Q4 2020 Invitation Homes Inc Earnings Call

Okay.

Greetings and welcome to a vacation homes fourth quarter, 'twenty and 'twenty earnings come from Scott.

All participants will be in listen only mode at this time share.

And you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

And as a reminder, this conference is being recorded at this time I would like to turn the conference over to Greg Van Winkle, Vice President of corporate Saturday and Jack.

It's a G capital markets and Investor Relations. Please go ahead.

Thank you.

Good morning, and thank you for joining us for our fourth quarter, 'twenty and 'twenty earnings Conference call.

On today's call from invitation homes are Dallas, Tanner, President and Chief Executive Officer.

Ernie Freedman Chief Financial Officer.

And Charles Young Chief operating Officer.

I'd like to point, everyone to our fourth quarter, 'twenty and 'twenty earnings press release, and supplemental information, which we may reference on today's call.

This document can be found on the Investor Relations section of our website at Www Dot I N V H Dot com.

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

Any such statements.

We describe some of these risks and uncertainties and our 2019 annual report on form 10-K for.

Our quarterly report on form 10-Q for the period ended September 30th 'twenty, and 'twenty and other filings, we make with the SEC 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.

You can find additional information regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures and 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.

Like to thank you for joining us this morning, I hope, you're all doing well and staying safe. It's an exciting time at invitation homes as we enter 'twenty and 'twenty, one with positive momentum accelerating fundamentals and the opportunity to grow our best in class platform. We.

We feel well positioned for another year of strong organic growth at the same time, we're entering the new year more active and the acquisition market and we have been and years. We also see exciting opportunities in front of us to further elevate our resident experience.

Before discussing the path ahead, though I wanted to take a moment to reflect on the unique year, we just completed.

'twenty and 'twenty was a year and which the durability of our business was tested and validated and and wish the value of our differentiated product.

<unk> and people resonated with residents and communities more than ever.

I'd like to highlight a few of these accomplishments we.

We achieved record high same store occupancy that increased every month and 'twenty and 'twenty and ended the year at 98, 3%.

We executed well to capture market rent growth, which accelerated to a high of 5% on a blended basis and the month of December.

We maintained rent collections around 97% of our historical rate throughout the pandemic.

As a result, we met the midpoint of our initial 'twenty and 'twenty guidance growing a S. F O four 6% despite the disruption and the world that was around us.

We also raised nearly $700 million of equity and formed a joint venture with a world class partner to support external growth.

With these tools, we ramped up acquisitions to our fastest pace since 2014 buying over $350 million of homes and the fourth quarter alone.

At the same time, we decreased net debt to EBITDA and 'twenty and 'twenty by almost a full turn.

Finally of.

And if all of our 'twenty and 'twenty accomplishments I'm most proud of the positive impact we made and our communities we serve as important and storm for residents and delivering comfortable homes and genuine care when it mattered. The most and we work to create solutions for residents experiencing hardship, we kept our residents and associates safe by reacting quickly to enhanced safety protocols and left.

And the advantage of our virtual leasing and self show technology.

And in doing this we.

And we're able to achieve all time high resident satisfaction scores.

As proud as I am of our team from what we've accomplished together and 'twenty and 'twenty I'm, even more excited as I look ahead.

Industry fundamentals are in our favor with more and more of the millennial generation coming our way.

Covid appears to have been beneficial for demand, but we believe its impact has simply been too accelerated shift from dense urban housing single family housing that was already poised to take place over the next many years and.

Such we believe it is quite possible that single family will hold on to the share gains and picked up in 'twenty and 'twenty, our homes compatibility with a work from home and lifestyle and the relative affordability of our square footage when compared to other residential alternatives and give us even greater conviction that we are favorably positioned for a world ahead, and which people read.

Thank the ways they use space to work and play.

Put simply we see ourselves as a solution to changing preferences demographics and housing supply demand imbalances for years to come.

In addition, we believe our differentiated locations scale and local expertise give us an advantage and turning these favorable industry fundamentals and to even better results for our residents and for our shareholders.

One of the ways, we'll do that is by continuing to focus on the resident experience in 'twenty and 'twenty, we rolled out new ancillary services for resin, including smart home and enhancements and a convenient HVAC filter delivery service in.

In 'twenty and 'twenty, one we'll continue down the path toward expanding additional ancillary options.

We're also working to enhance the technology experience through which our associates deliver those services and through which our residents actually interact with invitation homes with a particular emphasis on web and mobile capability.

On top of creating a better experience for our residents were growing our portfolio to serve more residents and widen the scale advantages that allow us to serve residents and sufficiently.

And the fourth quarter of 2020, we purchased approximately 200 homes, which is more homes than we have acquired and any quarter since the second quarter of 2014.

I want to stress that we have elevated our acquisition pace, while maintaining our underwriting discipline.

We estimate a mid fives stabilized cap rate on homes acquired in the fourth quarter consistent with our track record over the last several years.

We believe it continues to be a great time to grow the portfolio through our proprietary acquisition IQ technology local relationships and experience across multiple acquisition channels and see the opportunity to acquire at least $1 billion and homes. This year between our joint venture and the wholly owned portfolio.

In closing I'm excited and optimistic about the future as we carry the strong momentum we generated in 'twenty and 'twenty into the new year.

With record high occupancy strong organic growth fundamentals external growth and a high gear and initiatives and progress to enhance our resident experience.

I'm thrilled with how we are positioned to entering 'twenty 'twenty one.

I want to say, thank you to our exceptional associates for helping put us in this position there.

And their commitment to genuine care throughout the pandemic has been inspiring and it makes me feel even more confident about the heights, we can reach together and our future.

With that I'll turn it over to Charles Young our Chief operating officer.

Thank you Dallas before I jump into the operational results I want to thank our associates for the remarkable job they did and in a year when we asked them to be nimbler than ever.

Adapting quickly to change, we're able to elevate our high level of resident care throughout the year and we drove strong results all the way through the finish line.

Our elaborate on some of our operational achievements Dallas referenced in his remarks, beginning with our leasing results same.

Same store turnover continue this favorable trend and the fourth quarter, bringing our full year 'twenty and 'twenty turnover rate to 26, 1% versus 29, 7% and 2019.

