense guidance.

At the opportunity in the first two.

Cost of this year to be able to bring it in this quarter. It was closer to our expectations with regards to expenses on an overall basis. So I.

I know that implied math to show that there would be an acceleration expenses, but and take that acceleration with what our performance for the year and how we provided guidance and we feel good that will come out with a number that's within our range and hopefully be those expectations like we've been able to do I most quarters. This year.

Got it that that's that's very clear Ernie Hey, Dallas.

Does it go back to you for a second think about how you're sort of buying and selling homes right now could you maybe talk through.

The backdrop for for single family rentals, and where you're most bullish on on on the sectors versus maybe some markets where you are less bullish and are there any new markets that you are at least considering we keep hearing about Boise, Idaho for instance, so I'm curious just how you're thinking about that from from maximizing.

Your revenue.

Yeah absolutely.

So for a little bit of color on what we've been selling its been a unique year and that we've sold more end user type of homes back into the market I think we're close to almost 2000 homes through the end of Q3, roughly 1900 homes and some change that we've actually put back into the end user market those would be much lower cap rate typically homes at what price much much better at retail.

Level in terms of what we're buying and where we're seeing some of them the best opportunity and lot of this goes to my earlier comments around scale and being able to drive some of those great efficiencies and margins out of market, we're seeing excellent growth in markets like Phoenix, and Seattle, right now, where we can go and buy meaningful meaningfully attractive cap rates.

And operate those homes at margins that are continuing to optimize Furthermore, we are seeing tremendous amount of demand Phoenix for most of the year and our new lease rate growth has been north of 10% for the year and that that continues to just provide us confidence that that's a market we want to continue to invest in.

In some of the terms of some of the smaller markets like a Boise. There. There are certainly attractive there. There are operators that are going in there, but I think I just take a step back and say, whereas our best use of capital right now and I think it's in these parts of the country, where we already have significant scale, we have the ability to to provide more scale into that particular market, which will then enhanced.

Greater efficiencies on the margin and taking a step back we're still seeing exceptional growth in these markets like Phoenix in Seattle, and some limited parts of the southeast as well, but definitely had a strategic advantage with our footprint in the west.

And so we'll just one follow up question to that and I promise, so I'll be quiet.

Are you doing something different in Seattle, because it seems like a real significant competitive advantage to me relative to your peers in your commentary about still buying homes in Seattle resonates. So I go what do you.

Seattle is growing like OE, what do you what are you doing differently. There that allows you to still buy homes and maybe your competitors aren't there.

Well I think one of the advantages we highlighted this a bit at our investor days, we've been local from day, one so our investment team on the ground in Seattle supported by the back office in Dallas has been working together now for the better part of seven years or local were high touch we've had the ability to do some unique kinda off market opportunities with some local builders in here and there in the past couple of years.

And on top of that you just have to be active their everyday it it's not really anything different than we do in every market rich except that we were in Seattle early and built enough scale to where you could run a business quite frankly, the right way and so our team that is leading our efforts in sales just doing a fantastic job I think a little bit of a cooling in the broader housing market has helped.

Yes, a little bit with some more opportunity there, but it's still exceptionally tight but the fact that were their everyday allows us to see some opportunity yes thats great. Thank you. Thank you guys.

Our next question today comes from surely <unk> of Bank of America. Please go ahead.

Hey, good morning, guys.

Become more acquisitive, how do you balance that with your balance sheet. So your pursued at the leveraging is that discipline still one turn next year.

Yes.

It's really is there any so I'd say you said the keyword there as we at the balance as we have multiple tools that we want to achieve line Shiva earnings growth one achieved good and why growth we achieved margin expansion and at the same time, we want we want and we're seeing because where the markets that stay in having some more tools and this will be up from a cost to capital perspective.

Perceived to be in net acquirer against that as we also do want to bring leverage down those a lot of different things and let them balls are juggling there at the same time.

We have said specifically with the balance sheet normal course with X, but I know why growth in EBITDA growth than most people are expecting over the next period of time, it's not quite attorney or any more that leverage would come down we've kind of gotten past some of the easier stages that but he is probably more than half to three quarters of returns I make sure that's out there and people understand that but we do have that opportunity.

