Q3 2021 Invitation Homes Inc Earnings Call
Greetings and welcome to the invitation homes that Codeshare 2021 earnings conference call.
Yeah.
All participants are in listen only mode. At this time should you need assistance. Please signal a conference specialist by pressing stock he followed by Jay right I.
As a reminder, this conference is being recorded.
At this time I would like to turn the Covid, David just Scott 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.
Those young Chief operating officer.
During this call we may reference our third 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 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 materially.
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 can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures to the extent available without unreasonable effort in our earnings release and supplemental information.
Which are also available on the Investor Relations section of our website.
With that let me turn the call over to Dallas.
Good morning, I am pleased you could join us as we share our thoughts on the past quarter and the prospects for our company as we look ahead to start we had another outstanding quarter of Great results. We also continue to find ways to invest capital and generate accretive external growth I'm, particularly proud of our associates, who once again delivered a rash.
We have an experience with a genuine care that has become synonymous with our brand our ability to develop loyalty with our residents. This helped drive strong outcomes for our stockholders.
Out of all of this we believe that the operating fundamentals for our business remains fantastic.
And that the environment for growth remains favorable with our opportunities to accretively deploy new capital among the best we've seen in recent years.
I'd like to discuss these points with you in a bit more detail starting with the strength of the operating fundamentals.
As we've reported our average occupancy remains at historically high levels turnover continues to trend lower and our rental rate growth continues to accelerate well past our traditional summer leasing window as the market continues to demand more single family rental product.
We believe a primary driver of the elevated demand is demographics I've spoken previously about the population of surge of millennials and how we expect many within this cohort to transition into single family homes over time.
They desire more space for raising a family in a room for a home office.
They want better access to good schools jobs and amenities.
They also value the convenience of a worry free subscription based lifestyle.
We believe we're well positioned to continue capturing on these trends.
In contrast, with this surge in demand is a shortage of housing supply.
Which we expect will continue in our markets given supply chain constraints policy restrictions and the time required to deliver new supply.
We therefore believe single family homes located in infill neighborhoods in high growth markets, where supply and demand fundamentals are the most favorable we'll remain highly attractive investments throughout most real estate cycles.
With this favorable backdrop in fundamentals, we believe the growth environment for us to invest meaningful capital remains very strong we surpassed our original $1 billion acquisition target for the full year back in August and we had our strongest acquisition quarter in many years during the third quarter with nearly 700, new additions to the portfolio.
Wholesale.
As a result of our improved pace of acquisitions and a better home resale environment, We increased our acquisition guidance last month to between $1 7 billion and $1 $8 billion for the full year.
With our average acquisition cap rate of 5% this past quarter in excess of our implied cap rate. We believe we are deploying capital at yields greater than our cost of capital.
This is because rents have kept pace in our markets as home prices have continued to appreciate and our focus on infill locations is well differentiated from most new entrants into the space.
To pursue these opportunities we are a multichannel acquisition strategy. As a reminder, we are always channel agnostic and location specific and most of our channels in the third quarter were open and active and remains so today.
The environment for one off acquisitions, as particularly strong right now, especially for the product, we're targeting which are well located homes, primarily in our west coast in Sunbelt markets.
In addition, we continue to lean in on our best in class Homebuilder network to help bring additional new supply to the marketplace. We bought several hundred new homes directly from builders. So far this year, representing nearly 20% of our wholly owned acquisitions. These do not yet include any homes from our previously announced strategic relationship with.
Pulte homes for which now we are under contract or have agreed to terms on over 500 homes.
The first of these pulte homes are expected to deliver towards the end of next year with our target of over 7500, new homes coming in over a five year period.
We are excited to have such a strong pipeline of new homes across a diverse network of homebuilders without the higher risk burdens of being a developer ourselves.
Before I close.
I'd like to offer an update on our sustainability efforts.
Earlier this month, we achieved an over 13% increase in our grasp score from 2020 to 2021, which compares favorably to the average grasp participant who saw no change in their score year over year.
Youll recall last year that we were one of the first reads to add an ESG component to our credit facility. So as a result of our increased <unk> score will realize a one basis point improvement on pricing on our revolving line of credit.
These are pragmatic steps, we are taking while leading sustainability is an important part of our long term success and we are proud to be moving in the right direction. While recognizing we can continue to do more lastly, I really want to say, thank you to our team whether youre demonstrating our core values directly with our residents are sharing them from our corporate offices.
<unk> used the driving force behind the value we create for both residents and stockholders and I. Thank you sincerely for your dedication to our mission with that I'll turn it over to Charles our Chief operating officer to provide more detail on our operating results.
Thanks, Dallas all of our efforts to create a seamless and easy leasing experience for our residents have resulted in another outstanding quarter operationally.
And my thanks to all of our associates for making us the premier choice in home leasing.
For our same store portfolio NOI growth accelerated to 11, 9% year over year same.
Same store revenues grew seven 9% driven by strong rental rate and other income growth while same store expenses increased a modest <unk>, 6%, mostly attributable to lower turnover and repair maintenance costs.
The combination of lower turnover and lower days to re resident continues to drive record high occupancy.
Same store average occupancy has remained above 98% every month so far in 2021 and came in at 98, 1% for the third quarter.
Our new lease rent growth was 18, 4% for the quarter, while renewal rent growth was seven 8% together. This drove blended rent growth of 10, 6% up 660 basis points year over year.
Reminder, that last year, our blended rent growth was 4% for the third quarter 2020, despite the challenges from the pandemic. So our comp to last year is a very healthy one.
At the same time, our turnover rate declined 110 basis points year over year. This puts our trailing four quarter turnover rate at only 23, 8% the lowest in our history and another strong Testament to our resident satisfaction.
We also continued to make progress with our bad debt, which at 1% of gross rental revenues was half of what it was for the third quarter of 2020 and important part of this improvement is due to the outstanding efforts of our team who work closely with our residents to find solutions to keep them in their homes.
