Q2 2021 Invitation Homes Inc Earnings Call
Greetings and welcome to the invitation homes second quarter.
2021earnings conference call.
All participants are in a listen only mode at this time.
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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 now.
Mclaughlin Vice President of Investor Relations. Please go ahead.
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.
Sure.
During this call we may reference our second 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 V H dot.
And off of certain statements. We make 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 or results to differ materially.
Comp from those indicated and any such statements.
We describe some of these risks and uncertainties and 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.
Early.
We may also discuss certain non-GAAP financial measures during the call you can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures to the extent available without unreasonable effort and our earnings release and supplemental information, which.
And are available on the Investor Relations section of our website.
With that let me turn the call over to Dallas.
Good morning, and thank you for joining us today last night, we posted our second quarter results closing out a very strong first half of the year. The current fundamental tail ones we are experiencing.
Are among the best we've seen and.
And we anticipate that these will stay with us for the foreseeable future.
Demand for our high quality well located single family homes continues to greatly exceed supply as shown by our high occupancy and retention rates.
Good day, there are nearly 90 million people and their twenties and thirties.
And the states, we expect this population and search to be heading our way for many years to come.
As this segment of the populations for families and seek out more space and homes to live and we see invitation homes is a part of a comprehensive housing solution that help serve those who prefer the convenience and lifestyle of running a single.
Family homes.
With our integrated platform delivering a first rate resident experience and efficient operations. We believe we are well positioned to meet the rising demand for our product through continued growth.
In this regard we significantly enhanced our multichannel strategy. This past week with the announcement of our new strategic.
<unk> relationship with Pulte group.
<unk> third largest homebuilder.
Our preference from the beginning has been to partner with the best homebuilders, rather than compete with them directly and the strategic relationship great and the strengthens that approach.
Over the next 5 years, we expect to buy approximately 7500 and new homes.
They pulled people design and build and have already identified the first thousand homes across 7 communities located in the Sunbelt region.
We love the approach of acquire and great product and great locations across a diverse subset of communities that will further enhance our risk adjusted return profile for our investors.
Investors.
And we look forward to welcoming our new residence and that these neighborhoods where families who both leased and owned homes build a community together.
We're pleased to collaborate with Pulte and the important next chapter of our builder partnership story.
It's an exciting time as we invest to bring new homes to the market.
Complementing our other acquisition channels.
Yeah outside of our announcement with Pulte bought almost 1600 homes. So far this year through June 30th for $569 million.
Over halfway to our $1 billion acquisition target for this year.
We remain confident that we can achieve our target during the second half.
Half of this year.
Directing us and as you know our effort is our 3 pillar strategy of location scale and eyes and markets.
These differentiate us from our peers and support the acquisition engine, we've designed and perfected over the last decade.
Our first pillar location and speaks to our focus on select.
Markets with high population and job growth that offer good schools and easy access to employment centers and transportation corridors location as a major driver of outperformance as evidenced by our west coast and our Sunbelt markets.
Second pillar of scale with it.
5000 homes per market on average.
Our sales is industry, leading and extremely difficult for competitors to quickly or easily duplicated.
And our third pillar is being high touch with Ais and markets.
It refers to a local team of experts, who oversee our resident services leasing and investment decisions.
Our eyes and market go beyond.
Span associates and algorithms by investing with local insights and relationships in order to find the best homes at the best price.
Together these 3 pillars support our proven track record of disciplined growth.
And support our philosophy of genuine care.
We.
I think our occupancy.
Of over 98% turnover of only 25 per cent.
Average length of stay now approaching 3 years and high resident satisfaction scores.
Are amongst the strongest indicators that our teams are delivering on our mission statement together with you we make a house at home.
We've lived out.
And that mission and both good and challenging times.
During the last 16 months some of our residents and face significant hardship.
We've helped provide peace of mind to those who have been struggling by providing flexible payment structures.
Waving late fees, assisting and securing rental assistance and forgiving past due balances.
We have consistently gone above and beyond and I couldn't be prouder of how our teams have supported our residents and communities. During these challenging times.
We will continue to follow all government directives laws and regulations at the National State and local levels and we will continue to go beyond what is required.
And work with those impacted by the pandemic because that is who has always been and that is who we will continue to be.
Finally, I'd like to wrap up with some thoughts on sustainability.
We're continuously taking the steps necessary to be a responsible steward, who encourage us discussion innovation.
And action amongst our peers associates and the industry.
Earlier this month, we announced our investment and fifth walls climate Tech fund, which are seeking solutions to reduce carbon emissions from the construction ownership and operation of real estate.
In addition to investing and future solutions, we continue to roll out initiatives.
And limit the company's carbon footprint and the environmental impact of our homes.
These include our smart home technology that help residents manage their homes and save up to 15 per cent of their energy bills.
And our air filter home delivery program that provide better air quality and improve H B a C efficiency.
Help looking forward, we're focused on identifying new opportunities to debt dance further long term sustainability efforts.
In conclusion.
To recognize our nearly 1200 associates across the country.
You continue to be the driving force behind the value we create for both residents.
Shareholders and I'm grateful for your dedication to that mission.
We could not be prouder of the work, we're doing together to provide homes for tens of thousands of families who need or prefer to lease a home today.
With that I'll now ask Charles to discuss our second quarter operating results in greater detail.
And shrinks Dallas I'd like to begin by echoing your thing store associates for providing another quarter of and exceptional care to our residents who place their trust and us to make the leasing of homes friendlier and worry free.
Our positive momentum and focus on residents have resulted in another great quarter operationally on both the revenue and cost side.
With outstanding fundamentals and our markets and.
