Q2 2020 Invitation Homes Inc Earnings Call
Greetings and welcome to the invitation called second quarter 2020, <unk> earnings Conference call.
All participants are in listen only mode. At this time should you need assistance. Please take note of conference specialist by pressing star keep all that they see rail.
As a reminder, this conference is being recorded.
At this time I would like to turn the call over to Greg Van Winkle, Vice President of corporate strategy capital markets and Investor Relations. Please go ahead.
Thank you.
Morning, Thank you for joining us for a second quarter 2020 earnings conference call.
On today's call from invitation homes, or Dallas, Tanner, President and Chief Executive Officer.
Friedman Chief Financial Officer.
Charles.
Operating officer.
I'd like to point, everyone tourist second quarter 2020, <unk> earnings press release, and supplemental information, which we may reference on todays call.
This document can be found on the Investor Relations section of our website at Www, <unk> and <unk> Dot com.
I'd also like to inform you that certain statements made during this call may include forward looking statements.
Into the future performance of our business financial results.
I didn't capital resources and other non historical statements, which are subject to risks and uncertainty that could cause actual outcomes or results to differ materially from those indicated in any such statements.
We describe some of these risks and uncertainties and I'm 2019 annual report on form 10-K, our quarterly report on form 10-Q for the period ended March 31st 2020.
And other filings remain the FCC from time to time.
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.
Waiting reconciliations of these measures to that most comparable GAAP measures in 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 hope everyone today is doing well things say, which continues to be our top priority at invitation homes.
Insert using the invitation homes leasing lifestyle now more than ever we believe we're safely delivering what customers are asking for exceptional execution.
I'm proud of what we've led with genuinely care through the pandemic.
It's showing up favorably in both our resident satisfaction scores and our financial results.
Hey, AFFO per share increased over 9% year over year in the second quarter.
Blended rent growth accelerated sequentially each month of the quarter.
Turnover rate and dates we read the continuing to be materially lower than prior year contributing to a record high occupancy of 97.5%.
While at the same time, helping to drive controllable costs and recurring capex lower year over year.
Recollection also improved over the course of the quarter with June and July collections near historical averages.
These positive trends in our business supported by the essential nature of our product location of our homes and the stability of our resident base also gave us the validation we were looking for to resume acquisitions in June.
I'm very proud that our teams have been able to accomplish all these things over the last several months, while prioritizing the safety of our residents.
Associates and community above all else and won't being there to help some residents through difficult financial since circumstances with payment programs.
Expand on what we're doing from a safety perspective for the wellbeing of all of our stakeholders.
First.
We continue to leverage self show technology for leasing tours as a reminder, this technology is not something new we have to implement it has been successfully offering self showing as an option for years.
Today, our self show capability is not only helping to keep agents and prospective residents safe.
It's also serving as a competitive advantage in the leasing market.
With respect to occupied homes, we have implemented optionality to perform resident move and orientation and pre move out because it's virtually.
While we remain paused on Procare proactive.
We continue to address emergency work orders as we have since the beginning of the pandemic and in June we resumed providing non emergency service to residents.
As appropriate on a case by case basis.
Providing service to residents our teams and partners follow a strict set of safety protocols, which associates have been trained.
Oh procurement team has also worked hard to secure PPD and we are maintaining a three month supply of math gloves and hand sanitizers.
Finally, we continue to focus on ensuring that associates, who are able to work from home or well equipped to do so.
And we continue to provide additional kogan specific benefits to associates designed to promote their health and wellbeing.
In being thoughtful about these measures we've been able to run our business nearly as efficiently in the current environment as we get with our office is fully open.
As we move forward from there we will continue to stay nimble in the present to safe, we provide high quality homes and genuine care to our residents.
Well at the same time pursuing growth toward a bright future.
We remain bullish about the long term.
We see a significant pipeline of demand moving towards single family rental over the next decade.
With over 65 million Americans page 20 to 34 years old and we believe single family housing supply is unlikely to be sufficient to meet the demands that these demographic create not markets.
The ripple effects of cobot 19 seemed to be intensifying shift in preferences towards single family space over denser housing options today.
With that.
Again surveying resonance upon movements learn more about how the pandemic maybe influencing their housing decisions.
Approximately 30% of the over 500 survey respondents you moved into our homes in April and May move from dense urban areas to our home and approximately 30% said Tobin 19 increased their desire to live in a single family home versus an apartment or town home.
On top of organic growth and accretive acquisition.
We're also pursuing initiatives like value enhancing capex investments and ancillary service expansion to further enhance our resident experience portfolio and returns.
As we pursue this long term growth opportunity and as we navigate the near term cobot environment. There are three key differentiators that we think contribute to our advantage.
First is the location of our home in the areas. We are currently invest.
Until neighborhoods in high growth markets, where supply demand fundamentals are most in our favor.
The second is our scale and market density with almost 5000 homes per market.
That's scale is nearly impossible to replicate it is a key driver of our efficiency in the real time market Intel we derived from our portfolio.
Third is our focus on being local and leveraging on the ground teams in our market in collaboration with centralized support.
