Q1 2020 Earnings Call
[music].
Greetings and welcome to the invitation homes first quarter Dolphin and plenty earnings conference call.
All participants Carla and only not at this time.
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Yes, its RK followed by T. Rowe.
As a reminder, this conference is being recorded.
This time I thought the turn the call price I pick Craig Van Winkle Vice President.
As part of Investor Relations.
Please go ahead.
Thank you.
Good morning, Thank you for joining us for first quarter 2020 earnings conference call.
On today's call for invitation homes, or Dallas, chatter, President and Chief Executive Officer.
Ernie Freedman Chief Financial Officer.
Charles Young Chief operating officer.
I'd like to for everyone to our first quarter 2020 earnings press release supplemental information, which we may reference on todays call.
This document can be found on the Investor Relations section of our web site.
He W. W.
The age dotcom.
I'd also like to inform you that certain statements made during this call may include forward looking statements relating to future performance of our business.
That's a result liquidity and capital resources and other non historical statements.
Subject to risks and uncertainties that could cause actual outcomes and results to differ materially less indicated any such statements.
Describe some of these risks and uncertainties are 2019 annual report on form 10-K.
Other filings you make that the FCC from time to time.
Leading the potential negative impact of the outbreak of a novel Corona virus, most koby 19.
Our business employees residence and our ability to operate our business.
Nutrient back at the operate is highly uncertain and cannot be predicted.
After the impact will depend on future developments, including actions taken to contain and mitigate kobin 19 outbreak.
Invitation homes does not update forward looking statements and expressly disclaims any obligation to do so.
During this call. We may also discuss certain non-GAAP financial measures.
Find additional information regarding these non-GAAP measures, including reconciliations of these measures to 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 Tanner.
Thank you Greg.
I want to start by saying I sincerely hope all of you listening are doing well and staying safe.
Invitation homes mission to provide quality housing for American families impacts many stakeholders, including our residents associates vendors communities and investors.
Could not be prouder of the way our teams are them bodied our core values of genuine care and stand out citizenship to keep these stakeholder safe and bring stability to residence lives with a comforting home and a friendly experience.
On today's call Charles and Ernie will provide an update on our results and financial position, but I'd like to begin by telling you. What we are focused on as a management team.
First and foremost health and safety.
Our homes, our ports in the storm for thousands of families, making it our duty to continue serving residents through this pandemic.
Formats duty safely we implemented important precautions early on.
Our prospective residents, we're relying on self showings by utilizing our smart home technology and keyless entry systems.
Current residents were making every effort to fulfill critical service needs, while ensuring safety measures, including deferral of non emergency service strips.
Health and wellness verification for residents service techs and vendors before visiting homes and observation of social distancing best practices in all of our resident and associate interactions.
While our focus on health and safety begins with physical health. It also includes financial health, we have created appropriate solutions to the to financial hardship for those who need it.
This includes payment plans without late fees for residents who require flexibility to meet the rental obligations overtime and a voluntary moratorium on evictions.
The second important focus area, all dressed as the financial well being of our company.
We entered the pandemic in a position of strength with record high occupancy significant liquidity available to us and zero debt maturing before 2022.
We also entered the pandemic knowing that our business had several differentiators that might work in our favor despite the uncertain environment.
First we provide the essential human need of housing and elite leasing lifestyle that we believe is even more attractive versus other housing alternatives in times of uncertainty.
Second as you know we have been purposeful about assembling an infill portfolio in locations, where we expect greater resilience economic cycles.
Third the residents we serve on average came into the pandemic with two wage earners per household generating income of almost $110000 that covered rent obligations by five times.
And fourth we operate a harm high margin business.
Despite these positive Differentiators, we took certain steps beginning in mid March to further strengthen our operating and financial position not knowing exactly how things might unfold.
These actions included prioritizing occupancy, which climbed to a record high 97.2% in April.
Roughly one quarter of our revolver to increased working capital.
And pushing paused temporarily on sourcing new acquisitions.
Based on how well our business performed in March and April It appears that the positive differentiators of our business and the additional covance specific steps, we took to strengthen our position are working favourably to this point in the pandemic.
Shelter in place has not impacted our ability to lease homes in fact resins and then moving into our portfolio at a similar rate to last year and had a greater rate than they have been moving out.
Both renewal and new lease rate growth remain positive in April and occupancy reaches all time highs.
On this higher potential revenue base, we collected rents it over 95% of our typical collection rate in April.
And our tracking even better in May and we were in April through the fit Dan's a month.
The third area. We are focused on is staying close to information on the ground in our markets.
Our platform has been purpose built to provide real time feedback our teams from operations management, the customer service reps maintenance Supervisors and investment directors, our in house and local.
This on the ground presence has served us well in navigating fast changing scenarios like natural disasters in the past and we've been able to leverage our playbook from these past events to help our teams identify and quickly adapt to rapid changes in each of our markets today.
We believe our local presence and agility should also benefit us as we emerge on the other side of this pandemic with more clarity about the future.
I'll say a few more words at the end of our repair prepared remarks, but at this time I'd like to turn it over to Charles Young our Chief operating officer.
Thank you Dallas first I want to say, thank you to our teams we've asked our associates to be nimble and execute under rapidly changing protocols and they've delivered.
In fact resident satisfaction has continued its upward trend even in the face of could make few challenges whether survey scores near all time highs in April.
I'm grateful to be leading a team in the field they care so deeply about our mission.
The selflessness they continue to demonstrate is inspiring.
In my remarks, I'll touch briefly on our first quarter operating results before turning to the operational impact we have experienced so far from cobot nicely.
