Q4 2019 Earnings Call

In the first half of the year, we completed the integration of our Starwood Waypoint merger, exceeding our Synergy expectations. This work equipped our unified team with an enhanced operating a form that is provided capacity for future growth and scale and enabled us to take our quality of residence service to new heights. We are proud that the service we delivered in 2019 may help Drive resident turn over to a record low of 30% alongside our unified platform. We also made further Procare enhancements which together help drive a 50% year-over-year reduction in controllable costs in 2019.

while improved

Profile. We also remain successful and leveraging our Revenue management tools and local field expertise to capture favorable supply and demand fundamentals in our top-line performance package for the full year 2019 this translated to a same-store revenue growth of 4.5%

with respect to Acquisitions and dispositions. We far exceeded our initial Capital recycling goals for the year accelerating portfolio activity that should drive better long-term growth and risk-adjusted returns home in total. We sold nine hundred million dollars of homes that no longer fit our long-term strategy and use proceeds to buy approximately 650 million dollars of homes with higher total returns and to repay debt while this acceleration of capital recycling resulted in some short-term earnings solution. We expect it to be accretive to earnings over the long-term capital recycling in 2019. Also included successful book transactions in the first half of the year. We acquired a portfolio of 463 log in info submarkets of Atlanta and Las Vegas for 115 million dollars creating incremental value by leveraging our scale and platform.

in December

Completed at $210 book sale in our smallest Market Nashville. We made a strategic decision to exit Nashville as the size of our portfolio. There did not allow the same scale efficiencies. We are able to achieve in our other sixteen markets where we averaged approximately 5,000 homes per Market by leveraging strong investor demand for single family rentals in Nashville. I'm not able to opportunistically sell 90% of that portfolio in one efficient transaction. Finally. We had another successful year in capital markets. We opened a new financing Channel closing our first-ever loan from a life insurance company using proceeds to repay higher-cost debt.

We also reduced our net debt by over $700 in 2019 bringing net debt-to-ebitda from nine times at the beginning of the year to eight times at the end of the year.

As proud as I am of our team for what we accomplished together in 2019. I am even more excited as I look ahead several months ago. We explained it our investor day why we feel ready to run home industry growth fundamentals are favorable. We have a strategically-located high-quality portfolio and scale that enhance growth opportunities. We have a refined platform that is perhaps better than ever to optimize execution. We have an Innovative team that is committed to the resident experience and we have a clear set of goals to run toward to drive both organic an external growth. We are no longer just ready to run we are now running and expect to make significant progress toward many goals and twenty twenty, which I'd like to address in more detail page first same store growth.

in 2020

Expect to grow same store in a y by 4.25% at the midpoint of our guidance. This expectation is supported by strong Market fundamentals cross artistic footprint household formation rates have been running it over twice the US average and many of these households have demonstrated a preference to lease.

Invitation Homes makes the opportunity to lease even more attractive by curating a leasing lifestyle that includes 24/7 Professional Service convenient features, like smart home technology and family-friendly spaces and locations were residents want to live furthermore. We believe our business has built-in cyclical Hedges and regardless of what happens in the broader economy demographics should become more of a Tailwind as the Leading Edge of the money of cohort approaches Invitation Homes average resident age of forty years.

Beyond capturing positive fundamentals, we will focus on enhancing same store growth through reduction and days to re resident and further improving our Pro Care Service efficiencies. In addition. We will move the ball forward on several ancillary service initiatives while the dollar impact of these initiatives on ancillary income in 2020 will likely be small. We are laying the foundation for a more significant ancillary income growth in future years and continue to expect an incremental 15 to 30 million dollars of run rate in Hawaii from ancillary Services by 2022.

moving on from

Colonel initiatives another 20 20 priority is a creative external growth today. We are seeing many opportunities to buy homes to enhance growth and earnings and nav per share in many cases. These opportunities are presenting themselves in markets where we unless than 4,000 homes today, which can benefit more significantly from economies of scale as homes are added. For example, Seattle Denver Las Vegas and Dallas. We also see a track of opportunities in markets of Greater scale like Phoenix Orlando and Atlanta should the opportunity persist as expected me to buy homes a creatively relative to our cost of capital. We plan to be a net acquire of homes.

Also on the external Grill front, we will seek to expand our value enhancing capex program. Whereby we invest in upgrades to existing homes to enhance resident loyalty improve asset durability off and increase risk-adjusted returns.

I couldn't be more excited to kick off the new year and Tackle these twenty twenty initiatives with our best-in-class portfolio platform and team. We are grateful for your support as we continue running toward another of outstanding service for our residents and value-creation for our shareholders with that. I'll turn it over to Charles young our chief operating officer to provide more detail on our fourth quarter operating results. Thank you Dallas. We finish 2019 strong. We were pleased with our financial performance as both same store Revenue growth and noi growth came in at the high end of their respective guidance ranges more importantly. I'm proud of the strides we continue to make with our residents service evidence by a resident survey scores in the fourth quarter that reached, New Heights.

And I walk you through.

fourth quarter operating results in more detail

same store noi growth of 3.8% in the fourth quarter brought our full-year 2019 same store noi growth to 5.6% same-store revenues in the fourth quarter grew 4.3% year-over-year increase was different by average monthly rental rate growth of 4% and a 10.8% increase in other property income net of Resident recoveries.

Average occupancy was 96% for the quarter consistent with prior year this brought our same-store Revenue growth of 4.5% for the full year 2019.