Since the pandemic began we have helped thousands of residents apply for rental assistance programs and as a result, we have received to date over $25 million in rental system payments for the benefit of our residents. Our teams continue to work with those who need help with their claims.
By and large our resident base is strong and stable our average new resident today as a family with at least one child and one pit. The adults are on average 39 years old both work and together earn over a $120000 per year, which equates to an income to rent ratio of over five times.
As strong as we've seen we've.
We believe our markets locations and quality of homes are driving this higher end customer along with the worry free leasing lifestyle and best in class service that we provide and our residents expect.
In summary, we believe we stand in a great position to finish the year strong and we will remain focused on continuing to execute in the last couple of months.
With that I'll pass it along to Ernie our Chief Financial Officer.
Thank you Charles today, I will cover the following topics balance sheet and capital markets activity.
Financial results for the third quarter and updated 2021 guidance.
We took a number of steps during the third quarter to support our external growth and further improve our balance sheet to start we closed our first public unsecured bond offering of $650 million in August.
Bonds have a 2% coupon and mature in August 2031.
We used the proceeds to voluntarily prepay, our highest cost classes of securitization certificates that were due to reach final maturity over the next five years.
During the quarter, we issued approximately $17 5 million shares generating over $693 million of net proceeds to our both our ATM program.
And a primary offering that was completed in late September.
October we sold another 187 5 million shares pursuant to the underwriters' option to purchase additional shares generating additional net proceeds of $75 million.
The proceeds from the issuance were and will be used primarily for general corporate purposes, including acquisitions.
As previously announced in July we gave notice of our intent to settle our three 5% convertible notes due January 15, 2022 with common stock.
As of September 32021, $199 million of principal was converted into approximately $8 7 million shares of common stock at the election of the note holders, leaving approximately $6 4 million shares to be distributed no later than January 2022.
Including the impact of these third quarter activities, our net debt to EBITDA ratio declined to six two times.
Looking forward, we will continue to focus on balancing our growth objectives with our goal of reaching a five five to six times net debt to EBITDA ratio.
Moving onto our third quarter financial results core <unk> was 38 per share, 27% higher than last year and.
<unk> was 32 per share at 32, 7% higher than last year.
This was largely due to outsized NOI growth and interest savings.
One point I want to underscore from Charles his remarks, as the widening spread between our new lease and renewal rent rate growth as.
As you can see in our results our new lease rates, which are predicated on current market conditions are significantly higher than our renewal rates.
This is leading to a loss to lease that is much higher than we have historically seen.
Renewals represent about three fourths of our leasing activity and the loss to lease on those renewals is much higher than the loss to lease associated with new leases.
We believe this could position us favorably for rent growth in the next 12 months and beyond.
Last thing I will cover in our update is 2021 guidance given our year to date results. We are increasing our full year 2021 same store NOI growth guidance to a range of eight 5% to nine 5%.
At the midpoint. This is a 200 basis point increase from our previous guidance is.
This increase was driven by same store core revenue growth expectations of $6, two 5% to six 5%.
Which is improved from the previous guidance of five 5% at the midpoint.
Our new guidance is also favorable for same store core expense growth.
We now anticipate growth from a range of 1% to 2% 150 basis points favorable from our previous guidance midpoint.
We're also raising our full year 2021 core <unk> per share guidance up five cents at the midpoint to $1 49.
And our 2021 <unk> per share guidance up four cents at the midpoint to $1 28.
In closing we are experiencing continued high demand for our product proving that the desire for flexibility and choice in the housing market remains strong we.
We are proud of the work, we do to help individuals and families who want to enjoy leasing lifestyle. We.
We will continue raising the bar as the best in the business for both our residents and our stockholders with that let's open up the line for questions.
Thank you.
We will now begin.
The question answer session.
To ask a question press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then Jay.
I'd ask you that you. Please limit your questions to two pad timing of key at this time, Google pools minimum Kennedy to assemble I've always done.
Okay.
The first question, we have on the phone lines.
It comes from Richard Hill of Morgan Stanley. Please go ahead, when you're ready.
Hey, good morning, guys Ernie I wanted to maybe start with you.
First of all just a quick question on the four Q implied guide it looks like expenses are up fairly significantly recognize revenue and NOI are up as well and I know in the past you've talked about expenses being higher than that.
In the second half of the year, but maybe you can impact just a little bit more for us.
I can better understand it I guess, we were expecting expenses to be higher in <unk> than where they came in so I'm just wondering if there's actually upside.
That expense implied expense guide.
Yeah, well. Unfortunately, Richard is one area I have been wrong all year, so we'd love to be wrong also in the fourth quarter with regard to where our implied guidance is but with some areas that we do think it will have some pressure on relative to what you've seen in the first three quarters are potentially a little bit higher growth rate from property taxes. We've seen so far this year as we had some really good results coming through on refunds in the first part.
The year, including the third quarter.
We do baked into the guidance, although again turnover keeps going in the opposite direction. We are assuming turnover kind of stabilizes or maybe slightly higher in the fourth quarter, but we haven't seen that yet this year. So certainly there is some opportunity for upside performance there.
Personnel.
In the third quarter ratio of personnel costs did increase year over year, we expect that to also hold into the fourth quarter. Some of that is just due to the outperformance. We've had this year and we're making sure the bonus accruals, where they need to be from that perspective. So we certainly hope that we can outperform we've put out there we've been able to do that each of the last three quarters.
We do expect you know getting back to more inflationary type expense growth at some point, but we will do our best to see if we can make it four quarters in a row, where we can do better than we've laid out.
Yes.
That's helpful.
Ernie I wanted to talk about your new lease rate growth relative to your turnover you sort of alluded to this in your prepared remarks, but your new lease rate growth is pretty attractive very attractive.
We don't really see any signs that it's abating and your turnovers, you know call it less than 25%. So it suggests that you have an embedded mark to market that that's going to persist for two three maybe even a little bit longer than that.
Not asking you to guide I'm, just asking to walk through methodology with me because it seems like you know absent rents coming down there's a sustainable runway runway for at least several years to have some pretty attractive same store revenue.