And when residents did move out we re leased homes significantly faster.

And with quarter day, three resident improved 22 days year over year, bringing full year 2020 day three residents to 36 days versus 46 days and 2019.

As a result of these positive trends and turnover and days to re resident our same store occupancy you prove sequentially every month of 2020, we closed the year with fourth quarter same store occupancy at our record high and 98, 1% up 210 basis points year over year.

Furthermore, we're off to a great start in 'twenty and 'twenty, one where January same store occupancy at 98, 4% or 190 basis points above January 2020.

At the same time, we've seen rent growth continued to accelerate and the fourth quarter of 'twenty and 'twenty marked our best quarter of the year.

New lease rent growth, which we believe is most indicative of today's fundamentals accelerated to six 9% and the fourth quarter of 560 basis points year over year Janney.

January and new lease growth accelerated further to seven 3% from.

Rents increased three 8% and the fourth quarter and four 2% in January this brought same store blended rent growth of four 9% and the fourth quarter and five 2% for January up 160 basis points, and 230 basis points, respectively versus prior year.

Now I'll turn to our same store results for the fourth quarter and full year 2020 same.

Same store NOI growth of four 3% and the fourth quarter brought our full year 'twenty and 'twenty same store NOI growth to three 7%.

Same store core revenues and the fourth quarter grew 2% year over year.

As a result of our strong occupancy increase and a three 3% increase and average rental rate gross rental revenues increased five 7% year over year.

As expected this increase was partially offset by two factors related to COVID-19.

The first was an increase in bad debt from 0.3% of gross rental income and the fourth quarter of 2019 to two 5% and the fourth quarter of 2020, which had a 221 basis point impact on same store core revenue growth and the quarter.

The second was a significant decrease and other property income, which had 125 basis point impact on same store core revenue growth for the quarter, primarily attributable to our non enforcement and non collection of late fees.

Brought same store core revenue growth of two 8% for the full year of 'twenty and 'twenty.

Yeah.

With respect to expenses the freestanding nature of our assets continues to provide an advantage relative to other property types by allowing us to safely serve residents and maintain homes without incurring incremental COVID-19 related expenses and.

In addition, reduced turnover, resulting from strong demand for our homes is benefiting expenses as a result same store core expenses and the fourth quarter decreased two 4% year over year, bringing full year 'twenty and 'twenty same store core expense growth to only 1%.

Next I'll cover revenue collections, which remained healthy healthy even as we continue to offer flexible payment options that thousands of residents to meet their individual needs and circumstances.

And the fourth quarter, our cash collections totaled 96% and monthly billings and similar to our collection rate throughout the pandemic, thus far and compared to pre COVID-19 average of 99%.

We believe the sustained strength of our revenue collections and testament to the quality of our resident base, which had an average income of approximately $110000 across two wage earners per.

Her household covering rent by almost five times for move ins and 'twenty and 'twenty.

Looking ahead, we have momentum on our side after a strong close to 2020, our teams and the field are energized to continue raising the bar for resident service and operational excellence.

And as was the case last year there are a number of unknowns with respect to how external factors will unfold in 'twenty and 'twenty one but.

But we will remain nimble and to continue to drive the best possible outcomes for our residents and shareholders.

I'll now 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 financial results in 'twenty and 'twenty one guidance.

I'll start with balance sheet, where we further enhanced our debt maturity profile that composition and overall leverage through and active fourth quarter and the capital markets and.

In the quarter, we issued approximately $6 5 million shares of stock to our ATM for gross proceeds of $186 million, which we used to acquire homes.

We also closed and Upsized $3 5 billion unsecured credit facility with more favorable pricing and our previous facility.

Facility consisted of a $1 billion revolving line of credit that replaced our previous line of credit.

And a $2 $5 billion term loan, which replaced our previous $1 $5 billion term loan and prepaid secured debt.

We're also proud to have included a sustainability component to our new credit facility, whereby our revolver pricing will improve if we achieve certain ESG improvements over time as measured by a third party.

As a result of these transactions we have no debt other than convertible notes, reaching final maturity before December 'twenty and 'twenty four.

In addition, our unsecured debt as a percentage of total debt increased from 22% at September 30% to 35% at December 31st and.

And the percentage of our homes that are unencumbered increased from 51% to 57%.

Overall liquidity at year end was $1 $2 billion from unrestricted cash and revolver capacity.

Net debt to EBITDA finished the year at 7.3 times down from eight one times at the beginning of the year and we remain committed to reducing leverage further.

Regarding investment activity and the fourth quarter, we acquired a total of 1197 homes for $361 million using existing cash on our balance sheet and joint venture capital.

1057 of these homes were purchased for our wholly owned portfolio for $316 million.

And 140 were purchased and the JV for $45 million.

We also sold 277 homes from our wholly owned portfolio for $82 million.

Included in this activity were two bulk acquisitions, and Dallas and Phoenix that took place and the fourth quarter.

In total the homes and these bulk transactions were acquired for $75 million at a five 5% NOI yield on the in place rents, which we see upside by bringing the homes onto our platform.

Next I'll cover our financial results core <unk> and <unk> per share and the fourth quarter were 32 cents and 27 cents per share respectively, bringing our full year, 'twenty and 'twenty core episodes, and <unk> to $1 28 and $1.08 per share.

Excluded from core episodes and so it was a $30 million unrealized gain that we recorded as a result of an increase and the value of our open door investment.

Notably despite the external factors that came into play.

Finished the year at the midpoint of our initial 'twenty and 'twenty guidance range, we provided at the beginning of the year.

Last thing I will cover is 'twenty and 'twenty, one guidance as Dallas and Charles discussed we believe we are favorably positioned for both organic and external growth.

There remain many unknowns outside of our control related to the pandemic and how local state and federal regulatory bodies and they respond but I'll frame, how we're thinking about the year at this point.

Let me start with revenue growth.

We believe our record high occupancy and strong demand fundamentals position us favorably for rent growth in 'twenty and 'twenty one.

Biggest source of uncertainty largely outside of our control remains our ability to collect rents and enforce the terms of our leases.