Same-store core expenses in the fourth quarter overall. We're in line with our expectations going 5.3% year-over-year primary drivers of the increase were property taxes and repairs and maintenance expenses. You're over your increase increases in our topics were partially offset by decreases in Arnhem capex turnover spend increased more moderately than r&m spin off before moving on from expenses. I'd like to take a moment to expand on the driver's of the 3.3% decrease in full-year controllable expenses that Dallas mentioned in his opening remarks off.

efficiency

Initiatives beginning in the summer of 2018 prompted a quick and sustainable turnaround and repair maintenance efficiency that helped limit the increase in cost to maintain to only 1% in 2019 month this performance and cost to maintain was better than our expectation coming into the year in addition platform refinements help to drive a 9% reduction in Personnel costs in 2019 is finally record low turnover rates coupled with process improvements drove turnover costs down 9% and Leasing and marketing costs down 6%

Next I'll cover leasing Trends in the fourth quarter of 2019 and January 2020 a revenue management and field teams worked well together and positioning our portfolio for the seasonal slower months of leasing in the fourth quarter and January, we prioritize maintaining higher occupancy to ensure favorable positioning heading into the upcoming Peak leasing season lending growth was 3.4% for the fourth quarter with renewals coming in at 4.5% and new leases at 1.6% January, which is seasonally slower for leasing Linda rent growth with them sent with renewals of 4.5% and new leases of 0.3% I can see increased throughout the fourth quarter in January with January averaging 96.5% This is walk-in basis points higher than last year's January occupancy. It should position us. Well for when Peaks leasing season kicks off in the spring with fundamental Tailwind that are back we are confident as we start 2018.

20

Boarding teams are focused. Not only executing to capture positive fundamentals. But also on operating more efficiently to drive down days to be resident and offset cost inflation. I'm excited to go after these opportunities and 2020 with the best-in-class team of local Partners in the field and Central support and our corporate offices.

With that, I'll turn the call over to our Chief Financial Officer. Ernie Freeman. Thank you Charles today. I will cover the following topics one balance sheet and capital markets activity to financial results for the fourth quarter and three twenty20 guidance first. I'll cover balance sheet and capital markets activity. We continue to make meaningful progress in reducing our overall Quantum of dead in improving our leverage metrics as we strive to become an investment-grade company in 2019. We reduced our overall net debt by over seven hundred million dollars reduce name that debit to eight times down a full turn from where we started the year.

50 leveraging

Was accelerated in the fourth quarter through Capital markets activity tied to our investment efforts first, we use proceeds from our Nashville bulk sale as well as other cash on hand to repay almost two hundred thousand dollars of secured debt in the quarter. These repayments also benefited are weighted average interest rate as we directed voluntary payments toward higher cost of debt.

Second we raised $38 by ratm program during the quarter to over a quote eyes acquisitions.

Twenty-twenty we will continue to focus on both leverage reduction and external growth balancing the to opportunistically.

Now cover our fourth quarter 2019 Financial results or f f n a f f for the fourth quarter increased 6.1% and 10.8% off at at $0.32 and $0.28 respectively

this was primarily driven by higher same store noi lower adjusted sg&a and Property Management expense and lower cash interest expense partially offsetting. The increases in wages are lower non same store noi resulting from disposition activity, including our Nashville bulk sale and higher Share account due to ATM issuance.

The last name?

That will cover is twenty-twenty guidance as Dallas and Charles discussed. We believe we have strong fundamental challenge that are back. We expect to grow same-store core Revenue 3.75 to 4.25%.

We expect same-store core expense growth in the range of 3.25 to 4.25%

We expect us to stay in the efficiency gains. We achieved in 2019 as a result controllable expenses net of recoveries, which are comprised of expenses such as Personnel costs and the op-ex portion of choice to maintain are anticipated to grow at an inflationary rate of approximately 3% at the midpoint of our guidance fixed expenses, which represent about 60% of our total core expenses expected to grow at a higher rate than controllable expenses is paid a larger increase in our property insurance expense. As our last property insurance renewal was in 2015 with respect to real estate taxes. We expect to our growth rate to moderate from 2019 levels with an anticipated increase in the fours.

This brings RX.

Station for same store noi growth to 3.75 to 4.75%

From a timing perspective we expect same store noi growth to be higher in the second half of the year than in the first half year-over-year Revenue growth comps are more challenging in the first half of 2020. We also expect year-over-year expense growth rates to moderate over the course of twenty twenty.

We are 20 20 core ffo per share is expected to be in the range of $1.27 to $1.35 and half Oprah is expected to be in the range of $1.04 to $1.12 included in this guidance is an assumption that we will be a net acquirer of homes in 2020. We will take an opportunistic approach with acquisition volume ultimately dictated by his contract of the buying opportunity is relative to our cost of capital as the year progresses. Most recently. We have been buying at a pace of approximately $200 per quarter. We have multiple tools available with which took the Acquisitions in would expect a portion to be funded with proceeds from the sale of lower to your homes. I'll be at a more moderate disposition Pace than in 2019.

detailed Bridge of 2019

Ffo per share to the midpoint of twenty twenty guidance can be found in our earnings release.

As a result of our anticipated growth in in twenty-twenty. We have increased our quarterly dividend by 15.4% to Fifteen cents per share. We continue to Target a low dividend that ratio as we prioritized you leveraging in a creative external growth.

We are excited to run toward the disgust in his opening remarks supply and demand fundamentals are in our favor. And we're in position to capitalize on these fundamental strategic locations and scale. We've assembled within our portfolio. We are prepared to execute efficiently with our refined platform in our entire team is focused on widening our lead by pursuing strategic initiatives both organic and external growth, but that operator would you please open up the line for questions?

Thank you. We will now begin the question-and-answer session to ask a question for a star than one on your telephone keypad. You're using a speaker phone. Please pick up your handset before pressing the key to draw your question, please press * then two I ask that you please limit yourself to one question and one follow-up. If you have additional questions, you could please reenter the queue off. The first question today comes from Nick Joseph was City, please go ahead and finalize get you to the dollar Twenty Eight. So above the low end and I recognize there is transaction activity and some refinancing or paying down debt, but just wondering if you can walk through the right front brake to start and any adjustments to the fourth quarter number that gets you to the 2020 guidance. Yeah, I'll take it more at a high level approach than the with regards to a job.

