Q1 2021 Invitation Homes Inc Earnings Call
Greetings and welcome to the invitation homes first quarter 2021 earnings conference call.
All participants will be in a listen only mode at this time share.
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As a reminder, this conference is being recorded at this time I would like to turn the conference over to Scott Mclaughlin Vice President of Investor Relations. Please go ahead Sir.
Good morning, and welcome joining me today from invitation homes are Dallas, Tanner, President and Chief Executive Officer.
Ernie Freedman, Chief Financial Officer, and Charles Young Chief operating Officer.
During this call we may reference our first quarter 2021 earnings press release and supplemental information.
This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at Www Dot I N D H dot com.
Certain statements we make during this call may include forward looking statements relating to the future performance of our business financial results liquidity and capital resources and other non historical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ.
<unk> from those indicated in any such statements.
We describe some of these risks and uncertainties in our 2020 annual report on form 10-K, 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.
We may also discuss certain non-GAAP financial measures during the call you.
You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in our earnings release and supplemental information, which are available on the Investor Relations section of our website.
With that let me turn the call over to Dallas.
Thanks, everyone for joining us this morning.
Hope, you're well and have continued to stay safe.
We're off to a great start in 2021 with strong fundamentals and steady progress on our growth objectives and great positioning for the peak leasing season.
We are seeing record demand for our homes, and we're executing well to turn that into record high occupancy and capture market driven rental rate growth.
We are also driving growth through acquisitions, as our tried and true multichannel platform and local investment professionals continue to successfully source accretive opportunities as home price appreciation accelerates.
Before turning it over to her Charles and Ernie.
Like to elaborate on the macro economic opportunity, we see in the strategy, we put in place to capitalize on it.
To begin we believe the tailwind is driving growth in our business and markets are stronger than they've ever been.
The supply of single family homes remain well short of growing demand, while the leading edge of the millennial generation is just starting to reach our average resident age of 39 years.
This large cohort of the population may increasingly seek out single family homes, we anticipate that their preference for and participation in the subscription economy could continue to drive them toward home rental versus homeownership.
Further extending demand growth for our product in the years ahead.
We also expect continued benefits from our homes compatibility with the work from home lifestyle and the relative affordability of our square footage compared to other housing options.
We believe these benefits are magnified in a world where people rethink the way they use space to work and play.
In addition, we're seeing strong continued growth in household formation within our markets, which are benefiting from the southward migration of the U S population.
But simply we believe the growth we've experienced to date is only the beginning it was bullish as ever about the fundamental outlook for single family rentals in our markets.
These positive industry dynamics are not only a strong backdrop for organic growth.
But also enhance the investment thesis for external growth as we look to grow in a very disciplined way.
Of the 16 million single family rental homes in the U S. Today less than 2% are institutionally held.
We are hearing from our residents and seeing in our results, but there is high demand for an increased number of professionally managed single family rental homes.
There is an opportunity and a need for the industry to grow and with our best in class platform people and scale. We believe we are the best prepared to invest and execute to capture these growth opportunities ahead.
In this regard our growth strategy is comprised of two parallel avenues for.
First is through acquisitions.
Second is through enhancing the resident experience let.
Let me walk you through both of these in a bit more detail.
First I'll cover.
Growing our portfolio.
As we stated we've projected acquisitions of at least $1 billion in homes. This year and I'm pleased to report we are off to a great start.
During the first quarter, we added 696 homes to our portfolio, including 295 at our joint venture.
Proven multichannel approach to acquisitions, driven by our proprietary acquisition IQ technology and in house local investment experts enable us to remain nimble and source robust acquisition volume, while maintaining discipline around location quality.
And risk adjusted returns.
Second I'd like to talk about our plans to further enhance the resident experience.
Our residents look to us not only for shelter, but also a worry free leasing lifestyle.
Our pro care service offers proactive maintenance to keep our residents' homes in excellent condition.
Our smart home technology makes it easy to manage the features and utilities in their homes.
And our filter delivery service make it more convenient for residents to maintain air quality and energy efficiency of their homes.
We recently rolled out our pest control services and will launch a landscaping pilot program in select markets next month.
All of these items are provided at an additional monthly cost in both our resident survey data and the number of residents signing up for these services tell us that we're delivering these services that residents want in order to simplify their lives.
We estimate we're over halfway to our expectation to reach approximately $15 million to $30 million and run rate annual ancillary income by the end of 2020 two.
As we grow we also remain focused on ESG, including added attention to the environmental performance of our homes.
For example, we recently piloted a program designed to help our residents optimize their energy usage, while reducing peak energy demand for <unk>.
Software based system is integrated into our smart home technology and allows our residents to save hundreds of dollars a year in utility costs.
In addition to consuming less energy.
We also recently launched our green spaces community program in which we select the Winthrop and volunteer opportunities to prove outdoor spaces in our neighborhoods.
We kicked off the program earlier this month with support for the Horse Trail Alliance in Mesa, Arizona, where members of our executive team.
Dozens of local associates and community partners to create new hiking and biking trails for our residents and for our neighbors to enjoy.
I'd also like to take a minute and comment on our recent investment grade ratings announcement.
We are very pleased that the rating agencies recognize the strength of our platform.
Our team.
And the safety of our balance sheet.
This represents the achievement of our long stated goals since our IPO.
And Ernie will provide more commentary on what it means for our company going forward.
In closing we're proud of the accomplishments we've made this quarter.
Excited by the opportunities we have to grow both internally and externally using our strength scale and operational excellence to continue leading the single family sector.