And excellent execution by our team same store NOI grew 8.4% year over year and our second quarter same store core revenue was up 5.9% year over year, driven by strong rental rate growth continued strong occupancy and improved other property income.
In addition, our collections came in at 99% of historical levels and the second quarter.
On the expense side expenses remained in check during the quarter.
Same store core expenses and the second quarter increased only modestly up 0.9% year over year aided by continued low turnover.
Next I'll cover leasing trends for the second quarter year over year renewals increased 230 basis points to 5.8% and new leases increased 1100, and 10 basis points to 13, 8% just drove blended rent growth to 8% or 470 basis points higher year over year same store, new and renewal.
Rates have grown over the prior month every month this year.
At the same time same store average occupancy came in at 98, 3% and our second quarter and 80 basis points higher year over year, and fact June with a ninth consecutive month that all 16 of our markets averaged above 97%.
Leased occupancy.
There are 2 main factor supporting our high occupancy. The first factor is continued strong demand for our high quality and well located homes included within that our favorable demographics and fundamentals that Dallas mentioned earlier and addition to these the need for more space remains the number 1 reason for moving into our.
And our second factor is our continued improvement and our days to re resident during our first quarter earnings call. I told you that the number of days between when a resident moves out and a new resident moves in and decreased significantly to 29 days.
We reduce this even further during the second quarter to only 23 days our.
Our goal is is to make finding a new home and signing a new lease as simple as possible and we're continually trying to improve ways, we can lease quicker and moving faster.
1 other ways. We're doing that is through technology prospective residents are able to review floor plans and conduct virtual tours online with a large majority.
Choosing to do so on their mobile device.
And when a vacant homes available for and in person tours, we're happy to work with their preference of doing either a guided tour or self tour and using our smart home technology.
But most of the time during the second quarter, our available homes for pre leased to a new resident and before that home its EBIT rent ready.
And with residents staying longer and our homes at such high occupancy, we're pleased to reintroduce our pro care home visits and the second quarter after a temporary pause during the pandemic.
As a reminder, pro cares our unique proactive approach to serving our residents from moving to move out including post move and orientations proactive.
Trips and pre move out visits we believe regular proactive visits help us identify opportunities for both R&M and turn savings and provide and enhance experience to our residents.
In summary, thanks for the great work of our teams. We believe we are well positioned for the second half of 2021.
And we're excited to keep this momentum going and we remain very focused on delivering outstanding service to our residents and outstanding results to our stockholders with that I'll pass it along Ernie.
Thank you Charles today I'll cover the following 3 topics first balance sheet and capital markets activity second.
Financial results for the second quarter and third updated 2021 guidance.
Regarding our balance sheet and capital markets activity, we had over $1.1 billion and available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility at the end of the second quarter.
Earlier. This month, we gave notice of our intent to settle conversions of our 3.5% convertible notes with common stock.
We expect that $345 million of notes to convert into approximately 15 million shares on or before the maturity date of January 15th 2022.
Most of our announcement to date approximately.
$177 million and notes have converted into approximately 8 million shares of common stock.
We anticipate the full conversion will reduce cash interest expense by approximately $12 million on an annualized basis.
And on a Q2 pro forma basis resulted in an improved net debt to EBITDA ratio of 6.7 times.
Down from 7.0 times on an as reported basis.
This will leave us with no debt maturing prior to December 2024.
We also announced back in May that we closed $300 million of privately placed senior unsecured notes the private placement jumpstarted, our goal of transitioning toward a higher proportion of unsecured debt.
Improved the ladder ring of our debt maturities.
It also came on the heels of receiving investment grade ratings from 3 of the rating agencies and April we.
We remain committed to further strengthening our balance sheet and are pleased with the progress we've already made since achieving investment grade.
Turning next to our financial results for the second quarter core <unk> per share increase.
And 1% year over year to 37.
And <unk> per share increased 16, 9% year over year to 32.
These results exceeded our expectations.
Based on our latest forecast through the remainder of the year, we are raising our full year 2021 same store NOI growth guidance by 100 basis points to a range of 6.5%.
For it to 7.5%.
This increase includes a 50 basis point increase in same store core revenue growth and a range from 5% to 6%, while maintaining same store core expense growth guidance and a range from 2.5% to 3.5%.
Finally, we have increased our guidance for full year 2021 core <unk> by <unk>.
Percent and point to $1.44 per share.
And increased full year 2021, <unk> by <unk> <unk> at the midpoint to $1.24 per share.
And Dallas mentioned at the beginning of our prepared remarks, we believe our differentiated strategy of focusing on location.
Gail and eyes and markets is the best Formula for our business.
Now and into the future.
When coupled with a strong balance sheet.
Robust internal and external growth model and an unwavering commitment to resident care. We believe invitation homes is best positioned to deliver outstanding results to our residents and stockholders.
With that let's open up the line for Q&A.
And we will now begin the question and answer session to ask a question you May Press Star then 1 on your telephone keypad if.
And if you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our.
Sure.
Yeah.
And our first question will come from Rich Hill of Morgan Stanley. Please go ahead.
Hey, guys good morning.
Congrats on another good quarter.
I wanted to just go back and talk about the guide a little bit.
And Ernie and I am sorry, if I missed this and the detailed prepared remarks, but could you maybe walk us through what you're assuming for bad debt and and other income and the second half of the year I recognize and to Q.
Ross.
Other income turn into a good guy and bad debt was neutral just trying to understand a little bit.
How conservative.
Those numbers might be and the second half of the year relative to the guide.
Sure. Thanks, Rich, yeah, specifically with other income and bad debt you are right to point out and other income and became a little bit of a tailwind for us and the second quarter.