The pool year and then we can try to tie it back.

Just for the quarter so, you know for the full year we laid out and in the supplemental, you know growing from where we ended 2020 a dollar twenty-five and walking to the midpoint of our guidance range, which is a dollar thirty thousand, you know, first off the expected in my growth rate of 4 and 1/4 at our midpoint guidance. No ads eight cents. We have a couple of things that are acting as headwinds for us we go from 2019 to 2021 is what we thought was a wise decision in terms of exiting the National Market, but that was deluded to us with regards to the contribution that we gave up compared to the use of seats, which I think was a good use of proceeds for us to deliver the balance sheet further that's going to cost us about a penny and certainly in the fourth quarter of 2020 to 2019. Excuse me that you know, we we had a full contribution from the Nashville portfolios and stuff that in the middle of December. So there's certainly a little bit of noise from that the secondly when you look at one of the items we pointed out in that walk was the fact that financing costs are going to be a three month.

and back out to us about

Out of that comes from just what we have in place stay in terms of our our forward Step Up swaps. Those are put in place a few years ago by the company we merged with with regards to you know with similar when Temptation homes. It was fixing a long-term cost and they used Ford Step Up swaps, which we've disclosed in our in our 10-q in our tent case over the last many years a number of swaps expired during 2020 just like they did in 2019 in the replacement swap that is already was in place for the last few years. Is that a higher rate? And so that's going to cost us about a penny and half and in terms of our dilution and that's kind of spread out through the entire year. So against that impacts back to the fourth quarter number that number that you you pointed out as well when you factor that in and then our expectations around being a net acquirer this year which we hope to do that. Also is that the other part of the $0.03 I talked about their those are kind of the big drivers that take us from a dollar twenty-five to a dollar Thirty One. If we didn't have that dilution if we didn't have, you know, a little bit of noise from the from the cost of funds dead.

And you would have seen in an apple.

Right, that would be closer to the higher single digits versus what we're projecting. You connect the midpoint of our guidance that's closer to 5%

Thanks. It's very helpful. And then maybe just on the net acquire comment. Can you quantify that looked at and assumes for acquisition and disposition twenty-twenty? Yeah. Sure. So, you know we're we're expecting to do only hope I can do is be able to acquire a similar Pace that we we finished out the second half of 2019 and that piece was anywhere between you know, High 100 million almost two hundred million dollars up to about 225 250 million dollars off. So here we're hopeful that we'll be able to continue at a page similar to that in 2020 and typically what you see in in our ears on the opposition's friends that ramps up throughout the year. The first quarter typically is a little bit lighter you see us rep in the second quarter. We usually see some great opportunities in the third quarter in his Peak buying season by end-users winds down there's opportunities for us to jump in and then it kind of slows down again in the fourth quarter. So it wouldn't be ratable across the year. Um, I see if we can maintain that pace it all depends on what the market conditions are and and what our cost of capital is at that time on the Disco front of the USC. You'll see a drop off the amount of dispositions. We've done relative to wage.

on 2019

Um, the guidance certainly doesn't consider any any Volks sales or any Market exits. Like you saw in Nashville in the guys assumed that we're going to have a disposition is more in the range of probably two hundred fifty to four hundred million dollars a dispositions wage war front waited on that one than than not but generally spread out across the year, but maybe a little more front waited is is you think about where the 250 to 400 above proceeds may come in. Thank you.

Next question comes from Shirley with Bank of America, please. Go ahead.

You got nothing forcing the question. So my first question has to do with your twenty guidance. So you do assume around 50 businesses celebration at the midpoint on revenues. So just curious as the building blocks of that and what you're seeing in terms of the man from a consumer. Sure. Sure. Let me talk about the guy said I can let Charles way in about we're seeing you know currently from the demands and the consumer off a 2019 or Revenue growth you came in at our high in the guidance and we're pleased with where that came in at 4.5% at the midpoint of our guidance as you point out for 2020. We're assuming 4% not too similar to what we did last year on midpoint of guys I think was 4.1 and we ended up four or five. So we're certainly hopeful a similar track record in 2020 compared to 2019, but we'll just have to see how it plays out. But embedded in that assumption at the midpoint of guidance of 4% We're assuming occupancy stays relatively flat compared to the prior-year. We're assuming that other income improves a little bit relative to the other here in terms of the other other income growth wage.

Unlikely at a rate. That's

Slightly higher than our overall Revenue growth so higher than 4% but I'll setting guys we are expecting that, you know from a rep perspective that will decelerate a little bit from what you saw in in 2019. And we December as we enter 2019 and it turned out we were able to do a little bit better and that's what got us to where we did with a 4.5% growth rate. Just when you think about the numbers on a year-over-year basis last year surely would get charged 5% in the 2019 numbers. We had fifty basis point increase in occupancy as I mentioned. We think that's going to be more flash this year. So you take that out your kind of comparing a 4 to a 4. We hope to do a little bit better off maybe a little bit better on oxy maybe a little bit better on rate that's built into our numbers. We certainly see the opportunity for that. We want to make sure we came out within the reasonable expectations to start to your Charles. We want to talk about you know, what we're seeing demand wise right now. He's high level. They surely overall fundamentals are strong Supply demand remains significant Tailwind as we look across the markets as I said in my opening comments wage.

Took the fourth quarter. Make sure we're

Focused on occupancy and in January, we're in good shape where you over a year above where we were last year trying to hold that occupancy in in q1 so we can go in the peak season to capture those that strong demand that we're still seeing out there.

