Q4 2021 Invitation Homes Inc Earnings Call

Good morning, Good afternoon, and welcome to today's call will be the invitation homes fourth quarter 'twenty 'twenty. One results Coke My name is Adam on I'll be here where prices are today.

To ask a question during the Q&A portion of today's call you may do so by pressing star one on your telephone keypad now.

I'll leave it to sculpt Mclauchlin begins to Scott. Please go ahead when you're ready.

Good morning, and welcome him here today from invitation homes with Dallas, Tanner, our President and Chief Executive Officer.

Charles Young Chief operating officer.

And Ernie Freedman, our Chief Financial Officer.

During this call we may reference our fourth quarter 2021 earnings 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.

From those indicated in any such statements.

We describe some of these risks and uncertainties in our 2020 annual report on Form 10-K , and other filings, we make with the SEC from time to time.

Invitation homes does not update forward looking statements and expressly disclaims any obligation to do so.

We may also discuss certain non-GAAP financial measures during the call.

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

In Yesterdays earnings release.

With that let me turn the call over to Dallas.

Thanks, Scott and good morning to all of you joining us today in my remarks. This morning, I'd like to share several thoughts and highlights from this past year and also take a look at the year ahead.

To start we continue to be impressed with the level of demand we're seeing for high quality housing that focuses on functional living with the flexibility of a leasing lifestyle.

It's the strong demand that has helped us maintain our same store occupancy above 98% for the entire year in 2021, and also taking our average market rents over $2000 a month this past quarter.

As a result, our core <unk> per share increased 16% from the prior year.

And thanks to the execution of our teams we were able to deliver full year 2021 same store revenue and NOI growth at the high end of our expectations.

During 2021, we acquired 4800 homes, which is roughly double our original guidance at the beginning of the year with an average cost basis of over $400000 in an acquisition cap rate of over 5%.

We believe our homebuyers were among the highest quality of those bought by our industry peer group and accretive to both earnings and NAV.

I'd like to mention a few additional highlights from this past year.

We achieved three investment grade ratings, we made significant investments in technology, including the introduction of our new mobile App maintenance App and we continued to work on adding amenities and services that improve our residents' experience such as offering great pricing on pest control and other services by using the value of our size and our scale.

We also made great strides with regards to ESG.

Where are we improved our disclosures and scoring and launched two big initiatives.

First our step up stand out program in partnership with skills, USA, which encourages and supports careers in the skilled trades.

And second our Green spaces program, which is dedicated to the development and improvement of outdoor community spaces within our markets.

So while our teams did an outstanding job in 2021, it's time to look ahead derma.

Demographics remained solidly in our favor the leading edge of the millennial generation is now starting to reach our average resident age of 39 years old. In addition migration trends continue to result in significant household and jobs shifts to the southeast southwest and Sun belt at the same time, many Americans are showing a preference to lease their home.

So they can have more space and living great neighborhoods with improved access to better schools jobs and transportation.

By contrast housing supply in the U S continues to be a challenge for a variety of reasons and those challenges are even more pronounced within our markets.

We believe it is imperative that we play a more significant role in bringing new housing supply to the market along with helping to provide additional housing solutions around flexibility and choice. Let me offer two examples.

The first is our commitment to invest in new housing supply as you know we've chosen to focus on being the best owner and operator of single family for at least housing. So when it comes to building a product we believe it's better to partner with the best homebuilders, rather than competing with them directly in the homebuilding space.

Last year, we announced our strategic relationship with Pulte homes, which amplified our new home acquisition pipeline and gave us additional strategic opportunities for future growth.

In addition to that important relationship. We're also working with other homebuilders across the country to help them break ground on new communities, where they are strongly needed.

At the end of last year, we were under contract on over 1700 of these new build homes in eight of our existing markets, while staying true to our criteria for location and risk adjusted return.

We expect to see deliver these new homes, beginning in 2022 and accelerating in future years.

The second example involves our commitment to expanding opportunities for choice earlier. This month, we announced that we're the lead investor in pathway homes.

Pathways mission is to make homeownership more attainable for more families. They do this by working directly with aspiring homeowners to identify and purchase a home offering them the opportunity the first lease at home with the opportunity to buy it at a future date, if they choose the new venture with pathway creates additional options for choice and <unk>.

That being the lead investor in pathway, our partnership offers us the opportunity to broaden our third party property management expertise.

Outside of pathway another way that we help families achieve their housing goals through our resident first look program.

For all that we've identified for sale for strategic reasons. This program offers residents residing in those homes, our first opportunity to purchase.

Since we started the program in 2016, we sold nearly 250 of these homes to our residents representing over $60 million in sales further living out our mission of together with you we make a house a home.

That mission marks a big milestone in 2022.

On April 11th will celebrate 10 years of providing high quality housing to people choosing to lease a single family home.

When we launched this business our professional home leasing company with coast to Coast 24 hour customer service seven days a week did not exist.

Invitation homes is at the forefront of creating a new model and change the narrative by offering an innovative concept built on customer demand and favorable demographics.

During this past decade.

We are pleased that an important part of that narrative has been our meaningful impact in the communities in which we serve.

We've invested nearly two and a half billion dollars and home renovations within our communities while last year alone. Our associates also volunteered more than 13000 hours of company paid volunteer time to help local organizations they care about within their communities of practice, we strongly encourage.

In conclusion today in the U S. There are over 125 million households.

With 90 million single family homes of which about $17 million of single family rentals.

I'm extremely proud of the 80000 of those within our portfolio, where we believe the highest standard of quality location and genuine care for our residents is both expected and delivered.

I'd like to close by saying, Thank you to our teams for 10 years of Curating, a unique leasing lifestyle, providing a level of service that gives our residents peace of mind and creating strong communities, where our residents and our associates can thrive together with that I'll pass it on to Charles our Chief operating officer. Thank.

Thank you Dallas, our fourth quarter results helped us finish the year strong as you mentioned, we reported same store revenue growth and NOI growth both at the high end of our guidance ranges.

Average occupancy stayed at 98% throughout the year and retention in our resident satisfaction continued their strong hires we.

We believe we offer the best level of resident service of any single family rental operator, and this is reflected in our operating results. Let me walk you through the details same store NOI grew 12, 6% in the fourth quarter, which brought our full year 2021 same store NOI growth of nine 4% same store core.

Revenues in the fourth quarter grew nine 5%.