One of your other questions talked about that potentially over equitize.

Acquisitions, we've been fortunate that youre ago, we wouldn't predict the cost of debt would these inexpensive as it today as it is now that certainly helps as well I would put ourselves in a good position with the balance sheet, we can even safer still with a refinancings that we can accomplish many of those goals maybe not each of the individually to the fullest extent because they do counterbalance each other but do very well get.

All of them and get to a place that we're comfortable with that would check all those boxes and a positive Wayne importantly in a positive way relative to other real estate opportunities that may be out there for investors.

Okay. That's helpful.

Next question has to do like demand and you guys touched upon this all the ethanol remark.

On the demand for hearing, especially in apartments is not in 2020 direct your moderation in demand for department customer so.

How are you feeling about consumer demand strength going into 2020 in what differentiates customer may.

Well, it's hard to predict in this Charles by the way, it's hard to predict into 2020, we can react to what we're seeing on the ground right now which is really positive demand as we've talked about all year. The topline growth has been really strong we've seen demand throughout the year, we finished off.

The Q3 and a in really good shape up.

On occupancy as well as on rent growth and went into Q4 here in a in a good position and we continue to see solid demand. We don't see any reason that that would slow down in 2020, but we'll see what let's go ahead.

Okay. Thank you.

Our next question comes from John Polaski of Green Street Advisors. Please go ahead.

Hey, Thanks, Charles or Ernie could you provide a breakout of the drivers within the repair and maintenance line items specifically, perhaps.

How how wages are growing versus material costs, because I don't understand how costs are going to 10% during a period, where turnover is going down.

And costs went up 13% in a year ago period.

Yes, let me, let me start with that answer on that front over the Charles as well I think importantly, John you out advise don't just look at the operating expenses associated with repairs and maintenance in isolation I would it I would advise look at total net cost to maintain but importantly, they'll get the capex side too you're absolutely right to point out that our repairs and maintenance operating costs for just this one quarter for the last.

90 days were up 9.7%, but our capex costs were down 5.2% in that same period as you head injuries on in our disclosures. So it's all basis, it's up 1.8%. So yes, we certainly are doing our best to keep that as low as possible, but I also don't feel so bad about that is up less than 2% on a year over year basis.

Specifically, we have talked about in the past there are some cost pressures with regards to a personal items, our superintendents and things like that you have general cost inflation I'll also point out that you know again as we look at this short period of time out over the longer period, yet from a month to month basis. Some times a year over year basis, you have different results in the first part of this.

The third quarter, we did see some some better performance on repairs and maintenance and then third month I was a hot September that offset a more normal July and August 1st from summer and those things happen to say you were smart to point out that not to get too hung up on just a one quarter basis, when you're looking at things overall for all of our expenses for the Atlanta I went back them up.

This John prior to the call just to get a sense for where we're coming in from an expense perspective, we've done pretty well over the last three years. When you look at our other expenses in 2017, they were down 6.2% in 2018, which was a tough year for us with regards to the merger and we certainly talked about that a bit on past calls and within that with you.

Other investors they were up 2.5% in this year based on our guidance the predicted to be down <unk>, 0.5%. So over that three year period Thats a CAGR of about down 1.4 that said, we want to do better and we think we can do better there's areas specifically can do better and that's we're excited about the upside to the from for the one quarter specific to our and am I get it.

The operating side was up Capex side was down to help offset that our total cost maintained for the quarter was only up 3.7 for the year is actually down a little bit. So we feel good about were expenses are but we do can seat. We think we can do better.

Okay, I know I understand capex looks better this quarter.

The year to date I.

I'd expect total cost maintained to be down meaningfully given the cost overruns last year and the merger synergy that investors paid up for within a few days the merger so.

But perhaps we can talk more more online Charles could you give offline Charles could you give some commentary on sequential revenue growth trend in south, Florida, and Houston, which looked a bit week.

Sure our starboard South, Florida, I think we've talked about it on the on the last call.

South Florida is actually flat.