And we had a comp where last year and the second quarter, we didn't charge any late fees and now we're charging late fees where permissible.
And pretty much across the portfolio again, where it's allowed we expect that to continue here into the second half of the year. So you have a very good comp.
And for the second half of the year and other income now even though it's similar to what we saw and and the second quarter.
Because with the with bad debt, we were pleased to see that we saw some improvement and little bit faster and we thought we would and we thought the second quarter was going to have a more of a headwind with regards to bad debt comparing to last year, we end up and coming in at the same number for you.
You may recall last year, rich and and the second half of 2020, and we saw bad debt and go into the low 2% range.
We do expect that day, we hope and baked into our guidance that bad debt will continue to improve off the number that you saw and the second quarter still staying above our historical average of about 40 basis points significantly, but you know trailing down more into the mid 100 range, maybe a little bit better as we get into the fourth quarter. So it should be a tailwind for us but it just continues to be a tailwind for us we would we would hope.
And go into 2022 as well.
Got it and and then moving to the expense side of the equation.
It looks like expenses are going to be all of it higher and the second half of the year. Some of the afternoon seasonality, but I also think if I remember correctly. Some of this has to do with.
And insurance costs and then maybe.
Hope is with higher turnover.
And do you think theres any scenario where.
The expense the assumed expenses and the second half of the year contest. The low end of the range or said another way what would drive it to the low end of the range and give me confidence and that could maybe be a little bit lower than what it implies at the midpoint, yeah, and that's a question for us yet, but theres certainly absolutely.
Scenarios, where we can do better than the point and the range and maybe get down for low end or maybe even do a little bit better we do think and the second half of the year expense numbers will be higher for really the following reasons..1 we had a really good second quarter and real estate tax number that you might have seen on a year over year basis. As we had some we had some refunds come through.
We expect to get back more to where we expect.
Be a little bit to be for real estate taxes. During the second half for the year, which is probably about a 4% increase year over year and that's coming off of basically about 1 per cent number that you saw and the second quarter and were.
Real estate taxes are the biggest component of our expenses are almost 60% of our expenses.
We do think turnover will continue to you know maybe I shouldn't continue could increase year over year, we haven't seen.
The run rate this year. So we built that into our guidance that we do expect a year over year increase and turnover, which set to see if that if that comes to fruition insurance costs. As you pointed out are running higher than they were last year up about 7%, which is I think industry, leading and the residential space and he most people are seeing increases and the 20% to 30% space and in the residential world with insurance. So that's worked out.
And that yet for us. So we hope that we'll have similar performance that we saw and the first and second quarter, where where things came in a little bit better than we originally thought and where we certainly try hard to do that but we wanted to lay out something that are you know we thought gave us.
And where we thought things could potentially come on and expenses and just look to outperform like we've had so far this year.
Got it and that's helpful and Dallas just 1 more question for me.
Pretty well and I'm curious, what you're hearing about homebuilders.
With similar partnerships relative to what you just announced with with Pulte.
Is this sort of something that you can replicate on a much larger scale and.
And I'm, asking really from and I suspect you would have done a lot of these over the past 5.
If you could have but are you seeing much more demand from the homebuilders to do these and and is this just a template that that could take you from 7500 homes over the next 5 years to something incrementally higher than that.
For a good question rich.
First and foremost I think we've talked about this really the last few quarters.
We.
5 years of a variety of builders generally speaking and the past and we've done stuff with both public and private builders boutique builders and different markets. The pulte relationship.
<unk> continue to develop over time, Ryan Marshall and I got to know each other a couple of years ago and this is something that we've been working on and a spirit of partnership.
And to try to figure out how can we really move the needle for both companies over time and distance and so I think it's the right start between us and it and a partner like Pulte.
Where we can help them in ways that they can be.
As Ryan mentioned on his call a little bit more aggressive maybe on some bigger parcels and we and they.
And we weren't rail bus and net we can have a partner who is an expert at what they do help us with you know future delivery pipelines and parts of the country that we can be a bit picky about so is it replicable, perhaps and maybe maybe also and it can go beyond what we've already talked about so I think we're excited about it it.
Doesn't preclude either company from doing business with other parties, but it's meant to.
These strategic in nature, and we're gonna collaborate and find ways to.
And to take these for 7500 and hopefully grow it well beyond there.
Great. Thank you guys and congrats on a container.
Continuing to put up some nice growth here.
I appreciate it.
The next question comes from Jeff Spector of Bank of America. Please go ahead.
Great. Good morning, just to follow up on the Pulte.
Announcement can you discuss a little bit more.
You know how it will work or are they building the homes spin.
Specifically for.
Rentals, meaning better materials or anything different than they normally do.
And.
I guess the margins or how does this exactly work for you.
So first of all.
They're really good at what they do generally right I mean, the the nation's third largest homebuilder they bill.
Bill you know tens of thousands of homes every year I think what is strategic for US is to have the ability to appreciate and understand future pipeline and where some of those opportunities may may be to collaborate on floor plans and fit and finish standards that are are you know incrementally helpful to us as a single family.
And operator.
And I think more importantly, we're bringing additional supply into the marketplace beyond what perhaps pulte would do in a given year. This is meant to be incremental growth for both companies. So.
All of that you described there really is some of the finishing details of why partner.
Partnerships like this can make sense and I think more importantly, it will kind of come and a variety of buckets there'll be neighborhoods, where we're buying.
Homes that are part of a broader sales effort by pulte. So our renters will have neighbors that own their homes much like our portfolio exists today there'll be opportunities, where we can cluster and do some.