Got it. That's helpful. So my next question has to do with the recent announcement. Whether that's the Jonathan Littman already staking Mage or the merger front yard. I was curious as to your thoughts on what that means for an industry and just overall a major platform. Surely. This is Dallas happy to talk high-level from an industry perspective. I prefer not to get into specifics wage any competitors on this call from an industry perspective though, you know, as you look at the consolidation that you see happening whether it's with the the recently-announced resy Amherst transaction or off some of the smaller things that we see in the marketplace. It happened. It's all good generally speaking for the industry. We would expect that this industry over time and and some distance will have many operator operators with considerable skills. We look at it as a good thing for the space in terms of ancillary companies other opportunities things that will develop around the industry as well as the ability to offer quality experience for residents, which will only birth

The industry mature over time so we view you know, all of these kind of moments of consolidation as as a real opportunity for the companies that are involved in the industry as a whole.

All right. Thanks for the caller.

Next question comes from Drew Babin with bared, please. Go ahead. Hey, good morning.

Pulling on Shirley's question was like Blended leasing spreads for 2019 overall were about 4.6% and you mentioned so far in January occupancies trending ahead year-over-year. I guess kind of putting it back together. You'd have to be assuming a pretty significant to celeration in leasing Pace early in the year at least hit the the very low end of guidance. And so I guess I guess filtering that down there anything that you're actually seeing on the ground anywhere that would point to this deceleration and blending leasing spreads or is it just, you know, a product of it being early in the year and kind of just wage see how things come together as people using season approaches. Yeah. It's running is definitely a much much more the latter. Yeah you remember this is guidance when we provide a range in in in your right to point out when when you you know factor in it and understand a lot of our Revenue sort of baked in already based on the leases. We signed in 2019. It would take a significant deceleration for us to get low end and we certainly hoped it's not see that also caution dead.

You know both the fourth quarter of 2019.

The first quarter of 2020 are like leasing months R Us, you know the brunt of the year in terms of we need to achieve for 2020 leasing activity will occur in the second quarter and the third course it does, you know process all the residential space. I am cautious to draw too much to get you excited. If it December or January early your numbers are are great and also not get too worried if they're not where you might want to because you're not doing a whole lot of leasing activity at time of year. Did you want to provide or arrange for guidance as to what our possibilities but it's certainly you know, we feel good where we're starting the Year. We're familiar where things are at and we certainly see a path that could play out somewhere that we saw in 2019 that was not able to later in the year as peak season did well in 2019 if we have that opportunity twenty-twenty to increase guidance as we go okay appreciate that color and on the expense side. I talked about real estate tax growth kind of moderating to you know, somewhere in the fours Obviously good news, and I know there's a lot of work that goes into the you know, the thousands of appeals that you need to do. I guess how much dead

What is there left of shop as far as?

Appeals little impact this year both do assessments and and millage rates, you know legislation in Texas changing with Municipal Revenue guidelines. And then you know, I guess is there anything on the very back outside, you know r&m or anything like that where you could see maybe a little bit of extra benefit as the year goes on but it you know, like the revenue guidance. It might just be a little too early to predict on the service tax. You said a Wrangler is always a lot of with the chop when it comes to appeals and our guidance does not assume a whole lot of success and appeals. So if we have continued to have better and better years and made a pretty good year in 2019 There's an opportunity potentially down to the outside there. We do expect some success. But again, it's moderate levels, but you know in States like Texas it's normal course to appeal basically everything you still have a number of outstanding appeal Georgia that we we got our fingers crossed on and hopefully we have some good news on and of course as you go across different jurisdictions, you see different opportunities and floor is always a big one for us. One of the nice things we're seeing is again with our with our exposure to Cal log.

And the fact that real estate.

Taxes are locked in at you know, a 2% growth rate there because the prop thirteen that certainly helps overtime moderate our our real estate tax exposure. And so, you know, we're we're confident that we're going to do something in the force as we discussed and discussed in a in a pair of remarks in in again, what we'll see opportunities potentially to do a little bit better than that across the the broader expense environment. You're also right through and that it's early days yet January with was a good month for us January came in a meeting our expectations with regards to expenses in in in his doing slightly better than we might have expected on the revenue side, but not enough to get too excited about Thursday. So it's one month. And what's the see how that plays out with regards to how things go there, you know, we certainly built in some level of contingency in our expense numbers and some years. You need it and some years. You don't suck some years, you might you not a built-in enough we do our best to try to factor that into our guidance in you know, some last year. We had a big outperformance and expenses as the year went around went through and we'll hope to do the same.

It's too early to give.

Any confidence where that may had great appreciate the thoughts. That's all for me.

The next question comes from Jason green with evercore, please. Go ahead.

Morning on the rental rate growth side understand these numbers can bounce around but just curious where you're seeing given both new and renewing leases showed a slight deceleration in the quarter year-over-year. Is that took a product mix or is there less room today to push rate? Hey Jason, this is Charles. Thanks for the question. As I said fundamentals are strong in the markets and we're seeing it on the ground supply-demand suck wind when you step back and you look at 2019 and aggregate. We had a great year on occupancy and re-prove both were up year-over-year and we had our best Peak leasing seasons ever in retrospect. It's as we look back though. It's clear that we may have held the new lease rate, maybe a little too long into into the season and it starts started to slow down our leasing velocity in the in Q4. And as we talked about q4q one are slowing leasing seasons, and we wanted to focus on occupancy. And so what you're seeing across the markets and suck.

Markets, we had to push a little bit.

Down on Race to get back to occupancy and we got the 96 in in in Q4 and a January were running north of 96, which is great. We're above where we were last year and we're keeping that momentum going in. So the whole idea here is to set ourselves up for leasing season. We're all the action happens q1q for things are a little slower. We want to capture the peak leasing season to make sure that we can have our best foot forward.