Yeah, certainly you can look out over the next say 12 months to 18 months.
Based on where rates are today and I think as you go out two or three years you have to take into consideration all rich. When you think the overall market is going to be but your point is exactly right and that we see a loss to lease in the portfolio. That's larger than we've seen before and then importantly, where we're not pushing renewals to where market rates are we don't set market rates of the markets that's market rates, but we're working with our residents in need.
See our renewal rates are less than half of what's happening in the new lease rates, but that does set us up for a pretty favorable backdrop over the next period of time in terms of our loss to lease thats in the low double digits right now with regards to how that could play out certainly over the next year and at least into the first part of 2023.
Got it just one more quick macro question I don't know if this is for Dallas or Charles but I am curious.
Home price appreciation has been really robust across the United States, obviously showed some signs of slowing.
And the recent print, but Dallas and Charles are you seeing any signs of weakness from supply from build to rent beginning to emerge in some markets from micro markets. What are you seeing on the ground.
No we're not seeing any weakness in terms of like.
Too much supply coming into the marketplace that it's probably the opposite still this the same thing that were feeling and like the cost of gasoline or milk or some of these other things are impacting builders with relative to their supply chain.
We we obviously stay very close with with some of our builder partners and just door and window packages alone or next to impossible to.
Forecast correctly in terms of when they'll have those things relative to bringing in the new supply. So Richard is actually still a little bit of the opposite.
From our vantage point still feels like things are taking a while to get through entitlements things are taking a while to finish but ultimately we have seen resale supply creep back up just a little bit, which we view as a net positive if we get a little bit more interest rate creep I think that will help things in terms of easing up supply and no earnings right in his comments around the loss of lease, but we also don't have the <unk>.
Lucian that that you can have 20% home price depreciation forever I was looking at the case Shiller numbers from this point in time last year and a look back basis. It was like 6% and if you look at our market. It's like 22 right now it's just it's a little bit crazy and it is a moment in time, where we're feeling the supply chain challenge there just isn't enough quality housing available right now.
<unk>.
Thanks, guys congrats on a really nice quarter.
Thank you rich.
Thank you we now have the next question from Sam Kelly of Credit Suisse. Please go ahead, when you're ready.
Hi, guys. Congrats on a great quarter, I guess first going back to guidance.
I guess holding that level of conservatism in the numbers makes sense, but I guess this year you guys had been performing very well with that occupancy at 98% of turnover are really trending lower I'm. Just curious like are you.
Have you guys seen enough of your resident base and their behaviors to start thinking about it is if this is the new normal and.
If that's not the case I'm just curious like what are some concerns you have going forward in this current dynamic.
Yes. So this is Charles here. Thanks for the question you know when we look at overall leasing fundamentals and he asks whether it's the new normal we're in a really healthy position and you called it we're at 98% occupancy you've been there all year.
Demand is really high for our well located homes.
And how long will this last we'll see they last.
Question on conversation was around our embedded loss to lease and I think that gives us a good opportunity on the renewal side.
To keep that as high as it's been we've been accelerating on the renewal side since last summer every quarter has has been going up which is really healthy and we're seeing that actually go into Q4 as well the new lease side, we're still kind of in that mid to high teens, we're not seeing typical seasonality.
So it's hard to predict how long its going to last but we're in a really healthy position and set up well to go into 2022.
Got it got it.
That's helpful color.
Yes. It is.
It's been really good to see that the external growth story is really coming back for you guys now when I look at what when Ernie mentioned, our loss to lease dynamic that's going on right now are.
Are you kind of looked at your markets and Seattle, Phoenix, and Las Vegas, where that discrepancy is pretty large.
Large so with that said I saw that some of the acquisitions.
Are more weighted to certain market. So if I'm looking at Las Vegas.
How is that local like Oh supply dynamic like trending in that area, and obviously I'm thinking that maybe it.
Disposition.
Our plan over time might allow you to kind of reallocate.
Reallocate capital into these markets, where you can kind of really take advantage of the situation in my kind of thinking about everything correctly.
Yeah, I think youre thinking about a lot in that question. There. There are few things, let me just make sure that I.
Try to touch on the major points I think your first question. Your last question around capital allocation is one that we are always taking really a very deliberate approach to and where we invest capital and why.
As you called out in specific markets like Las Vegas, and Phoenix, the southwest Sunbelt type markets have seen an outperformance over really the last eight to 10 years in terms of what we're seeing with net migration household formation and ultimately that's showing itself in home price appreciation.
And then the rate growth that we're seeing with the corresponding growth in our home pricing.
We will continue to invest capital in the parts of the country, where we believe we're going to continue to see that outperformance you haven't seen us invest capital for example in the Midwest over the last five or six years, because we want to make sure that our shareholders are getting the appropriate exposure, where the growth's going to be the greatest deliberately a couple of years ago.
We started selling out of some of our concentrations in Midwest and we started reallocating capital into markets like Phoenix, where a couple of years ago. We were only at 7000 units I think today, we're closer to like 8700 units, we want to continue to grow those types of markets. Because they are seeing this type of performance, whereas supply gets tight. So yes that is our blended approach to how we think about risks.
Adjusted returns.
<unk> always try to strike that right balance between appreciation of the asset where we have the strongest conviction around what's going to happen with our our revenue streams and how rate growth could be impacted and then make sure that we're investing our time and our capital accordingly.
Got it thanks, so much Dallas.
Okay.
Thank you.
Thank you.
Now have Jeff Spector of Bank of America say, Jeff. Please go ahead.
Good morning, Thank you and congrats on the quarter first question I'd like to focus on demand and everyone's trying to of course predict forecast.
And demand you commented on your resident satisfaction stats and again turnover continues to trend lower and I know you do a lot of data analytics I don't know if you can share anything on this call to discuss a little bit more where you see demand how long how the trend in cost.
And your renter staying the length the length of the renter staying in your homes, where do you see this going over the next couple of years.
Yeah. This is Charles Great question.
Bottom line, we're seeing really healthy demand.