Same store core revenues in the first quarter of 2020 grew 4.5% year over year. The increase was driven by average monthly rental rate growth of 3.9%, a 20 basis point increase over average occupancy to 96.7% and at 13.5% increase in other property income net of resin.
Recoveries.
Same store core expense growth in the quarter was 5.3%.
This resulted in same store NOI growth of 4% Ben is better than our expectation for the quarter.
We are now operating in a very different environment than we were for the most of the first quarter due to covert 90.
I'd like to provide some detail on the impact we have seen focusing on three areas in particular.
First of all dress, our occupancy which was a record high.
Second I will discuss run collections, which we are pleased with so far and third I will touch on revenue management and leasing trends were move ins are outpacing move outs.
I'll then close by putting these trends into context, as we think about the future.
Starting with occupancy we entered the pandemic current position of strength.
As a pandemic evolved occupancy climb to even higher in a streak of sequential occupancy increases that began in October continued each month, all the way through April.
In April same store average occupancy was an all time high 97.2% 60 basis points higher than last year with 12 of our 16 market, averaging 97% or greater.
Our total portfolio average occupancy also reached a record high in April of 95.4%.
Next I'll cover rent collections and both April and May we have placed a voluntary moratorium on convictions and create a payment plans for those experiencing financial hardship as a result to covert 19.
Even with these measures of genuine care in place for residents are collection rate in April was it was over 95% of our historical average.
List in 2% of our residents requested to defer a portion of their April rent to future periods.
Collections have improved further since the end of April.
5% shirt shortfall in April rent collections versus historical average approximately half of those outstanding rents have come through two is already in collections. After the month close.
Through the first day of May or May collection rate was over 100% of our pre cobot historical average.
This puts us at almost 109% of where we were at this point in April as April's collections rate was 92% historical average at day five before accelerating to over 95% by the end of the month.
I'll now turn to an update on our leasing trends in strategy.
With respect to renewal activity, our turnover rate are showing signs of declining in March turnover was flat year over year in April our same store turnover rate was 2.2% down from 2.5% April 2019.
We achieved rate increases on renewals of 4.2%, 4.1% for March and April respectively.
As a reminder, most residents who moved out in March and April gave notice prior to the spread of cobot 90, but the pandemic has likely been a greater factoring in renewal decisions for residents with leases expiring may.
It is too early for the data to be definitive with respect to meet turnover, but at this time, we see a trending in the right direction.
Stepping back we believe that our turnover should perform better in difficult environment compared to other residential sectors as our residents stay longer renew more often and are typically families to demonstrate stickier behavior with respect to housing choices.
Now, let's turn to details on new leases.
In early March to proactively position our portfolio for cold weather related uncertainty, we began incorporating concessions into our pricing strategy to prioritize the lease up of vacant homes as the pandemic unfolded, we were able to gauge its impact in April we saw strong move in velocity that was even better than expected.
In March we signed 2260, new leases with same store, new lease rent growth rate growth of 3.2%.
Including the impact of confession in April we signed 2099, new leases with same store new lease rate growth of 1% net of concessions.
Furthermore day three resin in March and April improved by four days in two days respectively.
Compared to last year.
Because we experienced so strong uptake that helped drive occupancy meaningfully higher we have now reduced the concessions we are offering but remain laser focused on performance indicators and are ready to be nimble as necessary.
Overall, our same store blend to rent growth for March and April was 3.9% at 3.2% respectively.
I'll now close with the through remarks to help put things in context.
Thus far revenues have remained relatively healthy overall.
We are happy with how solid rent growth rent collections have been and record occupancy has been a further positive rental rates and leasing volume. So far have also performed well.
We like our high quality sticky resident base, and we believe that the ripple effects of this pandemic could make the option to lease a single family home, even more attractive relative to other housing alternative, especially versus those with greater density of units and shared amenities.
As we navigate the uncertainty or the pad them make though it is important that we remain nimble and continue to leverage our local market insights to react judiciously.
Our outstanding team in the field has done a great job of that so far as they work to keep people save provide genuine care to residents and position our company to maximize results or mitigate risk.
With that I'll turn it over to Ernie Freedman, our Chief Financial Officer.
Thank you Charles today, I will discuss two topics first financial results for the first quarter and second our liquidity position.
I'll begin with our financial results core FFO and AFFO per share for the first quarter increased 4.4%.
5.1% year over year to 34 cents and 29 cents respectively.
These results exceeded our expectations as Dallas and Charles described we continued to see positive signs in the business.
And believe we have a differentiated model that is well equipped versus many other types of commercial and residential real estate for the road ahead.
That said, we are withdrawing our 2020 guidance due to uncertainty regarding the future economic impact of Cobot 19.
Regarding our liquidity, we entered the current period in a strong position, we have almost $1.1 billion in available liquidity.
No debt maturing before 2022.
And minimal near term investing commitments.
Our almost $1.1 billion liquidity consists of $345 million a fully roche unrestricted cash.
And $730 million of capacity on our credit facility as of April Thirtyth.
As we think about our liquidity needs going forward, we are focused in three areas.
First operating cash flow considerations.
Second investing cash flow considerations and third financing cash flow considerations.
With regard to operating cash flow the two primary risks relate to occupancy levels and rent collections.
Good news is that we are seeing positive results with respect to both.
First with occupancy we've seen continuous increases since the start of the pandemic in demand that is stronger than this time last year.
Although we although we are early into this new part of the economic cycle, our thesis with respect to the attractive nature of our product type in the stickiness of our residents appears to be playing out.
Frank collections have also been any positive story.
We came into April with a very low amount of past rents due to us and as Charles described our collections in April into this point in may have been solid.
Also as a reminder, we retain a security deposit from every resident.