Got it. And then I know you guys had talked about hoping to do you know call it two hundred million dollars per quarter and Acquisitions, but in today's market with today's pricing, are you able to quantify the total dollar amount of potential acquisition? You see in the marketplace today that makes sense from a pricing perspective. Well, I mean again, this is Dallas good question. I think as we look think about growth and we think about Acquisitions and we said this, you know, Ernie mention this in his early as comment in the Q&A, you know, we feel that that two hundred million dollar per quarter run rates pretty achievable in today's environment given where the supply and demand, you know, kind of dog meat each other in the markets that were really focused in if we saw more opportunity, we would certainly try to lean in and and and find a bit more external growth while we you know way out everything including what are Costco that point is it's hard to quantify, you know, everything that you're missing on top of what you're requiring. But at the end of day we feel pretty good about those estimates that that you know, somewhere between 175 and 5 a.m.

50 million a quarter feels feels pretty doable in today's environment.

We certainly look for more opportunity to come in front of us.

Got it. Thank you very much.

The next question comes from hard well with Salman and Associates, please go ahead.

Hey guys. Thanks for taking my question. I guess just to round out, you know sources and uses a capital. Can you give us an update on where you expect the leverage to be at the end of the year? Yeah, absolutely and off and on our our Capital activity that we do with regards to Acquisitions and dispositions, but we expect that we will continue to be able to bring our as soon as we improve are not that too evident numbers off and based on you know time where guidance has and where we see a bit of coming in and our plans around Capital allocation. I would expect net debt to have it to be somewhere between 7 and 7 and 1/2 * by the end of the year.

Got it. Thank you. That's that's all for me.

The next question comes from Richard Hill with Morgan Stanley, please. Go ahead.

You got Ronald Camden Richard a couple of quick ones for me. The first is just on going back to sort of the market exit any other markets that you know could potentially walk you down the road as as as an excellent opportunity. And if not what we're what are the markets are going to be mostly targeted for disposition that we should be thinking about them in terms of how we, you know, look at the portfolio as a whole from an asset management perspective. We're always going to be measuring ourselves against performance and some of the other macro factors that we see in markets. So as already mentioned in his his guidance comments the beginning, you know for the year, we're not we're not pricing in any book sales or Market exits in any of our plans for twenty twenty. I think that are selling will center around what we've always looked at which are non-performers Geographic outliers parts of the portfolio that aren't just making a ton of sense for us over the long term and as we way that out in terms of you know, our our our global view of of where we can find the best.

risk-adjusted returns

That's where we're typically selling on the margin and you see that we're a little bit more active in the middle part of the year as we're turning more properties and and having the ability to look and review some of the assets that are on our questionable lists and things that were thinking about but I wouldn't expect anything outside of the norm from a market mixed perspective than what we've done in the past.

Great, just a quick follow-up going back to the control expense question. Just taking a little bit I think about the 3% growth that you're targeting. Is it fair to think about maybe life and growing above that and some of the other line items may be growing below that and getting into that average or they sort of all uniformly distribute it any other color. That would be helpful Thursday. We talked about r&m I brought in Ronald just talk about the overall cost of maintains its is the opposite side of it. It's the capex side of it as well this year. We introduced me to expect both objects and capital spoken in a similar amount and we think all you know, that line item is moving in, you know, right around that same inflationary increase

Thank you.

The next question comes from Jade rahmani with KBW, please go ahead. Thanks very much with about 50% of Revenue coming from California and Florida. I wanted to ask about have an issue like climate change factors into your thinking and considerations, um thinking about the current asset based as well as when you're making new Investments and just in terms of a practical import, you know, when do you think an issue like climate change would start to affect insurance costs and other operating factors? You know, how far ahead are you? Are you looking at this issue? I'll take the first question. I'll let her talk about the insurance question on your second comment question in terms of how we think about climate change and you reference California month obviously both, you know, very warm weather markets for us high-growth lots of things going on in those markets. We're focused on a couple of years. So first of all, as you start to look at the portfolio the whole of which app

Ask that you want to own and why?

You want to be sensitive around things like flood plain and things where you could have potential exposure which also goes into your pricing on your insurance question, which are any can comment on and then we're also doing some things we've actually got you know, we're doing some I wouldn't call early work to try to get smart around what opportunities are available to us around, you know things that fall into the buckets such as you know solar and things like that. Now those sustainable strategies for us for the life. We're not in a position today where we feel that we've got that completely figured out but it's certainly something we're focused on we want to be an environmentally friendly company. There's things we do already whether it's around, you know, Hardscape landscaping and things like that that can add to that narrative and and that mission which is part of being active in our community, but there's there's still a lot of room to grow and and things are changing consumer. So I think you know making sure that from a risk profile or being smart around which assets where and why and then also from a service perspective. What are the things that we can do to enhance that experience and also be environment environmentally phone number?

Along the way we're all focused for us right now, you know the expense side it certainly was somewhat were very cognizant of and even in on the investment side is we think about risk-adjusted returns across our entire portfolio. We're very focused on thinking about any Puja.