This increase was driven by average monthly rental rate growth of seven 1% 130 basis point improvement year over year, and bad debt expense and a 53, 6% increase in other income net of resident recoveries average occupancy of 98, 1% in the fourth quarter was consistent with prior year as a.

Same store revenue growth for the full year 2021 was six 4%.

Fourth quarter 2021 same store core operating expenses continued to come in favorable to our expectations, increasing three 1% year over year driven by a three 1% increase in same store fixed expense and a 12, 6% increase in personnel expense, partially offset by a $12 three.

3% decline in turnover expense net of resident recoveries.

Next I'll cover our leasing trends in the fourth quarter, which continued to reflect strong demand and favorable market conditions, our new lease rent growth came in at 17, 3% for the quarter, while renewal rent growth was 9% together. This drove blended rent growth of 11, 1% up 630 basis points year over year and up.

50 basis points over prior quarter were also seeing these strong results continue in January quit blended average rent growth of 10, 9% up 590 basis points year over year and occupancy remained above 98%.

As you know, we send our surveys out each quarter to better understand the choices and preferences of our new residents.

Let me tell me what we learned this past quarter about a third of the group chose one of our homes because they wanted more space with over 80% of new residents moving from another single family House.

Above all our family friendly convenience oriented pet friendly home nearly half of our new residents are working from home at least two days a week and 75% plan to continue to work from home after their office reopens.

Three quarters of new residents feel safer living in a single family home or an apartment because it would be additional space and privacy of single family home provides.

Surveying our new residents when they move in is really just the beginning of our listing process with our broker services. We help keep our residents home in good working order by performing proactive maintenance visits twice a year.

And with the mobile maintenance App that Dallas mentioned earlier, we made communication between our residents and our service teams more convenient and efficient.

These are just a few of the many ways, we help to make our residents' experience more worry free.

We may not have invented the leasing lifestyle, but we are certainly working everyday to improvement while creating a resident experience that is second to none I'm excited by the strong momentum our teams continued to maintain as we start the new year.

Now I'll turn the call over to Ernie our Chief Financial Officer.

Thank you Charles today, I will discuss the following three topics, one balance sheet and capital markets activity.

To financial results for the fourth quarter and three our 2022 guidance and main drivers.

Let's start with balance sheet and capital markets activity.

Our efforts toward improving the balance sheet didn't stop after achieving our investment grade ratings in April .

In November we closed our second public bond offering totaling $1 billion.

The transaction further improved our weighted average years to maturity to five six years as of year end.

And our percentage of homes that are unencumbered to 63, 2%.

Our net debt to EBITDA ratio at the end of 2021 was more than a full turn lower than at year end 'twenty 'twenty, finishing 2021 at 6.2 times.

Not too far off from our targeted level of five five to six times.

We finished 2021 with $1 $6 billion of liquidity, including $600 million of cash and the full capacity of our $1 billion revolver available.

For the year, we issued almost $2 billion of unsecured debt to pay down secured debt with an average maturity of almost 10 years and an average coupon of 236%.

During the fourth quarter, we issued approximately $4 1 million shares of stock at an average price of $41 63 through our ATM program.

Total gross proceeds of $169 million were primarily used for acquisitions.

In December we launched a new ATM program, providing us one point to $5 billion of capacity that has not yet been used.

Subsequent to year end in January we completed settling conversions of our remaining 2022 convertible notes with $6 2 million shares of common stock.

Next I will go through our fourth quarter 2021 financial results.

Core <unk> per share for the fourth quarter increased 19, 7% Intel.

In 'twenty, 1.0% year over year to 39 and 33, respectively.

Our full year core <unk> per share were $1 49 and $1.28 respectively.

This represents year over year growth of 16, 2% and 18, 8%, respectively, which was primarily driven by higher NOI and lower cash interest expense.

The last thing I will cover is 2022 guidance.

As Dallas and Charles outlined we finished 2021 with tremendous results and we believe that favorable supply and demand fundamentals will remain a strong growth catalyst for us again in 2022.

Starting with same store revenue growth occupancy is anticipated to remain elevated in 2022 in line or slightly lower than 2021 results.

Despite a tough comp our guidance range assumes a similar blended rent growth in 2020 two as in 2021.

It also assumes that bad debt expense improves on 2020 , one levels, but not yet returning to our pre pandemic historical average.

Taking those assumptions into account, we expect same store core revenue growth of 8% to 9% for the full year 2022.

Turning to same store expense growth our guidance range for 2022 as expense growth of five 5% to six 5%.

Our same store expense growth for each of the last two years has been under 1%.

We expect higher expense growth in 2022, due to real estate tax growth reverting to closer to 5%.

Inflationary pressures on repairs and maintenance turnover in personnel costs and a higher turnover rate.

That being said we were pleased to beat our expense growth expectations last year, and we'll work hard to do our best again this year.

This brings our expectation for 2022 same store NOI growth to a range of 9% to 10, 5%.

With regards to Dallas his comments earlier on the pipeline of new homes, we're acquiring from various homebuilders note.

We expect these homes to be a more meaningful contributor to growth in 2022 and beyond.

You may have seen that we have included new disclosure around our anticipated delivery of these homes, which can be found on schedule eight b of our supplemental filing.

With everything considered we are expecting full year 2022 core <unk> per share to be in the range of $1.62 to $1.70.

And full year 2022, <unk> per share in the range of $1.38 to $1.46.

A bridge of our 2021 core <unk> per share to the midpoint of our 2022 core <unk> per share guidance can be found in yesterday's earnings release.

I'll wrap up with a reminder of our announcement earlier this month that our board has increased our quarterly dividend to <unk> 22 cents per share a 29, 4% increase over prior year.

In conclusion. It is not just favorable industry fundamentals that are helping us succeed. It's also our differentiated strategy that is built upon our locations our scale and our local eyes in markets.

So whether it's through our growth our execution or our industry expertise. We believe we have a strong competitive advantage to continue to achieve favorable results.

Operator, we're ready to open the line please for questions.

Thank you and as a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now with the parent to ask a question. Please ensure you had said it's fully plugged in on me to likely a star one on your telephone keypad.

The first question today comes from Tony Polak from J P. Morgan Tony. Please go ahead. Your line is open.

Great. Thanks, and good morning. My first question is on the regulatory risk in the regulatory environment can you talk about.

What dialogue if any you have with.

The regulators what the hot buttons, maybe and anything you envision changing in the business going forward on that front.

Hey, its Dallas.