This enhances our control over asset quality and the resin experience.
And is only possible with the scale and the people we have in place.
Thank you all for supporting US as we continue to put these competitive advantages to work for the benefit of our residents associates community and investors.
Our mission statement as together with you we make a household demand for our product stronger than it's ever been and we will continue to meet that demand by leading our core values of genuine care and standout citizenship to make a house a home regardless of what may come away with that I'll turn it over to Charles Young our chief operating.
Officer.
Thank you Dallas first I want to take thank you to our field and the team.
I knew we had a great team before the pandemic from what I've witnessed over the last several months has proven just how remarkable our associates really are.
We've seen a lot of change come their way, but I've never wavered.
Pardon me just the conference operator, we're speaking privately my of your name please.
He is your phone on mute.
You are now rejoining the main conference.
Average rental rate increased 3.7% year over year in the second quarter.
As a result gross rental revenues increased 4.7% year over year.
Partially offsetting this were two factors related to covert 19.
The first was an increase in bad debt from your 0.4% of gross rental income in the second quarter of 2019% to 1.9% in the second quarter of 2020, which was 150 basis point impact on same store core revenue growth in the quarter.
The second was a significant decrease in our other property income, which was 107 basis point impact on same store core revenue growth in the quarter, primarily attributable to our non enforcement of late fees.
As a result overall same store core revenues grew 2% year over year in the quarter.
Same store core expenses increased 1.3% year over year net of resident recovery same store controllable expenses decreased 4.2%.
The majority of the year over year decrease in controllable expenses was due to improvements in turnover cost largely attributable to lower resident turnover rates.
Fixed expenses in the second quarter increased 4.8%, primarily due to higher property taxes.
This resulted in a 2.3% year over year increase in same store NOI.
I'd now like to expand on leasing trends on revenue collections.
Starting with leasing activity the strong trends, we saw at the start of the quarter have become even stronger each month.
With a differentiated real estate product driving uniquely healthy demand, we have not run any wide scale concession since the beginning of April and new lease rate growth has picked up considerably during peak leasing season.
In June and July new lease rate growth was 4.6% and 4.9% respectively. At the same time days to be resident continues to compare favorably to prior year, improving five days year over year in the second quarter.
With respect to renewal activity, our turnover rate continues to decline same store turnover rate fell 60% year over year in the second quarter of 2020, bringing our same store turnover rate to approximately 20% on a trailing 12 month basis.
Renewal rents increased 3.5% in the second quarter and 3% in July. This resulted in same store blended rent growth of 3.3% in the second quarter and 3.7% in July.
The combination of lower turnover and lower days to re resident continues to result in record high occupancy in a typical year, we see occupancy declined seasonally in the summer months, but this summer we have seen occupancy rise.
In July of 2020 same store occupancy averaged 97.8% of 470 basis points higher than the previous July record set in 2019.
Furthermore, 14 of our 16 markets had average occupancy above 97% in July.
And eight of our markets had average occupancy above 98%.
Next I'll cover revenue collections, which have held up well since the beginning of the pandemic and improved further over the course of the second quarter.
For context pre Cove it our total collections in a month represented 99% of billed revenue on average with 96% representing payments on current month's rent and 3% representing payments from past due rents from prior months.
In each month from April through July we've seen payment of current month's rent amount to approximately 92% of billings compared to 96% historical average.
As a pandemic has gone on we are seeing greater number of residents catch up on delayed payments from prior months.
As a result, our overall collections as a percentage of monthly billings increased from 94% in April to 96% in May and 97% in each of June and July. This compares to historical average of 99%.
I'll close with a few remarks about how we're planning for the road ahead.
We do not know what the future holds with respect to the spread of Covance 19, but we do know that is our job to safe we provide an outstanding experience for our residents and ensure that they feel are genuine care regardless of obstacles.
We've done so in the past during natural disasters and we're doing so now during this pandemic. The key is to stay nimble and we're focused on leveraging the power of our people and our platform to adapt to future changes that are sure to come our way.
With that I'll turn it over to Ernie Freedman, our Chief Financial Officer.
Thank you Charles today, I will discuss the following topics balance sheet and capital markets activity.
Investment activity.
Annual results for the second quarter and thoughts concerning the second half of 2020.
With respect to the balance sheet, we improved our already strong liquidity position from last quarter as at June Thirtyth, we had almost $1.6 billion in available liquidity.
No debt maturing before 2022.
And over half of our assets unencumbered.
The second quarter of 2020, we issued in sold 16.7 million shares of common stock for net proceeds of $448 million.
We used $150 million at the proceeds to repay the full balance outstanding on our revolving credit facility.
We expect to use the remaining proceeds primarily to acquire homes.
Hi funding acquisitions with proceeds from our equity raise as well as cash flow from operations and dispositions.
We have the opportunity to achieve accretive external growth at the same time that we reduced leverage on our balance sheet.
As a reminder, we entered 2020 buying homes at a pace of approximately $200 million per quarter.