And when you couple that with our low turnover and high occupancy we're in really great shape I'll share a couple of those stats from our recent marketing survey of our move ins in Q3.
The majority, 80% are still coming from single family. So they know the product, but what they are attracted to is the single family home, obviously, but our locations infill.
The two top reasons that they are moving to <unk> and IHS, specifically or for more space.
Which obviously single family provides and closer to work.
Which most of our Intel homes do that we also are we ask them. What's important to you and I said, 78% are looking to have that extra office our bonus room.
So those things as you think about long term demand and the trends of work from home and all of that put us in a really healthy position again.
Again, coupled with our markets, we're seeing demand in the west we're seeing a lot of movement to the southeast, Florida, specifically Atlanta and.
And it's showing up in our in our rent number. So we're doing really well there on top of that you asked about.
Yes, you asked about where we are in terms of length of stay continues to move up.
And with that lower turnover people are staying longer.
And then I mentioned this in our remarks.
Our average household is over 120000.
It puts us at a rent to income ratio of five five times, which is as healthy as we've seen so all of that really puts us in really great shape, what we think for years to come.
Thanks, Charles I guess on that length of stay is there anything more specific you can provide I mean again I know everyone's trying to forecast where this business is heading over the next 510 20 years, but.
Like what's the longest length of stay you're seeing in the portfolio is that and what percent of the portfolio is that just trying to again see where that could head.
Yes, our portfolio like I said, it's a it's been <unk>.
<unk> are staying longer and longer and what we're seeing is there they are into their third year and its continuing to grow and with as low turnover. We expect that's just going to get longer longer well into three years, we'll see how it plays out over time, yeah. I mean, our average length of someone's staying now has over 32 months and our average lease term is 15 months I mean someone's renew.
Moving on average twice from their initial lease term with US not just continues to increase by about a month to month and a half each quarter has always been a trend we've seen for the last many quarters.
Great. Thank you.
Thank you we now have another question a question on the line.
We now have a question from Nick Joseph with Citi. Sir Your line is now open.
Thank you.
Seems like the political and regulatory environment around the broader single family rental sector is becoming more of a topic and potentially a risk.
Are you dealing with it from an organizational and operational standpoint.
Yeah, Hi, Nick Dallas here.
Great question.
Dealt with this for almost 10 years since we started the business in terms of being active in bulk purchasing homes and standardizing the single family rent environment.
We obviously have a team of people here both from a PR front and also.
From a from a legal perspective, and we've dealt with a variety of challenges over the years, So you're going back two and four years ago, we dealt with some of the rent control challenges and some of the balance that we're within different markets and we're very active in that space and we've also.
Had you know range of inquiries over time.
With legislative bodies or or groups wanting to understand more about what it is that we do know the stories that really easy one because single family for rent has gone on in this country for over 200 years, but its organizing yourself and making sure that you have the data in front of you that you can share with with whomever the inquiries coming from.
To help them understand really what's going on in the space.
Thanks, and then is there any update or details that you gave on the FTC letter that you received I think that.
We disclosed in early September.
No not really we've gotten inquiries from time to time from different legislative bodies.
Pre pandemic, we are working with the house financial services Committee, and as an industry and getting information out there and so from time to time, we do get these inquiries we wanted to make sure that we disclosed.
On the letter that we got from the FTC, but but no update as of right now.
Thank you.
Thanks, Nick.
We now have Dennis Mcgill from Zelman sorry, Dennis. Please go ahead when you're ready.
Alright, thank you.
First question just goes to you mentioned the ability to still buy at an attractive 5% cap rate and.
I'm just wondering if you could maybe explain a little bit why you think you haven't seen more compression at cap rate over the last 12 or 18 months given how much capital has been focused on the sector institutional capital that is and how much yield compression there has been an SR industry, especially multifamily.
The chase for yield in general around assets.
Yeah, Great questions, Let me answer the second part first so I.
I think we get a little myopic at times, when we think about <unk> in terms of the volume and there certainly is a lot of capital coming into the space. Its validation of the fact that the business can exist in a very favorable or even non favorable environment like what we have with the pandemic, but with that being said you got to take a step back there are six and a half million resale transactions.
Every year in the U S and so as you start to think about <unk> operators or investors wanting to be active in that co.
Cohort every year, we are a very small percentage of the overall buying and selling that goes on in the marketplace by the way. It's one of the reasons why this is a great business, it's just a very liquid marketplace.
For both end users and for investors now the reason I don't think we've seen the compression Dennis.
Couple of things one is you have to remember and I talked about this in an earlier comment around case shiller, but the home price appreciation has been fairly dramatic in say the last 12 to 18 months, it's been very steady for the last 10 years.
We've seen you know in.
And kind of a similar fashion really over the last year year and a half we've seen rate really keep up with what we're seeing with pricing now that won't grow to the sky. We don't have illusions of the fact that that's normal we would typically expect a mid to high single digits.
For the way that we would think about rate growth in a normal year, we just been lucky as operators that the environment or the marketplace doesn't have enough supply. So it's supporting the rate growth in a similar fashion now that will come down over time and distance, but again going back to the first point there is a lot of transactions happening in the space that are happening in and around.
Escobar operators in fact with much more scale. So I think what we've been really good at is picking our spots we've been active in parts of the country.
Lend themselves to that better performance like I talked about before but we're also very deliberate about where we invest capital and why if you look at what we've done to date I think we're close to 2000 homes acquired on the balance sheet through the third quarter, that's really de Minimis in that world of $6 5 million resales. So as long as you know where youre investing capital y.
You can find that outperformance and you stick to your investment thesis and as Ernie mentioned and I mentioned in our earlier comments. We just have a good cost of capital are generally good cost of capital right now so we're taking advantage of it.
Does that imply to some degree that a lot of the institutions that we all read about in the scale that we see others trying to gain that they're targeting different markets sub markets or price points than you are.
It could I mean, a lot of the build to rent story you hear about right now is happening a little further out than in other parts of the country quite frankly, we just don't operate.