First off thanks for the question you know from time to time, we'll get inquiries from regulators, we've disclosed that we've.

We've been working with the FTC to help them understand our business in a broad sense.

But not really any change there arent.

Aren't seeing anything necessarily that suggest a change in the business environment. I think you know the the big focus right now is around rental rate growth across residential generally.

Our multifamily peers are coming out I think what you know pretty big growth rates as well. This year. So I think just that inflationary pressure tends to be more of a headline a.

Versus you know necessarily anything on the regulatory front.

Okay, and then in your guidance and how you can probably back into this maybe if you could help us what do you assume market rent growth to be over the course of 2022 in order to maintain these are rent spreads that you laid out.

Yeah. So I think very importantly, this is Ernie you have to look at it between renewal spreads as well as new lease spreads.

And a lot of people pointed out I think you have as well with it being a pretty big embedded loss to lease in our portfolio and in the high teens, if not close to 20% you can certainly see an activity during 2021 and new lease numbers far exceeded renewals said another way. That's probably you can give us a longer period of time over in probably more stability in our renewal increases.

And as Charles talked about in this call script here, we got numbers in the renewals and in the 9% range, we'd imagine theres the opportunity for that would be pretty steady throughout 2020 to what's a little bit harder predicted the new lease rates, but remember Tony renewals are 75% to 80% of our business. So the new lease rates certainly is impactful, but not as impactful on the renewals.

As Charles talked about his prepared remarks, we're still seeing extraordinarily high new lease rates of 14% plus in January but we do expect that that will moderate as your goes through but when you look at that on an overall basis. You know when you would think it would be pretty consistently and with numbers that are very similar to where we ended up in 2021, which is about a 9% blended growth rate.

That you know because of our knoll being the majority of that not seen a lot of volatility in our results throughout the year.

Okay, great and if I could sneak one more in just what would you have assumed in terms of just acquisitions over the course of 'twenty two in your guidance.

Outside of that.

It out on the builders.

Sure absolutely and as you can see in our schedule AR AP and the builder contribution is pretty small in 2022 .

If you look at our guidance range, we're assuming about $2 billion of acquisition activity. During 2020 to about 1 billion and a half of that would be on the balance sheet about 400 million of that would be closing out the rock point joint venture. We expect to have that closed out sometime during the second or third quarter in terms of being fully committed and invested and then separate from that with the path.

Ways opportunity, we expect to you know it should be plus or minus $500 million that we'll invest in the pathways of about $250 million commitment there and importantly, Tony.

And I saw some people pointed this out this morning, we started the year with a larger cash balance than we typically wouldn't kind of got ahead of our needs from a capital perspective isn't finished out the fourth quarter.

So when you factor in about 1 billion five of balance sheet activity with that $600 million of cash sitting on the balance sheet today to help fund that we do expect disposition activity between three and $400 million in 2022 so slightly elevated from where we were in 2021.

And then of course, you have your free cash flow our dividend payout ratio, even with our large dividend increase is still on the lower side fleets at about $60 65 per cent.

So those things taken into account that were funny you know the vast majority of the $1 $5 billion, we're able to about balance sheet activity, but we certainly will need some capital for us to get all the way there with some combination of debt and equity potentially during the years, depending on what would be more efficient cost of capital is worth to us as we.

Try to achieve that number that's very similar to what we did here in 2021.

Okay, great. Thank you.

Thanks, Doug.

The next question is from Jeff Spector from Bank of America, Jeff. Please go ahead.

Great. Thank you. Good morning. My first question is on migration trends you know everyone's laser focused on some of the comments you discussed no Sun belt population shifts jobs, I guess anything new to share that Youre seeing let's say you know January into February .

And any other trends you could share with us from from your data.

Great. This is Charles Great question.

I shared some of it in my prepared remarks.

Honestly, there's really nothing new than what we've seen in prior quarters.

We've got about 83% are coming from single family prior meaning that they know what theyre looking for and as we talk to them. Maybe this wasn't in the prepared remarks, but the two main reasons there.

They're looking to move to is to get more space or.

Or to be closer to work, which speaks to our locations, where we own our homes.

You know, we do see that it's about 60% are coming from out of town. That's a combination of different cities or from out of state and as I've talked about previously we were given the pandemic seeing a number of people move from the northeast to the southeast specifically, Florida and you can see it in our numbers are.

New lease rent growth the demand is really high in Florida, Atlanta, as well were seeing Vegas with some real high demand people moving out of California, Texas as well. So these are some of the migration trends, but things have been pretty consistent over the last few quarters in terms of the demographics.

Do also ask as we get a little deeper on around what are they looking for in terms of the community types and it's the family family friendly Kids' schools.

Pet friendly convenience oriented that's really our portfolio and that's why you're seeing such high occupancy in great demand within our homes.

Thanks, Charles and then thank you for the new schedule E. B I guess two questions there.

First on South, Florida, just kind of stands out that nothing is delivering in 'twenty three or beyond anything particular in south Florida to note.

In Brazil, yes with that one.

I'm sorry, Dallas.

That one we have a specific contract with someone's day, and they're going to deliver muscle it sounds in 2022 in jeopardy to look for future opportunities there to expand that further in 'twenty three 'twenty four but that's actually one of the first ones up in the Q in 'twenty two for delivery for us.

There are some specific projects that we're working on with them.

And that's all kind of things that's.

That's a different that's a different buildup.

Thank you.

Actually my my last question, if I could just ask on the expense growth Ernie just to confirm the 6% midpoint. What are you seeing most of that is estimates for higher real estate taxes.

Yes. Good question, Jeff Yeah, as I mentioned in the prepared remarks, the last two years, our expense growth has been at 1% or less it's been pretty extraordinary. So I think it's a combination of few things you pointed out the biggest one Jeff and Matt you know real estate taxes are about 60% of our extensive and baked into our guidance is an expectation of about 5% increase in real estate taxes.

We're going to aim to do better than that and if we can have some some good news on some appeals and things like that maybe we can come in a little bit, but that's the way. It certainly will be a big driver and then the other big driver there, they're just being the inflationary environment. We're in with regards to repairs and maintenance costs and turn costs and then finally you guys saw on the numbers. Our turnovers came in again extraordinarily low here in the fourth.

Quarter and for the full year that 22, 9%. We are assuming that turnover goes up a little bit from that about 23% number to something more in the 24% to 25% range. So not only doing the inflationary pressure of labor and supplies, but also you know at least baked into our guidance are more turns down to be fair. When we sort of thought that was going to start to happen in 2020 wanted it.