The midpoint of our guidance assumes that bad debt remains in the low to mid twos as a percentage of gross rental income and the first half of 2021.

And then improves and the second half of the year.

If this were to play out we would expect bad debt to be a slight drag on overall same store revenue growth for the full year 'twenty 'twenty, one, but you would have a positive impact and the second half of 'twenty and 'twenty one.

Taking each of these factors into account, we expect same store core revenue growth of three and a half to four and 5% for the full year.

Expense growth is likely to trend higher in 'twenty and 'twenty one than it did last year as a reminder, 'twenty and 'twenty benefited from lower turnover, while we expect turnover to remain low and our historical contexts. Due to continued strong demand. It is reasonable to expect some degree of higher turnover in 'twenty and 'twenty one.

Overall, we expect same store core expenses to grow four and a half to five 5% for the full year.

And they pointed this guidance range assumes that higher year over year turnover has a 100 basis point negative impact on our same store core expense growth rate and in 'twenty and 'twenty one.

This brings our expectation for same store NOI growth of 3% to 4% from.

From a timing perspective, we expect same store core revenue growth and NOI growth to be higher and the second half of the year than the first primarily due to improvement and bad debt and late fees.

Net sum by higher turnover expense.

Vic to this year's first quarter, we would expect same store core revenue growth to be more in line with fourth quarter 'twenty and 'twenty results since the first quarter 'twenty and 'twenty results were not impacted by the pandemic.

Jan same store growth there are a few other anticipated drivers of our 'twenty 'twenty one results I'd like to address first we accelerated our acquisition pace and the second half of last year and expect to earn and from those acquisitions to drive the increase and non same store NOI contribution in 'twenty and 'twenty one.

We also expect to remain a net acquirer in 'twenty and 'twenty, one and its fundamental stand today, we see a path to acquiring at least $1 billion of homes. This year between the REIT and the J D.

Selling approximately $300 million of homes.

We expect to have the opportunity to fund and that level of acquisition activity with current cash on hand.

Cash from operations disposition proceeds and JV capital.

Second I would like to remind everyone that we funded a portion of our 'twenty and 'twenty acquisitions with equity, which should result in a higher weighted average share count this year and then in 'twenty and 'twenty.

You're in 'twenty and 'twenty share count information can be found on schedule two a of our fourth quarter supplemental.

Finally, a quick note related to our recently formed joint venture beginning in 'twenty and 'twenty. One we will report and additional revenue line item for joint venture fee income and another line item for our share of income from investments and unconsolidated jv's.

For the purposes of core <unk> and episodes and we will capture our share of recurring J D cash flow and the same manner, we do for our wholly owned portfolio and.

And in 'twenty and 'twenty, one during the ramp up phase of our rock point joint venture, we expect less than one penny per share contribution to core S. S L and assets, though.

Putting this altogether, we expect full year, 'twenty and 'twenty, one core <unk> per share and the range of $1 30 to $1 40 and.

In Africa for share and the range of $1 nine to $1 19, representing year over year growth of approximately 5% at the midpoint for each.

As a result of anticipated growth and <unk> per share we have increased our quarterly dividend dividend by 13% to 17 cents per share.

Taking a step back we are thrilled about the future of invitation homes and our view of the single family rental sector is favorably positioned within the housing market and invitation homes is further differentiated by our best in class locations scale and local expertise. We believe those advantages coupled with a long runway of opportunity to grow scale and transfer.

From the resident experience will be a recipe for growth for years to come.

With that let's open up the line for Q&A.

We will now begin the question and answer session.

Ask a question you May press star.

And then one on your telephone keypad.

And a speakerphone please pick up your handset before pressing the keys.

Withdraw your question Press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question is from a little and I'll come back from Bank of America.

Go ahead.

Good morning, everyone and thanks for taking my question, and then holding and our congressmen and all that's going on my background and see them, but just to start off on that now and I wanted to talk a little bit about that called for it right now and.

And it seems like we're hearing a lot about pipes birthday, and Palmer is already affecting delays on this do you I assume this was not part of that initial guidance, but could this spring and expenses passed the higher end or and just I guess, how are you guys thinking this will impact capex and maintenance this year.

Yeah, I appreciate the well wishes and this is there any and Lula and it has been challenging in a lot of parts of the country for sure. The good news and will have insurance coverage for this.

And just one event because it's across multiple states and so we will have a $250000 deductible and up and any damages beyond that.

And we'll be able to covered by insurance, we do take the first portion of losses, and our insurance up to a certain amount and we've got a very good insurance year that expires on February of 'twenty and 'twenty. One. So overall, we should be and a pretty good spot from that there there may be some minor things that flow through that will be outside of the insurance. There those were not considered and our guidance, but that said throughout the year.

And if things do happen to pop up and so are our base budget does take into consideration some type of events happening, but we certainly do not specifically call out what was going on right now, but that's a long way of saying I don't think this puts our expense guidance range and any kind of risk at this point.

Okay, great. Thank you and then I know you guys talked about your turnover and expectations for this year and remaining low, but maybe ticking up from 'twenty to 'twenty and have you guys seen and you'd pick up so far in January and February just kind of want to see if there is a little bit of a reversal and demand now that we're starting to see a little bit of normalcy.

Yeah no. Thanks. This is Charles we we haven't really seen any reversal of that trend today, we still see really healthy demand.

And you know our residents who are in our homes continue to want to stay there just given that the pandemic is still going to work from home dynamics are in place. We ended Q4, whereas I mentioned and a 26% we do have a little higher number and therefore.

The whole year, but in January and so far and February where we're kind of trending at the lower number which is a good sign which has allowed us to stay kind of assertive on the b, a and there the revenue side and you can see that and our new lease growth as well as some of our renewals growing.

Got it and then sorry, just one quick follow up what is kind of medium length of stay at this point and how does it compared to last year.

Yeah and that continues to grow for us as the portfolio continues to season and this last month, it's now over 30 months and with our turnover is low as it is we'd expect it to continue to trend upwards towards 35 36 months by the end of the year. So yeah. We continue to see that you know people were saying us for at least the second if not a third renewal because our average lease term is about 15 and 16 months.

Got it thank you so much and welcome.