Rental and efficiency perspective, our debt will allow us to have you know maybe better.
Efficiency standards that could create margin expansion to your earlier point and then I think there will also be a you know.
It's our entire parts of communities that can lend themselves to rental which allow us to.
Test and try some some different service.
Standards for our residents over time and distance all meant to be collaborative all meant to be and a spirit of partnership with pulte and and really not all that different from our approach with builders and the past except that we can be and on the ground floor much earlier and a much bigger scale.
Okay. Thank you and then I know that you have you know several.
Things for important data analytic initiatives and just.
Find it so interesting every quarter, we talked about increasing demand and average length of stay continues to increase and anything else you can share with us what you're learning on whether it's your new customers or those that are staying.
And your data initiatives.
Yeah, and this is Charles I mean, what we've been able to track really from.
Both marketing and data is what's driving the demand for our homes and as we've talked about and previous calls we've been serving our residents as they come in.
And.
Interesting that I said in my opening remarks that they're looking for more space.
27% are moving from cities to the suburbs.
And you were also seeing a trend of people coming from out of state into our markets like.
Florida.
To the south and southeast Atlanta, Carolinas, even and the taxes coming out of some other western states. So that data is all leading towards you know are seeing an uptick.
And our average length of stay that you know is moving as we've talked about we expect to be around 3 years and H each.
Each month each quarter, its getting a little longer. So we continue to watch that data as well as other things that are making it.
So we can make sure we're creating greater opportunity for our residents most and for foremost is it's the great locations of our homes.
And frankly that is the portfolio.
Well it was built originally and that's what's driving the demand Good School district safe neighborhoods are well located homes.
Thanks, and then my last question a follow up I guess on that point is just I know location of course matters and it is critical but demand is strong it seems like for single family rentals throughout the country.
<unk> are there more markets youre looking to enter.
Yeah, Great question I mean look if you look at our current footprint, we're seeing household formation and I'd almost 2 and a half times. The U S. Average so your point about demand is spot on.
Country continually continues to move further south and we've been pretty vocal about.
The fact that we would like to be and a few other markets. Maybe over time, you know salt Lake City would be a market debt. The debt that is 1 that we've looked at Austin, we've always liked our when we were and Nashville, We just didn't love the product. So I do think there'll be opportunities and the future hopefully that.
And that will allow us to maybe add a little bit more market expansion, but.
And again, taking a step back remember our scale matters and it's 1 of the 3 pillars, we focus on from an investment perspective, and so expect us to continue to to invest and the markets that we're in and drive that additional scale, which will enhance our overall return profile for shareholders.
Great. Thank you.
Thanks.
The next question comes from Sam Choe of Credit Suisse. Please go ahead.
Hi, Good morning, guys, just going back to the Pulte relationship. So when you receive those new homes or in future years are you planning on receiving.
And communities or is it more spread across select markets.
And it's it's it's a combination of the 2 so within our community.
And we made it.
And I'm just using an example of pulte were to build 6 or 800 homes and the community. We may be a buyer of 100 to 150 of those.
And then there may be other communities where they.
They can be clustered or spread out and much smaller numbers. It just depends on the opportunity set.
And what's going to happen is pulte will bring forward to us well before they move for the project the opportunity and we will sit down with them and and we'll negotiate on a project by project basis, whether we're interested.
And what makes sense for both parties in terms of how much we would participate in that project and and that will just go into the pipeline for us So you're going to see things that are going to be delivered on and community by community basis and over time, we will see a buildup and the various markets and we're working them out with that but it was very much on a project by project basis as to how the delivery schedule will be set.
Got it so I mean I was just curious because like for those community based acquisitions I guess.
Could there be potential for amenity fees being incorporated in those.
So what typically happens is in Asia and will be set up and the community and if we're part of a community than just like we have with HOA.
<unk> currently and but I have amenities and our current homes across the portfolio that would be set up that way. If we were to buy an entire community than someone who would be established with regards for that entire community that we would be responsible for at that point.
Got it okay, great color 1 more from me.
Just looking at your 2 J B's could you remind us how.
And how the portfolio construction and differs from rock point and Fannie.
So the Fannie JV is very much and the JV. They came and that's a historical JV that came over from this merger and that has homes, and Nevada, California, and Arizona, and he's really kind of minutes wind down phase, but it will take a few years for that and it happened at this point I think it's less than 500 homes around 500.
Homes and each year, we've been selling between say 50, and a 150 homes out of that the Rockwell and JV and the geographic there will be more similar to the portfolio that we have today here at invitation homes and that JV is not going to focus on every market for 16 markets that invitation homes and invest in but it's moving folks on and somewhere between 8 and 10 markets. So that'll be a little bit more of a geographically diverse portfolio and that's a growing portfolio.
And that will continue to grow likely over the next year to year and a half as we have a 3 year investment horizon for that JV.
Got it appreciate the color. Thank you guys.
And next question comes from Handel St. Juste of Mizuho. Please go ahead.
Thank you.
Good morning out there and.
And I and up.
So and.
Other 1 on the strategic partnership with Pulte.
Was hoping you could discuss a bit more provide a bit more color on some of the targeted yields.
Ours.
Thoughts on funding and understanding.
And your comments about scale I guess I'm curious would you be open to entering new markets via this partnership because their platform and I guess that footprint for a bit more expensive and yours yeah.
And to answer your last question first yes, I mean, I think 1 of the benefits of this partnership will be we could look at new markets together and it would give us some meaningful approached.
To scale, and which you know for US handheld is really important.
And to offer the suite of services like pro care and and some of the other you know benefits of being in our portfolio.
And that are derived from that position of strength being scale. The you know in terms of the return profile.