Typically equal to one month's rent when they sign their initial lease and these deposits totaled $152 million as of April thirtyth.
These deposits are not included in that $345 million of unrestricted cash.
In almost $1.1 billion of liquidity I referenced earlier, but wouldn't be available to us to cover shortfalls and rent payments if necessary.
Oh ran collections of remain high today, we have completed internal stress tests to help guide us to actions that may be considered a friend collections were to decrease.
In these scenarios.
Hi margin nature of our business in our low dividend payout ratio helps serve as a buffer.
Moving onto investing cash flow our business has some unique advantages that help us mitigate risk first we are not engaged in any development activity.
Second the granular nature of our assets allows us to be nimble with our investment activity ramping up or down quickly to adapt to changes in risk reward.
After closing $28 million of acquisitions in April we have only $19 million of acquisitions in our pipeline beyond April you'd have temporarily pods, putting new homes under contract.
At the same time, we've remained active selling homes that have been earmarked for disposition was $31 million of dispositions in April in another $59 million under contract to close after April.
More in our pipeline being prepared for sale.
While we do not know what the future may hold the housing market remains open with healthy transaction volumes at present.
I'll also point out that we can ramp up acquisition activity just as quickly as we brought it down.
While we continue to stay on the sidelines as we assess risks and market conditions today, we will be able to pivot quickly to resume buying when the time is right.
I will now address financing needs in capital markets risk.
Our capital markets have been volatile in challenging for new issuance in certain channels, we do not have any near term refinancing needs.
As a result of our proactive refinancing over the last several years, we have zero debt maturing prior to 2022.
Weighted average years to maturity at 4.7 years as of March 30 Onest.
51% of our homes are unencumbered.
Or other approximately 39000 homes are pledged as collateral for non recourse secured debt of $6.6 billion or 76% of our total debt.
The trailing 12 month basis. These homes generated cash flow that covered debt service by 3.1 times.
Outside of secured debt the remainder of our debt consist primarily of a term loan in revolving credit in our unsecured facility.
Covenants on this facility lead cushion for an almost 60% drop in EBITDA in an almost 50% drop in total asset value as measured by broker price opinions.
It will to be in our supplemental has been updated to include additional detail related to our unsecured facility covenants.
In summary, we have a safe balance sheet today.
We are pleased with our strong liquidity position.
The quality of our real estate.
The strength of our resident base and how that business has performed through the pandemic thus far.
Before we open the call up for Q in AG I want to hand, it back to Dallas for some final remarks.
Thanks Ernie.
On today's call, we focus more on the near term than we typically do appropriately so given the importance of the measures we've taken to navigate the current environment with safety and Prudence.
However, I'd be remiss, if I didn't spend some time talking about the big picture for invitation homes.
Our long term growth story remains intact and I'm confident we will emerge from the pandemic in a position of strength ready to run again.
We continue to have conviction that we offer a differentiated product and living experience.
Catering to the large percentage of the U.S. population that wishes to live in a single family home, while enjoying the flexibility inconvenience of leasing from a professional property manager.
That thesis has been validated in the strength of our demand as evidenced by our leasing trends for the past several years.
Demographics point to continued growth in single family leasing demand over the next decade.
The events being experienced in the world today do not change that.
And as possible that they will have a lasting impact that drives Americans to place an even greater value on the station distance from neighbors that single family living naturally provides.
The locations and high quality nature of our homes and service further differentiate our resident experience, which we continue to refine and see runway to make even better.
While our frontline's have been focused on safely serving residents our strategy and ancillary growth teams have not stop making progress on important projects behind the scenes.
We remain on track with preparations for our next generation of ancillary services and put ourselves in a position to pilot some of these opportunities at the appropriate time.
We also continue to monitor each of our acquisition channels very closely.
When we gain more clarity in our footing and the market dynamics will be ready to resume acquisitions in a disciplined fashion.
We look forward to returning to a more normal environment.
But the passion, we bring to supporting residents will prevail regardless of circumstance.
Last two months have a renewed by conviction in the strength and resilience of our people and of our platform.
I cannot be happier with how we have responded to the pandemic.
Let me be clear.
These are unprecedented and uncertain times, but we like how we performed so far.
All the types of real estate that could beyond we're happy to single family homes or what we own today.
Lastly in times like today, it's natural to reflect on what matters to you most your core values and your mission.
Our mission statement says together with you, we make alcohol and that resonates with me today more than ever.
Many of our residents our health care professionals and first responders and is our absolute honor to support these heroes and alleviate a small amount of stress by providing them with comfortable well maintain homes. They can return to at the end of the day to recharge can be with their loved ones.
We're all feeling some form of disruption in our lives today and deserve the stability that home can provide.
We are proud of the exceptional job our teams have done adapting to the challenges around them to continue helping resonance make alcohol.
With that let's open up the line for question and answer.
Thank you.
We will now begin the question and answer session to ask a question you met press Star then one on your touched on time.
If you're using a speakerphone please pick up your handset before pressing the king.
The withdraw your question. Please press Star then too.
We ask that you please limit yourself to one question and one follow up.
Our first question today will come from Derrick Johnson of Deutsche Bank. Please go ahead.
And Mr. Johnson. Your line is how can you maybe needed on Europe.
Hi, Yes, I was thank you very much hi, guys. Good morning.
So your any unique position with regard to self guided tours of properties and presumably meeting the social discussing standards of today has this been an active channel and what percentage of the portfolio is able to accommodate self guided tours and what percentage of self guided tours.
Are you actually closing.
Yes. So this is Charles thanks for the question, what's what our advantage as Dan we implemented the smart home technology and fell short sell show.