Acquisition volume in the second quarter was $46 million as we temporarily paused the sourcing of new acquisitions in mid March to monitor the impact of the pandemic.
We had been very pleased with the resilience of our business since then.
Significant liquidity no near term refinancing needs continued cash flow growth and strong demand for our product invitation homes is on solid footing.
As a result, we resume sourcing new acquisitions in June but for sale inventory levels remain tight we have been successful in finding compelling acquisition opportunities by leveraging the advantages of our in house local investment teams and proprietary acquisition I Q technology.
Doing so we've been able to ramp up our buying to a pay similar to pre cobot levels.
We also continue to sell homes in accordance with our 2020 disposition plan.
In the second quarter, we sold 416 homes that did not fit within our long term strategy for gross proceeds of $114 million.
Next I'll cover our financial results for the second quarter core FFO and AFFO per share for the second quarter increased 4.4%.
And 9.4% year over year to 32 cents and 27 cents respectively.
These results were driven primarily by higher same store NOI and lower recurring capex.
The impact of bad debt is included in both our core FFO and AFFO results.
I'd like to take a moment to explain our policy for recognizing bad debt on past due amounts.
All rental revenues and other property income for both our same store and total portfolio are reflected net of bad debt.
We reserve residents accounts receivables balances, aged greater than 30 days as bad debt as a residents security deposits should cover the first 30 days of receivables.
For all receivables balances h. greater than 30 days, we reserve is bad debt, 100% of outstanding receivables from the resident last the amount of their security deposit.
For the purpose of receivables aging charges are considered do based on the terms of the original lease not based on any payment plan created.
In other words any past due rents that have not been paid that do not have a security deposit balance on hand to offset them are not recognized as revenue in our PNM, regardless of whether a payment plan has been negotiated with a resident.
Those rents are later collected it will show up in revenue as a good guy in the period collected.
We view our financial performance to date is a testament to the resilience of our business model that is well positioned compared to many other real estate types for the world We're living in.
We're pleased with the prospects for our business going forward, but remains difficult to provide guidance for the second half of 2020 due to uncertainty concerning local state and federal regulatory environments as well as how the pandemic may continue to evolve that said, we didn't want to share some thoughts about how we're thinking about the second half of 2020 comparing to our just complete.
Good second quarter.
First let me discuss items impacting revenue in the first quarter, we recognized 40 basis points of bad debt.
The second quarter that grew to 190 basis points.
If we continue to collected approximately 97% of our billings per month, we would expect bad debt to remain elevated at the second half a year.
Another source of uncertainty as around other income and more specifically late fees.
The second quarter late fee income fell by a little over $3 million compared to last year.
At this point, we continue to experience similar declines in it remains to be seeing how various regulations restrictions may evolve.
I'm going to potentially offset these unfavorable variances are the possibility for continued lower turnover in days to re resident which were the two key drivers of our record high occupancy in the first half of 2020.
Charles mentioned average occupancy was 170 basis points higher in July of this year versus last year, an excellent start for the second half of 2020.
In addition, with more clarity in the near term, we continue to see solid growth in both our renewal and new lease rates over expiring leases.
Regarding expenses I remind you that our controllable expenses, usually have some seasonality associated with them. We would expect our third quarter to have higher repairs and maintenance and turnover expenses compared to second quarter.
As we previously discussed we are back in the market, making offers on home acquisitions.
Typically acquisitions in the second half of the year have minimal financial impact to the current years results due to the time it takes to complete our initial renovation of an acquired home and for the first residents move in.
Below the NOI line, we expect property management in Genie combined to be about half a penny higher in each of the third and fourth quarters compared to the second quarter.
Finally, with respect to financing costs, we expect interest expense to be about a penny higher in each of the third and fourth quarters compared to the second quarter due to contractual increases in our step up swaps.
Average share count will also be higher in the third and fourth quarters compared to the second quarter. When you take into account our June issuance of 16.7 million shares.
Supplemental schedule to a include share count information as of June Thirtyth.
I'll close by reiterating how proud we are of the way our corporate and feel teams have executed thus far in 2020 and how great. It is to see the positive impact we are having in our communities. We have a resilient business in a first rate team of associates.
We are pleased with our strong liquidity position the quality of our real estate in the strength of our resident base. We are staying nimble to position our residents associates communities and investors for success in both the near term and long term.
That lets open up the line for QNX.
We will now begin the question and answer session to ask a question Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the key to.
I would try your question. Please press Star then Q.
I'd ask that you. Please limit your questions to Q part time in the Q.
Our first question will come from Sam Choe with credit Suisse.
Hi, guys I'm on for Doug today I.
Right I mean, Ernie talk about the non imports fan of late because I think Charles there too, but I'm just kind of wondering.
At this point, how you're thinking about those resident friendly initiatives.
Now versus when we started the pandemic.
And the going back to that late to the Twoq.
Offered that good run rate throughout the endemic.
Yes. This is Charles Thanks for your question, so just going back to where the things started over the pandemic in March we waived all of the late fees for April just trying to be thoughtful with our residents and then from there we kind of took it on a month by month basis.