I'd like to thank all of our associates for their hard work in serving our residents with genuine care and getting us off to a strong start this year.
With that I'll turn it over to Charles to talk further about our operational results.
Dallas, Let me start by recognizing our teams for another quarter of exceptional care to our residents. Our approach is straightforward, we offer quality homes and easy process and friendly service and when we execute well as we did this past quarter. It reflects in several ways let.
Let me tell you about for these for.
First our residents continue to stay with us longer during the first quarter trailing 12 month same store turnover decreased another 100 basis points to 25, 3%.
The second point is our ability to lease faster our day theory resident dropped to 29 days for the first quarter down over 20 days from the prior year.
Today over half of our new leases are being signed before new resident has even seen their new home in person.
This along with lower turnover helped drive our same store average occupancy from 98.4% during the quarter of 170 basis points improvement over prior year.
Okay.
The third point is our rental rate growth.
New lease rate growth accelerated to seven 9% in the first quarter up 610 basis points year over year, while the rate on renewals grew $4 four per cent in the first quarter. This brought the same store blended rental rate growth for the quarter to $5 four per cent up 200 basis points year over year.
The fourth and final point is resident satisfaction.
As a reminder, we received roughly 60000 resident surveys each year and these continue to indicate record high satisfaction rates.
For our residents are particularly pleased with how we're using technology to add flexibility convenience and time saving benefits to their lives.
For example, we recently rolled out an app to make service requests and appointments easier for residents and more efficient for us.
And we continue to install our smart homes suite throughout our portfolio. We're also considering new ways. We can continue to improve the resident experience.
All of this leads to our same store NOI growth in the first quarter of $4 four per cent year over year. This is comprised of the same store core revenue growth for 2.2% as well as the two 2% reduction in same store core expenses.
On the revenue side cash collections improved in the first quarter and 98% of our historical average as we continue to work with residents to offer flexible solutions for those experiencing hardship.
Lower expenses were mostly result of double digit percentage drops in nearly all of our controllable expenses.
As Dallas mentioned, we're now in our peak leasing season and demand for single family housing is as strong as we've ever seen.
This reflects in the current dynamics in the marketplace and is certainly impacting how we think about renewals and new lease rates.
In summary, we remain in a strong position to continue delivering on our resident service and operational excellence and to capture the robust demand, we're seeing across our markets.
Many thanks again to our team for the genuine care they provide to our residents each and every day.
That concludes my remarks, I'll pass it along to Ernie.
Thank you Charles today I'll cover the following topics first our recent announcements of our investment grade ratings.
Acquisition and disposition activity.
Third our financial results and the increased guidance, we announced last night.
Last week, we announced that both Fitch and standard <unk> Poor's have rated us investment grade and this week Moodys has as well.
This recognition marks an important milestone for invitation homes, we believe it affirms our strong and flexible balance sheet and should also offer us improved access to additional forms of cost effective capital. When we look to refinance feature debt maturities in the meantime, we anticipate the investment grade ratings will reduce our annualized interest cost on our credit facility.
By approximately three cents per share.
With this objective now complete we remain committed to one proactively managing our maturity ladder, which today other than our convertible notes has no maturities prior to December 'twenty 'twenty four.
Two continuing to focus on lowering our overall leverage to our long term target of five and a half to six times net debt to EBITDA.
And three over time transitioning more of our borrowings into unsecured financings.
As for the current status of our balance sheet at March 31st our overall liquidity at quarter end was approximately $1.2 billion from unrestricted cash and revolver capacity.
Net debt to EBITDA also declined from seven three times to seven one times during the quarter.
Regarding our investment activity, we purchased 696 homes during the first quarter for $233 million.
For 101 of these homes were wholly owned acquisitions for $138 million and 295 were bought by the JV for $95 million.
Collision cap rates remain in the mid fives.
We also sold 248 wholly owned homes for $75 million.
Stop our financial results core <unk> per share increased four 5% year over year to 36 cents, primarily due to higher occupancy lower controllable expenses and turnover.
<unk> per share increased six 8% year over year to 31 cents.
As a result of our execution to date, including the benefit of the earn in of stronger leasing activity achieved during the first quarter and anticipated activity in April and May.
We are raising our full year 2020, one same store NOI growth guidance by 75 basis points to a range of $3 75 per cent to $4 75 per cent.
This increase includes a 25 basis point increase in same store core revenue growth in a range from $3 75 per cent to $4 75 per cent.
Along with a 75 basis point reduction in same store core expense growth guidance in a range from $3 75 per cent to $4 75 per cent.
In addition, we expect interest expense savings as a result of our investment grade ratings and consideration of all these items, we are raising our full year 2020, one core <unk> per share and <unk> per share expectations by three cents at the midpoint and our range from $1.34 to $1.42 for core F. F L inner.
<unk> of $1.13 to $1.21 for assets.
So in summary, 2021 is off to a strong start we are particularly excited about our internal and external growth prospects, which we believe can widen our lead not only in the single family rental business, but among all housing providers.
We believe our best in class locations.
Kale and local expertise differentiate us from our peers and our channel agnostic location specific external growth strategy now even better supported by our investment grade balance sheet will propel us forward and helping us to deliver outsized returns with that let's open up the line for Q&A.
Okay.
We will now begin the question and answer session.
Ask any question you May Press Star then one on your Touchtone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
He would like to withdraw your question. Please press Star then two I'd ask that you. Please limit your questions to two per time in the queue. At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Nick Joseph with Citi. Please go ahead Sir.