As you look at Q3 year over year, but when you look at year to date occupancy is actually up 40 basis points, which is great. We are seeing I think I mentioned this last time, a little bit oversupply in the markets that were regulating on the rent growth side to make sure that we keep that occupancy and we've been able to maintain that into a into fourth quarter. So we're watching it.

Closely.

Does performance does vary by Submarket and the field teams are working very closely with asset management.

And doing a great job with selectively pruning and so as Dallas was talking about some of those dispositions you may see a few more coming out of South, Florida, but overall, we're keeping occupancy where we want we are having to give up a little bit on rate.

Moving over to Houston actually Houston site seen a really are has had a great year year to date occupancy of 96 three versus 94 six last year.

So really our healthy move their blended Q3 blender rank growth is actually up 180 basis points to 2.6 again as we are getting more occupancy we're able to push rate, it's not keeping up with some of our other markets, but it's doing fairly well I think what you may be seeing as there was a sequential kind of down from Q2 to Q3, which is normal.

And.

The kind of seasonal trend that we'll see.

As you get towards the end of Q3 and leasing comes down a little bit, but we were coming out of Q2 at a high watermark of 97, three so to come down to the 95 is not that big of a deal and what we expect seasonality for market right there.

Okay. Thank you.

Our next question comes from Douglas Harter of Credit Suisse. Please go ahead.

Thanks can you talk about how October is is performing in terms of occupancy.

Yes, because the months not quite done yet Doug we're not prepared to provide final results. We in tight is meeting our expectations been built into our expectation around guidance.

From both the occupancy perspective, as well as a rental rates treatment for us.

Alright, Thanks, and then as far as other than we continued improvement.

In turnover can you talk about what are the key drivers.

Improvement.

Turnover.

And you know kind of Aspirationally, where we're from are working group.

Yes. This Charles first we think that turnover is really driven by the quality of our homes and the quality of our service.

We do know that Theres, an affordability factor out there and we're an attractive option.

For residents, who want to have our high quality homes and great neighborhoods and good schools.

That being said, we know that trees don't grow to the sky and we have had real success than our low moderate watermark below 30% for the first time on a trailing 12.

Can't predict where that's going we're just going to continue to provide great service and Dallas and team will continue to purchase great homes, and we think it's going to where it will be at the low end to that turnover curve.

Thanks Charles.

Yeah.

Our next question comes from Jason brings Evercore. Please go ahead.

Good morning, just a question on disposition cap ex the number seems to bounce around quarter to quarter, but can you explain specifically what that spend is and then whether there's a reasonable figure on average we can think about per home sold.

Yes. It is there any so youre going to see a bounce around on those depending on the type of sale. We do so we're doing a salesman investor They will take the home as is.

Underwrite into their own economics, any rehab will work they may want to do post acquisition just like we do I have we're selling mostly end user home that does represent when it gets some has moved out of the house.

And at that point need we want to get in the state ready to be able to sell to an end user. It can vary from being a few hundred dollars to few thousand dollars, we factor that in with regards to what's the right economics, and how we want to treat that house for that perspective, and also when we make the decision around with it will be in end user sale or investor. So.

Let's give some thoughts that Jason is too and I want to wing it as to what number you guys can expect to have this will be impacted like I said by the type of sale that's done.

But for those that go through the end user let me just let's give us some thoughts and Greg and I can get back in and maybe give folks and ideas for modeling perspective, what went into an average type cost could be agile and want to weighing in on the call here with you.

Okay, No I understood and then the other question would be your during the quarter about 10% of the dispositions were in California, and this may be more specific to the end user sales that you guys had been talking about but was the rationale specific to the assets are there certain markets in California were you guys are starting to feel your tapped out value wise or is it kind of neither of those two.

Well I think it's a little bit of a blend in certainly in California. We've seen some homes. Appreciate your point, where we think highest and best use of capital would be to sell those homes and then reinvest in parts of either California. Other parts of markets, where we can drive better overall risk adjusted return. There's also a couple of submarkets that that quite frankly, we think from a from a service model.

Perspective, and ultimately a performance perspective that we haven't than real bullish on now now take that with a grain of salt because I think we sold year to date, maybe less than 200 homes to little over 250 homes and all of California. So it's a really small part of the overall portfolio, but yes on the margin just like we do with any market. We're looking at the bottom perform.