Tours, a years ago and currently about 60% of our portfolio has the capability and 100% a bar on the market homes have the social capability, it's been our main channel, which how how we show home given the.
Kind of spread nature.
And our talented leasing agents are able to utilize the technology to make sure that the resident it's good to see as many homes as they need to EM, but at the same time, if they need to work with one other one of our agents, we will provide data as well so.
To your last question the majority of our homes are going through.
The the self show now not everybody is a comfortable with that and so at times that we'll do a a in person tour, but given the pandemic, we made adjustments where we would open the home for resident ahead of time, and then wait for them outside trying to adhere to the self.
Social dismissing guidelines. So we made some pivot spread it really wasn't a major pivot for us because this is the core way in which we operate our business on the leasing side.
Got it that's very helpful. Thanks, and just switching gears quickly from my second one.
I mean, Charles mentioned it can you discuss with previous concessions that were in place for new leases, maybe even the nuances by market and kind of where they stand today. Thank you. Yes. This is Charles again. Thanks for the question, Yes. So you know as on the pandemic a unfolded.
There's a lot of uncertainty in the market and so we are we made a conscious decision with the revenue management team is doing a great job in ops to focus on occupancy to make sure that we're in a position to strengthen what was great growth as we came into the situation with high occupancy. So it put us in really good position. So what we end.
It up doing is this one across the market with less than one month average rent concession so about $1500.
And we did that for about two three weeks and then we decided to pull it back slowly market by market, depending on what we were seeing and what are kind of demand indicators were were telling us and worked really well you can see where it all time high and occupancy yes. It has some impact and raise but we think thats a good trade off given where we are and it's always easier.
To dial those concessions are we think it's a great tool it creates urgency for the residents and it's easy for us the dial back to your last question as we got into April we started to see demand pick up a little bit and 'em. We then began to pull them all stores, where we sit today.
In our in May we have no concessions going out with so effectively, California, Seattle, Phoenix, Denver Vegas, and even the Carolinas, we're not running concessions now we're into that that peak leasing season, we're seeing good demand there we pulled back about a third or in the Florida.
And Atlanta, and Dallas, and then we've taken two thirds down in terms of the amount in Chicago Minneapolis in Houston, It's still early and they were going to watch. These play out we anticipate that we may pull them back even more.
But obviously, it's helping our occupancy and we should start to see a our growth rate growth I'm kind of step by step up from where we were in April.
Our next question will come from SAP Specter of Bank of America Top. Please go ahead.
Good morning. Thank you. My first question is on demand if you can.
Talk a little bit more about.
The renter.
Where are they coming from any changes that you're seeing you know, we're getting lots of questions on no folks, leaving cities looking for.
Suburban renting homes I guess can you give us a little bit more color and possibly even by region.
Yes. So thank you for the question Charles again.
As I said demand has ER has been strong, especially as.
We got passed the initial couple of weeks of of uncertainty and so by the beginning of April into the Middle of April we started to see demand kind of across the board step up in where we looked at our number of showings in applications that were coming through.
It was really kind of across the board early on as you can imagine there were some hiccups in markets like Vegas with the casino shutting down early in some of the Florida hospitality impact, but even now we're still seeing okay demand and that's what we've done in terms of pulling back our our concessions in a in those markets.
That being said, it's hard to say exactly where people are coming from that's not something that we typically gauge, but as you look at demands and as you look at our occupancy right I think we're really in a in a healthy position I think it's a statement to single family in the resiliency of of our industry that there's demand for our solid neighbor.
Hoods more space, that's offered by our homes backyards it kind of helps in the social distant thing situation as well as how do we think about any of the.
People moving out of the cities and may be coming into homes with with the with their parents or with their families are cohabitating with or without the family members. So can't tell you specifically, but we have seen some good demand across the board with the our typical markets out west probably seeing a bit more than others.
Thanks, Charles and my second question, just a pretty amazing that may collections.
Were stronger can you provide any comments on your thoughts on how that happened or you know any color there.
Yes.
Thank you it's a it's a good question. So look as you think about April and how this all unfolded. It was quick or late May sorry late March. This this a this all kind of what's surprising for folks and many of our residents were really in a uncertain position of trying to figure out what is there.
Poignant situation.
What a shelter in place mean, whereas if they're going to be any statements stimulus and so what we decided to do in April was could be really flexible with our residents and.
I meet with them one on one and try to understand so we can get a feel for the landscape and it works we had good numbers in April.
Or maybe even stronger and I think what we learned through April was our ability to utilize technology and oh upgrade a bit of our websites. So people could fill out a hurt your form quickly and easily we worked on our communication to our tour resin around what's expected and how they can.
Submit for hardship what we found in both months was that people really just needed to paid later in the month. So most of what happened in April is people wanted the chance to just pay a little later in April and as we said in our remarks are wondering have 2% needed to delay a month or two and so that's what you saw.
In our in April as we've gotten early in May as I said, we've we've understood kind of how do we continue to operate with genuine care you know living up to our mission and at the end that today, our communication and our systems made it really streamlined.
So we could do even better in a in may so in in that you're getting some of the collection that came through in April best showing up in May and I just I go back to the resiliency of our I was our of our resident base, what you're really looking at as the household income over 100002 way general <unk> or two wage earners and.
It's a testament to you know where we think this space can go long term.
Thank you.
Yeah.
Our next question will come from Michael Bilerman at Citi. Please go ahead.
Good morning out there I wanted ask about guidance in the sense that you you look at your resilient business model you think about the lower turnover you think about the data that you have from April and May.
And I recognize it's an unprecedented situation, there's a lot of uncertainty.
But you have such good handle on what your revenues and expense trends are.