Just given the.
Elevated home price depreciation that we're seeing nationally is that having any impact on underwriting or initial yields on acquisitions.
Hi, Nick this is Dallas.
We're definitely mindful of the fact that we're in a rising price environment and being you know pretty disciplined around where we're buying and why given that we are seeing so much growth, we've been able to sustain that or cap rates call our stabilized cap rates in the low to mid fives.
A large part of that obviously, we're seeing the acceleration in rate alongside home price appreciation is typically pretty good proxy, but it's certainly something we're mindful of because.
Not all trees grow to the Sky and so we wanted to make sure. It makes sure that we're measured and be smart about what we're buying we're allocating capital and sticking to really our core disciplines that Ernie talked about being really kind of channel agnostic, but hyper focused on making sure. We're in the right locations.
Thanks for that and congratulations on the investment grade rating.
As you move more towards that five five to six times target.
Further our investment grade credit increases impact your interest rate on the line.
Yeah, we have a Nick it's Ernie and the answers anymore. Thank you for that I mentioned in that and I. Appreciate your congratulations and two yes, we have a grid that's consistent with most companies in terms of investment grade grid. So if we were to give you're able to go to triple B plus there'll be further increases in terms of the savings would have as well as if we were to ever someday get into the range.
So yeah, there is opportunity for us to have further savings going into the future.
Thanks.
The next question comes from Jeff Spector with Bank of America. Please proceed.
Great Good morning, and congratulations on the investment grade ratings.
First question is on a collection of late fees.
It seems like it's still dragging on same stores, but if you could just comment on that please when you expect to start collecting.
Yeah, Hi, good morning, it's Charles young in.
In terms of late fees, you know Q1 was more of a transition period for us trying to get back to our normal course and communicating with our residents.
And so today as we move into April we're running more like our historical structure. However, keep in mind that we're still prohibited under a number of states for charging late fees. So while we're back to our normal structure, we're not going to be all the way back until some of those.
Rules are or a pull back and then at the same time, we still are working with residents who have who may have a hardship and are willing to go into some type of arrangement with us and so if they reach out we'll do that but in the meantime, I think you'll start to see is moving towards our typical late fee collection throughout the year It should increase as the rules.
But evolve.
Thanks, Charles and then second question is around.
Some of the tail winds mentioned theres still seems to be some inc.
Investor concern that.
Some of those could feed with reopening is can you provide any color on <unk>.
What you're seeing in April as you know we've seen some of the coastal areas reopen.
How are your retention rates in April anything you could discuss for share with us. Please.
Yeah, I think all indications are where we're really in a strong position.
Can see from our results for Q1, we have a really a favorable position with occupancy north of 98% are accelerating rent growth on new lease and renewals and as you know we have a few months a few days left in April but if you look at the numbers that we have.
We're going to be north of 10% on the new lease growth, which is further acceleration from Q1 renewals in the kind of mid fives, a blend around seven and we'll see where we settle out but all of that is really healthy and that's also with strong retention of renewal numbers again as you go into peak season, it's a little seasonal where we're.
You know, we're going to try to push rate and balance that appropriately. So you may see a little bit of pushed down on retention renewal is as things turn, but whereas a strongly positioned as I've seen in my career in single family. So I'm really excited about the opportunity going forward.
Great. Thank you.
Thanks Scott.
The next question is from Rich Hill with Morgan Stanley. Please proceed.
Hey, good morning, guys wanted.
I wanted to talk about bad debt for a second bad debt was it was still a headwind in <unk>, which makes some sense.
So two part question.
Can you talk about.
The strength for you erney, but can you talk about what's embedded in your guide for the rest of the year for bad debt and when we think that might switch to from a bad guy to a good guy.
Yeah Rich I appreciate you asking that yeah. The answer is yes that bad debt does continue to be a headwind are the comp gets a little bit easier as the year moves for it but it's really we're on the path that we talked about on the last quarter that on a sequential basis.
We anticipate that bad debt will get a little bit better each quarter, but we still think for instance from the second quarter. It's going to run you know similar to what you saw in the first quarter somewhere between 202 hundred 50 basis points.
Hopefully we get into the mid to high hundreds as we get into the second half of the year and so for the whole year when compare full year 'twenty one to full year 'twenty, we're still anticipating at the mid point of our guidance said it it is a bit of a headwind, but it does get better each quarter, but we clearly don't get back to historical numbers that we saw in 2019 of somewhere between 30, and 40 basis points until sometime well into 'twenty.
'twenty two.
Okay helpful, Hey, Dallas, I'm, a preference what I'm about to say by.
Giving you a caveat this is especially annoying sell side question, but.
Walk us through why you're just not supposed to buy everything here.
Some of your competitors are obviously being pretty aggressive with various different programs. We see a lot of new entrants in the space, there's tremendous tailwind I recognize H P. A is expensive, but and I fully appreciate the need to be prudent, but but why not take you know your your investment grade bond rating and and and.
You know start buying as much for you can right now.
Try not to give you an especially annoying answer rich.
Just I would say a couple of things I mean.
Where is that where investors for the most part across all cycles, we want to be smart about when and where we don't disagree that we have a pretty good cost of capital. So things makes sense, we would certainly want to try to find a way to land, but with that being said you were also seeing pricing, especially on stabilized portfolios in the marketplace trading well beyond what some other.
Would deem a retail value, we're seeing cap rates compress and in kind of the stability of that cash flow being extremely appealing to investors. So we're just trying to you know really weigh that all out and our approach now also lets just be cognizant of the fact that there's very limited supply right now is a tight supply environment, but we're active and look we went into your feeling.