5% of the assets and then making decisions with the operating teams on what's the best passport and then in some situations selling because of value.

Got it thanks very much.

Our next question comes from drew Babin observed. Please go ahead.

Hey, good morning.

All right Dallas, you mentioned the granular nature of the acquisitions completed during the quarter. Most of you talk about any book acquisition opportunities that you may have you may have come across the radar during the quarter sort of where pricing is on those assets relative to.

The yield which are probably a little higher kind of more the more granular the composition of the acquisition pool, just curious what you're seeing on pricing. How many portfolios are out there that sort of meet the criteria that imitative could probably looks at any color would be helpful.

Yes, so in terms of one off and how we see that environment today, it's definitely accretive to our portfolio and most of the markets. We're in today, we're seeing some good opportunities to buy some good opportunities to invest in terms of bulk.

Some of those larger transaction opportunities or fewer and far between we certainly as an asset management group take whatever information is available to us among some of our.

Bigger operating.

Partners out in the market and try to overlay and look for where there could be potential strategic opportunities. We're not in a position to talk really about any of that and nor do you see many of those opportunities at any given point, but you saw we did it earlier in the here in Las Vegas, you will on occasion see some smaller bolt on opportunities that will come across the das where you can really give us.

Sound underwriting process too and then hopefully be able to purchase those attractive prices Las Vegas was a great example, we've had great execution, our our rehab capex underwritings been spot on and we've actually done a little bit of an outperformer in terms of going in rate. So we don't see we'd love to see more of them quite frankly, we just don't get the opportunities to but occasionally do get something that comes across your desk, but the environments.

Feels pretty tight on the books and things.

Thank you and then a couple of for earning here.

And third quarter's a 50 million opportunistic secured debt pay down as we model going forward I mean, presumably.

More assets are bought and sold is there sort of a run rate amount of debt that may get paid down opportunistically going forward as part of the de leveraging story is there anything that we were to be modeling or is that something that we should be reading on DRAM. Yeah. I think it's more the latter unfortunately, driven we come out next quarter with guidance around ACA.

Position disposition activity I think we'll be more apparent as what may be available from a cash flow perspective or not for additional.

Debt pay downs beyond that.

To be normal course for us, but at this point it'd be hard to say, there's a run rate that would be consistent over the next couple of years free to build into the model.

Okay and lastly.

Okay, Great go for me thanks.

And our next question today comes from Harvard Go Oh, Zelman <unk> Associates. Please go ahead.

Dow's talked about in his prepared remarks around some of these ancillary income items that are their high margin a drop to the bottom line is things like days to re resident goes exact right to the bottom lines and for his occupancy. So we see opportunities there and then on the expense side, we're going to fight the battles inflation, but we do think over the next period of time real estate tax growth will be more muted than it's been the last few years.

Yeah on ancillary income side, we talked about the fact that we think there are there services that we can provider residents that they will value that will help them they'll likely want them to stay in our homes longer and we can collect a income off of those so it's kind of a win win in something they want and it's something that will help us we talked about specifically some things around making sure were.

I think things worth right around one pets, we talked about filter program, which will help the long long help on the repairs and maintenance side as well at your convenience for residents and of course, we've talked about for a long time and things yet greater opportunities with our smart home offerings and things that we're doing there on the expense side. It is really all about is getting better and more efficient what we do and utilizing technology.

And to do that and that was certainly a big part of what we discussed with investors and analysts I know people to institute in a few weeks going out as well. So we just see when you factor all that and then what's happening macro fundamentally in the industry with regards to supply and demand things. That's adding why people are so excited a favorable about the space and we certainly an opportunity it too.

Participate in those upsides.

Thank you.

And our next question today comes from Jade Rahmani. Okay. BW. Please go ahead.

Thank you very much I was wondering if you could provide some additional color on the asset sales and what percentage of those are driven by capex.

Expectations.

And are there any common attributes in terms of price point geography level of rent et cetera.

Yes jadeite out your question. Your question I think you you did a nice job summarizing the different types of buckets that we look at there's definitely some that are geographic theres. Some that are that are based on call. It may be some future potential capex risk thats ordinary course for us in terms of how we analyze the portfolio and to get a little bit into the weeds.