And tried to see how it all played out so you know com may and in June we started the slowly reintroduce, but really it was only with residents who we hadn't had a chance to interact with and even when they did call us. Many times, we would of waved those late fees that would take them off the ledgers.
The whole goal really wants to try to get.
The communication going with our resident to make sure that we were interacting with them and working with them for they can so they can stay in their homes. When you look at the to your point when you looked at landscape about a third of our homes fall into some form of restriction in regards to running late season, we're taking a very conservative position on that.
As you know, it's a changing landscape and things are being extended and so we're taking more of a have a conservative stance and we're keeping an eye on it and I agree said, we're still working with our residents if they reach out to US. Our main goal is to make sure that we're keeping our residents in our homes and trying to work with those who need help.
Got it Okay. That's really helpful and we've seen collections normalize from April through July I'm, just wondering if theres any delays in that second stimulus package by Congress on do you have a sense of how much of your resident population might be affected.
It's hard to see have full visibility into that we've liked our our process that.
We've been able to stabilize.
But it's really hard to see what it's going to do the vast majority of our residents have been paying on time and continue to.
So we'll keep an eye on it but we'd like how we've been trending so far.
Okay. Thank you so much.
Our next question comes from Rich Hill with Morgan Stanley.
Hey, Good morning, guys Dallas, maybe maybe this is just a strategy question for you.
Yes look it sounds like you're ramping up acquisitions, you liked the markets that you're and it looks like most of your markets did really well Houston was little bit weaker but could you maybe just talk us through how youre going to acquire homes. Given you already have loved density in your markets and there seems to be even more competition for single fan.
The homes on the other side of Covance 19 than in prior to code 19. So how are you going to do it and what markets do you like best.
Yeah, Hi, rich.
Yes, a couple of points I'd like to make in response first would be.
You're right that the market is relatively tight theres theres limited supply, but even on that basis, we'll still see somewhere between five and a half and 6 million transactions over the next year. So in that environment, we were pretty good at at being nimble and being local and on the ground in being able to stay flexible. We're also as you know.
Pretty agnostic in terms of whats channel they come through so long as they fit the profile or the of the prop and type that we weren't in the portfolio long term, we've actually had quite a bit of success.
In the one off space being able to stay active locally in the markets putting in offers on properties on a one by one basis, we've had a little bit more success in the last couple of months of doing some smaller opportunities with builders, where we're buying 510 15 homes at the time and so while you are right and that there it's a very competitive environment.
Given the lack of supply you know the fact that we've been as active as we have been for the past eight years and been able to run our often so to speak.
In the same fashion, we pick up right, where we left off in terms of just slowing down our pace and getting right back into it Ernie talked about our pace being in line with pre filled and levels and I would expect that that we can certainly deployed capital in a meaningful way.
In that pace in today's environment.
Okay. So any any any thoughts on specific markets or you're just going to.
Let it come as a as as it may.
But we said this before and I should have said this in response to your first question. So my apologies, but now we manage 12 and a half thousand homes in Atlanta as efficiently as we manage 3500 homes in Seattle and so for US you know, we yet we still feel like in the majority of our footprints we have the additional capacity to expand our scale and may be.
And get better density with that comes better services better understanding of how the portfolio is behaving and ultimately drive.
The driving decision, making toward what the customer wants so the sunbelt markets. The west part of the western coastal parts of our markets are all parts of the portfolio that we'd like to see some expansion we love what we have in Atlanta to get even have more in a market like data that made sense.
But there's not hasn't really been anything rich that would say that we should shift our strategy I mean, the demographics and the household formation in our sunbelt in coastal markets are still two times. The NASA National average terms of the household formation. All the fundamentals are saying that gross going to continue to happen in those parts of the country. So we're bullish on continuing to build out our foot.
These markets.
Got it thank you Dallas and Ernie just a quick question for you I appreciate the thoughts on two H.
What I heard what was that fundamentals.
Remain very solid maybe not accelerating from what we saw a into Q, but very solid but I also look at your your bad debt policy and it strikes me is quite conservative. So so is it fair to say fundamentals are going to maintain from where they are but maybe you will get.
A little bit a bad debt back.
As a as you collect unpaid rent yeah rich I hope that's the case and there's always seasonality in the business seasonality is probably going below skewed. This year, just because of what's been happening around the pandemic. As you saw we saw accelerating fundamentals on the lease side and it's rare for us to have increasing excuse me occupancy through the summer months, because typically have higher turnover there so that.
That's all pointing favorably to us and with our bad debt policy and we give a lot of consideration around what to do it with folks Ron payment plans you know about a third of our receivable balances are on payment plans and most those restaurants are paying and because the way our policy set up today, we are reserving for future hopefully payments from those folks if we have another three or six.
Months' worth of history, which we will as you're around that and we see people continue to do well in this payment plans, we'll certainly give us.
Pausing reason to consider.
Visiting our policy with round bad debts that we see those people claims we wanted to below more conservative at this point in time as we only have a couple of months a history at this point the pandemics only about four months old.