Correct premiums that would be required because of that from California perspective jaded, you know the risk for us from a climate perspective would be around wild fires and it would be very specific about where we're investing in California and in been very busy today, but based on where we are we're geographies are the wildflowers the wildfires the power outages. In fact in California really have any impacted us. So when you take that to an insurance perspective, you know, it really the risk we're ensuring for in California is, which is separate from the separate risk from from climate change the Florida. We've been very specific to make sure we're we're investing in Florida that we're not exposed exactly to the coast very careful on floodplains and what ensures like about our risk compared to other residential is that are risk is spread out across thousands of assets across many many miles and we don't have a hundred million dollar or single asset in one location that could be impacted. Typically buy something bad happening from a storm perspective. So you a little bit more dispersion of a risk, but clearly anyone whose exposure to Florida and we have exposure to Florida is seen pressure on costs when it comes to insurance, but we have some game

Offsetting that they probably put us in a little bit better position relative to other residential commercial real estate cuz the nature of our asset type thanks for that. Just turning to the investment Outlook and Thursday Acquisitions. How far are you looking out in terms of cap rates? Because it can make a big difference based on your growth assumptions for example buying at a five cap. Might seem attractive. But if the markets awful growing at a 2% same-store organic growth rate that gets to about five and half percent five years out but buying it a 4 and 1/2 cap with a market growing, you know, five six percent similar to where say phoenix in Vegas are growing gets to 6% or higher five years out. So, you know, how far are you under writing in terms of your investment? Criteria is a great question JD and you're spot-on. I mean, you know going in kapre doesn't tell you the whole story on any acquisition. So we would agree and remember we're Total return investors. So to really emphasize the point you made dead.

We look at you know, obviously.

And what the cash flow is going to look like but we really care about what's going to happen around the asset over the Long Haul and so our models are typically anywhere between three and five years as we look at markets and there's a couple of ways we do it looking at you know, kind of different return profiles, but we completely agree. I mean we care as much about what are your three year olds going to look like as much as we do our year one and coupling that with where we think we're going to see that outperformance and grow and if you look at where we you know been active specifically in in 2019. I mean, you'll you'll notice that the majority of you know, the two thousand plus Acquisitions we made last year were in the west coast and that's indicative of the type of growth. We're seeing it's evidenced in the in the renewal rates. The new lease growth that Charles has talked about. I mean, you see, you know markets like Phoenix for example in the fourth quarter and we had we had Blended leads us of 7% which are really really strong and it said it really emphasizes the types of growth you're saying in those parts of the market. So so we would agree it's all relative. It's all important as it goes in our models how we think about growth wage.

We mentioned earlier in the call and it might.

Opening remarks. We are as focused on trying to grow a creatively through external measures and markets where we already have significant scale like Phoenix in Orlando. Those are great markets for us going forward. Thanks for taking the questions.

The next question comes from Douglas harder with credits list, please go ahead. Hi, this is Doug today. Just going back to Jay question about climate. I mean, we've had a milder winter this year compared to the historical average. So when we're thinking about maintenance strategy, how does weather impact off when to make the the capex spending that kind of make change the rest of the polio?

Yeah, I mean, we have a couple of cold weather markets in Denver and Chicago. We've been operating there for a while and we're always conscious of you know, how we treat the homes especially when they're making to make sure that we're being conscious of any freezing pipes and stuff like that. And you know our Smart Home Technology helps us with that and being highly occupied is off the benefit. So, you know, we we we try to pay attention to to that the reality is it has been a little more mild but they're seasonality that comes with it our experience and and talent and that's why we're local We Have Eyes on assets that gives us a good comfort that we're making sure we're maintaining the homes that are vacant and occupied by a revenue.

Got it on a simmer line. I mean you guys talked about.

The lowering of the three resident how smart home other tag kind of impact that just curious how that has changed compared to now I'm laughing and how we should expect that going forward. Yeah. Well the last couple of years we really haven't moved down this metric as much as we'd want. We're in the mid 40s right now and you know our goal this year. It's a real Focus. I try to take two or three days off that in 2020 as you mentioned. There's a lot that goes into it looking at turn times utilizing technology to try to lease better and faster off and just having an overall focus is the real cross-functional metric that we're looking at. So there's no reason long-term that we'd like to get that number down into the to the 30s. We have several markets that are there right now and so we're going to continue to push There's real benefit in getting that, you know economic occupancy down.

Perfect. Thank you.

The next question comes from John pawlowski Green Street advisors, please go ahead.

Thanks, Charles curious for your thoughts and a few of your flower markets, which saw outsized Revenue deceleration and takes out Florida for instance, which the cops weren't all that difficult and you still suck outside pressure on the new leases. So, um on the demand-side, what do you see in terms of employment shifts? And then or is it more of a supply issue with single-family construction starting to Ed pricing box? Yes a good question on South Florida. It's really more of a supply issue and it's not necessarily the new single-family Supply specifically, but there's a lot of condo vacancy a lot of options for the consumer to choose from and given that you know, and it's really happening in certain submarkets. We're we're seeing the supply impact and our field teams and change management team. So don't really good job of selectively pruning out of those submarkets. So we'll we'll think we'll be in good shape long term, but because of that we've been focused on occupancy if you look at look back over the phone number,

We actually went up in octopus.

C to 95.4 vs 95.2 and 2018 and we'll take that same approach in 2020 with a little bit of Supply out there. You may see some pressure on rates, but we've been able to Thursday we'll focus there until we can start to get some pricing power.

I guess how much overlap between your tenant base and a condo occupier is there is that I wouldn't assume there's a ripple effect in terms of your your tenant-based maybe a bit slower credit quality versus a a a mom pop. That would that would occupy a condo. Yeah there typically is not South Florida's a very unique market and I and I think it really comes down to just having lots of options for the consumer in a market like that. You know, our rents are a little higher in South Florida, you know condos are out there if if people are trying to move them it just gives them options. So it's to your point. It's not typical but in that market it's it's it's kind of unique and it's it's showing up.

Okay, and the last one for me earlier?