We will rank our properties based on quality type and location internally and that's that's something we share externally, but it's certainly a metric and part of our proprietary systems of how we look in and rank ourselves in terms of asset performance and and overall expectations around what we may or may not need to put into an asset over the long term, we're probably a bit more focused right now.

Just making sure we get Submarket specific submarkets excuse me specific sub market alignment the way that we want our portfolios to be able to operate and so we worked very closely with Charles and his team in terms of making sure that not only the portfolio mix.

Is right, but that also that we have the right shift mix within the portfolio in terms of size bedroom back counts the right ratios et cetera. That's all very important in terms of how we offer a consistent service level to our customer. So it can be a variety of things that could be geographic it could be and that we think homes quite frankly, too big and has potential turn risks to it so we're very sense.

That's the most things all goes into formulas that we look at in ways that we we measure success internally.

And are you trying to optimize too.

Certain function that maximizes future rent growth expectations or margin.

Expansion expectations or are you targeting all in return on invested capital. How are you thinking about that well to be clear were total return investors right. We are looking for value in both asset appreciation as well as where we think that potential yield on a particular asset will go and what goes into that Jade are all that.

Decisions around Submarkets markets neighborhoods school districts and at a number of different factors and we that rebuy analysis whenever we decide to sell a home. It we treated the same way is if we were going to buy that home today and what what kind of conviction do we have around those expected total risk adjusted returns and why and so it's really a similar process.

And as I mentioned earlier, we're always looking at the bottom parts of our portfolio regardless of market or location to look at total performance and as you look at total return yield is one component of that and so all those decisions will come into play as well some of the market's decisions going forward.

Thanks very much.

And our next question today comes from Wes Golladay of RBC capital markets. Please go ahead.

Hi, guys Im just looking at the blended rent growth year to date looks like the Western region is doing almost two X. The rest of the portfolio would you expect that to start to converge meaningfully over the next year or two to long term averages and do you see supply pressure pressuring you those markets on the West next year.

Well, we see a lot of supply pressures generally across our portfolio to be clear in the west you just don't have enough rooftops to keep up with household formation. So we would expect demand to be strong generally across our portfolio and you're probably going to feel a little bit more of that at west with lower bear to higher barrier to entry lower barrier to entry markets excuse me.

Okay and then when you look at the single asset acquisitions, what does the capacity of invitation homes to do per quarter.

Well I did declare don't want to use earnings line. The he said, which is we don't want to provide any specific guidance, but just in terms of historically the things that we've done as a business. You know we bought our first 30000 homes one by one over a period of 18 months and so we have the abilities the systems the processes and people that if the.

The market opportunity and cost of capital available to us that we can certainly look for meaningful ways to grow.

Got it thank you.

I don't know next question today comes from Ryan Gilbert of BTI G. Please go ahead.

Hey, Thanks, guys on can you talk about.

The lease a process for the home so you've acquired this year just terms.

How their leasing up relative to your expectations I guess I'm just trying to understand.

You know to the extent that there were some earnings dilution in the third quarter from acquisitions, how much that's from just higher volume versus maybe slower than expected.

Yeah, Ryan and is there anyone I'll take that it's interesting this year, we've actually seen on our acquisitions were doing better than underwriting with regards to our rehabs in terms of those coming in a little bit cheaper than we underwrote to helping our current yields were also seeing that those are actually running up in the time, we expected them run up at prices slightly.

Peter So you're right to point out there's a dilution item, but it's really not on the acquisition side. So it's on the disposition side, we're seeing on the disposition side is that homes are staying in the ones that we're selling to end users are taking a little longer for us to sell than we would've thought at the beginning of the year.

And part of that's just it's the reason why the acquisition opportunities better for US right now that we've seen things slow down a little bit and so we are seeing that when we're selling to end user we have to vacate the whole house than we have to get ready for sale and then we have to put under contract in cell and that process is probably taking is about 30 to 45 days longer than we would've thought when we put our numbers together at the beginning of the year.

Brian and so that's what's causing some dilution there and we and we it's actually cost us about a.