And it's very similar.
And how we've been buying for the last couple of years. You know, we think that we can find what we think of as stabilized yields and the fives.
And in parts of the country that are you going to lend themselves to that outperformance both from a home price appreciation perspective, as well as where we believe rate will go over time.
I think that the 1 net benefit that.
We probably.
Haven't had historically would be just the new product side of it right with builder warranties and.
<unk> fit and finish standards that are exactly how we want them going in.
And that will be a strategic chip for us so to speak as we think about opex and capex over the long haul and some of those communities.
In turf and fair enough I appreciate that.
I guess, a question on California, and your portfolio, there and I think you're right around 19% of and then and why I believe it's still a pretty large exposure down from where it had been but I heard a number of others and ready land.
Coding portfolio, there and getting some really good pricing. So I guess I'm curious about your long term view on your California exposure are you, perhaps open to actively calling and Quebec and the source and funding for perhaps some of the.
Total investment.
Well you know first in terms of calling and California, we've we've done a little bit of it right when homes.
Homes get really really pricey, a lot of times, there's a higher and better use for that capital to your point and will sell and then and cycle recycle that capital and another part of the market, where we can find the risk adjusted return that makes sense.
Taking a step back, though we love being in California, We think it is a differentiator.
What we mentioned and are released.
Talk about first projects with Pulte and it looks like it's gonna be and southern California.
We want to continue to invest and California and create additional affordable housing solutions for those markets and so there's a lot of benefits obviously, it's got a great economy.
And the prop 13 advantages or a really special.
In terms of how you can think about property tax growth and things like that so all of that we do as a net positive but again to your point, sometimes it is a very expensive place from a real estate perspective, and and on occasion as things get too pricey, we have sold but that's I wouldn't say, it's a core focus for us by any stretch of imagination right now.
Got it got it thanks.
And then.
And last 1 if I could just on the days to re rent and Charles Kudos and getting that number.
Down more than perhaps I would've thought a year ago. So here you are getting 23 days and the quarter I guess I'm curious overall and not to sound like we're not impressed but how much better and that it sounds like you've mined out a lot of inefficiencies using technology and really well.
And I guess I'm curious, what's the remaining opportunity and how do you get there and.
And a good question no. We're really proud of the teams and what we've been able to do on the day's reruns and and we reduced it about 13 days.
Quarter over quarter.
You know we.
We got here through a combination of.
Execution on reducing our turn times.
Keeping aged inventory down and and the majority I brought it up and and the comments around pre leasing.
Technology has helped there I think we're driving towards what we hope is a new normal I can't predict how how much longer we're going to go what we're gonna push.
Great and I think it's it's on consistently getting a pre leasing done and using the technology. There. We do have some markets. When you look across 15 of our 16 markets are and the 20 day range, which is really impressive and you have a couple of markets that are and the teams again high occupancy low turnover all of that leads towards.
And so we're in a really good environment.
And we're going to do our best to sustain and if not get better, but it's a constant work by the teams are doing a great job.
Fair enough. Thank you.
Thanks and up.
The next question comes from Nick Joseph of Citi. Please go ahead.
Thanks, sorry, if.
And I missed this but for the poll for your relationship what whats the total capital outlay over those 7500 homes and.
We haven't disclosed that there were looking at projects all across the country. So we could be buying homes that are and the high 200000 range up to the mid 4 hundreds and for instance, the deal and California's moving out of higher price point. So we don't know yet exactly what that's going to be but.
And I think the way to get a good sense for it has taken a look at our average home price that we're purchasing today across our portfolio and it's going to be in that ballpark as we think about all the different markets, we're going to work with them on.
Thanks, that's helpful.
You mentioned and the potential for margin expansion for some of the cluster and homes can you try to frame that versus just a <unk>.
And within the portfolio.
Yeah, because we have a good day.
Yeah, I mean, because we have such good scale and we think it's where average will be incremental once and we get very interesting as we think about amenity packages and things. We can do there additional revenues and we could potentially get by having the cluster at homes and of course, there could be some efficiencies. We don't expect to change our operating model I know some people and the build to rent.
Outside of the single family World, where they're hiring multifamily operators are putting people who have staff on site.
We're not sure that's going to be that would be necessary and and we think that would be inefficient and so I think it's just it's not hundreds of basis points, it's probably going to be in the tens to the and maybe a little bit better than tens of basis points, where we think with the clustered opportunities. It just really overall and enhance.
World you can do from an operating perspective.
Thanks.
Thanks, Nick.
The next question comes from Rich Hightower of Evercore. Please go ahead.
Hey, good morning, guys. Thanks for taking a couple of questions here.
So just and I'm looking at and <unk>.
<unk> for.
Occupancy and the quarter and how strong that has been and is there an optimal level of occupancy that you're targeting as you think about the strength and and new lease growth as well, how do you sort of optimize those variables.
Yeah, it's it's a and.
Charles It's a constant balance I mean, the optimization is the right word we have.
Hans and lots of really smart people and.
Our field teams on the ground working in tandem to try to find that right balance between occupancy.
New lease rate growth renewal rate growth and we're at that balance given the demand that we're seeing for our product right now.
I thought that we might be a little lower than that.
And 98% I'm pleased that we ended the quarter and 98, 3 seasonality would typically take us a little lower this time of year.
You can see our new lease and renewal rent growth. We are trying to find that proper balance given that we ended the quarter new lease 13, 8%.
And renewals.
<unk> at 5.8 and so we're still.
Kind of calculating and there and.
And we'll see how it balances out I expect that we might go down slightly on the occupancy side, but with the demand that we're seeing and what we're doing on the days and re resident and as I've talked about earlier, we're controlling what we can control and the demand is there. So we will.