Our next question is from Sam Cho from Credit Suisse go ahead.

Hi, guys, congrats on a great quarter and.

And I guess Ah well, it's good to see you guys ramp up acquisition and as Dallas mentioned, I mean, you guys have discipline and mine maintaining that five five yield.

I mean, we we are aware of the fact that it's a competitive housing.

Housing market why are you you kind of share the stories of homebuilders Overbill of building overbuilding for homes weighted contingency so I'm wondering.

How are you guys thinking about your buy box are you starting to I mean, I know that location matters for you, but are you guys starting to look at more of the periphery to the markets are looking at.

Good question and this.

This is Dallas San.

First and foremost it is a tight environment as you mentioned.

But we still feel pretty confident and and our ability to buy between say 200, and $300 million a quarter, even and this existing environment and we wouldn't have to change our buy box to use your phrase.

And in any sort of way, we're pretty disciplined around making sure that we're in parts of markets that lend themselves to some of that outperformance, we see and are both new and renewal rates are in terms of it'll work, we're doing with partners and builders. You mentioned, that's an area of focus you know historically been buying that 10% to 15% of our homes are builders and we're also seeing.

To roll up and aggregate smaller portfolios and you saw us do a little bit of that and the fourth quarter.

The good news on those as you walk into a stabilized cash flow day, one and we typically see some embedded loss to lease and those opportunities and so those will continue to be on our radar. So I feel pretty confident at the beginning of this year that that run rate should stay pretty consistent and will continue to work to find avenues and ways to maybe expand share.

<unk> not necessarily and the box, but really keep focusing in on the parts of the country that we are active in and but just making sure that we are aligned with as many opportunities as possible.

Got it okay that makes sense.

With that said I mean, the bulk opportunities I mean, you did to this quarter or was that more one off and nature or could we see that kind of playing a factor in 'twenty and 'twenty one as well.

Have a good track record you know at least a couple of times here are rolling up 203 hundred kind of whole portfolios and I would expect that we'll see more of those people aggregating for you know the last five to eight years that have you know wanted to maybe harvest some gains or are looking for other opportunities to deploy capital and as you mentioned it.

It is kind of hard to grow scale, unless you've got the infrastructure and do it. We're fortunate that we were you know local and on the ground. So we get access to a lot of these opportunities are in and working direct with partners. So it's true that we did and the fourth quarter are perfect. Examples of those we were one of them was a competitive process and the one in Phoenix and one in Dallas and we've known the opera.

Later for a long period of time, we're able to just get a transaction done and so those relationships are meaningful and they matter and it's just it's a big focus for our teams and market.

Got it alright. Thank you so much guys.

Okay.

Our next question from Karl K against some bedroom, but go ahead.

Hey, guys. Thanks for taking my question and knows touched on a little bit briefly but I guess what are the expectations from seasonality going forward I mean, the longer the pandemic persists and you see turnover trending lower is.

Is it fair to assume the worst and high demand and what kind of diminished from your staff and the seasonality aspect.

Yeah. This is Charles.

You know seasonality is a natural part of the business. However, with the pandemic, we saw last year that those and those trends were disrupted by people working from home.

Uncertainty with school, we've returned to somewhat of a a high demand environment. So it'll be interesting to see how the summer comes I think some of it is going to be based on what happens with the.

The vaccine rollout and herd immunity and all of that what we like is you know we are seeing numbers. In this time of year Q4 that are typical of our summer season, and so the the demand for our product is really high and and we would expect that come summer, we may end up and a similar circumstance where the maybe.

And more turnover, which is natural for the seasonality. It is a kind of higher turnover and Q2 Q3.

That being said given that people are still looking for our markets are you know they are moving to the states that we're in we'd expect that that demand will continue hard to predict but we're watching it and right now we like the position that we're in with the with the rent growth and the newly signed and renewal side, both kind of are improving and getting better.

Lisa This is the best we've seen and a Q4 and.

Since I've been in the business frankly, so it'll be interesting to see how it plays out, but we think demand will still be higher in the summer, especially if people are thinking about finally repositioning and thinking about schools for the fall.

Got it and and then if we don't mind pivoting a little bit because my next question was on new lease growth. Obviously has continued to trend up how sustainable do you guys think that the particularly in the Western U S.

Yeah, a big Big part of it is has been our occupancy.

And you know I'll, just step back and and give our teams a shout out and they just have done a phenomenal job.

And a changing landscape and can't thank them enough and when you look across our markets almost every market's at and high <unk> 97, or 98% occupancy and what that does is give us a position to have.

No and low supply of homes, and where we can push those markets and then you get all the dynamics I just spoke about around people moving to the you know wanting space.

Wanting to get out of the urban cores and moved to our homes. So you know I think the you know the west is continuing to drive new lease growth and Phoenix and 15% and Q4 January continues the same Vegas is real high, California, and new lease growth is near 10%. So if.

If we keep executing the way we our days to re resident down and keep occupancy up I think we'll be able to continue to push and and we have high expectations going into the rest of the year.

Alright. Thank you that's it from me.

Our next question is from Nick Joseph from Citi.

Go ahead. Thanks, Thank you and I hope everyone staying safe on the $300 million of dispositions expected. This year does that contemplate any market exits and he portfolio sales or is it more one off dispositions.

Hey, Nick Dallas and.

No. It just it just normal ordinary calling we're not we're anticipating market exit discussions at all.

Thanks, and then just as leverage has moved down and Ernie how are the conversations with the rating agencies going and is there any update on the timing.

Yeah, and Nick we're feeling more and more optimistic seam, where we're at and and seen how and you know the business has done as well as it had and into in 'twenty and 'twenty. So I think we're going to be in a position you know sometime over the next few quarters to more formally engage and where I would've said you know maybe it would have been a year and a half to two years out maybe a quarter or two ago. It feels like we can do a little bit better than that next so I think 'twenty and 'twenty one will be.

We have time for us to really figure out what's the right timing to engage with the agencies agencies and see if we can get there because of the business is doing well and and the metrics continue to improve so we're feeling optimistic that were raw and the right path and hopefully have better news about that and and the next many quarters here.