I think we do have some parallels with other platforms, where we may bump up against each other in a couple of markets, but generally speaking I think you know this Dennis we buy a more expensive product it's much more infill it's differentiated from the large majority of our peers.
So I think our average price point in in Q3 was close to $440000 on balance sheet. That's a that's a much more expensive homes and a majority I would say are a lot of the new capital coming into the marketplaces is is targeting.
Got it and then maybe just one more just to change gears a bit.
We've seen a lot from the homebuilders as well as eye buyers struggles with getting homes, either built or acquired and renovated and back to market.
Are you running into any similar challenges on your acquisitions or can you elaborate a bit on as you acquire homes today, whether the pace of getting them back to market and at least has changed at all.
Yes, no it's great that we have.
The buying volume that we have and we're focused on in a few markets and in our markets for the majority that we have great teams on the ground who are ready to take this take on the challenge the volume is real and we're paying attention to it but we're able to keep up.
We're pushing them through a lot of these homes are our lives Dallas said really in good shape, and we know what we need to do on the rehab side.
It sets us up nicely a lot of these homes will be ready early next year and we'll we'll.
What we've seen and what we've been able to bring through have been really healthy in terms of what we've been able to gain on rent. So we feel like we're in good shape to be in a manager.
Thank you guys. Good luck.
Thanks Dennis.
Thank you we now have Brad Heffron from RBC. Please go ahead.
Thanks, Good morning, everybody.
Couple more on acquisition. So obviously the guidance went up a lot.
Does the one seven to 1.8 I'm curious if that was just.
You know the large number of opportunities that you are sort of unexpectedly seeing this year or if you think that that's something that's sustainable.
Sustainable and how should we think about you know the pulte homes next year being.
Complementary to that.
Yes, no great question. So we started to signal a few quarters ago.
We are seeing a few more opportunities in the marketplace and to be clear.
The 1700 homes that we bought in Q3.
The vast majority of these are just one off buying in Charles talked a little bit about this but the power of our platform is really unique in terms of our ability to identify one off acquisitions and to be able to then process those put our own fit and finish standards on those homes and have them ready for lease.
And.
Sure.
High velocity way of way of doing things.
Hard to say, what the marketplace could look and feel like a couple of quarters from now.
But so long as we have a decent cost of capital and we can buy at these kind of prices, we'd like to stay opportunistic we certainly love to look for opportunities to buy scale one of the ways with which we know we can bring dedicated scale into the platform is partnerships with builders like the one we have with Pulte now. We also started talking about that a few quarters ago, we're active with a lot of different builders.
He is just one of our preferred partners, who we're going to try to have programmatic.
Buying opportunities with them they've been a terrific partner they do a fantastic job as the naked nation's second largest homebuilder and we'll start to see those come into our normal distribution towards the end of the third quarter of next year.
John and Peter have done a nice job on the team working with the Pulte group to start to look at parts of the country that we can start to forecast out a year or two in advance of that that gives us a real strategic advantage and by the way we are not incurring any costs for that like we haven't had to upsize our team or bring on a ton of additional G&A to be able to run that program. So.
We feel like we're in a really good spot that will complement complement what we're already doing pretty well and the one off space.
Yeah.
Okay got it thanks for that and I was wondering if you could talk about the IBM channel a little bit obviously, we saw the news about below pausing.
Is that news meaningful for you guys in any way and can you talk about you know maybe more recently, how much that channels represented of acquisition volumes.
I buying has always been a pretty small percentage of what we buy is one of our many channels that I talked about my opening remarks.
We want to have all the channels open and available to us I don't want to comment specifically on any one companies.
Strengths or weaknesses in a particular quarter, but these things tend to ebb and flow and I'm sure they'll work through it.
I think it probably speaks more to some of the labor challenges that are in the marketplace, which Charles just discussed it it's not an easy environment to operate in if you don't have your infrastructure setup for the long haul and even then you have got to manage those pressures.
Kind of flex different ways, but certainly to present more opportunities for platform buying with companies like ours, but we are friendly partnered all the buyers we love. The fact that the transactions in the residential space are starting to digitize and get more efficient that makes a lot of sense for the end user for investors for anyone that's really act.
And single family.
Okay. Thank you.
Thanks.
We now have another question a question on the line from Allan Petersen from Green Street. So Alan. Please go ahead when you're ready.
Thanks, guys, just focusing still on external growth Dallas you touched on some of the supply chain bottlenecks that are affecting your builder partners.
Is this affecting pricing with your partners like Pulte are you seeing any compression in those stabilized yields than you had previously quoted on those next swap those acquisitions there.
I would say generally we feel pretty good about what we've talked about in the past.
With those on the call and in our the way we we're viewing the world. We've built a structure with them specifically that protects both companies in the in the event that we have.
Expense creep, but it allows us to kind of rethink and reset together.
Theres market volatility, we saw that with lumber by the way price of lumber is coming back to Earth, and we think we'll see that in some of these other categories.
It's just difficult and it's not just it doesn't just lend itself to the cost of goods sold to be really clear you know if you think about what happened with the pandemic in terms of new supply coming at it slowed down the entitlement processes with municipalities and cities. It does a lot of it disrupted.
Same way, it's hard to find a car right now our used car. It's very similar in terms of bringing new supply into the marketplace. It just created a little bit of a logjam from our supply chain efficiency perspective, we forecast and we believe that this will all start to regulate and get back to normal and.
Start to bring some of that expedited supply back into the marketplace over time.
Gotcha, so that stabilized five 5% yields are still kind of intact for your partnership with Pulte that.
Yes.
It's no different than we've quoted before that that's actually we're getting those at a better cap rate. So that hasn't changed we've been typically a 25 to 50 basis points why do what we're doing in the market with that relationship and we haven't seen any change in that dynamic.
Perfect and then last.
Last one for me Charles can you provide some context on what's driving some of the sequential revenue declines in Dallas, and then just a little bit of the softness in Denver, just trying to dig in on market fundamentals there.