Keep watching it.
Again this is a unique environment that we're in and the teams are doing a really good job of executing right now.
Got it yeah, it's definitely a high class problem.
For sure.
A quick follow up on renewals and Seattle, obviously, that's that's sort of the outlier last quarter.
On the low side or.
Can you confirm that there are still.
Regulatory caps in place or what's the situation out there.
And there were a regulatory caps for Q2, and you can see that and our number as we're going into Q3, they are starting to loosen and into the fall. So you'll start to see that come up we're trying to be thoughtful and we're watching it and theres.
And then kind of start to to pull back and then move back and forth. Each of the states have been monitoring that but we're at a place now where we're going out with more normal as on a renewal side and so you'll start to see that come up later in the year, we'll see how it plays out.
Thanks, Charles Thank you.
The.
And next question comes from Brad Heffron RBC. Please go ahead.
Hey, good morning, everyone.
My first question.
It seems like those homes would just naturally have to be more suburban and the existing portfolio. I guess first of all is that correct and then.
Does it.
And sort of a strategy change and how does it affect the expectations for for density and growth.
No on the strategy change and.
I think the balance if you look at where they build and develop.
But they do have a lot of infill projects, but I think there are some opportunities in parts of markets, where we already currently.
And that's capital that and 1 of the first.
Transactions that we put and contract with them is it lays over nicely with a bunch of stuff that we already own and in Atlanta, and so no. It does not change the strategy shifts at all I mean, the reality is we want to continue to buy probably a little bit more expensive homes, it's a little more infill in nature and.
Certainly.
Parts of markets, where you're seeing the potential for high growth.
It could be you know a little bit more suburban ish, but at the end of the day, that's not our model, we want to try to invest capital and parts of the country, they're going to lend themselves and that continued outperformance keep that occupancy up the Charles just talked about but I think more importantly, it's evidenced in our lease rates that you know the real estate we own.
Tends to be more infill.
And along all of those important factors like transportation quarters jobs and schools and therein lies quite a bit of demand. So we're going to stick to that playbook.
Yeah, Okay, very clear and then how incremental are these acquisitions. So obviously, you're not going to give 'twenty 2 guidance, but.
And so 22 acquisition budget become $1.5 billion and instead of $1 billion because of the deal or is there some some overlap.
No, it's definitely incremental but youre right, Brad we can't give guidance and what I would tell you is it depends on what the opportunity set is for all of our channels. Because you know we're location specific channel agnostic, so there's a little bit hard to predict today.
And what the.
And with things May look like next year with regards buying off the NLS.
Volume from the eye buyers and things like that but this related and incremental source for us it's not from a place of other things that are available to us.
Okay got it and then.
And I apologize if I missed this in the prepared comments, but Charles do you have any.
And the stats for you know blended lease growth in July.
Or any other color you can give along those lines, yeah, and what I would do is you know we.
And we gave you overall Q2 was phenomenal.
Blended came in at 8 O new leased 13, 8 renewals and a 5.8 and we ended June.
And in every quarter of the month accelerating so June ended at 16, 2 on the newly side.
The renewals and <unk> and a blended 8.8 what we're seeing in July where were not all the way there yet is and <unk>.
Further acceleration and the demand is still there it's healthy.
And we're seeing a similar trend so we'll see how the rest of the quarter shapes up but it's a good start to the second half for the year.
Okay. Thank you.
The next question comes from John Pawlowski of Green Street. Please go ahead.
And.
And thanks, a lot for the time I wanted to stick with the conversation on scale and when and what it means for operating margin, but within the existing portfolio. Charles as you look at your your.
And your markets and maybe a smaller markets or are there still any markets, where you know you could operate at meaningfully higher margins. If he had 25 per cent.
50% greater homes.
Yeah, I mean, we have some really great markets that Dallas and team are buying and the Denver's the Seattle's Dallas.
Dallas.
You know even markets like Phoenix, where we have good scale, we want more and so the way we have.
Operating model set up is we can add and these incremental homes and not necessarily have to add more head count until we start to get significant size or add significantly more homes. So it's really healthy model.
And our teams know how to do and it's utilizing technology, it's being thoughtful with our.
Our power and maintenance and turn side using the technology. There. So you know the markets, where we're at 3000, we'd love to double and Phoenix, We can add 2 or 3000 more you can see it when it shows up and our our Atlanta market, we're really performing well with 12000 homes, there and we can add more there as well, but it's that's a good testament of of where.
Where we get really efficient, it's 1 of our more efficient.
Efficient markets and terms of head count and how we're able to perform and it's showing up also in there.
Occupancy and rate growth that they've been able to get this summer so.
Yeah look well theres lots of markets that we're looking at and Florida has been healthy for us as well.
I know, we're looking at some market there in terms of expansion so.
And we like where we're buying and we think it all helps especially as we continue to be thoughtful around how we load and technology and get more and more effective and efficient.
Okay, and then there's a few other smaller metros, you referenced Denver and Seattle.
You know again, if you if you double those markets and we're talking another.
And and NOI.
NOI margin and less more just any sensitivity would be helpful.
Yes, and I hate to do question.
I think it's for us to quantify it precisely is a little bit challenging I think and a ballpark like you said I could certainly see that we can improve.
<unk> margins by a point too as.
As we get more scale and.
And for sure.
Okay last question for me.
And policy risk, so I know the sectors and never had an easy battle and and public relations front, but it does seem to be getting worse in terms of media headlines and maybe it's a national.
<unk> oversight, but at the local level is there any policies coming down recently enacted or and the hopper, that's making your lives more difficult and buying homes.