Didn't so hard to predict for certain that will happen, but that is what's embedded in our a range up to five to six and a half of expense growth.

Okay, Thanks, and congratulations on a great 21.

Thank you Jeff.

The next question comes from Brad Hoffman of RBC capital markets. French Your line is open. Please go ahead.

Thanks, Good morning, everyone on a pathway.

Curious if you consider in thinking about doing that model yourselves and then is there any scale that you can give to the potential there.

Yeah, you know, we're really excited about this partnership and maybe just level setting for a second.

You know we talked about this a little bit in the release, but we have an ability with people that are leaving our portfolio and seeking homeownership.

To also help bridge some of that gap as this program develops over time I think your question's a good one which is you know why not do this per se yourself I think out of the gates, what we'd like to do is get smarter around the product do it with partners that we trust and that we've worked with in the past and I think pathways offers us that kind of perfect opportunity you know I would expect that as if we like the programs over time in disk.

We'll be able to also extend those programs as you know by a pathway or or whatever alternatives are in the marketplace, but I think helping people along the housing continuum and in their journey is something that you know our company and our people are passionate about so the investment in pathways is reflective of that and we're excited to see what sort of predict and yield in the future.

Okay got it.

And then any new color on where rent income ratios of trying to recently.

Yeah.

Great question, we've been continuing to see upward movement on that rent to income ratio were over 120000.

The average household income, which is very healthy and you know where their rents around 2000 a.

A month, we ended up at a five to two ratio.

Which you know what I would say is is one of the strongest in the residential sector. So.

It's a testament to our location demand that we're seeing and our team is doing a really good job of screening as well.

Okay. Thank you.

Okay.

The next question is from Nick Joseph of Citi. Please go ahead.

Thank you, that's where you're seeing an increasing amount of capital that's been earmarked to the single family rental space, where you've seen the most change in direct competition I don't know either from a quote channel or geography or something else.

Well.

Hey, Nick Dallas.

We're certainly still hearing a lot of the build for rent you know narrative out there and that's starting to take shape across two or three different categories. You know you really have garden style apartments that are starting to pop up in suburbs that are so much smaller square footages and you certainly have partnerships with companies like we have with Pulte and other builders, where we're building single family detached product that is.

As you know generally geared towards four leased product.

And then youre seeing kind of a hybrid where guys are doing stuff Intel on a townhouse basis, but it feels like a lot of the capital coming in is is more sophisticated or at least wanting to come in as more sophisticated hearing.

Kind of insurance companies sovereign pension funds looking for ways to deploy capital as we're having conversations and I think the challenge is largely around as kind of a couple of areas of why that's not an easy one you've got to have a great platform, which we all know is difficult to build in and replicate what is specifically with what we have here at invitation homes and I think the second piece of it is.

Which markets and why whereas your thesis and do you have you know kind of sound logic, but I'm hearing the same things I think you are Nick which is theres a lot of capital that want exposure to single family in similar ways that they've had exposure to multifamily over the years.

Yes, it's Michael Bilerman speaking here with Nick does that alter.

Alter your views on perhaps growing a much larger asset management program and sort of ventures to take advantage one of all of this capital is out there.

It appears maybe lower return than what Youre willing.

And then layering in your operating platform and the management of it you can sort of juice the overall enterprise.

Is that an act is.

That's for you today.

It's certainly something we've gotten a bit smarter at over the last year with a rock point venture.

Michael you're I think you're touching on kind of key things that are important to US. One you know take a step back you know absolute shareholder return is our focus so we do want to do things that allow accretive growth to the portfolio or the platform that has complete upside for shareholders and the rock point venture for US was a way that we could.

Obviously insulate some of the risk if for whatever reason our cost of capital wasn't in a position to grow as quickly as we wanted to but there's also you know different slugs, there's probably some different opportunities over time as we get a bit more sophisticated in how to think about J D businesses over time and distance that we can do things.

At our discretion that are very accretive to the platform to shareholders. So I think it will continue to be opportunistic I think that capital coming into the space, obviously lends itself to future thinking around some of that and it can also be price point, driven geographic I think theres. Some things that that you could think of outside the box, where we can take less shareholder risk.

In terms of how to look at markets or opportunities, but drive a ton of value to the platform and actually use the synergies and the efficiencies of our platform to create exception.

Exceptional returns so it's something we'll certainly look at over time and distance.

And then just sort of a second topic.

Charles you talked a little about serving the new residents that are coming in and you made a comment that you know about half of those are working from home two days, a week and 75% and tend to work from home in the future even with their office is open.

I guess, what what is that new renter.

Does that represent of the total portfolio how does it.

Do you think it is I don't think you're surveying all 80000 homes.

Right now, it's only that new park and maybe you can just I don't know if there was some geographical impact or can you just sort of tease out a little bit more of those comments.

Yeah, no. It's a great question just to be clear, we're serving new residents who moved in that quarter. So you you have a good question, but it's hard to tease out what you're asking for given that we're really just trying to capture those who are moving in and kind of whats their general sentiment at the time, but having looked at it over a last few.

Quarters or last year through Covid, it really hasnt changed that much you know there's there's.

It's a 47 four high 40, almost 50% are working from home some part of the time.

And the other thing we got from it is about 73% are thinking that that single family homes gives them that safer environment that theyre looking for for their families for their pet and so weak.

We can try to pull out that information in the future, but right now we just we can't go as deep as Youre asking us.

Yeah, I just didn't want to jump to a conclusion based on the smaller Chappell said it was certainly a bigger headline and eye catching headline I just wanted to put it into context relative to the size of your portfolio in all the geographies that you're in just to try to understand it better which we can do that.

The later time I appreciate it you in a few weeks.

Thank you thanks, Michael Thank you Michael.

Next question is from Keegan come from bearing bucket can you give me your line is open.

Hey, guys. Thanks for taking the questions first I think this one's a little more challenging to answer it but I'm. Just curious you guys have any broader thoughts went home price depreciation looks like this year, you have any sort of internal forecast rates and the impact it's going to have on the housing market.

Hey, This is Dallas you know it.

We would all be in different professions, if we could have predicted what's happened over the last 24 months in terms of home pricing. So I agree with your sentiment that it is very very difficult to predict and you know obviously its interest rate sensitive and I would say this as we look at.