Yeah, I mean, I guess, our bias look at both of those markets.
In terms of rent growth, we're accelerating in both especially in Dallas, We've had really good.
Kind of increases on the new lease side of Q3 of 15, 5% and renewals have been healthy at close to 90 <unk> close to.
6% for a nice blend so I think as we think about revenue in and Dallas, We love that market, we're buying in the market and how we're going to continue to grow their Denver is similar.
Been a healthy market new leases are almost 12%.
And.
Renewals at 775, or so so both markets are really in our perspective, we had good leadership on the ground in there they're moving in the right direction, we are buying a lot in Denver, and we're paying attention to that which is great.
And I think Thats, one of those markets like Dallas that we want to grow both of them and we think theyre going to be good markets for us long term.
Gotcha. Thanks, guys appreciate the time.
The next question is from Keith Keegan call, but they are in bad shape Keegan I'd say panga line.
Hey, Thanks for taking my questions guys. Just one from me given the current housing shortage is your intention to implement the sale leaseback platform changed at all its just my view, but I think now would be an opportune time, you look at a number of people who might want to take advantage of the housing market, yet not relocate or buy at current price levels.
Yeah.
Yeah, well, we like your thinking it certainly feels like there's going to be some opportunities and as things that we've looked at.
And how to bring.
A little more social housing product into.
Into the single family space in.
While we're not necessarily ready today to talk about.
Any pivot or change that theres certainly categories that we're looking at and spending more time on we do think that a sale leaseback product over time.
Great way for people, who want to think about retirement.
To spend part of the year in different markets and we've seen that even in our own portfolio, where we'll have a COO.
Couple of pick up a lease in Florida, because they're going to have been half of the year, there, but they spend the other half of the year up north somewhere in there.
In the warmer months. So yes. The short answer is in the evolution of our company and the things that we're focused on I think youll start to see us over time explore more of these types of product and we've been into our business model, but not not necessarily tomorrow, but over time absolutely.
Got it what would a pilot program look like on that would you just focus on one of your smaller markets and test it out where do you think you'd be pretty aggressive in the job.
I'd hate to speculate that give you a little bit of some kind of real world. We did do a lot of sale leaseback tenure.
10 years ago, when we had homes where.
Youre buying something through distress channels and someone was leasing back. So we're very familiar with the process side of it but you can always get to your point you could pilot it in a more robust form and in a market you could partner with other with other ventures that are currently doing it and bring back office expertise I think theres a lot of ways. You can think about it we're not in a place where we know exactly yet how.
We want to approach this but we certainly see the social housing opportunities as a way for that subscription economy to craft choice and that's something that we believe in.
In a big way at invitation homes is that.
Theres not a one size fits all approach to how you want to live for some people. It's ownership for some people it's leasing for some people, it's an option to buy and so.
I think as those markets continue to develop we're gonna play close attention and pick our spots.
When and where we want to participate.
Got it that's it for me thanks, guys.
Thanks.
We have another question on the line from Rich Hightower of ethical say rich. Please go ahead. Thank you Whitney.
Hey, good morning, everybody.
A lot of good questions.
So far but I wanted to go back to the 120000.
Median household income I think you said on new leases.
Recently, so I just wanted to get a sense of the growth rate year over year in that statistic and how do we correlate that to rent to home price depreciation and how do you expect that to evolve them over the next year or two.
Well, we've seen I guess, the easiest way to talk about it as we've seen our income to rent ratio increase from about four six to $4. Seven so now its over five times with the numbers that Charles talked about were about 123000. So over that period of time, we've seen rent growth to be pretty significant so we're seeing that for the resident who's.
Moving in so it was all <unk>.
How do we track this is our new residence that they're keeping up with rent growth in terms of where their income is so it's a very correlated almost identically or actually slightly better because we've gone from about $4 six or 75253 with regards to what our average income to rent ratio is to predict what that is going to be into the future would be challenging, but we've certainly seen a good.
Trend over the last many years of our average income going from I think around $100000, maybe even a little bit less than that at IPO five years ago to where we are today.
Okay.
Okay.
If that is true Ernie then 100 to 120.
Is I guess that would approximate over since the IPO.
You know, let's call it 20%. So that's that's matching what what you know new leases are growing in a year almost I mean, that's just a pretty remarkable statistic don't you think I'm just trying to I'm just trying to think about I don't know how to.
You know how to square that with the with everything that we're seeing right now where everything just seems off the charts and I'm trying to figure out.
Yeah.
Whether it all makes sense or not I guess, it's all good from from institutions perspective.
I remember were in very infill locations people, who want to live close to good schools close to their jobs.
So we're not necessarily marketing too broad.
In terms of the averages and then again thinking about the markets, we're into and where specifically in the sunbelt in the southeast and the west where people are migrating to.
No.
Theres, a big cohort of people out there, who like the subscription economy, who want to rent and they certainly have the economics and the capability to buy but theyre choosing not to for lot of reasons and and we're trying to provide them that product and that service.
And Charles and team are delivering on that so I think it's.
<unk> continues to work for us and we hope for people to make that available folks going forward.
Alright, I appreciate the color and then maybe one follow up question just on obviously invitations get a very deliberate infill strategy. As you guys have mentioned many times on this call and also in the past.
How would you how would you contrast that with.
The strategies that several new entrants or even even kind of long standing competitors in the market and even within the build to rent space.
How far out of the city Center are you seeing.
Note unquote competitive that's if our product being bought or added when when in reality, it's probably not that competitive I mean, how would you how would you characterize the landscape there.
Well, we would agree with that rich and I think the way, we differentiate ourselves from others in this space our location scale and market. So we're very focused on infill locations.
We do think that in many of the new single family projects that are coming up are more further out or they are in more tertiary markets. So we're very focused on location in terms of where we want to be on the market as well as with markets. We've chosen to be and we believe scale is a differentiator in terms to be able to run more efficiently and I think it helps solve a lot of the issues that others may be having around supply chain because we've been in these markets for a long time.