200, and 300 million a quarter was pretty rational in a base case scenario, where we can generate really strong risk adjusted returns for the shareholders.
And you'll see the first quarter, we feel pretty good about that we haven't done anything special yet this year, we haven't picked up any big bulk deal or some opportunity like that so you know we did it we agree on the sense are on the side of your question debt.
You know we are in a favorable position. So if if if things become available to us, we're certainly going to try to be aggressive but at the same time. We also don't you know.
I want to be overly aggressive in and dilute what is an exceptional portfolio with really really strong operating metrics I just want to echo what Charles said, which is you know in 10 years of running and being involved in this business. We've never seen fundamentals like this to your point rich. So what are they really continue to execute on the operational side continue to add to the balance sheet for growth but.
Really emphasize that ancillary part of our business, which are residents are continually opting into because that will be a you know an enduring income stream for the business over the long haul.
Okay. Thank you Dallas.
That's on a good quarter. Thanks, I really appreciate it.
The next question comes from Dennis Mcgill with Zelman.
Please proceed.
Hi, Good morning, guys. Thanks for the time Charles you made a comment I think you said that's the strength of the market is impacting how you are thinking about new and renewals and I just wanted to see if you could elaborate on what you meant by that.
Oh, Yeah. So you know as we look forward to peak season coming we've been performing the numbers. We put up in Q1 are what we typically see in summer months when things are.
A really strong and so the position of our portfolio puts us in a really nice position. So when you think about our renewal as out into the summer. We went out in may with the ask in the high sixes June we're asking around seven in July were asking around Hey, These are all on.
Renewals, which is an indication of the healthy.
You know the strength of our portfolio and you know a lot of that is buoyed by our occupancy rate. How we're executing the teams are doing a phenomenal job and the new lease rates net we're starting to see.
Forward and today as I mentioned on.
On the previous question that for April were north of 10% on newly so that gives us a lot of strength to think about how we want to go about positioning the portfolio and capturing.
Drawn market that's out there.
So you just meant that you're willing to be a little bit more aggressive than you normally would seasonally because of how robust the occupancy.
That's right.
Okay got it.
And then Dallas on the acquisition side.
With the competitiveness out there are you either force two or more willing to take on homes that might require more upfront capex and utilize your.
Redevelopment expertise on that to still achieve the same level of cap rate or is that unchanged.
No I'd say, it's unchanged Dennis we're certainly not afraid of.
Reject if it's in a great location, but no our view on that hasn't changed at all.
Okay.
Great. Thank you guys. Thanks.
Thanks Anna.
The next question comes from and Dallas, St Juste with Mizuho. Please proceed.
Thank you all for it.
So a good morning.
We're ready to go back and Oh, the acquisition question. Good morning, a slightly different way clues clearly there's no.
Understanding that there is a lots of competition in tight supply you're being selective.
But I guess I'm.
Really wanted to get out of what's giving you the confidence to hit that billion dollar target for the year right, we're off to a bit of a slower start here in the first quarter then.
I would've thought and getting given your comments about the market.
I guess I'm curious is there anything special underway portfolios were making meaningful under contractor LOI or something that's giving you a bit more confidence.
Or something that debt could be helpful enough understanding of the the competent that you're having in hitting that number.
Yeah.
And they'll just for fun, you know $2 33 is pretty close to a quarter for $1 billion and the free.
Net no net is 150.
Okay, well, we never we don't we didn't ever talked about gross to net but I would say there's a couple of things like I said it was pretty base case quarter for us going back to Q4, and even kind of pre pandemic.
Normalized run rates been right around I would say $250 million a quarter that has some ebb and flow I think in Q3 or Q4 of last year, we had a bigger quarter because we had a few other little things kind of come into the come into our opportunity set.
We feel good about it I mean look were in call. It a less than five weeks of supply in all of our core markets right now just from an available inventory perspective, there's so much capital coming into the space.
Everything is pretty competitive we've done a nice job of building up.
And starting to build a pipeline with a lot of our builder partners. So we will continue to emphasize that as another channel for us as we continue to grow going forward and you know we're likely to see some mini bulk in and call. It other kind of consolidation opportunities over the next couple of years now that all that being aside we still feel like we can grow to the tune of $1 billion of.
Here and remember we report on closings it doesn't necessarily talk about pipelines, but where we're on a pace that we're really comfortable with right now.
Okay Fair enough and then onto the ancillary income appreciate from our commentary there I think you mentioned you're halfway to.
To your your your run rate of ancillary income by you in 'twenty two so pet care I think he mentioned pest control. So what what's what's next then you know what is that.
Back half of this year more next year or so kind of curious on what you've accomplished on that checklist and what's remaining.
On the ancillary income from next door. So it goes back to our Investor day, a little over a year and a half ago, we talked about wanting to be between 15 and $30 million of the goal kind of by the end of three years. If you remember back at that point, our ancillary revenue was basically zero and we feel like will likely land somewhere between the.
The mid and high point of that range over the next 18 months, but what we've done so far is really obviously revamped and enhanced our smart home technology platform and offering Charles and the team have done a fantastic job of continually rolling out that product that is now basically standard and our lease that we have people that are utilizing that.
Service, we've added things around some enhancements to that profile, which will continue to adjust over the next 12 to 18 months, we've done things around filters and filter delivery services.