No not at the local level no John.
State and national level.
Okay.
<unk> Army volume now in terms of buying no I mean in terms of growth no has more to do around you know just how you how you manage the properties and everything else, but now and the growth side Theres nothing.
Okay. Thank you.
Yes.
The next question comes from Keegan Carl of Baron.
No. Please go ahead.
Hey, guys. Thanks for taking the questions I think first you just remind us how you determine what gets placed and the wholly owned bucket versus the rock point J V and Youre looking at specific markets that the JV is targeting.
Yeah. So we start right there Keegan, where we came in and negotiation with the JV partners and what markets.
Darrin, we're interested in investing in and then second step was we didn't talk about proportions of what assets will go where so and markets like Atlanta, where we have a high concentration and our balance sheet as we find them. We agree that as we sourced homes and in markets like Atlanta, and we would maybe do 3 out of for homes to the JV and the fourth home and go to the balance sheet and markets, where we're under.
And as they scale and we're just kind of talking about on the last question like Denver and Dallas, We go the opposite direction, where you came in and an agreement that we would do 3 out of for on the balance sheet versus the JV and then as the total team sourced those homes. They have no idea, where it's going to go and we know that's really just an algorithm that runs behind the scenes that says all right if of invitation homes balance sheet got these.
And the 3 homes that just closed the fourth home goes to the JV and then we just run the same thing most of the markets are 50, 50, I just want to differentiate so you understand how it works, but it really just kind of behind the scenes and if multiple closings happening on a day, we put them in alphabetical order and.
We closed them into each entity based on that.
Okay, that's very.
Helpful. Thank you and I know this came down to scale and the past, but do you guys regret selling other Nashville, given the current market dynamics and I know it was touched on earlier, but what would really drive the desire to reenter that market.
And then taking a step back and Nashville, I think was less than 1 per cent of our over our revenue. So no no regrets because they didn't love the product type.
And we talked about at the time and.
And we did really well and the sale there we'd like to be back and Nashville at some point with the right products. So.
And what would it take to get back there I think just having enough scale and having.
A vision that it makes total sense.
Sometimes when you think about markets with Nashville, specifically, it's a pretty.
Market from an MSA perspective, but very high growth and.
And there's challenges to getting the right kind of scale and the right parts of the market.
And without being diligent and how you do it so I hopefully someday, we'll get back into that market through a trade or an opportunity to enter but.
There's markets all around there like Charlotte and a few others that we've been able.
Small and mid scale up instead of applying capital and Nashville, and getting into Dallas as point and we got a very nice price when we exited Nashville for product and on long term, we redeploy that capital and the markets that are growing faster and the Nashville at very good price points at that time and when we redeployed. So it has certainly worked out fine from us from a trade perspective.
Alright, great. Thanks for the time guys.
The next question comes from Jade Rahimi of K B W. Please go ahead.
Hi, This is Sarah Obeidi on for Jade. Thanks for taking my question. My first 1 and does that flow to agree and that represent any shift and location strategy and can you speak to how those homes will fit.
And with any broader footprint and comment upon and your locations you were targeting.
Yes, those answers.
Are in line with what we said earlier on the call which is no no.
And shift in terms of approach of where we're buying a lot of the communities that we'll be buying and lay up nicely relative to product we already own.
I think the net benefit of having that new product. Obviously is that all of your hard fixtures and everything our brand new <unk> got builder warranties and I think our partner that we can also work out for plans and some of the other fit and finish standards that we care about so.
All net net benefits to our existing strategy.
Thanks and.
And my second question is how much of a priority is growing the investment management business is there a target for assets under management or aggregate number of homes.
Look we talked about the rock point JV as 1 that was pretty opportunistic and.
It's got a limited shelf life to it in terms of the capital that.
And that has been committed to that opportunity set.
But we're always going to look for opportunities to enhance shareholder returns if they make sense and don't compete with our core interest so.
We don't have a set target of what we'd like to do but are you and I and we've talked about this over time and distance that there could be different vehicles that are available to us over and over time or a different seasons of and investing.
It makes sense and a JV structure so.
That's great. Thanks, so much.
Hum.
The next question comes from Ryan Gilbert of B T. I G. Please go ahead.
Everyone and thanks for the time.
First question for Charlie.
<unk>.
And I appreciated your comments on July.
Do you have a sense of where occupancy is shaking out in July and I guess more broadly.
And whats your view on on <unk>.
2021, exhibiting and typical seasonality versus seen another extended leasing season like we saw in 2020.
Yes, good questions and we ended on average Q2 at 98.3.
As I mentioned before these summer months, you typically going to see a little higher turnover and occupancy is going to come down.
As I have been looking at it month to month I think July will come down a little bit, but we're still going to be 98, So it's still really healthy.
And we'll see where the further months ago.
And think about seasonality of these are really healthy numbers that we're putting up for the summer and I do expect that we're going to see some form of typical seasonality, where it will slow down and Q4, but we're coming off a high number so it's a relative slowdown and.
And so we'll see what that looks like.
But at the end of the day.
'twenty 1.
Holidays happen and you know all of that will be there and I think it is going to you're not going to have people moving as much. So you'll have a little bit of a slowdown, but we're coming off a really nice basis relatively.
Okay got it and then second question is on expenses.
I appreciate that.
Lower turnover and lower.
The days to re resident is really helping out on the controllable expense side do you have a sense of what.
And what the underlying material and labor inflation is and controllable expenses.
Yes, we're watching it.
We're not immune to what's going on and the market from both material and labor side. It's a it's part of the market.
Day.
And we're.