We have long standing with labor relationships and supply relationships doesn't mean that we're immune to it but I think we're dealing maybe better than what others have been reporting then finally iron market and it helps us from our being smart about how we acquire and how we operate.
I'd add one thing here rich Dallas Ernie hit scale, and I, just cannot stress enough based on <unk>.
10, or 11 years, we've all been doing this scale is your friend it allows us to invest in technology that allows us to update systems last high better hire better people like to replicate the type of platform that invitation homes has today is very difficult even in this environment now theres a lot of hot money coming into the space, which in large part probably do fine and that will be treated.
Like a trade it will be interesting to see how that works itself out over time, but the power of our platform is really showing itself.
Now I would say through the pandemic and as we start to recover the consistency the ability to be able to operate to communicate with our residents in a way that allows you to have you know turn times like we've had over the last 18 months is just remarkable in that that in itself is I think something that is very hard for new money to come in and try to replicate.
Okay, great. Thank you guys.
Thanks.
Thank you.
You have another question from Haynesville suggest Mcgee right. Sir. Please go ahead of I think your line.
Thank you.
So good morning.
I had a couple a couple of follow up questions here on my list.
I guess, starting first with the robust rent growth you're seeing the acceleration here in the third quarter I guess I'm curious, it's the FTC inquiry as having any impact on your rental pricing strategies and also as part of that can you give us some color on the new and renewal rates from October and what you're sending out for November December.
Sure, So hey, Hondo Charles here.
So your first question no impact from the FTC in terms of leasing perspective.
As you just step back and think about the overall performance of our leasing.
And a lot of it is as I spoke too low turnover high occupancy great locations puts us in a really healthy position and on the new lease side.
The West continues to lead which is great. If you look at Phoenix and you look at Vegas at almost 30% and 29% respectively.
But it's not just those markets at all markets.
<unk>.
What's really exciting to see what's happening in Florida, and the southeast as you think of and Atlanta, Atlanta, New lease of 20% Tampa at 21% Jacksonville at 19%. These are really strong numbers.
For our portfolio.
And we're seeing that kind of maintain itself going into October to your to your question here.
And then on the on the renewal side.
Talked about this a little earlier, we've seen just really acceleration again, they kind of lagged the newly signed a new leases risen so quickly, but we've been increasing almost every month since last summer.
And in Q3, you saw that we came in at our renewals of that were really healthy at seven 8% versus where we were last year just over three with September ending at $8 four and that kind of growing trend is continuing into October to your question and then as we went out and sought.
What we're asking going forward, we're in the high eights to nine as you think through to January. So we're set up well to continue that a renewal side and that's where I think is a real change from the typical seasonality that we might see this time of year is really just not showing up.
Okay.
Got it got it appreciate the color Charles.
I think you also mentioned you received $25 million of rental assistance year to date I guess Im curious whats your expectation is for the full year I guess, the rest of the calendar year here and what that implies.
For the opportunity next year and then maybe also some color on bad debt you've made some progress there on getting it down obviously year over year still above the long term run rate.
Are you thinking about that opportunity near term. Thanks.
Yes, and so on.
On rental assistance if light so it was actually about $22 million. This year is about $3 million last year, so year to date, our lifetimes as the $25 million that you referenced and we just not progressively get stronger and stronger as we got to I would say the may June time frame and into.
Until the August September where each month in August September, reflecting about $5 million to $6 million.
A rental assistance you know hard to predict how that's going to continue to play out there are tens of millions of dollars of applications still outstanding for our residents.
And the local jurisdictions and state jurisdictions are doing a better job of trying to work those theres and importantly, our operating teams are helping those folks through that process, where we can.
It's just hard to say how long that run rate will continue or whether we will continue to accelerate as we get into the fourth quarter here and as we get into early next year that said, we still have a large accounts receivable balance that has a lot of historically AR overdue balances. So if rental systems program stay open if they continue to state funded there's certainly an opportunity for us to have some greater collections and hopefully continue to see our.
<unk> decrease in bad debt that you have seen over the last couple of quarters here in the third quarter bad debt was 1% of gross rental revenues, which is better than what we had in the second quarter, which was better than we had in the first so it does feel like where we continue on that glide path to get hopefully get back to our historical numbers some time.
At the end of next year in terms of being up closer to 40 basis points.
Bad debt and then maybe we do a little bit better for a period of time with catch up from the rental assistance and you see a period of time, where bad debt could go.
May be negative as things are caught up from the delinquency side, we'll just have to see if that happens.
Got it got it and what kind of people who've balance probably should know this but do you have that number handy.
Yeah today, it's on a gross basis, it's over $50 million, it's about $55 million of rent receivables.
That are due to us and of course, we have a big reserve against that so the net number on our financial statements.
It is much lower it's about 13 or $14 million from a net basis and so we'll see what we can do to try to get rent assistance in you know to help our residents to help bring that number down over a period of time.
Got it helpful.
Thank you.
Thank you.
They set up.
Thank you.
You have a question on the line from John Delos wrapped with Goldman Sachs Hi, Johnny Please go ahead.
Hi, Thank you for taking my question.
I was wondering given demand supply metrics are hugely Tien tsin, you'll fever, how are you thinking about ancillary opportunities at the moment.
Is there more upside there are there areas you know that perhaps he hadn't contemplated earlier that you think are now on the table just trying to assess how that good luck.
In 2022, as you continue to get scale.
Hi, This is Charles Great question, even through the pandemic ancillary has been a big focus for us about two years ago, we did our investor meet.
Meeting and we put out a target that we did $15 million to $30 million run rate.
Our ancillary services by the end of three years, which would be the end of 'twenty. Two we're on track to be at the high end of that and we're going to do everything we can to overachieve and that's just the beginning as we think about it.
And so this has been a major focus of building the pipeline and the infrastructure of projects to get US there and the main focus has really been on around expanding and lowering the cost of our smart home technology in 'twenty. Two we expect were going to rollout video doorbell, which will help to grow that and it's something as we survey our.
Residents that they were asking for.