It is now a standard feature that comes with all of our new lease signings and we're working on a renewal structures through 2022, excuse me 2021, as well I talked about the fact that our pet are our pet program is being revamped <unk> through the end of 'twenty. One that also includes a bit more of an enhancement around screen.
<unk>, we will rollout we've rolled out and is rolling out across the country now our pest control partnership with Terminix and we've got a number of initiatives that are centered around landscaping that will start. The pilot later this quarter I would call most of that stuff table Stakes and then as part of our ancillary focus in creating a better mobile experience for our residue.
We would do that you know kind of beyond those being kind of our core offerings that will continue to offer ancillary product offerings that are also both national and market specific in the coming years. None of that is really weighed into our forecast for the next 18 months. So we view all of that is additional opportunity to grow our business and our footprint with the customer going.
For it.
That's helpful. Thank you and one last one if I may just another one of these or maybe it's an impossible answer, but likely a basket anyway occupancy and turnover are hitting all time best again, you're sitting here at 98.5% you've got to be resident I believe you said 20 days in the quarter, So I'm not sure how much better.
That can get from that perspective, but just curious on how you're thinking about some of these.
These levels are hitting with occupancy and turnover is this as good as you've ever thought you'd get cannot be better.
The simple perspective, you have to sit on that.
Yeah.
I glad to jump in you know look our teams are doing an unbelievable job.
At all levels and you know it's been a very dynamic landscape do you think about where we were a year ago to what the teams have been able to do an adjusted.
We are controlling what we can control the market is in our favor.
Nice tailwind, but in terms of our ability to control cost.
Move people in a quickly pre leased homes by utilizing marketing and other tools as well as turning homes Rehabbing homes quickly all of those are just driving our numbers down we were already moving down on days to re resident prior to COVID-19 and we continue to execute well so you know.
Look I, we're a heady numbers, but as I said before we're going into the summer in really strong shape and what the demand is still there and we'll see where we're at where it ends and where how how long it goes for them, but the teams are ready and they are there. They are doing everything they can to make sure that we capture what's out there proud of them.
Yeah.
Great great. Thanks Charles.
Our next question comes from Rich Hightower with Evercore. Please proceed.
Hey, good morning, guys I'll Echo everyone else's congrats on a nice quarter in several respects Ernie just on the on the investment grade.
Rating.
I think last quarter, you talked about that being a distinct possibility. You know later this year at the earliest and so I'm just maybe walk us through for a second what.
Specific factors changed in such a short period of time, maybe versus the timing that was originally expected on that if you don't mind, Yeah. Yeah, you never know it's not in our control completely obviously, that's up to the rating agencies and we started to build more confidence. After we were able in December to close on our new credit facility, which really upsize the amount of unsecured financing we had.
You know in earlier than that we weren't certain we'd be able to upsize. It as much as we were able to so we were able to add another $1 billion of unsecured financings to pay off secured financings and a couple of the agencies are very focused on how much unsecured you have versus secured and any other other real question was Richardson you know how are they just who's going to take to the current operating environment certainly the sector held up.
Well during the pandemic, but we weren't sure how they would view things from a going forward perspective, and so certainly you know always try to err on the side of under promising and over delivering but we felt good and engaging with the agencies later in December and a little more informally that there might be a window for us to go for it here in the first quarter of 2020.
One we.
We had some very good help for us from advisers are in the process as well and we decided it was the right time to try and and Fortunately the agencies like the path, we're on and they certainly recognize these as you probably saw in the reported the strength of the industry. The strength of our company in particular are from a credit perspective, and we were fortunate to get there is the second time I'm thinking.
Through so you never know exactly how that's going to go and so that's why I wanted to make sure we were being cautious but at the same time, we had some optimism. That's how we were able to get here, maybe about a year earlier than we otherwise would have thought.
Okay, Great that's helpful color.
For my second question.
And I know you've mentioned several times in the past, including on this call debt.
You know work from home is increasingly.
Probably a net benefit for your business and in your tenant base, but I'm. Just wondering you know maybe the flip side of that coin.
As more and more companies are announcing starting to announce our return to office plan at some point later this year.
You know clearly some portion of the work force is going to have to be commuting into the office.
Certain number of days a week.
And you know.
How does that change or factor into your underwriting criteria, you know in terms of geography, and the distance from sort of the the urban CBD, respectively. Throughout the portfolio and you know, what's your comfort level or house view with the idea that more and more people might work from home permanently and just how does that factor into the investment mix.
Yeah. Good question. So a couple of things I just want to touch on rich you know first and foremost to go back to pre pandemic, we were 97% plus going into the pandemic. So call. It all the macro tailwind is that centered around millennials wanting flexible lifestyle boomers that are preferential they're making some of these choices that day.
Demand profile was in the business pre pandemic your point around the work from home component and the balance of people going back to the office are staying home. We've certainly seen that in our survey data that one of the bigger drivers over the last year on our new leases and moving work that was being influenced by People's.
Desire to maybe have a bit more square footage because of the work from home components. So we view that as purely just a net positive for business call. It beyond the 97% plus pre pandemic I think for us as a company in terms of how we position into that narrative it'll be important that we stay current in terms of where those trends are going and other things that we can do that offer that.
Flexibility Charles and his team look at a number of these things both from how we rehab at home fit and finish standards certain offerings. We can deal with some of our partners in the marketplace, whether it be home depot, our office furniture companies et cetera, where we can drive additional synergies for the resident experience I think that's the key thing here the occupancy was there.
Pre pandemic the demand was there a pre pandemic, but you know how do we continue to capitalize on that theme if it stays relevant for our business going forward.