For Charles hoping you could humor a hypothetical. Um, I'm trying to disentangle in terms of the next few years and natural aging of homes and that impact on the total cost to maintain versus pretty robust, you know above-inflation growth. We're seeing on the labor side and and material side. So if labor costs and material costs literally printed 0% growth or the next few years, what's a reasonable Cadence a total cost to maintain we should expect as your homes just naturally age,

Yeah, John. I don't want to speak off the top of my head and give you an answer a little need to think through that a little bit cuz it is hard to disentangle those types of things. We also take have to impact the fact that we have. We're giving external growth, which means we'll be reading more homes on that will get that initial upfront renovation a relatively seen in the last few years. Unfortunately not answer. I can give you a spot on as well as we're sitting here, but let's give it some thought and get back to you understood. Thanks.

next question comes from handle say

Just with Missoula, please. Go ahead. Thank you operator. That was spot-on. Good morning out there. Is that the first time I probably hey question, I guess going back to external growth for a second. I guess we want to get more of a sense of the competitive Dynamic you're seeing out there by our count. There's three large private platforms looking to grow and one public Pier. So I guess I want to get at you know, how large your how attractive or the opportunity today versus a year or two ago that meet your quality and Market requirement and more importantly. Are you seeing more competition for the deals you're looking at?

Yeah, it is great question. So I think you know your first question encompasses really just a man right? Like what's the demand feel like out there and I'd say, you know, if you look at any of the new home builder data, if you look at any of the resale data is all kind of point to the same direction in the first quarter of this year, which is resale supplies really tight consumers are buying homes leasing homes really quickly and in the market with just generally talks about, you know, it sucks is underserved. And so we would see that the same way now to your specific question around and what do we see specifically in our space with our competitors? You know, I think we gotta be honest with ourselves and taking a step back and just bought ourselves. There's there's no more than probably four hundred thousand homes that are professionally managed in the u.s. Today which would represent less than 2% of the overall single-family rental detached popular. So even amongst our peers whether they're public or private we are represent a very small cohort of the people that are actively out acquiring single family homes either for ownership or for rental homes.

We play in in the same sandbox.

So to speak with the end users with other consumers New Capital coming into the space. What have you and as soon as I look at it? This Mark has been really tight for the past three or four years. There hasn't been a ton of new September and then you go back to what I think is a differentiator for our business, which is we generally earn a much tighter location band than most of our peers that we pay attention to and they single-family rep space and that's indicative of where our rent values are today. I think we're approaching almost eighteen fifty and if you look at the price points of our homes, whether it be what we're buying or selling generally a much higher price point which means much closer in which lends itself to some of those overwhelming demand kind of factors that come into play so the demand side of it and they'll feels really active. There's not a bunch of them sitting on the market and took me like Invitation Homes can just go in but when your local when you're looking at everything all the time when you're active in the space both on the buy and the sell side, it lends itself to Opportunities. We we talked about that in our opening remarks dead.

We had an excellent book transaction on.

First quarter on the buy side. We had a really efficient sale in the books. I didn't in Q4 so I would expect us to keep kind of running the same offense that we are which is being opportunistic not compromising location and I would expect that we can put up, you know that $200 per quarter number. Hopefully unless we see something different. Thank you for that Dallas and I guess the follow-up, you know, given those comments especially the low new Supply Dynamic. I'm wondering if there's been any rethink on your view on perhaps building out a development platform. Now that you're especially ready to run and and grow no not really in terms of taking on balance sheet mask and being a builder. That's that's not something we're focused on today. I think, you know being the best buyer of single family homes in the country. That's what we are focused on today. So if that's buying from a builder or buying from Boutique builders in June, we'll look at that but we don't want to compromise my earlier point on location for the sake of growth. It's just it's a doom Loop if you buy further out if you're willing to chase what you know, what are what I would call paper yields. Yep.

Get yourself into trouble if you are still.

Discipline around you know sticking to what you know how to do which for our business has been, you know paying up the curve and buying assets that are better located. They're going to have some of those demand factors we talked about we believe that's a winning formula for life going forward.

Great. Thank you. One more if I could question on Dallas the market occupancy. There's just about looks like 89% well below your portfolio average down looks like over three hundred basis points year-over-year curious, if that's some type of temporary dip perhaps, uh, seeing some Supply or move out to the home home buying a curious. What what's going on in Dallas portfolio and then more broadly as we step back and think about where you can deploy read a place of your national capital how high and you list or Dallas in Houston today both markets where you have bought a 5,000 homes and what are the current yields or IRS broadly speaking in in those markets today? That's like three or four questions. I'll I'll take the first part then I'm going to turn it over to Dallas to talk about the redeployment as I hear your question. I think you may be looking at the total portfolio versus

same-store portfolio

Get the occupancy focusing on same-store for Dallas and looking at the year-over-year. We actually had a really good year occupancy is up to 95.5 again below kind of suck but it was up from $94.03 a year before so we made a nice progress. So good strides there. We made some more changes in late 2018 and performances responded. Well based on that and we were actually up on a regular over a year in Dallas as well. So I think as those markets continue to grow we got a team on the ground right now. We're going to add more assets to it. We get some even larger scale will continue to focus on occupancy and continue to grow the rate over time. I'll turn it over to Dallas. You want to talk about the redeployment of Nashville? Yeah, sure. So and they'll you know, we've been pretty clear about this probably the last year and half we really want to grow in markets like Dallas and Denver and you'll see them.

in our 2019 number

Alice I think we bought a hundred and seventy-five homes and we only sold I think less than forty. So we grew by a hundred and thirty assets so that that that market itself we've put a lot of thought into you know, specifically where we would what types of markets making sure that we're staffed up the right way. We've we've actually kind of built out both of those teams both Dallas and Denver and the last year or so really good about where we are heading into twenty-twenty and I would expect that your your total portfolio. They can see will be a little bit lower as we're on boarding those new units over over the next couple of years.

Got it. Got it. Thank you guys.