Which metrics still need some level of improvement or what's the focus on Tibet. Yeah. You know I think what the credit facilities that we were able to recast and December Nick we're able to get our unencumbered pool larger which gets us really close to where the rating agencies would like us and importantly, we pivoted more to unsecured financing, where we've been mainly a secured borrower I think the one area, where we're still maybe a little.

Bit off is I believe the rating agencies would like to see our net debt to EBITDA and number in the sixes and I think it will be able to show them and there's a lot of you guys have and your model show that we get into the sixes if not by if we don't kiss. The sixes by the end of this year will certainly be there next year I would expect and so there's just the question will be there and is that soon enough for them, what they would have a clear path and unfortunately I think.

A very clear path to demonstrate how we've done that and we've had a good track record and we've certainly been talking about wanting to have a net debts and Albert.

And a number and the low sixes is our target and so I think all of that bears well for us and it's just we're getting one step closer each day to to that number.

Thanks.

Thanks, Mike.

Yeah.

Our next question is from Alex <unk> from Zelman and Associates go ahead.

Alright, thanks, guys.

Looking into the average price point per homes this quarter on the acquisition front and it seemed like the rock point JV homes were.

Higher value like 15%.

The wholly owned acquisitions does this emblematic of the strategy for the JV or do you expect this to revert to the mean later on.

It's a good question, it's absolutely going to revert to the mean because the type of buying were doing and the JV is absolutely consistent with what we're doing with regards to the balance sheet. What do you see in the fourth quarter, though was that the two bulk transactions brought our average price down the homes, we bought and Dallas Dallas has a lower price point market force anyway, and when we bought there as well as what we did with the Phoenix portfolio and if you'd take out that.

You'd probably see I don't have that in front of me, but I think the math would show you that we'd be right on top of each other with regards to what we're what the JV bought versus what are with the balance sheet, Bob because of those bulk transactions.

Got it got it makes sense and I'm Oh.

Or move outs, obviously occupancy is extraordinarily.

Extraordinarily high but for the few that are moving out do you have a sense, where they're going or are they.

Acquiring homes are they moving out to apartments or other single family rentals.

Do you keep talking about doing.

Well, we have Oh. This is Charles we tracked and move out reasons, and we don't have specifically, where theyre going we're gonna and the future start to track kind of there that addresses the forwarding addresses.

The purchase for homes and move out reasons had been and the mid twenties.

Slightly up and Q4, but not material as you would expect with our interest rates you know overall I think the overall turnover number being so low we're just not seeing a lot of move outs and theres no real drastic change from what it's been historically.

And we will continue to monitor it.

But we're proud of what we've been able to do with their overall churn numbers.

Got it and.

Yes.

You're not really seeing a lot of <unk>.

Move outs to apartments, but once there.

And our rental a single family home that's.

And we're staying within that sort of you know.

Style of living overall correct.

Correct, Yeah, it and it's pretty consistent that you know most people who move into our homes are out of our homes are coming from a single family residence or they are and what we're seeing now and you know from our and <unk>.

And tracking of people, who are moving into our homes, we're seeing a lot of people come.

Out of the.

And the urban core to our suburban locations infill locations and so you know where we're not seeing people move out for that reasons. In fact, we're up because people are trying to come to the single family extra bedroom worked from home backyard, all the kind of safe things that you get from a single family home in today's world.

And.

Great. Thank you very much.

Our next question is from Richard Hill from Morgan Stanley.

Go ahead.

Hey, you got Ron can demand from Richard Hill, just just two quick ones from me sticking with the acquisitions, maybe can you talk a little bit more about sort of it but the competition is it still sort of end users are you starting to see more institutional players coming in and.

And you know on the guidance for the $1 billion for 'twenty and 'twenty one and.

It's fair to say that can be done without bulk acquisitions or and.

And sort of bulk acquisitions sort of embedded and that number. Thanks.

Hey, Yeah, I think it's safe to say that.

That that $1 billion number it doesn't include a lot of bulk acquisitions and it and I think the landscape is pretty similar to how it's been really the last three or four years. The one the one exception might be that you just compare and about more capital wanting single family rental exposure.

And quite frankly view as a positive you know remember, there's 6 million plus or minus transactions that happened and the U S. Around single family housing every year and so the S. F. Our footprint is a very small percentage of those and still end users buying and selling homes and a vast majority of those transactions. So.

We wouldn't expect it to really change all that much I think if anything a few more of these aggregators will lend themselves and some other opportunities for us down the road.

Great.

First question was just going back to sort of the same store revenue guidance.

If I think about for Q on a growth spaces portfolios grown and sort of five seven.

<unk> versus sort of the guide for 'twenty and 'twenty, one and a four is it fair to say that the Delta is really coming back to sort of the late fees and the bad debt headwinds that that that you mentioned and your opening comments and just trying to get a sense of how much conservatism is baked into that especially as we roll into the easier comps and the second half of the year.

Yeah, No Ron Ron and it's a good question and you're exactly right and when you look at what we've been able to do with the occupancy gains as well as just ran achievement and as Charles and the team kept putting up stronger and stronger numbers throughout the year on the renewal side and on the new lease side, you know the rental growth and over to you know as we tailed into the last part of 'twenty and 'twenty. It was like you said and and the high fives offsetting that unfortunately and where.

Bad debt comparisons to the prior year, we didn't have the pandemic wishing it was up a couple of hundred basis points and and our other income being a drag down about 100 basis points as well. So that's how we ended up at 2% to revenue growth as we go out and throughout 'twenty 'twenty. One we do expect sequentially that our bad debt number will come down each quarter from the prior quarter.

And we just do think and the environment, where they were in right now which is still a little bit uncertain. Yet you still have the you know the vaccine being rolled out you don't have herd immunity, yet and you know the regulatory environment does continue to move on US you know deadlines that were supposed to expire in December and January got pushed out appropriately and understandably because of the environment. We're in to later in the year. We just think the appropriate thing from a guy.

And so we're second to provide that you know that detail on on and and in the prepared remarks is that we think the first half of the year, probably has a bad debt, but that's more like what you saw and a third and fourth quarter, which is in a low to mid twos, hopefully that's conservative and hopefully we do better, but we want to make sure people understood without our guidance was coming in from the mid point and then we start to see things return to getting better and the second half year, but.