Why not even provide just a quarterly update in terms of where are you view your operating metrics from a revenue expense and then why perspective, and even drill down to an actual that's AFFO number because you really have all the tools necessary to be able to do that.
Especially given the fact that you have such resilient cash flows why not be one of the companies that provide.
That comfort to the street about where your cash flows.
Are likely to be.
Michael This is there anything I appreciate the question. It it's a great question when we debated in here internally and we run a lot of different scenarios internally with the data we have but you sort of set it it's an unprecedented situation where six days now into to make collections and we're really pleased with where we're at but we are only six days in the neighbor only about seven.
Eight weeks into this whole process.
For instance in in the month of April or we did not charge late fees on some of that ER and quite frankly are not sure what when do you get from angry keeping that open as we consider where we want to move forward.
We're certainly seeing a lot of interest to be able to get them to the guidance to a range that would that was as a reasonable range for some of those very wide that wouldn't be very helpful. We think this early into this with the us even though we're very pleased we're at if all the reasons you said those reasons why we thought very deeply about whether we felt we can be comfortable putting a position to do that there's it's still too much on no.
And at this point I certainly as the year progresses, if we're in a position and we see how things have played out and with the data. We had when we were able to reestablish guidance, we'll do that as soon as we can we just thought it was little premature for this quarter Michael is to do that.
Can you talk a little bit about maybe some of the component. So what you've seen across the REIT sector is you have companies that have maintained their guidance of providing it and re forecasting you've seen those that have removed the actual FFO, but given the actual details of the components and then you've had companies like yourself.
If you just said.
We're not going to give the anything so can you give us a little bit more shortages details around the revenue expense and then a why at least on the near term because you have the data right. So in the first quarter, you're running at 4.5% revenue was 5.3% expenses for person and why you had a range out there.
4% revenue 375 expenses for 25, and a why for the year.
Just in the second quarter based on what you see where should those ranges b is there more pressure on expenses, our revenues trending a little bit lower than what you had seen just so that we at least get a.
Current momentum on the numbers and then is there anything else that maybe impacting the PML from a gene a perspective, all the liquidity things, earning that you talked about that you've brought down what sort of impact or drag it could that create on a near term basis, just to give us a little bit more.
Detail around the financial impact of all these thanks, Yeah, Michael Let me see if I can help with again reiterating that we've chosen not to give guidance I think you're aware, we've never providing quarterly guidance in the past, but let me let me provide some trends it may be helpful for folks. So it's an unprecedented it's an unfair unprecedented time, so why not starting now.
So let me answer at the best way can access really don't want to do something on the slide within the call.
It really prepared to answer some some questions about the so in the first quarter as we talked about we're actually we're very pleased with where the results came out a from a FFO and AFFO perspective, we came in a little bit ahead of our expectations on revenue perspective, we came in significantly ahead of our expectations on expenses, we came in slightly better than expectation and we know is a larger number we let folks know the being in the or at least.
In the beginning in the year to be a little bit harder from expense growth perspective, so that let us to a better and why result, so always good in the first cores, we think about the second quarter Theres, absolutely want to be pressure if people should not be surprised on the revenue line item, a we did not a budget than our original guidance that we've using concessions like Lake Charles is used here and as he ended March as we went in April but importantly, he talked.
Now that we backed off of those concessions and maybe what the opportunity backups further still on the renewal side, we're still going out with renewal increases, but again, where our expectation would be probably a little bit less than we would've thought at the beginning the years. We certainly didn't expect a pandemic situation. We had so you're gonna start to see the most pressure on the revenue line and that's even before talking about where a bad debt expense.
May come in we're very pleased with reflections are but as we try to did talk about four for April and they do come in less than where they do historically I answer is that still it takes some time for it to play out and see how that happens and again, we're only five days in the Matt on the expense side, Oh, we fully expected at the beginning your expense comps get easier as we went through the year and if anything with it.
Thanks, Cons, we'll get a little easier still we don't have some of the challenges that you have in the resin other residential space is around having to density in common areas and things like that so we think for the shorter term, we can see little bit of using a pressure on expenses. There maybe some catch up of expenses later in the year as we get to those deferred were quarters at Charles talked about at least for the near term.
We should have something that's it's a good result on the expense side.
And then with core at the phone episode were actually being very careful where we spend our June eight hours or a property management dollars, we certainly arch traveling and doing things like that so we're having savings there. So we would certainly hope that we'd have a run rate on DNA in property management that'd be favorable to what we saw in the first quarter.
But I don't want it to get so specific Mike will then provide a specific range or our dollar amounts percentages around those things, but hopefully that provides leased from a trending perspective, where we would hope things would go here in the near term.
Right and anything on the liquidity just raising additional capital in terms of the drag cost on that.
Well ill you saw we haven't our line, which we would've expected to being your a of about $270 million at the interest rate that that gets charged it was really that outstanding for the full year that'd be a little bit more than a penny of drag from what we would have expected, but if things continue to progress well and we may come to the conclusion, we don't need to leave the working capital cash balances as high as they are today.
Because we did that really just to be cautious and to be careful but things have played out very well for us to date. So we certainly have changed a little bit better than that.
Okay, Alright, thanks, Mike.
Our next question today will come from hard that go out of Zelman and associates. Please go ahead.
Hey, guys I, just wanted to understand better how the accounting will work for number one the concessions and on.
The delinquency reserve so your core revenue number will not out.
The concessions on death thing.
And the delinquency will report another reserves until you know one bad debt is or can you walk into how that'll work yeah of course, so concessions aren't new for us, but where do you are using it more than we have in the past where accounting policy has been in the past is if a concession is less than $500. We'll just go ahead and take that lots immediately we still don't try to streamline that over there.