We're looking at that we were it's market by market as well and we've seen a little bit of the staffing challenges and demand for our talented folks.
And so as you we've given our guidance changed any of those costs are baked into.
Hum.
And into our guidance at this point. So we'll continue to monitor if it ends up being material, but if you look at it and we've put up good numbers to date and things are trending well.
It's something to pay attention to not only for the second half of the year, but going into next year.
Okay do you have a sense of the magnitude maybe just.
The other.
That's a very broad range would be helpful.
You know it.
And it's hard to tell you know it's coming from different places when you think about materials.
Our procurement.
Staff is amazing and so we're able to buy from a national level using our scale. So that helps us so that's going to mitigate some of.
And then at a local level.
And really kind of comes down to what's our staff turnover, we've seen a little bit but nothing that's out of the ordinary during the summer months. So it's hard to quantify I wish I could give you that but it's hard to put specific numbers on it but right now it's not having a material impact when you think about what we've put out for guidance change.
Definitely okay, great. Thanks for the time I appreciate it.
The next question comes from Dennis Mcgill of Zelman. Please go ahead.
Alright, Thank you guys.
First question just on the Pulte arrangement on pricing and at what point and the process do you.
And negotiate a price or how is price negotiated and is there any point, where that would change dependent on market conditions.
Any kind of talked about before Dennis we look at these projects on a project by project basis, and our teams are able to negotiate directly with pulte.
And on each of those upfront so that's it.
That is a I think.
A really simple and clean way of doing this where it's on a project by project basis and the teams have a familiarity with each other they know what kind of product we're going to want to look at what kind of submarkets make the most sense for our business. So.
And that's already kind of and figure it out and it obviously just get smoother the more you do these repetitions.
And between the 2 companies so.
And that's how it exists today.
Alright, and I guess to the degree and that market shifts 1 way or the other does that price just remain fixed or is there a sensitivity of the market and the details no. I mean, we we we look at and being fair to both parties and making sure that we have structures in place that represent that so okay.
Okay got it.
Second question on the acquisitions and the quarter, both wholly owned and joint venture can you give us a sense of how that breaks down by channel.
Yeah, plus or minus a majority of this quarter was 1 off and we talked about this and the first quarter call that we would expect velocity to pick up through the latter part.
The year and second quarter was much bigger than first and and and just a little bit of a heads up July looking really healthy will probably be north of $200 million for just the month. So we would expect the third quarter to be pretty strong as well so and majority of which is still just kind of 1 off acquisitions either off market through MLS or some of our local channels.
And and so that would that would exclude new and I buy alright buying as well yeah. I mean, we have and those are small yeah, we had a little bit of it and I would say 80, and 90% of second quarter was basically a 1 off transactions.
Okay Perfect and then just last 1 I guess as you kind of list and through all the data points and understand how robust.
Everything is it's it's easy to see how strong the businesses, but when you look out over the next 12 to 18 months and think about risks that you need to be mindful of what comes to mind for you run and the company and trying to balance kind of opportunity versus the unexpected risks.
I think we've talked about a couple of them on the call Charles and their team.
We're doing a great job.
Trying to stay ahead of procurement costs cost of goods sold some of the volatility that's kind of happened over the last year with the supply chain has been tricky to navigate I think we've done a really good job of it but it has caused us to think about how do we hedge some of those risks and the future differently.
We obviously worry about and public perception.
And some of the false narrative that's out there around what companies like ours are doing our teams have done a fantastic job of really navigating the pandemic working with residents and making sure that we stay apprised of their needs and.
But I think you know lastly, we want to make sure that at the local level state levels, we're pretty active and the conversations around housing opportunity and what.
And do you know, California is always a little bit tricky Mark and his team do a good job of staying in front of the legislative issues that have happened there at the state level.
But it feels like we're always kind of moving around between what states doing what and how and why and and those are kind of the things that we really want to stay ahead of because it's.
Every market behaves a little bit differently, both with the product that we buy how we operate it.
And then what some of the other kind of market driven dynamics are and so I think those are the things that we spend a lot of time as a management team talking about and <unk>.
And to make sure that we stay at private debt from an opera apprised of on and operational perspective, but we.
It is that we comfortable and when we really clear like we want to continue to grow the business want to find ways to continue to innovate for the resident experience.
And that's really more I think what we spend time worrying about is how do we not get flat and make sure that we're still pushing ourselves to bring the best service and quality standards for the rest of it.
Alright very helpful.
We don't Wanna get away and good luck guys. Thanks.
The next question comes from Tyler Batori of Janney. Please go ahead.
Hi, good morning, I appreciate it.
And I'll stick to 1 question here acquisition cap rates any movement, 1 way or the other just given where home prices.
Saar and from the competition, that's out there and any perspective on what yields might look like the rest of the year.
We signaled on this a little bit last quarter on our call. We've traditionally kind of been and the mid fives with the product we're buying with some of the price increase we've seen that kind of go into kind of a low to mid fives. So I think <unk> been somewhere around 5%.
And 2.5 and a quarter on a blended basis of what we've been buying and Q2 and that feels like the market right now and unfortunately, we're seeing we are seeing a little bit more supply creep back into the marketplace, you're seeing listings, new listings kind of creep up and but we don't expect like some drastic change and supply I would expect us to be.
You know around a 5 cap or a little bit better if.
If we stayed at this pace.
Okay excellent I appreciate the detail. Thank you.
And.
This concludes our question and answer session I would like to turn the conference back over to Dallas Tanner for any closing remarks.
Hopefully, we appreciate everybody's support and we look forward to talking to everybody next quarter, hopefully getting to see a few U and the fall. Thanks again.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.