Okay. Thanks.
Just to drill down on one aspect of.
The question here I mean, you know if increasing work from home.
As part of the house view of the business as strategy going forward I mean are you increasingly comfortable acquiring.
Homes farther outside the urban CBD and does that open up.
You know investment opportunities that maybe you wouldn't have thought about if we were having this conversation two years ago. You know can you go farther and farther out I mean, not so much from our current vantage point or our view what guys remember at the end of the day. We're total return investors. So if if the work from home components started to drive value in those neighborhoods that were much further.
We're out companies might look at it but interest, but we all know how this tends to play out the pendulum swings one way and then it starts to swing the other I think we've always.
Ourselves on being more focused on buying infill product higher demand factors that are driving to that ultimate experience and it centers around school districts and transportation corridors that go well beyond just whether you work from home or not so all of those demand factors rich from our current view arent changing we would do our approach and allocate.
Capital is being as continuing to be very deliberate in where we invest capital and why and so far on a risk adjusted basis, we're not seeing anything that's telling us to go further out.
Got it thank you.
Thanks.
Our next question is from John Pawlowski with Green Street. Please proceed.
And thanks for the time, Charles Ernie, hoping you can provide some kind of details on the path for two drivers of the business as COVID-19 impacts normalize how does the occupancy trend. Once you are able to move through evictions and what's a reasonable trajectory of cost to maintain once a turnover starts to pick up a little bit.
Yeah.
Yeah.
First question you know as we go into peak season, Theres always seasonality around demand.
Demand and turnover as well as occupancy.
He wrote that high <unk> 98 per cent I don't think we'll be here forever, but given our turnover numbers we were trending in.
The high Twenty's prior to the.
The pandemic, we do think and expect the second half for the year, we may see a little bit more turnover, but our execution on days to re resident should mitigate debt. So I think we'll settle somewhere in the 90 Sevens mid 97% 97, but at the same time, we're going to capture what the demand that's out there with that comes what we're seeing is.
Really a high demand for our homes and locations as Dallas was talking about and we're able to capture that in the rent growth. So you know our investment management team and ops team I've always tried to optimize for the environment and they're doing that right now and as things change, we'll we'll do the same and but our general execution with.
Days to re resident in Q1 of 29 days.
That's really phenomenal that's down 20 days, where we're keeping that going and at the end of the day I think we're going to end up in a in a kind of solid position that captures the market.
John on the cost to maintain question that you had it we certainly are seeing some positive impacts with the low turnover in our overall cost to maintain you know as a reminder.
And our cost to maintain numbers the repairs and maintenance of our homes is roughly about two thirds of that cost and about one third of that cost is turnover is actually a little bit you know it has changed a little bit because of turnover is lower.
At this point our guidance does assume that in the second half of the year, we get to a higher turnover number is as we were able to work through some of the challenges we have in the portfolio.
But we think on a long term basis, we kind of normalize back to that kind of what we saw in the 2019 range, which as you know prior between around 3000, maybe $3100 per door, but of course that growth with inflation. John So if you're a index thing back to 19 you'd have to grow that with inflation for two or three years and once we get back to a more normalized environment, but we're not seen any additional pressures that you saw.
Well see some short term pressures, possibly Ah if turnover gets elevated in the second half of this year or into early part of next year as we get back to a more normal operating environment.
Okay understood and then just last one for me.
Understood Bad debt is fairly stable across the portfolio Charles have you seen any kind of sequential deterioration in payment trends.
Gross markets.
Yes.
You broke up a little bit, but no you're asking about bad debt or collection, specifically within the markets.
Yeah, any sequential any market jumping out as deteriorating sequentially.
No we really haven't seen any of that you know there there's more challenging markets that we've talked about in the past with California little bit of Chicago, but I can't say that some of these third party rental assistant programs are helping in those markets and our teams are doing a great job of really advocating on behalf of our residents to trying to get.
Some of those rental assistance and so some of that starting to show up but to your base question No we're not seeing any real.
Sequential demand market by market or a region by region.
And as we have looked at in General March was a good a good performance on collection in April we have a couple of days left but we're coming on fairly strong as well.
Alright, great. Thanks for the time thanks, Tom.
Yeah.
The next question comes from Jade Rahmani.
<unk> with K B W. Please proceed.
Hi, This is Sarah on for Jade I'm. My first question is with the surge and at home price appreciation are you pursuing rent to own strategies with customers in any market.
Not officially no we well we've what we've been doing is fee simple buying with anywhere from a one day two yearly.
Thank you and my second question is what are the most promising offerings within ancillary revenue.
Well, we think there's a few things that we do really well, including smart home technology that allows people to manage their home Mobily. Both you know from ingress egress issues as well as managing their thermostat. We certainly are excited about some of these pilots I talked about earlier that we think you know.
Deliver in a better way on a worry free leasing lifestyle and things like landscape and being able to offload or ancillary product offerings discounts for some of our biggest vendors are all going to add to that value experience for the customer. So I think as we continue to find things that are sticky.
And maybe more importantly, things that our customers can take with them.
Our pest control partnership for example is a great Avenue for that where somebody comes into the portfolio maybe stays with us for a couple of years has a secret subscription based service as I mentioned before the subscription economy that we're all part of and then they take it with them are.
In their walk of life beyond maybe their stay with invitation homes that continues to be an ancillary income generator for our business. So we're really excited about not only piloting but figuring out how to enhance some of those offerings. So that they can be you know a perpetual income for the business going forward.
Got it thanks for taking my question.