During the police.
There's a concession greater than $500 into them, Yeah, we do follow gap and we lease spread out over the lead so let's say, it's a thousand dollar, let's say $1200 concession just to make them at easiness 12 month lease you spread that out over 100, all $800 over each month.
And you recognize it over a period of time. So can still can continue to do what we've been doing with concessions in the past there.
Delinquency our policy has been a path it any amounts that are over 30 days past due or any any current amounts that are in Victoria, which aren't very many we go ahead reserve for those 100%.
Anything that's in the current Buchan zero to 30, we've not reserve for because of its security deposit that will cover that.
Early days people worry do going forward, because we have payment plans in the past.
Well have more payment plans, we've ever had before but to Charles is point there aren't that many of its not one when a half percent of our resident you've asked for some help.
And so we may get the situation with some of those payment plans. It if we have confidence.
We won't reserve for the balance of it's greater than 30 days, we only that determination yet and again. It is it's not a very big number at this point. So we'll continue to recognize rental income is based on the least I'm. We're seeing that we're getting the cash collections that was certainly justify that well make a determination how you want to deal with a deferred payment plans as we get further into second quarter and see how many we have in what our history has been then during the.
Second quarter on people, making making good on the promises to pay when they will.
So if I missed part as a cash collection, because we've been very successful, but there there may be a build up of receivables throughout the year and payment plans I continue to trend in that small range that we've had so far.
Thanks, and just real quick on the our NAV in turn I know, there's somewhat of a comp issue, but in the expenses are up.
I know roughly 18% to 20% and I'm wondering if you're deferring some of the softer so you're deferring nonclinical stuff what have they been up if you were not deferring anything and I was a normalized environment.
Yeah, you know who is interesting. So we did you know because it's all happens so late in March the answer is very very small they need items that were deferring today are typically done by our service techs and so our service tax have lost some productivity on the side of going out and doing work orders believe Ashley redeploy them to do other things you know keeping houses a spot clean.
For self showings, helping out with turns you know things that they have done a little bit in the past for doing a lot more now generally focus on service. It's really the only cost that were not working right now that we would have had it in the first quarter for last couple of weeks, what about any supply that they would had a purchase to do the routine work orders. Those dollars are much smaller they are much higher dollar spend or on the more.
A significant work orders that have to get done that are sometimes embargo, sometimes not my vendors. So you wouldn't have seen much of the difference in our first quarter results, regardless of what's happening within them.
Thank you and just lastly, if you'll indulge me what is the or if you had to take out all of those swaps today, what would the load that cost you guys.
We had to settle them all yeah, and then that will be disclosed staying in ours. When we released our tank you little bit later today, it's a little bit over here that the mark to market on the swaps today is a little bit over $600 million. It was in a $350 million range at year end with interest rates going down <unk>. The duration got shorter so that helped a little bit on the mark but interest rates went down more significantly there there's no there's no cash.
Lateral or acquired on Black Friday, and when you tell you, but yet the mark to market certainly gotten larger with lower interest rates.
Got it thanks Marni Yep.
Our next question today will come from Jade Rahmani of KBW. Please go ahead.
Thanks, very much it's good to hear from you guys and.
Hope, you're all doing well.
I wanted to ask about tenant demographics.
Is there any color on employment industry profile that you could provide as well as perhaps some read on unemployment rate across the tenant base.
Yeah. Jay This is Dallas you know in terms of you know the demographics and what they do we obviously do income verification on the way and I think the headline there is really that you know their monthly rent to income ratios right now are at five times, and submarkets or even seeing stronger strength in five times.
But the average as five but it's all walks of life in terms of of where they come from as I mentioned in my prerecorded remarks Ah first responders.
Teachers health professionals et cetera is kind of run the gamut and and so you'll you'll see that vary by you know kind of cohort and submarket, but it's not something that we track independently.
Okay and I suppose.
There's a risk of unemployment insurance not being renewed a at the end of July do you have any idea how much that stimulus is is helping with respect to kind of rents and a related question is do you know what percentage of April and May rents were paid of out of security deposits.
Well I'll answer the second part of that class, none were paid out of security deposits at all.
That has not been an issue for us and all that you talked about the first one else yeah, I mean anecdotally there we haven't heard a whole lot about stimulus checks or things like that coming in and being apart a little bit may with some people that have requested you know late pay cycles, but I mean, those numbers are pretty few and far between at this point Jade.
Thanks, and I'd I do appreciate the conservatism around the decision to not provide guidance I think thats the right decision. Thanks for taking the questions.
I said.
Our next question today will come from Ridge Hill of Morgan Stanley. Please go ahead.
Hey, Good morning, guys wonderful just follow up on on Michael's questioning.
Completely recognize that you're not wanting to give guidance you did give a lot of transparency on some moving parts. Thus far in April in early May. So I just wanted to make sure I was sort of thinking about the methodology correctly.
So look there's there's three things I'm focused on number one what you collect it in April and what's your collected in May thus far.
At least on lease renewal rates, including rent concessions in your occupancy increase so fine if I'm thinking about this correctly.
Let's assume you never get back in April and then you collect a 100% of May and June I think that's around 2% headwind.
Then, let's assume you get the 3.2% increase on 30% of your portfolio, that's about a 1% tailwind and then you get the occupancy increase.
Doesn't that push you for same store revenue.
In the flattish range for for one quick one Q and I guess I guess, that's a very long way of saying what am I missing in those and sort of those those moving parts.