But we'd like to thank we took a conservative view on it and that maybe we'll do a little bit better I think people continue to make good on their payment plans like we're seeing the vast majority type stuff.
Yes. Thank you guys congrats on a weathering a really tough environment.
Correct.
Our next question comes from Shandell State just with Mizuho.
Hey, guys. Good morning down there so I end up so.
My first question is with occupancy and retention at all time highs, new all time highs and favorable demand and pricing power clearly and you guys in a very advantageous position, what's the operating strategy from here or you're kind of continue to push rates more aggressively and perhaps later into the year than you typically would as you.
If you had 98% is occupied and can we see further new and renewal pricing celebration beyond July into the fall.
Hey, Hendon lot of Charles here. Thanks for the question you know we we early on in the in the pandemic. We knew we were solving for occupancy we wanted to make sure not knowing what the future had we ran concessions early got our occupancy up and then we saw that demand is here for our product and so we.
We continue to slowly move those away. So by May we were fully free of concessions and we began to see a new lease rate growth. So when you look at the results for June in July 4.64, 0.9, we're seeing good acceleration on the new lease rate growth and our high occupancy.
See allows us to have that position now on the renewal side, we've been a bit more balance knowing that residents are some of our residents are in challenging positions and we showed some flexibility and working with them. So you see our our renewal rates positive, but not as high as they've been historically, but we're starting to push that a bit now and so our asked.
Going into August is close to 5% September over 5%. So we're finding that balance again. It is the seasonal business and we're watching this and we're getting towards the end of the peak season. So we'll continue to monitor we had our field teams and our revenue management teams a great keeping our eye on what the dynamics are in each submarket and right.
Now, we're always trying to find out proper balance and taking to account, what's going on with the pandemic as well, but our portfolios and strong position.
That's great Charles in the clarification on that last point, you said, you're asking 5%.
What do you generally getting or what that spread been just curious on how that's translating into what's you're receiving FERC spectrum you know it it's a it's a it's.
It's hard to predict in this market, usually we get you know 50 basis points to 100, but in the Pandemics, we're still working with families. So it's hard to put a specific number on it September our ask was closer to five and a half in so we're going to be higher than the three three and a half we've been the last several months.
As you know we're coming out at a higher asked so we'll have to see the spread it's hard to predict during this period, but typically it's within 50 to 100 basis points.
Got it got it my second question is on the the days to re residents can you break that down to two pieces. The turn times during the time for lease and then I guess I'm curious if you sit here at 90% occupancy how much higher can it get for me turn time perspective, you getting close to that optimal number were 98% just struck.
We had less upside or how should we think about the potential upside from from here on on that on the turn times et cetera.
Yeah. So taking your first question. Your second question first you know, we always thought that this business could be a 97% occupancy business as we looked at.
Trending our turn times.
Our turnover down into the 25% to 30% we've been trending down to that that way over the last kind of several quarters, which has been really positive and as we get basically resin into the Thirtyth you just do the math and that's gonna have you at a number that.
Where we are today now what's happened a little faster given the pandemic. So that's a good thing and we're going to continue to pay attention to that Daisy resident has been a real bright spot for us as it was a focus for us.
Since the beginning of the year, we knew we had an opportunity there and as I said we're.
Quarter over quarter were down five days and we continue to have that benefit in July were down closer to 10 days in July.
And as you break down the components Weve been turning how homes. We've made really good improvement this year at about 10 days in the range. There has been the move in period.
So it's been healthy the teams are doing all the right things can't thank them enough really impressed by their ability to work through this and.
As they looked at it it's been a combination of pre leasing and getting rid of aged inventory really pricing things appropriately. So I. Thank them for all the hard work and we'll continue to push.
Thank you that's fantastic and best of luck.
Our next question comes from Nick Joseph with Citi.
Thanks, I appreciate the color to gain as a call about the new residents moving from more dense urban areas.
When you look at those residents is there anything different in terms of either age work. They have children relative to your typical rent, but then.
Yeah, we haven't really seen any material difference in regards to the demographics.
Nothing is really stood out there. We did this survey is Dallas mentioned in his remarks to to figure out where where people were trying to come from and anecdotally. There is a demand to have more space and that's been our long term demographic has been.
Over half of our our residents our families. They have pets and so they are appreciating the extra space and I think during a pandemic the social distancing is as a benefit as well and about just shy of 30% were coming from the cities and many of them are just looking to try to have that space, so but in terms of the death.
Demographic changes, we havent seen it will continue to monitor but it's it's still early in the process.
You wouldn't expect can you kind of turnover differential as those leases expire that it may be more of a temporary renter versus what you traditionally see.
Don't think so, but we're going to watch that.
Our our and our current turnover rates, you know where our residents are staying on average three years and it seems to be expanding expanding and if we continue to do what we do and giving them a great resident experience with genuine care and you know we know that we have homes in grade neighborhoods and we're good school districts to all that is why.
Residents want to be in our homes and they're staying for a long period of time. So we'll continue to monitor than that as we said demand has been strong.
So we'll watch that as we go.