But to be clear not back to what we saw pre pandemic pre pandemic, we saw bad debt numbers typically and the 40 basis points, we're not anticipating that here in 2021, we certainly think it's going to get better and the second half of the year, but not back to those levels will just continue to improve and then importantly, and when youre looking at our full year numbers, Ron and don't forget the first quarter of 'twenty and 'twenty was not impacted by the pandemic.

We had a bad debt number and the high thirties and in terms of bps and and again based on what I said earlier, we're expecting and much higher number here and in the first quarter. So I think what you'll see is hopefully if it plays out.

Our guidance range at each each month each quarter, you'll see a better revenue growth number because we'll have an easier comp for bad debt web and easier comp for other income and then we'll continue to have really strong earn in from what's happening on the rental achievement side and then we'll eventually have a high level of occupancy like we had in 'twenty and 'twenty, you'll hopefully carrying through from the most part and 22.

And one.

That's super helpful and clear thanks, so much Scott.

Our next question is from John Pawlowski from Green Street go ahead.

Great. Thanks.

Ernie maybe sticking with bad debt, just a very modest sequential uptick this quarter or was that more regulate regulatory driven and California or something some other non California markets kind of erode on and collection from no. It's a good question. John we are seeing a little bit of deterioration and California, It's really southern California, Northern California has not been a.

Channel for Us that's been behaving like the average across the whole portfolio and we did see some degradation in <unk> and Southern California, and then if you think it's just the earn and overall across the board.

And in terms of things and where we're slightly off you know it's when you when you start talking about rounding and things that we were 100 basis, it's less and 100 basis points different and when we saw and the third quarter, It's a narrow gap and it would show and we show the rounded numbers there.

And I, just think that we're kind of an environment, we've kind of hit the point, where every month, we seem to collect somewhere between about 96% to 97% you know some months. Its just under 96, we've had a couple of months have been a little bit over 97, but it rounds and in both cases, and 96 and 97 and Thats been pretty steady for us really since July and it just kind of how it plays out for a month by month.

So we're not seeing any trouble spots routes and anything that's really concerning and and Charles and team are just doing a wonderful job working with residents, having contact with them and and the only place where we're seeing them and material variation from the mean from the average is southern California.

Okay.

Understood and then I.

And Charles Ernie obviously, new lease spreads are a fantastic just curious the acceleration and revenue enhancing capex and recent years.

Could you give me a sense for how much benefit is flowing through the new lease figures from revenue enhancing capex, yeah, Yeah, John and let me touch basically offline and give you a more specific number you and where we're not doing a whole lot. When you look at the Grand scheme of the size of how big we are so and my guess, it's probably maybe a 10th of a point to two tenths of a point in terms of helping the newly side, but let me go.

Back in check my notes and and we can Greg and I can touch basically offline to make sure I'm not speaking out of turn with them.

Alright, great. Thank you.

Our next question is from handle changes from Mizuho go ahead.

Hey, good morning out there and hope everyone's okay, let's say extend out.

So I guess the first question on maybe for Charles from days to re resident noted the improvement there I think you said 22 days and the fourth quarter versus fourth quarter of my team and 13 days overall in 'twenty and 'twenty gross and 2019, I guess can you talk a bit about some of the drivers of that what you've been able to.

So perhaps due to perhaps help that lower that number.

And then sitting here and the mid thirties, how much better do you think that can get and youre thinking here for 2021.

And in Dallas Charles here. Thanks for question and first of all just to clarify your year to date, we're down 10, not 13th of February ended up at 36 days and 2020 versus 46 days and in two.

2019 significant reduction and as you said Q4 was down 22.

And you know the real.

Impact has come from a combination of items, one is reducing our turn times, which we brought down significantly at the start of 'twenty and 'twenty.

And from the high teens down to the low teens 10, and 10 days and some markets are single digits and some markets. So we can keep that going and we have been we'll keep that as a is a key piece, we're not gonna be it and get much lower there, but we can look at a day or two as we go the other big piece that we found is really focusing in on aged inventory and <unk>.

That's been a big advantage, just making sure that if something is aging, let's get a price right or check the asset eyes on assets and make sure that it's growing right. The big piece that moved US. This year also is focusing on pre leasing and I think that's the opportunity going forward.

So as you think through what we can do in 'twenty and 'twenty, one we keep our occupancy at a healthy level the demand.

Continues to be strong the way that we're seeing it and we can market our properties.

You know effectively using virtual tours and other pieces and really being thoughtful around how do we try to show that home, while it's either being worked on or at least have all the information up on the website, while it's still and resident and so when as and when it moves out and we can turn it quickly and that'll get us into the teams and some of those days. So then you go back to make it.

Sure and we average out the age inventory, we'll see where we can go where we're looking to move it down this year and we'll see if we can get out of the 30, but we got to stay and getting those low thirties and stayed there for a while and will continue to see what happens, but we have an opportunity to do even better than we did the low hanging fruit is gone and so youre not going to see another 10 day move, but we will continue to try to bring it down a day or two as we.

No.

That's good color and that's good color. Thank you.

And that was maybe one for you certainly we noted the that's the increased competition for acquisitions.

The industry overall has obviously very good fundamentals strong revenue.

Revenue NOI growth or proof of concept and single family rental development and you've got an improved balance sheet here and maybe not quite where you want it just yet, but I'm guess I'm curious and stepping back and thinking about on balance sheet development here. How you view is evolving is there any change or are you more inclined to consider.

On balance sheet development here today, and if not what could get you to change your mind. Thank you.

And they all are.

Our philosophy has stayed the same just being so focused and being in the right locations I think what we've done a nice job of and the last couple of quarters has really started to develop out some good channels and working with development partners and builders and market and I would expect it will continue to put resources and focus on finding ways to deliver new product into the portfolio.

In terms of taking on balance sheet risk that our position really hasnt changed there and we want to be as flexible as we can quite frankly, it would be a good partner for the builders that are out there and less of a threat in terms of going out and competing against neighborhoods that they might also be pursuing so I think our approach in terms of building up really good pipelines with a couple of really.