The next question comes from Ryan Gilbert with btig, please. Go ahead. Hey, thanks guys. Had a question on turnover Charles. You said you might have held rate just a little bit longer than you had might have, you know, it might have liked in the second half of this year and I'm wondering if that contributed to the tick up in turn over that we saw in the fourth quarter of your of your basis or if there's been an increase in move outside a home purchase or anything else that might have driven that you know, the turnover rate higher great great question. So taking your last part as far as we haven't seen any uptick in move out from or just it's been pretty flat throughout the year and in regards to turn over looked at the numbers still really low and get it picked up a little bit but 30% is is the number we we like and a lot of that is Testament to our our teams and what they're able to do in the customer service that we're providing. It's hard to say where they're holding off.

That rate was really on.

I'll take that's really on the new lease. I'd this although those homes are already turned over and you know if they stay a little vacant longer than we wanted and that's why we had to give up on raid a bit. So I don't think a tribute to it or maybe had a mild contribution. But overall we're still really pleased with where we where we are in our trailing twelve turnover rate. 30% is really strong.

Okay, got it. And then just two quick ones. What what do you think you can learn from an operating cash flow perspective in in 2020?

I'll make sure I understand the question which was earned from an operating earnings. Not the not the right word. What what do you think your operating cash flow will be in 2020 looks like it was around seven hundred million in 2019.

Oh, I shouldn't think about how you're defining operating cash flow with where are you located a f f o after I'm just just cash flow of operations on your cash flow statement. Let me get off a little let's get back to you on that after the call. I just don't want to answer any correctly with this many people on the line. Okay, understood. I'm just however initial yield trended on Acquisitions lingo and cap rates for us for the most part have been kind of in the mid fives came in terms of what we're seeing. Is it my answering your question, right? Yeah, no real change in in acquisition cap rates then on today's environment now got it. Thank you.

the next question comes from back home with

James please. Go ahead.

Not quite but close enough. Appreciate it guys. The now that we're in an election year. I did want to Circle back on the rent-controlled topic and thoughts about just your California office and given that there's just more Rumblings for you know, possibilities of enhanced rent control measures out there that could affect single family rentals whether there's someone by corporations or others, how do you balance that into your equation of capital allocation and and your thoughts about California Investments going forward? Yeah you stay active on it is the short answer you make sure that you're part of the discussion that you're involved. We work with a number of different organizations specifically in California to keep us apprised of anything that's going on and on top of that we participate Thursday level with you know, the governor's office in the housing authorities that are that are involved with the state of California. We have you know, Buck we we have actually, you know in our in our 2020

you know guidance, you know baked in that we

Think will be active in terms of making sure that we're getting the right messaging out and being focused on no on Prop 10 what they're calling prompt and 2.0. Uh now I think it's a little disappointing because I think the governor and and and and you know the the house and the senate had done a nice job and trying to create some alignment around the rent cap measure that went in place last year. We are also very realistic in our understanding that every two years or so. This is going to be an election type of topic and so we've got to stay active on it. We believe they cost a Hawkins will or what they're calling prophet and 2.0 will have the similar effect that it did two years ago which wage you're resigning Lee defeated. I think by a measure of two-to-one. We believe that it's not good for the State of California to limit new development in rooftop formation and things that the state quite frankly needs. My understanding is that the governor's office on board with that approach and that that is you know, generally widely seen as as one that won't pass in terms of being, you know focused on other markets as well where some of those conversations coming up were very active birth.

The nrhc through some of the other efforts that we participate in to make sure that we're in the early stages involved with any, you know discussions that are going on around rent control or or anything like it fortunately off. It doesn't feel like as of yet in any of our other marks.

Is that there's anything of real substance moving through you know any floors whether it be at the state level or local levels? And so California is always a little trickier. It's one of the benefits of our portfolios already mentioned before a great Market with high demand, but you get to inherit, you know, some of the fund governmental type of stuff that can come up as being an active owner of real estate in those markets and you got to participate in the process. So for us will continue to stay active. We believe that you know that we're in a good position and will continue to support causes to get the messaging out. Thank you and my last Quick One is going back to your your comments about how many smaller private you know, when a mom and pop investors out there that are buying up homes and and the amount of capital that's that's getting invested in a single family rental. There was percentages seem to have increased and that that's one of the reasons I gave inventory seems to be so tight. So, how do you think about that going into leasing seasons? Do you think that the increase investor activity creates a near-term supply? Yep.

When is as they're trying to get those homes, uh turned at least or does it really just is it a function of that? The overall housing market is just still supply-demand.

Imbalanced in your favorite. How do you think about that going into leasing season your last comment spot on over all the housing Supply and balance is definitely in the favor of anyone in the single family business whether you had homes available for sale or homes available for lease. We don't see that changing and I think it is important to remember the the differentiation and I'll let Charles, you know, speak to this as well. But the macros on our industry, you know, whether I'm into a market with a hundred and fifty homes in a given year or don't doesn't really change the macros particularly of that market in terms of how much overall product could be available for lease to your point. We may have a little better visibility and what some of our maybe you know, bigger institutional peers are doing because of their marketing and things like that, but I'll let you know Charles speak to that. Yeah macro. The Dallas is spot-on. I think we will see certain markets where there there's a real focus on great fundamental markets like Orlando where you know, the competitors came in and bought up some product and put it on the market all at one month.

That you may have a short-term blip. We saw that in Orlando and in Q4, it's starting to moderate as you work through the product and if you look at our numbers our results in

Can see have rebounded immediately. So if there is it's kind of a short-term thing and then we get back to the fundamentals of the market that play out and that most of the all of our markets are in our favor. Very helpful guy's name.

This concludes our question-and-answer session. I will now like to turn the conference back over to Dallas Tanner for any closing remarks. We'd like to thank everyone for joining us today. We appreciate your interest in invitation home Invitation Homes and the team looks forward to seeing many of you in March operator with that will conclude our call.

This conference is now concluded you may now disconnect.