Thanks, and balance you talked about the transaction market, maybe just the flip side of that path potentially asset sales, you've obviously announced the extra Nashville, you're almost out of there are there any other markets you bake essentially exit maybe look at the Midwest market Chicago Minneapolis, you fewer homes are you doing most of your other markets.
Sure Hey, you know, we're really comfortable with what we own today, we'd like to footprints that we have you are right in the Midwest over the last couple of years, we have cooled down the size of our portfolio specifically in Chicago. Some of that comes with some of the local expertise that we have that center around the difficulties in operating properties.
In certain parts of that market.
But you know by and far largely Nick we're pretty comfortable but we have like the footprint, we've got and obviously do some calling of of nonperforming assets, maybe some geographic.
Dislocation that we're always working on but no by and large we're pretty comfortable that I wouldn't expect us to do anything wholesale at least the way we're thinking about things right now.
Thank you.
Our next question comes from Jay for money with KBW.
Thanks, very much was wondering if.
You're actively exploring any joint venture opportunities in adjacent home types for markets in order to expand the platform at scale and.
Accelerate growth.
Good question, Jay just one that we get from time to time, I think we talked a little bit about this over some of our meetings that may read I think ultimately we.
We're very happy with the smaller equity offering we did earlier in the quarter given us some additional flexibility to go out and grow our portfolio.
JV opportunities, we get inquiries inbounds on some of those from time to time, certainly something that we think about in terms of having an added resource or an added tool to maybe go out and acquire more properties are being maybe more active in parts of markets, where we feel we have sufficient exposure on our balance sheet. So that's something that we'll continue to consider and think through but.
As of right now we're in a really good position, we've got plenty of dry powder continue to grow our portfolio in part to markets that that we think lend themselves to really solid risk adjusted return. So we're in good position.
Thanks, very much I'm wondering to find out if you could also provide any update as to the Companys property management platform is it at this point transition to fully proprietary platform or would you describe it as.
A combination of services for multiple vendors.
Well, we've been internal from day, one so we put an emphasis is we built the business around making sure that we were you know, 100% internally managed and all of our folks that center in and around the management and the tenant relations. We're all internal now we certainly use vendors and we use vendor networks to do about how.
Half of our service orders in today's environment Jade. So the short answer would be we aren't internally managed platform.
But we definitely do use vendors on the outside particularly around you know roofs in HVAC and some of those things in terms of a heavier less but most of our small maintenance work work orders and everything that we do through Procare are all handled internally as well.
Thanks very much.
Thanks Jay.
Our next question comes from Wes Golladay with RBC.
Hey, good morning, everyone I just want to go back to that resident movements survey. It looks like people are moving it from urban environments, but I'm just wondering if any region stood out to you and it did you see a lot of out of state migration.
[noise] there wasn't really any standout per market. It was we were surveying recently moved and residents and so it's it's a.
Kind of a short burst of of a survey.
And so no no real standout in regards to certain market showing more of a propensity than others.
And but overall I.
I think there's a there's been a strong interest in you can see it from our overall demand that's in the market right now and so we'll we'll stay there.
Okay, and then just want to go back to the bad debt reserve was that heavily skewed towards June because it seems like residents are just a little bit slower, but kind of near normal levels is that correct way to look at it.
Yeah, I guess, when we look at on a quarterly basis and so you can see our collection activity improved throughout the quarter.
And were generally running about the same amount in the current bucket zero to three buckets I, it's hard to say, it's cantore June but certainly as you get to June your May receivables and now are now that are still outstanding are eligible for bad debt adds or your April. So yes. The we saw kind of earnings throughout the period I'm sorry.
It's hard to say skewed one way or the other but if we continue to collected about 97%.
It certainly feels like him were going to have bad debt kind in that range that you saw in the second quarter and hopefully we can do better than that but with four months of data. That's the that's how we can look at the world today.
Okay. Thank you.
I suppose.
Our next question comes from Alex Kalmus, with Zelman and associates.
Hi, Thank you for taking my question.
Or given as far as outperformance during the pandemic there appears to be renewed interest from traditional real estate funds in the space what does your impression increased competition from.
Private equity and potential consolidation of.
Some of the more mid sized players.
Yeah that the industry continues to evolve and I think we're still in this moment of new capital coming into the space, we agree with everything that you're saying.
They are trying to build portfolios and trying to replicate what companies like invitation homes have already done.
We welcome it at the end of the day, because we think having quality of choice and more companies offering professional services are good thing for resins generally across the country. I think this would be a good value added at an industry and there's a lot of a healthy demand out there that wants to take advantage of it.
You know selfishly on the way, we think about the business. We also think that overtime, a distance and they lend itself to some consolidation opportunities.
We believe we can run a portfolio as well it better than anyone out there today and we think we can offer a customer experience is second to none because of our scale. So I think all this new capital coming into the space over overtime in business will largely be viewed as a good thing and it's beneficial to our company as well.
Thank you for the color and I know you guys are channel agnostic, but right now what would you say the most abundant channel for your acquisition pipeline.