Just the case shiller across our marketplaces, we're somewhere around 23% on a look back basis I can remember three or four years ago. When we look back and that number was closer to six or 7% and then I can think about 10 years ago. When we started the business. When we were looking back at that number and it was between 12 and 13% so.

The the momentum or the inertia of where kind of mean median pricing in our market is going is impacted by a variety of factors. We I said this morning in some media we were doing but we don't expect trades to continue to grow to the sky.

Forever.

But with that being said.

With all the things Charles just laid out around desirability people wanting maybe a little bit more space people wanting a yard I do think you know living a couple of years like this now with.

With these types of things influencing our decisions are likely here to stay longer than they are to go away and so I do think that pressure around housing prices continues I think the supply challenges are so much bigger than what we just talked about around months of inventory. This is at a very municipal level zoning in and <unk>.

Mentation level to really of course, correct and be able to create ease of supply to come into the into the marketplace. So we would expect home prices to generally stay elevated given the interest rates are.

Large still really low even though they're going to creep up as you look at it on a relative basis. When I bought my first time in 2003, I was paying 6% today that rate somewhere in the high threes. So it's still really really cheap.

Money for somebody that wants to go and acquire a home I think the key thing is many municipalities and at the state level to be pro development and some of these markets that's going to solve some of the appreciation issues that people are calling attention to.

Yeah.

Got it I guess this one's more for Ernie, but I mean, just any sort of commentary that you have around the insurance renewal rates and what they could look like in March.

Yeah. Good question, we're actually just going through our our renewal right now and because we've had such a very good loss history and insurers understand the spread of the risk for us is much different from a catastrophic event and if you think about our homes in Florida, certainly Charles in Dallas to build scale, but you know scaling our business is a lot different than having one or two large commercial buildings.

Our residential buildings that could be worth hundreds of millions of dollars.

We're expecting an insurance renewal that is gonna be generally flattish it might be up a one or 2%, but we've gotten good feedback from the market.

And should have that hopefully wrapped up here in the next few weeks so insurance would be a good guy for US we believe relative to our other inflationary pressures we're seeing on expenses.

Yeah, I know certainly its good to hear just just wanted to clarify one thing.

No. It was mentioned a little bit in the beginning of regulatory did you guys mentioned anything about the FTC investigation or any sort of update on that.

No no update there I'm just it was acknowledged that we're working with the FTC to answer any and all questions that they have around the company or the industry that they of course are pretty broad and we're doing our best to make sure we get them the information they need.

Okay.

Got it thanks for the time guys really appreciate it.

Thank you. Thank you. Thank you.

The next question is from Jade Rahmani from K B W. Jade. Please go ahead.

Thank you very much as a follow on to the FTC question could you give a broader update on the regulatory and political environment. Both respect to rental housing overall, and if theres anything youre hearing in.

In single family rental in particular, just around the affordability question and rent growth.

Yeah happy to Jade and by and large we've continued to keep them.

You guys and everyone for that matter updated with inquiries and questions that we got from state local or federal inquiries over time and.

We've worked over the last several quarters.

With the house congressional subcommittee on the Corona virus to give them a bunch of information as have many companies within our industry. We've done that also across the Senate banking and Finance Committee as we've had inquiries from Senator Warren and others will continue to do that it's best practice. It's also how we have been for 10 plus years in terms of making our information available.

To those that have inquiry and by a large one of the benefits of being public is our information is generally available on what's going on with the industry I think at the local levels. What are you hearing kind of some of the noise in the pressure really does center around rate discussion.

The cost of goods generally.

All felt it across different categories and sectors is going up and we just talked about it with home price appreciation, our cost of materials and flooring and paint and all of that will also have some of that creep as well over time, I think Charles and the team have done a phenomenal job. If you look at our expense create the last two years of keeping that locked.

In in using our platform and our pricing power to be as effective as we can but it's just an environment that creates a heightened sense of awareness on costs and so I think some of that jade feeds into the public narrative and again, we said. This every two to four years were in another election cycle and Unfortunately some of this starts to become the airlines will do our best to continue to take the same.

We always have which is work with any and all parties that objectively wanted to dig in and understand what's going on in single family. We are very small small percentage, but a good barometer of what we're seeing across the space and so we'll share that information freely and outside that Jay we haven't had it really anything new beyond what we've kind of been addressing.

Over the past several years.

And is there anything from the feedback you're receiving or your sense of the environment that is causing any operational changes one of your peers. For example has some limits on the rent.

<unk> pumps that they will take.

And some compression they provide as partial offsets to rent growth are there any practical operational.

Implications to the way you're running the business.

Yeah, I mean to be clear I mean, we talked about this on the last earnings call. We've done a considerable amount of rent adjustments rent forgiveness and worked with folks through the last couple of years.

You know in the <unk>.

Tens of millions of dollars in terms of how Charles was around that program.

Going forward with obviously working with all the different rental assistance providers to make sure that we're area.

Even the side of caution and making sure we're working with customers and Charles has done a spectacular job I think were close to $50 million, Charles we've secured and rental assistance over the last two years on behalf of almost 8000 cases with our resin. So the team has done an exceptional job I don't think we're going to change anything that we do outside of following.

State and local.

Was around how to operate a property management businesses and how to think about the way that you issue new and renewals I think the headline. There are also Jay is that we have a lot of embedded loss to lease on the renewable side of our business. So we do look at where our renewal astral going out we modify and make sure that we're being sensitive to mark.

You know kind of current market environment, and you see that in our numbers, our new lease numbers are substantially higher than our renewal numbers and so we think that that actually has a good long term tailwind for the business over time.

Thank you.

Thanks.

The next question is from John Pawlowski from Green Street, John Your line is open.

Hey, Thanks, a lot for the time that I was curious to get your thoughts on them pretty wide disparity, we're seen in private market pricing on portfolios versus one offs and so.

Is there an opportunity.

To kind of reposition the portfolio a more on a step change fashion to take advantage of portfolio premiums prevailing right now.

Yeah, that's a great question, John and Youre seeing similar things really more so last year. It felt like we saw a few portfolios trade at really high premiums on a relative basis, whether we where we thought maybe our cost of capital was or or what we would consider a call. It end user retail pricing.

Data, we're seeing less of those opportunities going out. So yes. It is part of our asset management practice. We're constantly we're looking at parts of our portfolio, where we think you know could we drive a premium and you know you might be able to argue that our California portfolio has pretty high values to it but again. It's also got the prop 13 protections, it's got a really steady.