Hi, Rich that's a lot of math to do on the slide here in the Middle [laughter] I I had 45 minutes [laughter] I had 45 minutes. The do it so that may be right bouncing I want to think about that after the call and take a little quite you're you're looking at the right components I in terms of what could happen I guess the big question is and we're excited there weren't 100% collections for me.
As we stand today, that's based on historical average where we are typically on on a day five recollections come in throughout the entire month like you see with the other residential companies to and again seeing them. We're only two months into this you know we again, we feel really good about the business I want any mixed messages about that but did you know just alondra unpredictable and and so we wanted and so you can certainly kind of set of assumptions like it.
Did run the mapping gets the answer we're just we think it's we lose if we were to give guidance, we do a pretty wide set of what those assumptions would be so we because one hit wonder if you want to give you numbers and we actually want to beat it. That's what you try to do typically but yeah. I think everyone via we can see you get you got everyone should do it kind of what you're doing and think about those result things in a lot better data three months from now on how we've done for.
A month into the pandemic versus seven or eight weeks into it may have more confidence that point to be able to provide a better guide for a quarter or for the rest of the here.
Got it not helpful, earning and starting to put you on the spot but had asked the question one follow up to that it seems like you have a pretty good handle on the covert 19 implications to turn to two earnings at least near term.
But have you given any thought to what this recession means medium to long term recognize that there might be more demand as people move.
To greater spaces, and single family rental benefits from that but have you given any thought to what what this means longer term I guess I'm asking that because we just don't have lot of history as a public company.
I recognize Dallas has a fair amount of history owning homes through a recession, but how are you thinking about this is the recessionary impacts post covert 19.
Well I think freshness, Dallas, instead, I think it's a thoughtful question.
As you think about yeah. There is really kind of two parts to think about and unpacking that and answering at the right way one is.
Based on what's going to happening in housing development and new units coming online say over the next year or two if were to go under recessionary period for some while we're still going to have the fundamental lack of supply to meet normal household formation and all the demand factors that we're seeing in that.
Cohort of what our current resin is age 39 or 65 million people between the ages of 2035 coming our way so that that does not that actually makes that demand I think greater from that perspective, one you'll typically see and what we saw in the last recession in our private portfolios was that occupancy stay really healthy.
You did see you know people kind of collapse you see some kids living with parents, a little bit longer at some of that that that's up and you will see you know modest rate growth, which some market differentiation depending on what's going on I think the good news for our business, our portfolio and our asset quality and resident quality is that weve instead.
Related ourselves to some of the risks that may be more prevalent in the Midwest and parts of markets, where you might see less growth or less demand I really like our chances and our ability to lease having a much more infill portfolio with a higher ill call. It gross economic red band higher rent to income ratio.
Resident that's a bit more qualified to be able to meet that occupancy I think the way you will see additional pressure put on leasing and it'll be interesting to see how this plays out with homebuilders and deliveries and things like that is that you are ultimately going to have pretty healthy demand for our product. If it's located close to job centers major transportation port.
Source and ultimately a three to four bedrooms. They can allow family to fit comfortably I think thats. The key so so I wouldn't bet in this next kind of cycle, we ill outside of not knowing what the future mail 369 months, we like our position going in.
Got it. Thank you guys. Congrats on are really good quarter.
Thanks Rich.
Our next question today will come from Jason Green of Evercore ISI. Please go ahead.
Good morning, I just on the limited uptake regarding the payment plans I guess you know what do you think is driving that given and other reach sectors. We've seen some opportunistic tenants seeking relief is that underlying strength from the tenants or is it more reflection of your willingness to work with these tenants should they experienced some distress.
Yeah. This is Charles I think it's a little bit of both and this could be clear. We're also working within any kind of local rules in jurisdictions, California, Washington, They have specific rules that were making sure we follow.
But you know in April our ability to work with them one on one and understand their circumstance talk with them and you know the reality as most of them just wanted from time to figure this thing out and see what it meant and we gave them that flexibility those who had really lost the job were impact the health wise those are the ones that I know, but going on payment plans and to be clear it's a small.
Part of our portfolio. So I think it's a little bit of both and in May I think it became clear kind of what's going on and stimulus was in place. The you could see the future begin the open up state by state and people feel a bit more comfortable and they weren't asking for as much as they were when they were really uncertain in April.
Got it and then just on the home purchase side, we've seen a pretty public battle between the mortgage Servicers and the GST is I guess it in the marketplace. Today do you see a greatly diminished ability for homebuyers to obtain financing to buy homes.
Well I can tell you. This we've seen the statistics will be a little bit more towards people moving out for home purchasing is clearly a friendly rate environment. So somebody has got the downpayment ability a there and a third a strong position, but we're not seeing any trends and our own portfolio that suggest you know big wholesale shifts.
Got it thank you.
Our next question will come from handle sign to stuff Mizuho. Please go ahead.
Hello out there I hope you guys.
And you hear me well and end up we can agree okay.
Okay, great. Thanks, so thanks for all the color I wanted to go back to expenses for a second just going a bit more or color you talked earlier about some of the near term crushers and uncertainties I was hoping you could talk a bit more about maybe some of the potential.
Positive offsets some of the things.
That you're seeing within the portfolio may be lower maintenance lessening. The turns said lessees leasing personnel and how meaningful could those be and helping to offset some of the pressures. You noted earlier, yeah, absolutely I know you know our business as it is fortunately it was able to ship pretty quickly and pretty easily to the new environment, just because the way we do things all the.
Time, so there won't be a radical change and in our expenses because I think there's some opportunity areas for us I do you think about on the fixed expense side from last time, we spoke with you guys, which had a very favorable insurance renewals that we didn't anticipate and we spoken last quarter in insurance costs or will be closer to flat year over year for the remainder of the year versus where we thought they'd be up high single digits Ah. So that's a good guide.