We're very active in the one off space a working with high buyers working what you know people that are selling their home I think those those markets continue to get more and more efficient. So it doesn't feel right first of all let's be clear, there's not a lot of distress in the marketplace, which is a healthy sign for housing so far.
So it is the traditional transaction side of things and then I think there's opportunities to do more with builders, along the way and and find ways to conceive redevelopment of until locations that we've cut our portfolio needs as well so the most active being the traditional a one off sales right now.
Got it thank you very much.
Our next question comes from John Polasky with Green Street Advisors.
[laughter]. Thanks, a lot Charles as somebody or do you local economies have had to walk back reopening plans in recent weeks in recent months I'm. Just curious if any specific markets are starting to show some fatigue either in renewal negotiations on rate or a collection trends, obviously very strong cross.
The portfolio, but just.
Any markets you can share understanding that sending out heading into the summer.
Yes, yes, just Charles really we haven't seen anything that gives us any major concern like you said across the board were doing really well and what I did do is take a minute to look at some of the states, where we see an increase in a number of koby cases, which is Arizona, Texas, Florida, a little bit of California as I dug in there.
Occupancy blended rent growth are all accelerating from June to July.
Which is positive.
The renewal rates to your question have continued to look good.
Year over year in Q2, I'm all of them more up Phoenix is at an all time high July seems to be holding up really well new lease growth in Phoenix, whose over 9%, nor Cal 8%, So Carol 6%, even at Florida, where 565.6% for July new lease great growth and then the other piece I looked at is on the color.
Section side.
And all of those markets, Alright, Arizona, Texas, Florida, specifically collected more revenue in July versus June, California is the exception, but we know that there were dealing with some more of the regulatory challenges, but it's not far off its and was like really flat on a year over year over year, 99% of what it was the in June versus.
July so really haven't seen much we're still seeing overall good demand in and but we're going to continue to monitor as we watch testing play out.
Okay that makes sense and then just curious your longer term outlook three five year outlook on South, Florida, It's a bit it's been a market has lagged the rest of your portfolio, even pre coded. So if you could pruned yourself, Florida portfolio today, you know overnight what percentage of the Holmes, who do so.
Eric I'll take this one.
Well first of all South Florida is an interesting market to your point I mean, it tends to kind of flow in cycles. As you as you will know we actually really enjoy the portfolio the size of the portfolio. We have it makes it very efficient it's been a little lackluster in terms of rate growth and there's some challenges in a couple of municipal areas, we have been calling <unk>.
Really over the past couple of years kind of fine tuning it to some degree similar to what we've done in Chicago, We love the growth profile, we love the inbound when things are good I don't know what the exact rightsize might be John overtime distance, we're certainly still recycling capital and occasionally buying in South point, we love in other parts of North Dade and South Broward County.
We've had a lot of success in and around Jupiter and some of those submarkets as well. So I believe it's a market we're gonna be active in for a long time like see us over time, maybe you know slowly coal parts of that market just to make it a bit more efficient, but nothing nothing worries us about the scale getting that we're we're also little bit.
Underwhelmed by some of the growth that we see on the rates I, but it feels like our teams are doing a really good job. There we've actually seen all the efficiency metrics of Charles talked about earlier get better and better and that market. So I like our chance, we probably want to run that portfolio for a bit longer before making any kind of definitive thoughts around what we would or wouldn't do there.
Okay, great. Thanks for that.
Thanks.
Our next question comes from a Lula scar back with Bank of America.
Everyone. Thank you for taking my question today I suppose to few <unk> two quick questions. So I'm just following up on the renewal rate. So you're saying that you guys don't really have any markets right now where you're limited on renewal rent increases like the multifamily guy.
Yes, we do have certain markets and we're following all of those rules, where does standout Washington being one of them, California has some limitations as well, but that there and that is reflected in some of our numbers, but generally we are going out at our asking them, allowing our AR.
Local teams to work directly with the resin is to try to get to a a resolution that works for both of us, but we're going to follow every time that there is any type of restriction.
It's either put in locally or by the state.
Got it Okay and then just a quick question on move outs I know turnover is really a low and I couldn't days really high but have you seen an increase in move outs for my home ownership specifically during the quarter.
With mortgage rates really allow is there any more interest in that.
Yeah, historically, we've been trending in the mid Twentys and we saw this quarter Q2, a slight uptick it's 27, so it's not a huge jump.
And obviously with interest rates as you mentioned that historic rates will continue to monitor that but it's been in our benefit.
Got it okay. Thank you.
Our next question comes from drink Skidmore with Goldman Sachs.
Good morning, and Dallas, just a quick question just with regards to how to think about the capital recycling selling more homes than purchasing power. How do you think about eight how that might trend as you go forward Andy how we should think about and you don't impact of of the divestitures versus versus purchase.
Thank you.
Yeah, Great question. So you know on on the on your first point I would say, it's important I understand that we rank every one of our homes in the portfolio on ongoing basis, and there's a number of factors, but they'll basically fall into two buckets, we rank our assets based on where they're located which is as you might imagine pretty hard to chain.