Our tenant base and Theres a lot of upside in terms of our risk adjusted return profile. So anytime we look at our portfolio in itself. We don't Rebuy analysis, we have a discussion around where we have conviction and why and so you'll see us continue the colon prone and look for opportunities I don't think theres any opportunity necessarily the near term that's immediate or wholesale that would tee.

Take us off course from what we're doing currently but it's certainly something that we do as a matter of best practice internally.

Okay, and maybe just one follow up on the acquisition side as you're underwriting even small to midsized portfolios.

Could you help quantify portfolio you've looked at what a typical.

Spread is on a cap rate basis on the portfolio versus if you had to assemble a portfolio of a one off.

Yeah, just depends by market and we saw some trades last year and Sunbelt and southeast markets you know that we're trading.

What I would say on an in place cap rate kind of in the high threes right.

And you might be able to buy those assets one by one at a five cap today or a high fours and again your cap rate will compress the more you buy because theyre just sort of limited opportunities out there but.

Those deltas can can swing.

Pretty widely and it's based on the products and how big the deals I think you're highlighting an important point and it goes to the one that Michael talked about earlier, which is you know what.

The balance sheet, we're going to be really careful we want to do things that are accretive a lot of the things that make sense and are buying for a 5000 homes a year one office extremely accretive for us. So we'll continue down that path I think to be aggressive on some of those other portfolios you have to look at other slugs of capital over time and you have to have conviction that you believe in the assumptions and those are the things that we look at when we look.

Those opportunities John .

Alright, I appreciate the time.

Thanks.

The next question is from Hindustan Juste from Mizuho. Your line is open. Please go ahead.

Thank you. Thank you good morning.

Hey, I guess the question I think you guys mentioned earlier that you expect to extinguish the remaining capital from the rock point J B. This year, so I guess.

I'm curious, how you thought maybe about potentially expanding it or maybe adding a new JV partner here. So.

How you're thinking about JV capital and how it might play a role or not your near term. Thanks.

Yeah, I already mentioned that.

Initial Roc plate venture will likely be finished in the second or third quarter and we view that you know that buying would then go back on the balance sheet.

B B Additionally, accretive growth for the for the REIT.

I think I mentioned it earlier, we want we're thinking outside the box are there markets are there submarkets within our markets of different price points that can be accretive with outside capital, where you know the platform could benefit on that over time and distance I think and Delaware. We are spending time trying to get smarter around what that approach could be without confusing our core business, which is to <unk>.

Continued to buy Accretively for our shareholders. So I think anything that we can look at with you know outside.

J D partners or maybe long you know call. It core ventures could be interesting over time, you've got to find the right type of capital you got to think about what those price points are why that makes sense and you don't want to do anything that distracts you from what you do day to day, so just being smart about the opportunities the geographies the price points and making sure that the story is really clean and and and.

That we don't compete against ourselves and the other day, we have a.

Really good generally good cost of capital and we have an infrastructure that supports really good shareholder growth. So we want to make sure that we maximize that over time on anything that we would look at outside of investing on balance sheet.

Got it got it thank you and a follow up on halfway I guess.

Can you talk a bit more about the pace of capital deployment. It sounds like you're expecting that to be deployed to 50, this year and maybe a bit more on the scope of fees earned.

Burns I'm trying to understand how this might impact the numbers earnings going forward. Thanks.

Yeah, and I was very happy to address that and then part of it also in terms of how fast they will deploy as you saw it in the pathway homes announcement, they're also looking for additional capital not just ours. So right now where we're the lead investor, but they are out seeking additional capital. So even during this period of time, where we're the only investor or any homes that they require is purely from from our capital but there.

Certainly not potential later in the year. The other investors will be attitude, which would then you know proportionately reduce what our capital deployment will be during the year, but I would say the best way to think about the handle is that they are buying homes very similar to what we're doing our balance sheet today in terms of stabilized yields maybe even slightly higher.

And then the difference here is they're doing the work around sourcing their homes sourcing the customers. So the pathway home's operating company, which we're an investor in <unk> being paid in asset management fee and then we're paying a property management fee on running the homes like we do with our current portfolio. So where you can really see some really good leverage for us with regards to having them.

A really nice return here is this additional capital comes in so learning those management teams not just of our own capital, but off someone else's capital is too. So a lot of it is going to be on the base case, it looks pretty good if it's just our capital but it gets a really nice if we can start bringing in other people's capital as well and really grow that platform. Then of course, you know with our investment in the operating company is.

Well, there's tens of evaluation on that operating company that could certainly be beneficial to us in the future.

Got it got it that's helpful. Ernie Don if I could just squeeze one more and this is regarding litigation understanding of that would be probably a sensitive matter, but anything you can share a comment on the whistleblower lawsuit in California that was in the press yesterday.

Yeah happy to share what I can't and we don't we don't we don't really comment on pending legal and whistleblower is not really a fair term well we had was.

The city, saying that our general contractors weren't pulling permits.

On Rehabs in.

And as a matter of practice is kind of the only comment I'll make on this because I want to let make sure mark and our legal team can deal with it appropriately as a matter of practice in our contracts with our general contractors.

Much like you would expect they're required to pull appropriate permits with the city. So.

And again when these things come up from time to time, we typically make sure that our lawyers looking review and then we point to municipalities to the proper direction of where the issue actually lives in so outside of Angela I can't really comment on pending legal but just know as a matter of practice for our business in our contracts with our G. Sis they are required to pull all appropriate permits.

Got it. Thank you I appreciate the color.

Thanks.

The next question comes from Brian span of ethical Brian Your line is open.

Hey, Hum on the supply side are you seeing any bottlenecks currently affecting you in your building partners and how do you see that trending during the year.

Yeah, we're not seeing any real direct bottlenecks given the structure of our homes you know when we buy a new home about 10% of the purchase price goes into the rehab. So it's <unk>.

<unk> $30 to 40000 range, mostly paying carpet and all of that so early on we saw a little bit of noise.

In the middle of last year, but today not really I think most of it is coming just on the kind of labor side and sourcing Gcs. We've had a we had a really good healthy by acquisition year end.

From an ops perspective, we're doing a good job of catching up but it was a little bit of catch up and to keep up with our what we're trying to do this year. So it's really just to make sure that we are making in our streamline for gcs to work with us and we're doing a lot of things on that front in terms of make it easy for them to be paid quickly supporting them writing a quick.

Scopes, and all that and so really haven't seen much on the material side, it's mostly on making sure that we're sourcing the right Gcs, who we're going to turn to how surround and from our our requirements.