And I'll call. It good partners, both at the National local and kind of boutique levels are having direct access to communities and product that they're building and being discretionary in terms of where we think it's a good use of our own capital because you pointed out you know and rightfully. So our balance sheet is getting into a really strong position and our ability to either raise equity.

Or to issue at an appropriate price as a tool that we want to use when it makes sense and so I think we'll continue to be deliberate about when we do that continue to focus on making sure. We're finding the right opportunities, but not necessarily having to take all that risk on balance sheet will stay open minded as we look at opportunities, but right now it feels like there's some really good runway in front of us and and perhaps part.

And with a few builders and or continually building out those channels for opportunity.

Yeah, So that's not exactly and no, but certainly not a you know.

And now [laughter], Yeah, it's definitely not yes, I mean right now, we're really focused on and on taking the least amount of risk possible, but making sure that we can provide the company access to some of these great projects and so that seems to be working and and I think you know builders are really good at what they do and we're really good at what we do and if we can somehow and Nashville as two together.

Time and distance, we're gonna be it a good we're gonna be at a good position going forward.

Got it got it. Thank you guys. Thank you signed up.

Yeah.

Our next question is from rich Hightower from Evercore go ahead.

Hey, good morning, everybody. Thanks for thanks for taking the question here.

A quick one from me on the open door investment, obviously, you're sitting on a nice gain.

Keeping and on the balance sheet from the time being but just wondering what future plans are for that for that investment and are you are you restricted in the meantime.

With a lock up or anything that would prevent you from liquidating entirely just a little more color on that thanks, Yeah, absolutely rich and this is Ernie and it's been a great partnership for us from a business perspective, and we've been real pleased with the outcome on the investment and and of course that that Mark as of December 31st So the investments up even further from where it was at December 31st we are currently under a lockup.

Rich so we were not able to do anything and they can get you can actually see the open door public documents would be very specific about how that lockup works, we have the opportunity to sell some of the shares later in the second quarter and if the stock price stays at a certain level and it's been wet well above that level for a while and we'd have the flexibility to sell the entire position before the end of the second quarter, we havent made any determinations as to what we.

I want to do there we do continue to work with open door and a lot of different things or a great organization.

And so we'll just we'll come to a conclusion with our with our with our investment Committee of our board probably later in the quarter decide what are longer term holds maybe for it for that position.

Perfect. Thanks for the color I think you got it.

Okay.

Our next question is from Jade Rahmani from K B W. Go ahead.

Thank you very much.

Two questions Ive gotten from investment and is concerned the relate to the competitive landscape and the increasing number of new entrants and the space I think the and front yard residential takeout is a recent example, with.

And with the partnership that Pentium established womens area. So I just wanted to think about or get your thoughts as to whether you believe that newer entrants have a competitive and advantage operationally over the.

And the established players such as invitation homes and American homes for rent or whether you think the reverse is the case that the lessons learned that and you've gone through having built the scale and our investments in technology and you've made.

Always provide yourselves and others like you with the upper hand over these newer entrants.

Yes, Jay and instead of ladder and quite frankly I E.

As your new coming into this business. There is so much you got to figure out not only how do you run the assets create the service model and build the team, but just the inner workings and how those all connect is quite difficult and its taken companies like ours yours to get better at and and we're continually finding more efficiencies.

The flip side of that to Jade is when you get to our scale and our structure with density and and the communications and the tools and resources, we have and we can onboard and 1200 homes and a quarter like we did and the fourth quarter and I don't mean to make this sounds easy, but it's pretty easy for our company to digest that and.

You know a new company would have all kinds of challenges and trying to just run the customer experience side of that so so.

Short answer is it's much better to be and our position and coming into this space right now.

And as a follow up have you seen any of these private entities have a either lower cost of capital or a longer time horizon with respect to where their underwriting cap rates. You mentioned the homes were purchased with a mid 5% stabilized cap rate are you seeing any of these bids come.

And materially below that 100, and 150 basis points below that perhaps on a five to seven year view that.

And Frank growth sustains itself.

Private company would be able to absorb that drag, whereas the public company sales to meet expectations with respect to the earnings outlook.

Good question, I mean theres definitely.

Different niches within the space and I think different operators are trying to.

Our focus in on and I would say and as you know everybody and the call knows we tend to buy a little bit higher price point assets, a little higher gross economic rent.

You know it it's a differentiator so we don't timber.

Typically CRC and the marketplace, where we're really competing all that much with single family operators per se and maybe one or two I do think your point around how people are using that thinking about leverage, especially at lower price points. They probably argued and themselves that they can leg into some better yields over time, and maybe you can absorb some of that drag.

I don't know because we're not and their investment committees and thinking through kind of what their cost of capital is but it varies I will say this I do think that there are advantages to having a longer term lens and approach because he certainly think about capex. What do you want to do on your properties and the near term that can have a profound impact on how you operate those properties over the long term and.

So you know I feel like we've kind of figured out and internally what kind of the best fit and finish standards are youre seeing at our turn costs over time and distance you're seeing it and our renewal rates Charles and the team are doing a really good job around things like luxury vinyl plank flooring, which a new entrant and may not be as keene is putting into it.

A home because it cost money and you've got to be able to have conviction that you can manufacture the returns over the life of that assets. So things like that Jay come with experience tightened the seed, adding manage thousands of properties and I think and event.

And so I figured out kind of that right balance as we head into year nine and as a business day.

Thank you very much.

Great.

Our next question is from Rick Skidmore from Goldman Sachs Go ahead.

Hey, Dallas Good morning, just a question as you think about acquisitions and the geographic mix, how should we be thinking about that billion dollars being deployed in 2021 across your footprint is it going to be reasonably evenly distributed focus more in the west and Texas can you just maybe give us some color on how.

Are you thinking about geographic mix going forward.

Good question.

The mix I wouldn't expect too much change I mean, it was like and what we did and the fourth quarter. We're obviously very active and Dallas active and a couple of our Florida markets and the JV actually I think is a good tool for us to give us more exposure and the Florida markets.

And you know the typical kind of sunbelt focus for us has been pretty consistent theme over the past four to eight quarters I wouldn't expect that to change all that much and we would certainly love to be able to buy more homes in California, and Washington, and they're just very competitive markets.