In today's world, that's really valuable we've done we've done the.
Filter program that helps us on the reduction of cost on our filters, but also provides a low revenue we're working in things around pets and pests in terms of a deal with national deal with Terminix and we see many programs like that that will continue to to rollout in 'twenty, two and beyond services around.
<unk> energy and landscaping handyman services broadband services. So there's a lot that we're working on and we're being thoughtful around when and how we roll them out.
And then when you when you put this on top of what our residents are looking for and asking for and we talked about this a little earlier on the call. We think this is going to extend the state that our residents are going to stay with us because we're giving what they're asking for we're making it really convenient and easy for them to lease with us. So this is a big part of our kind of long term plan.
And we're on track for what we set out a couple of years ago.
Got it and for my follow up I'd like to talk about our home.
Home price appreciation that <unk> seen so far.
Could you, perhaps give us any early read on how we should be thinking about real estate taxes next year.
You know.
In light of.
The level of home prices that you've seen.
Yes, it's always a challenge to try to predict where that's going to be.
Say is that certainly a risk assessments are going to be.
Materially higher than where they're at today, but we've typically seen in the past in cycles like there Sean is that millage rates come down because just because home price appreciation is up 10%, 15%, 20% real estate tax law doesn't go up 10, 15 years to 20% the people who live in those in those jurisdictions that people will vote for the various folks and make those decisions.
Overall on average those People's incomes are not up 10 15, 20%. So I think overall youll see for the next few years real estate taxes to continue to be a risk item in terms of having greater than inflationary growth rate, but it wouldn't be surprising and would not really match up that we've seen in prior cycles to see that it would be as much as you've seen and increases <unk> seen where home price appreciation is gone.
Gotcha, congratulations once again on a strong quarter.
Thank you.
We now have.
Jade Rahmani from <unk>. Please go ahead.
Thank you very much wondering if you could comment on recent.
Satisfaction scores have they been trending and also has there been any negative pushback.
Dramatic levels of rent growth that we're seeing.
Yeah.
Yeah. This is Charles resident satisfaction continues to be a bright spot for us our teams are doing an amazing job in the field.
As.
You May know, we still monitor and ask for surveys after every interaction with the resident whether it's the move in move out work order.
Our teams do a great job and it helps to inform what our residents are experiencing and how it's going.
I will note that we've continued to see a rise in.
You take our social scores of Google and Yelp.
And we were over four on average across all of our markets and so all of that is really healthy are there areas, where we want to continue to improve yes. That's why we do the surveys and we're learning.
But we like what our teams have been doing and we're continuing to focus on it.
Sean rates, Yeah, and then.
Yes.
We've been thoughtful on rate on the new lease side you have to remember this is a vacant house, where really we mark to the market.
So we're just kind of setting rents at what the market is so you don't really get any pushback there on the renewable side, we try to be really thoughtful we're actually based on what's happening with new leases pricing below what's market typically.
And we want to be thoughtful about that and we work closely with the national team that sets rents and our local team to make sure that we're being as thoughtful as we can where residents Sanjay and specifically just for the last 90 days, we had a record high retention rate from residents and you saw that we had the lowest turnover rate we've ever had in the third quarter I mean third quarter. It doesn't have numbers this low tech.
So I think I think the consumer understands what's going on and it actually feels like they're getting a pretty good deal.
In terms of where we're putting in.
Our renewal rates are compared to where the market is at which is you know less than half the increase you're seeing in market rates is what where are renewals are too.
Okay.
Thank you very much.
I appreciate the conservatism.
<unk> approach you guys had also wanted to ask about supply chain I guess can you remind me what percentage of the work on the house has done with in house teams and in your view.
<unk> experienced the brunt of the ongoing supply chain disruptions or is this potentially coming headwind.
Right.
Yes, so to your first question our maintenance staff on average does about half of the work orders that come through in this year is it a handyman work that theyre doing the larger roof in concrete and stuff like that if there is that we will outsource to other vendors, maybe HVAC and the like.
That's a seasonal metric so it goes down a little bit in the summer, but at this time of year, we're actually trending at about 50%.
Right now, we're not seeing a lot of that kind of supply chain stuff hit the that work order maintenance work directly we did see some early noise in the pandemic around appliances and other items. There is a little bit of cost pressure that we're looking at but we have a couple of advantages when it comes to that and that's.
As Dallas talked about at our scale and size really helps so our centralized procurement teams do a great job of being able to kind of mitigate that we're not we're not going to keep it at zero, but it allows us to kind of fare better than others.
And then on the labor side, you can see in our numbers is not showing up but there are some pressure out there and we're paying attention to it.
And what's great is our that's another thing that our local scale.
Density allows us if we do have somebody turnover. The next person next teammate can step up and where attractive platform being a leader in industry, we're able to recruit and our team does a great job of recruiting from HR perspective.
Thanks, and just to sum up the topic.
Considering the inflation pressures out there supply chain, if you think about it okay.
Is the main driver for the lower same store expense guide.
Yes, it's really just the earn in from what's happened in the first part of the year.
Can certainly see the implied guidance for the fourth quarter, Jay it's higher than we've run this year significantly higher.
And so we do expect to have some pressures that we talked about in terms of the real estate taxes, a little bit higher than we expected. We saw in the first three quarters, our personnel costs because of the outperformance we've had this year and things like that but.
But the reason you saw the drop was the fact that we had an extraordinary expense quarter here in the third quarter that 90 days ago, we didn't think we'd be that shrunk.
Yeah.
Thank you.
Thanks Jade.
Thank you we have.
Final question on the phone lines from Andrey <unk> from Wolfe Research Sir Andrew.
Your line. Please go ahead.
Hello, guys, you've answered all my questions. Thanks, a lot and congrats on a good quarter.
Thanks, Andrew.
Yeah.
This ends our question and answer session and marks the conclusion of our conference.
Thank you again for joining you may now disconnect your lines.
Yeah.
Okay.
Okay.
Yes.
Okay.
Okay.
Uh huh.
Hum.
Yeah.