Okay. Thanks, and then just on the ancillary income side real quick you've talked about reaching that stabilized goal of $15 million to $30 million by the end of this year.

Just wanted to check if any any changes at the timing there or is that still kind of a target goal.

Definitely the target yeah.

Yeah.

Sorry go ahead.

This is Charlie.

Yeah, we're at the high end of that.

The guidance that we gave a few years ago.

Really being driven by seven areas and through the pandemic, we were able to maintain and keep real good momentum on the ancillary growth. We've built a really nice team over there and from an ops perspective, it's really rolling out nicely. Our main focus has been on smart home optimizing that but that program as well as introducing.

Video doorbell this year pet.

<unk> programs are going well, our filter program that we rolled out about a year and a half ago.

Insurance.

Our partnership with Terminix on past utility partnerships and then starting to work on landscape stuff. That's really the base case, that's going to get us to the high end of that.

Guidance that we gave in and we think that continues to grow from there.

As we go Ernie if you want to add anything sorry to cut you off.

No no you know the trials all good.

Great. Thank you.

The next question is from Dennis Mcgill from Zelman and Associates Dennis. Please go ahead.

Hi, Thank you thanks for taking the question.

First one I guess, just looking at the Texas markets appear to take 21 as the reference point, both rent growth and occupancy is among the lowest in our portfolio and.

The migration data or the way people are talking about migration that narrative would kind of lead you to the opposite conclusion. So just curious from your perspective, I know, Texas looks good versus history, but relative to other markets and relative to the node migration narrative why why arent numbers better there.

Let me start off by saying, we love, Texas.

We were able to acquire the beginnings of that footprint and our merger.

With with calling Starwood and we're trying to grow it Dennis quite frankly, I think some of the dislocation that you see in the numbers has more to do with the size of the sample some of the existing assets that does the market as a whole to be fair.

We are we are in and our homebuilder program really trying to target, Texas growth. The fundamentals are off the charts as you know it feels like the net migration patterns, which have gone on here for 20 years are only going to get better. So we're bullish like extremely bullish and we would expect which we saw this a little bit too. If you remember back when Charlotte was a smaller market for us the Carolinas.

We struggled to see kind of the growth rates in the trends and as we were able to scale up and provide services.

Candidly a better level are you starting to see the acceleration in and you start to get better at the pre leasing and you lost the lease comes down and you actually start to see better.

Programs within your renewal category so.

I don't want to say, it's nothing Burger, it's something that we focus on but it will adjust and change over time as we get the right product in the portfolio I don't know Charles if you want to add anything yeah. No I think it's a good callout size does matter long term very very bullish.

And if you look at this.

Specific trends within the market Houston in Q4 was $97 seven occupancy same as it was last year, which is still really healthy and today, our ending January we were up to 97, nine and blended rent growth in Q4 was seven two versus two eight.

Q4 of 2020, so while.

While it is not keeping up with some of the Florida and and and.

Vegas, and Phoenix, which are just extraordinary numbers. These are good numbers for for Houston, and Dallas, We saw a little bit of turnover Spike in Q4, which brought our occupancy down to 96 eight in and are in in the quarter, but January is already up to 97, and we are increasing and the blended rate growth was 90.

<unk> nine six in Q4, so that's really healthy up from $3 seven before and in January we are still in the 8% blend so given seasonality given occupancy. We think this is going to you know I think the numbers in Texas will continue to be healthy and overtime.

Over time I'll start towards start to compete with some of the other migration markets we talked about.

Okay. Thanks.

Thanks, that's helpful and I love. It separately do you have how much of your leases are month to month and how that's shifted over the last year or two years.

Yes.

Yeah.

Month to month as I think about three to three 5% of our portfolio today.

And it shifted a little bit some of that is is the the California effect when you have.

A limit on the renewal leases and they're kind of matching up to what would be our month to month rates. Some of our residents out there decided to go month to month and Thats whats pushed it up otherwise, it's pretty typical to what we've seen and it's a small part of the portfolio.

Okay, Great and then just one last one on the development pipeline in 2500 homes.

Maybe just a little more detail on the on the asset types are all of those single family detached or or what percentage would be true single family detached and then are these typically whole communities or partial communities any additional detail there.

Yeah, I know happy to and bear with me because I'll give you.

A few bullet points here.

I think we disclosed that we have got plus or minus about 1700 homes and contract that are in play right now that will start to take deliveries on later this year. We have another two or 300 homes right now that are pretty close to contracts. So call. It 2000 that are kind of in our ultimate pipeline.

They are a majority of these are single family detached Dennis we are going to experiment, a little bit with some townhome product and much more infill locations, which we bought in the past to be clear we've done some of this back in the early days. It also picked up some of this along the way, but it's really location driven.

And we believe that on a margin basis. Some of this can be pretty accretive.

We think you know.

Our going in cap rates right now are kind of in the low to mid fives, So really accretive in terms of where we think we take delivery.

And then you know about 80% of what we've got in our current pipeline.

Is kind of largely sunbelt southeast markets. So we're going to expect that to continue to insulate that narrative around Texas and the southeast where we're seeing some of the highest growth.

And we're also trying to get smarter around new markets, we've talked about margins in the past that we'd like to be in markets like Salt Lake in Austin and San Antonio are all really interesting for us and we want to continue to try to see if theres a creative ways to ultimately as a business may be in some of those markets and the network of build to rent providers will continue to expand.

I'm, John Gibson and Peter at all on our team do a really good job of spending time.

With a with a number of different builders and theyre looking at thousands of opportunities over a three to five year horizon. So we're excited about where we are what we laid out a couple of quarters ago and my opinion is working we haven't taken the majority of these deliveries but.

We're doing things with tried and true partners.

And building these like the right foundations that are built on trust transparency and an initiative to candidly bring more leasing supply into the marketplace and I think we're gonna do it like right doing the job of it as well.

No. So you're experimenting at all with the sort of ultra high density product beyond no because at the end of the day no I think it's because it is day Dennis our customer was an 800 2400 square foot home.

At about $10000, a month, where it blends in that ultra high density tends to be a little bit more amenity base I would never rule out the never but they'll start to tend to get to be smaller product, it's a little different customer not saying, it's a bad customers just a little different from the customer that we have stayed with US now almost three years to four years and once the ancillary businesses and the things that Charles.