Out there that will certainly help us out on Adams on and on the property tax Irish not to see what happens Endo I do think there'll be pressure for local jurisdictions not to push real estate taxes as hard on I'm on on local residents and were local owner as well. So I know jurisdictions are prime and be able to cash strapped to the same time, you mark when I'll be able to afford higher real estate.
Taxes on because of what's going on with the Pandemics that could potentially help us on the property tax side on the travel expense that you can you sort of set of handle the because most probably be turnover Oh, you know we did see a material decline and turnover in April were seen retention rates going higher they're trending that way also in may So where we'll see how that plays out in the day I know you're seeing out the other residentials.
Sectors as well and turnover is one of our biggest expenses as an idea benefit higher occupancy I get the benefit of typically when there's not a turn a higher rate in terms of where he brings a new leased to the next lease because we are still happening rent increases on the renewal side you save on the expense on the turnover size, that's probably the biggest one anyone aren't EMS previously or more of a shift in timing.
Well private little bit less aren't in cost over the next period of time for what I talked about in one the early responses, but that's going to catch up but we're going to get those deferred work orders Im actually had a little pressure on us from an expense perspective that to get through them put more quickly we may choose to to outsource a few more of a few more of those and we might in the past just to get through and work with limited determination, yet, but overall that price.
Puts us in expense environment similar to what we thought at the beginning year or maybe slightly better but was that see how things play out over the next many months.
Yeah. That's helpful concerning so maybe just a bit of a follow up on that the retention point you made a look like the first quarter was unchanged versus the fourth but you mentioned that.
Makes sense has picked up here in April and intimate.
How is that in relation to the 70%.
And it looked like you've had over the last few quarters and how do you think that that can go certainly expect residents to stay longer but just curious on maybe some some thoughts on well the 75, maybe 80% that the new normal.
In the post called the pent up.
Hi, I'm going to Charles Thanks for the question, Yeah year over year, or we were flat Q1, but still very good that's less than 30% on a trailing 12.
In April we came down turnover from two five.
Two or two to so we're well a well take that you know like you said, we're solving for occupancy right now and it's uncertain period that that feels like the right answer.
So we may give up a little bit of renewal growth, but we're still getting some numbers, they're trending down a bit where those numbers go we'll see where you were expect that you know low seventys mid Seventys is where we're going to operate I'm in a as a goal and then a short term here, but were really staying nimble when looking at a month by month to make sure that were.
We're making good decisions and as we think about when we put our guidance. We'll we'll have some more months under our belt, it's still uncertain times and we think people are are going to come our way, but we want to prove that out.
That's helpful. Thank you.
I could squeeze one more Dallas, So forgive me, but just curious on your cost of capital and capital deployment thoughts. Your understanding you guys are putting a pause and rightfully so.
That's a little bit more higher leverage market uncertainty discounted stock price here, but we've more than have that discount on the stocks that depressed due to weak alone, but you're still trading.
And at a discount here.
That's a spot energy so curious on on your thoughts how you with the board might be thinking about especially issuing equity at a modest discussed energy to fund what could appear to be a compelling investment opportunities. That's something you open to and how to use it to enter board think about that that's the tradeoff books.
And now it is there an ipod we are we're running long here, we got another call bumping up against US and we have other people don't ask question. So we're going to be smart capital allocators going forward and or something different we had asked with regards to how we think about things. If the tools are available to us we use them I've already very focused on remaining liquid and being smart about our capital allocation.
Got it thanks.
Our next question today will come from John Polasky of Green Street Advisors. Please go ahead.
Hey, Thanks, very much a b tried to be very quickly brief here at Charles where there any markets in April that actually saw higher turnover.
All right, let me see if I can give that for you.
We really didnt see I think there was maybe you saying April are you asking for Q1 Bickler April.
April.
Yeah.
We were pretty much on target and flat relative to prior.
Chicago Norco and in the West coast low as usual.
Maybe a little higher in the Florida markets, Jacksonville, Orlando, Tampa, but that's really about it and it wasn't really was really just marginal where we're still seeing really good.
Trends I'm when it comes to our turnover.
Thank you all right. Thanks, Oh, Oh can cede the floor.
Thanks, John.
And our next question will come from Doug Harper of Credit Suisse. Please go ahead.
Thanks, Ryan can you talk about.
During the first quarter well, how large were late payments that you received and what that impact could be if you continue to talked with them.
Sure Yeah. So we typically get between about at about a one about 1 million wanted a quarter million dollars of late fees or per month, or so for the quarter would've been about three and a half maybe that $4 million I as I mentioned in the month of April we did not charge late fees, a we'll see what we're going to do in May and June certainly I in some jurisdictions.
Paul local rules and we won't be able to do that which is the appropriate and so that couldn't you for us late fees over the year at about 1% of our revenues a little bit less and so we'll just have to see or how that plays out to the remainder of the next few months.
And just along that are there any other kind of ancillary fees or other sort of add on.
Kind of not looking to collect at this point or is everything else fruits collecting a per usual.
Everything else should be billing and collecting as usual the things that where we see some are largest ancillary items or utility reimbursements and so we're certainly still billing for those we are seeing it in any of our other are typical fees around applications and things like that pet resin on those items out is there still are being processed and being paid by residence.
Great. Thank you when you got.
And ladies and gentlemen, this well conclude our question and answer session. At this time I'd like to turn the conference back over to Dallas Tanner for any closing remarks.
Hey, Thank you again for joining us today, everybody. We wish you all the best please stay safe operator, this will conclude our call.
Thank you and we thank everyone for attending today's presentation and you may now disconnect your lines.
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