Thank you. Thank you.
The next question comes from Brad Heffern with RBC. Please proceed.
Hey, good morning, everyone.
Another question on the sort of acquisition of angle.
Has the sort of amount of work that you've had to put in to get a similar acquisition number changed over time like this the hit rate on the the 233 million that you acquired this quarter is that significantly lower than it has been in the past.
It's been more or less about the same for the last couple of years was certainly less supply there's not as much to look at albeit we do look at everything in the marketplaces.
But it's generally been from a call it a macro perspective on supply.
Same number for the last couple of years at this point you know our data and our what we call our acquisition IQ technology has become so much more sophisticated and robust because every year. It gets easier smarter. So you know well over call. It a million plus homes underwritten in the last 10 years and our view on anything from a ZIP code too.
To a submarket continues to evolve and get smarter and smarter with time and distance as we've seen things happened both at the marketplace and as we've seen things happening within our own portfolio. So our ability to make quicker decisions has probably gotten faster, but the data continually enhances it makes that experience even better for underwriting team.
Yeah.
Yeah, Okay got it.
And then just thinking about the guide you know some other commentary earlier about the renewal rates that you're asking.
In the coming months I mean, it sounds really robust so I'm curious how much of.
You know that the April new lease growth of 10, plus or the July a renewal of a plus like how much that's actually in the guidance and how much that's upside.
Yeah, I would say, Brad if we're able to achieve close to those numbers that the Charles said, there's always a little bit of a give and take on the renewal asks so we don't get all the way to our number but if were able to continue with the numbers that we had in April and those numbers that the trials laid out there it will certainly have an opportunity.
Aimed toward the high end of our guidance range or maybe even a little bit better, but we just have to see how that plays out.
Okay. Thank you.
Okay.
The next question comes from the Chicken Karl with Brandenburg. Please proceed.
Hey, guys. Thanks for taking my questions I guess, you kind of take it at current point of view from for your question. What's stopping you guys from kind of clearing out the bottom 10% to five per cent of your portfolio. That's performing maybe a below average and then taking advantage of the current housing level and then kind of retire.
Cycling that into market do you think youre going to perform better over time. That's a good question and you know we have a we have a pretty good track record of consistently calling the bottom 1% to 2% of our portfolio of any given year and this year, we're off to I would say a similar pace I think we had a what 200, how much do we havent disposition.
So for 75 million. It was about 75 million about 250 homes in the first quarter. So you know at that run rate. We would you know call. It cull through one to one 5% of our portfolio. This year, if my math right.
And in terms of say 1000 sales or so on the current portfolio of day. So.
You're right in that pricing is really good now taking a step back you know when you're in these types of moments you definitely can see our value proposition on maybe what your sales prices are but you got to weigh that out with some of the growth that we're seeing as well. So you know in our west coast markets, where in just the first quarter, we're seeing new lease rate growth between 15.
For certain Phoenix 12 per cent in Vegas, another 11% in Seattle and makes it it makes it hard to want to sell much of anything with this kind of momentum we have and in the portfolio as already mentioned before has been pretty consistent in terms of operating expenses and our expectations around retention. So we're weighing that all out and we certainly would start to call if we.
Saw an area or a part of the market that we thought we could maximize pricing, but we've done quite a bit of selling in the last three years to five years as well to be prepared for this model and we're really excited about how the portfolio is behaving well look to maximize those returns going forward.
Got it thanks, and then specifically when looking at Florida, you guys experienced any significant insurance premium increases and do you think this will kind of influence your decision on interest from transacting in the state going forward.
It's a great question and something we will look at very very carefully within the property insurance market, which has been very difficult for the last few years in the residential space and then on the multifamily guys have been talking about insurance increases each of the last two years of anywhere between 20 and 40 per cent for each year, we've actually had some pretty good locked down there because the risk of our assets are so much different because they're so spread out in each of our individual.
Assets have an insurable value that it's relatively small it's not a large multifamily community. It's on a large office building things like that.
So with that now two years ago, when we had our insurance renewal in our terminals happened in March our March 'twenty 'twenty insurance renewal, we actually held our rates flat across the portfolio and this year. They were only up about seven or 8%. So over two years were only up about seven or eight combined where I think multifamily is up you know potentially 30 to 40 over that same period of time, it's something we watch really closely it's something.
We're very cognizant of but to date, we were fortunate that we did the property insurance market understands the risk profile of our portfolio is significantly different than anything else you would see in the commercial space and it's played out well for us.
Great. Thanks for your time guys.
Our next question is from Ryan Gilbert with <unk> T. I G. Please proceed.
Alright. Thanks, everyone first question Dallas I was hoping you could add some detail around.
Just your acquisition channels in the corner in the quarter did did for me.
Mixed between channels changed at all from prior quarters, and how are you thinking about the opportunity.
Hi, I guess between sourcing acquisition volume between the MLS channel I buyers homebuilders or or anywhere else you can buy homes.
Yeah, a good question and it always varies quarter to quarter. So certainly can report on on what we did in the first quarter as I mentioned before we had very little book in.
In Q1, but we probably 80% of our homes came through our what we would call traditional kind of one off channels, we had call it 10% to 12 per cent coming through our builder partners are I don't know.
Other say, 5% to six per cent coming through I buyer channels as well so that that can tend to vary based on any.
Any given quarter kind of course of what caf going on whereas in.
In Q4, you know it was roughly 30%, 40% that came through what we call mini bulk just for some comparison, so I would just call. This line.