From an end user perspective, and and we don't chase too hard when things get out of whack from a pricing perspective in terms of what works for US we just kind of pick our moment, but I would expect that that focus remains the same. We've also seen really good activity out of Charlotte and Atlanta, they're good markets and I think more importantly, if you look at the rate growth that we're seeing in the fourth quarter and markets like Atlanta and.

South Florida, It gives us a lot of conviction around where our risk adjusted return profile could look for the next several years. So all of these markets have the right fundamentals around this as we've talked about on the call.

Alright, Thanks, and then one follow up and your prepared comments you talked about some of the ancillary revenue opportunities in 'twenty and 'twenty. One can you just elaborate on what you're planning to roll out in 'twenty and 'twenty, one and how that might contribute to revenue growth in 'twenty. One yeah. There's a couple of things and we've upgraded our smart hardware we've create.

And some new structures that make that actually a little bit more profitable for us going forward and we updated and 'twenty a HVAC filter program that was going out on all of our new leases that will then start to be brought in on some of our renewal opportunities with customers. The share we have pilots going around pest control and the state of Florida.

And that has had some early adoption that as that seasons and we figure out the right way of delivering that service that that could be something that will roll out across more markets. And then there are a couple of other things we're going to pilot. This year, we've got a big focus around our pet compliance and controls that are there are focused force that we think not only are revenue generators, but well she'll help us.

And kind of mitigate some of those ongoing expenses. So there's a couple of things we're focused in on and we've also got you know a few things and the test kitchen, and we're not ready to talk about yet, but keeping things exciting and finding ways to deliver kind of some of that optionality to our residents is really a foremost focus we have figured out that our residents are adopting and do a lot of these services they like it they like the flexibility of billing.

And in and out so some of these will be optional and and some of them will obviously be included with the lease.

Alright, Thanks, Dallas Thanks.

Thanks.

Our next question is from Todd Stender from Wells Fargo go ahead and hi.

Thanks, So just one from me from your prepared remarks, you indicated that you might see a little more turnover this year.

Is that you guys pushing rate a little more you've got occupancy so high but you also have you got potentially residents and better financial footing. So maybe that naturally they have more housing options, maybe just some color there. Thanks.

Todd you know, we had a great outcome with turnover in 'twenty and 'twenty relative to 2012, 2019 and went from basically 30% down to 26, and we just released and as we.

See the landscape. This year are we think it's just you know.

As possible at the midpoint of our guidance and we turned up tick up somewhere between those two numbers just because of the natural evolution and you need it and the pandemic has had some impact in terms of you know what's happening with residents who are currently in place some likely chose the hunker down for a little bit longer because of the uncertainty that we had and this spring and so yeah. We think we're going to need to continue a downward trend and in turnover overall that we've seen the last time.

And her eight years and you seem to be accelerated a little bit in 'twenty and 'twenty and so just from prudence purposes.

We want to have the midpoint of our guidance and where we're going to assume that we kind of get somewhere and that's a little bit north of where we were and 'twenty.

'twenty and 'twenty, but certainly a downward trend from what we saw in 2019.

Understood. Thank you.

Our next question is from Tyler Bad Gui from Jamie.

Go ahead.

Hey, good morning, Thanks for taking my question just one from me I wanted to go back to the discussion on on rent growth and bring and the relationship between higher home prices and and rent growth and there's a lot of talk on the homes sales thought about affordability.

Obviously, there's a different calculus, there with lower interest rates, but can you talk more about how you're thinking about affordability on the new and the renewal side in terms of how much more you might be able to push price and I understand the demand has been so strong but same time I imagine you'll want to price out potential renters as well so just curious your.

Updated thoughts on those dynamics.

It's a really good question Tyler Thanks, and we think about our.

At least observation lease optimization curve and our revenue management system.

As you know really what is the darlings and our business because every year it gets a little bit smarter as we go through the portfolio of 80000 homes every year the day that gets better and we're certainly learning some things about how the portfolio behaves Charles talked about this earlier in terms of what our expectations might be around the summer months now.

All things being constant and a normal year, we would expect certain things out of the portfolio, it's been a little bit different given I.

I would call it the nature of the decision, making from a residence and they're wanting to stay put a little bit longer and those does bring in outside dynamics that have nothing to do with housing and so that's obviously added some increased demand and we'd expect some of that to stay in place for this year now as you look at striking that balance around affordability, you got to take a step back interest rate volatility.

To your point can't create some nuance around whether our homes more affordable to lease or to one and a particular market generally speaking most of our portfolio is much cheaper to lease than it is to own when you look at down payment and the cost to maintain that homes over its lifecycle, we offer a pretty friendly alternative to most folks as we manage all the maintenance expense and the potential.

Capex risk that's associated with that helps so and taking a step back it's much more of a floor of affordable generally to lease and you're right around that interest rate volatility maybe drawing those numbers out of whack, we still see.

And the opportunity to provide a pretty affordable product and most of our markets are on a relative basis now that will vary with times and seasons based on product price points and different submarkets, but all in all when you've got a 1900 dollar rental and a market with great schools. Good affordability.

Transportation corridor and that lend themselves to close proximity to job and the other day that is a much more affordable product and more cases than not and then to be down payment heavy and and take on the burden of maintenance and maintenance expenses. So we're always trying.

Trying to look at the portfolio and find ways, especially on the newly side went home and goes back it does seem to make sure that we're capturing that market rate that is available out there and then on the renewals, it's being smart and finding the right balance working with normal supply and demand fundamentals and then lastly, also being considered of what's going on and those markets. So California.

Example of that where we're sensitive to the rent cash and everything that had been put in place and and Seattle, where quite frankly, we haven't been able to really do anything around renewal rates for almost a year now so that's the dynamic we're living in and I would say, it's mostly healthy with some of that nuance that we're having to navigate through what the portfolio today.

Okay I appreciate all that detail. Thank you very much.

Thanks.

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

And thank you and we appreciate everyone joining us for the call and our thoughts and our sympathy with all those and Houston and Dallas, our residents and our associates that are and during this weather.

Hanging there where we're all in this together we appreciate everybody joining us today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.