Wherever on is currently sits today and then we also but we also rank our homes on an on an asset score a the basically ties into the fit and finish in the property characteristics that are associated with that property. Our asset management team does a really nice job of going deep at the market and also at the sub market level, we've built our port.
Wholly owned about 220, Submarkets geographic clusters that we measure performance in and around and so as part of ordinary course will go through those properties and basically hold ourselves accountable to their performance both from an operating perspective and also from a from a return perspective, how do we think about the growth profile.
For those assets now there's a lot of reasons why you would sell home.
One you might sell home because quite frankly becomes too valuable and to your second question often financial base that they make sense to sell that home back into the end user market recycle capital and reinvest in parts of the market, where it could make more sense. The second the second reason might be.
Geographically, we feel like we either have too much concentration and we'd like to spread that risk as well for a variety of reasons. So they are management team asset management teams as part of our capital allocation plan every year, we'll go through that process and we have kind of a general property watch list of things that we're looking at for for potential reasons as to why we might sell and then there.
So coming up with recommendations around where we think we need a bit more scale and that's all part of that recycling process that to answer your question.
Alright, Richard this is earning so I think it with the equity raise we did in June and it gives us the opportunity in the second half a year to pivot to a net external growth no doubt talked about we're always going to be at seller Gralise and look to try to take those ask those homes I just don't make sense for us long term and we've been selling at a pretty steady pace here for the last few quarters, plus or minus 75 to 100.
The dollars or the homes, but with the equity raise and having $600 million a cash almost on our on our balance sheet as of June Thirtyth, Yeah. As we talked on apparently it gives us a a chance to ramp back up our acquisition pipeline to where it was pre cobot, which was about a couple hundred million dollars per quarter. So that hopefully puts us in a position the second half the year to be.
Net acquirer of homes versus were in first half year is little bit more of a net seller.
If you were to maintain the.
The net seller service perspective that you've been running out and over the last couple quarters is that how dilutive to to the near term earnings or how do you think about dilution accretion and not a trade off of the capital recycling.
And the good news for us riches, where we're selling our assets and typically an asset.
We're selling into an end user will sit bank it down our on our books for anywhere between two to four months just to go through the normal sale process. You know the cap rates, we sell out to end users typically are well below 4% community, 3% to 4% range analyzing the Dallas talked about that to house might be worth more to an end user than as a rental property, whereas when we got.
By homes were typically buying today come in the mid fives cap rate and that's in a market where there's a distress on that's really the vying for the last period of time, so our capital recycling. Unlike another real estate types.
Even though we're improving the quality of our portfolio and getting a better locations tends to be a net accretive activity for us from an earnings perspective.
As we have the opportunity to sell assets in two ways to end users to me value them differently than institutional resumes as as a rental property.
Thank you.
Our next question comes from Todd Stender with Wells Fargo.
Hi, Thanks, So just to get a finer point on cap rates, you guys had been buying and that that 5.4% range last couple of quarters do you see that edging lower maybe due to higher price points over the coming months or maybe rents are rising enough to keep that cap rate at that level.
It you know to earnings earlier point, it's been pretty consistent in the kind of that mid fives generally for us over the past couple of years and we you know specifically been pretty picky about what we're willing to put in the portfolio.
We're seeing rising rate, which does help to your point, but I would expect kind of stay in that mid fives I wouldn't I wouldnt expect that we see any real wholesaler dramatic shifts given the type of home that we buy in in the types of portfolio that we managed to they don't feels pretty pretty good kind of in that strikes have an internees earliest point and one of the question.
Third we get we tend to see some better buying opportunities typically in the back half of the year. Now this year has been anything but typical and housing cycles may extend further in home buying and selling season later into the year, but we'll see we'll manage we'll watch how the next six months progression, but generally speaking.
Mid fives is something that we feel pretty comfortable with.
Okay. That's helpful and just so many leverage you've been using equity lately to pay down. The line. That's helped your debt to EBITDA level drop into the low seven times range, how much more movement should we see a your leverage metrics move.
Yeah, I think they're going to more or less hold steady we're using the capital that we raised here in June and more of the capital is going to be used for acquiring assets and for deleveraging. So I think you'll you'll see a steady out in a lot of its been depend on how EBITDA plays out in the second half a year out things like bad debt trend in other like as good as we're seeing good fundamentals have been strong growth otherwise in our portfolio.
When it comes around rate achievement when it comes occupancy. So I think we'll continue to see that modest moving down that you've seen over the last period of time. It stay focused on that if we haven't if it makes sense opportunistically to be able to try to do something with leverage we'll certainly consider that they are our main focus is going to be to continue to de lever through external growth.
In terms of buying assets Unlevered, which is we've been doing for a period of time here and it takes a while that earn in that's going to be the main focus then the second focus will be hopefully we continue to see positive NOI contribution and EBITDA growth as we move forward.
Thank you.
Thank you.
This concludes that question and answer session and I would like to hand, the call back over to Dallas Tanner for any closing remarks.
We appreciate Everybodys interest an invitation homes, where we hope to everybody out there stay safe and well look forward to talking to you all next quarter. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.