Use the word vanilla, but it was kind of a pretty vanilla quarter, nothing too exciting outside of just consistently buying one.
One off properties at the local level.
Okay got it and looking ahead is there been any change in in deal flow or how does the pipeline look by channel any changes without giving too much forward guidance I would just say we feel really good about where the pipeline is both from the partnerships I talked about earlier on the call with our builder partners.
We look to expand those channels, we've talked about that for well over a year now and those opportunities take time to come to fruition and we're really excited about the the work that the team had been doing on some other smaller you know really smaller consolidation opportunities that are out there.
But again. This is this is more of an aggregators environment right now with low interest rates and the amount of capital that's coming in the space I think we will be really well positioned over the next call. It two to five years for some good consolidation opportunities.
Okay got it and second question is on build to rent we've heard a lot about it.
I'm wondering if you're noticing.
Kris and competition from.
To rent operators.
And if there's any markets you could you know where where you're where you're seeing maybe a bit of pressure on either turnover occupancy blended rent I mean, it doesn't seem like it's showing up in your in your quarterly numbers, but you know maybe any any color you could provide would be helpful. Yeah I know.
So good question, we don't get any pressure generally speaking from build to rent operators is there typically those neighborhoods are much further out relative to our portfolio.
But you know, we're always being approached by build to rent developers other Orlando owners to see if we'd be interested in parts of whole parts of or whole sections of communities. We apply really the same thinking that we do to buying an individual home, which is do we like that location in a really long term believers in the fundamentals.
Around that neighborhood, we certainly own parts, our whole neighborhoods are around different markets in the country, but generally they're much more infill in nature.
Okay, great. Thanks, very much for the time.
Thanks Ryan.
Our next question is from Richard Skidmore with Goldman Sachs. Please proceed.
Hey, Ernie just a quick follow up on guidance just to make sure I understood correctly, you raised guidance by three cents and benefited from the I G rating by three cents.
Took that same store NOI, which would probably add another couple of pennies just I'm just trying to make sure I understand the what might be the offset is it just that the three cents on interest expenses an annualized number.
Just to clarify that yeah, that's exactly it break the three expenses in annualized numbers for the rest of the year, it's about a penny and a half maybe a little bit better benefit than the rest of the benefit comes from the increase in the same store NOI line that you called out and you got it exactly right.
Got it thanks, guys appreciate it thanks for.
Eric.
The next question comes from Sam Choe with Credit Suisse. Please proceed.
Hi, guys congrats on a great quarter.
So my question is similar to.
For the portfolio churn question, you had before I'm just looking at the blended rent spreads and the Midwest has been lagging your the.
The rest of the portfolio and I know, you've become and always been sunbelt focus but kind of.
Just wondering what your thought there.
And that area is and how it factors into your premier location a local strategy.
Yeah, I think Sam it's Ernie.
Certainly we have a portfolio of 16 markets youre going to have your better performing markets in your weaker performing markets and you've certainly seen we've had outside sales out of some of our weaker performing markets, but even our our weakest for for me marks are doing pretty darn well and we're talking about the record high numbers, we're seeing across the portfolio that you know you know the markets that maybe lagging a little bit are still putting up really.
Solid numbers, but we'll certainly look at the opportunity and if it makes sense to call a few more homes because it is it is it really new time at a unique time in the market, where real estate investors first and it will certainly consider that but we also have to weigh against that what additional home price depreciation of rental growth, maybe giving up if we sell today versus selling sometimes in the future, but we do recognize.
There's a good opportunity and it is a good market out there and as you guys have seen in the past we've done bulk transactions to other institutions, but more than half of our sales are sold over 10000 homes. Since we started and over half of our sales had been to other institutions and I think everyone's aware there. There's certainly capital available. If we wanted to pursue that and then the other half is sold roughly on a one off basis are back.
And into the end user market. So it's a good observation that folks have had on the call today as well as yourself and it's something we certainly will think we think quite hard and long about.
Got it and then I want to touch again on the ancillary revenues.
I I mean that 15 to 30 million.
That's helpful.
Just wondering how much of the resident population do you think well pick that up I know you guys probably did a lot of studies around there. So just curious as to why you're expecting.
When you're kind of factoring that into guidance.
Well, let me take it was doing a day I'll, let Charles wing in well I think each for each one is gonna be a little bit different so as al mentioned, the smart home devices would be something that is mandatory going forward. So at some point, that's going to get very close if not all the way to 100% compliance as leases turnover in people who are renewing you add that to the program. The other things you know like pest control or suddenly it'll be.
More popular in certain parts of the country than others, depending on the nature of where they're at pets. We think is a university will be accepted as pets are generally.
They're equal dispersion of pets throughout our entire portfolio and then landscaping again for some markets its going to be more prevalent than in others. You know some of our markets. We were very cognizant of things like drought conditions and do a lot of hardscape and landscape is not going to be as prevalent in some of those market Sam as it would be in other markets. So we do have a pretty good sense across the board on a.
On a product by product basis, what that could look like but you know the answers are gonna range somewhere in the you know to a third of the portfolio to maybe all the way up to a 100 per cent of the portfolio depending on the product.
Okay. That's helpful color. Thank you so much.
At this time I am showing no further questioners in the queue and this concludes our question and answer session.
I'd now like to turn the call back over to Dallas Tanner for any closing remarks.
Thank you we appreciate everybody joining us today, we have a great business with excellent fundamentals and we wish you all the best we look forward to seeing many of you soon thanks.
Thank you again for joining us today, and we wish you all the best look forward to seeing you again soon.
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