<unk> talked about so I would actually expect US Navy in some ways to go the opposite way continue to do what we do really well and drive additional services into the platform and make everything mobile to where a customer can adjust kind of whats part of that experience from their phone over time and distance I think that will lend itself to great growth for the business beyond just the real estate and <unk>.

Being location focus with our investments.

Makes sense. Thanks, guys. Good luck.

Thanks Dennis.

The next question is from Samsung from Credit Suisse. Please go ahead.

Hi, Hi.

Hi, guys. Thanks for taking my question just since we're talking about the acquisition pipeline again just.

Just wanted to know what percentage of that current pipeline is from pulte.

Guys threw around a number like 1500 last quarter.

Yeah. The majority so if you look on the sorry, yeah.

If you look on schedule supplemental schedule eight would be the vast majority of that is from pulte.

Yeah, probably 80, 90% of it soon but in terms of what's going to happen in 'twenty to 2022 in terms of we actually intend to buy.

Very little comes from Pulte, Pulte really doesn't start to kick into gear for us until 2023 and in the vast majority of to the tune supplemental schedule a b comes through in 2020.

And as we do more deals with Pulte I think youll continue to see 24 build out as well you'll start seeing 25 and 26.

Right.

That's where those 7500 homes kicking rights or after 'twenty three that's the five year period, where you guys expect that relationship will build and you guys are well eventually try to get to the 7500.

The right way to think about it.

Yeah, I mean, we announced the relationship here about two quarters ago, and so over the five years that would certainly get us into 2026, maybe into early 2027, and because we were getting involved with pulte is really at the beginning of the process with regards to when we were thinking about acquiring the land where they have acquired the land. So certainly from there. It takes a certainly a couple of years to get the land.

Ready for it and the developments to start to happen. So that's why you'll see a lot of the pulte stuffs deliver in the out years for us, but the vast majority.

Okay I just wanted to check that thank you for that color.

And then.

I guess on the expense side or you saw that 13% increase in the fourth corner I guess I just want to wrap my head around.

How much of that is transient and I guess, you did provide that guidance, but I'm. Just wondering what you are anticipating for the first half compared to the second half and then maybe the full year Oh thought on I guess, how youre thinking personnel expenses will trend.

Sure. So if you for serious diseases. The personnel you know one of the Big reasons you saw an increase in the fourth quarter was around the fact that we had a very good year for performance perspective, a lot of that was driven by truing up our accruals at year end for a short term bonuses. So that's why I thought I would say outsized growth in personnel costs in the fourth quarter, otherwise we would expect.

That to be relatively steady and the same store same store. It takes into account. The fact from the same number of homes in terms of what the growth rate will be so I don't view other than crewing appropriately for outperformance. If we're so fortunate to have that later in the year.

You'll see kind of a steady growth with regards to the costs associated with personnel and then just overall for expense and Stan.

Real estate taxes, you take your best guess at the beginning of the year, how it's going to go and then again he can give you.

Put that increased through we got pretty evenly throughout the year and then as you get more information you tweak those accruals so I wouldn't I.

I would expect you would see and again with property taxes being 60% of our expenses, you'll see a yeah. We would expect a relatively smoother expense growth in 2022 with regards to where it's at and it maybe we get some slightly easier comps and so we get the second half of the year around our repairs and maintenance and turnover things like that because you know the inflationary environment really started.

The gear for us here.

Towards the end of the end of 2021.

Got it got it that's really helpful. One more from me.

I guess, the total occupancy for Seattle, and Denver were our kind of low compared to the rest of the portfolio like 90 187, what was going on.

Yeah.

Yeah, Dan what Youre seeing there is.

So go ahead Charles.

Yes, just quickly on Seattle, what what standing out there is there was a.

Freeze on the renewal side of the business.

The Washington had in place and when we could start to move rents back to market and we did that in a very thoughtful way.

Some residents decided to move out so it created a little bit of a spike in turnover.

And so that's why you see occupancy went down to 97, one still very healthy from a 98 five but its already rising up in January we're at 97 six.

And youre going to see the renewal rent growth and rent growth go higher.

So Sam I know you were talking about the total portfolio not same store and so on total portfolio.

The activity.

We've had a we've had a significant amount of acquisitions in both of those markets.

So what's happening is we're acquiring homes at Charles talked about it a little bit earlier, we did see some labor supply shortages in the fourth quarter of 2021, with our general contractors and with the quick ramp up in acquisition activity in the second half of the year. We did see is.

Taking us longer to get our initial renovations done and we've been very acquisitive in both the Denver and Seattle markets. So what you're just seeing there taking up about 30% to 45 days longer than historically to get homes ready and that's impacting our occupancy we would expect that will work itself out over the year.

Actually the first half of 2022 to get to more normalized total portfolio numbers.

Got it I appreciate the color guys and congrats on the great quarter.

Thanks Sam.

The next question is from Austin <unk> from Keybanc. Please go ahead.

Great. Thanks, everybody wanted to circle back on the pathway investment really quickly just to better understand it. So is the $250 million investment your total commitment or just an upfront investment.

That could grow from here over time, and then second are you structuring. These deals essentially to ensure you achieve your targeted return and then any upside from home price appreciation over the term of the rental period is then enjoyed by the resident just any detail you could provide would be helpful.

Yeah. Austin. This is Ernie now in Dallas May chime in as well with the first part of your question, we committed $250 million of that platform, we funded $25 million of that to the operating company. Then you know the group is actually set up an operating company to source the customer's in sourcing homes.

And our capital partners have also put some cash into that entity as well and then we own 15% of that entity and then the remaining $225 million of committed to the property fund, where where the homes will actually be hold.

And therefore there'll be leverage that will be used there as well and then the hope is that our in halfway home stuff that I talked about are out trying to raise additional capital there too.

To grow that even further and then for a.

So from a return perspective, we would expect that these homes are one stabilizing and they stabilized very quickly because they've been someone's moving in right away. There's a very light renovation of absent these homes because the consumer the residents it picked out the home a home that they want to essentially buy after a period of time.

We expect the yields at the property level would be similar or slightly better, but the least clearly states what the renewal rates will be over the period of time that they're leasing and pre negotiates with the purchase prices will be so if you do see some outsize home price appreciation that would certainly accrue to the benefit of of the resident but that's all factored into.

At least that's put in place to get together with that revenue.

Got it that's really helpful. Ernie. Thank you for that and then just secondly back on the regulatory side I guess, how do you lay investor concerns about the regulatory backdrop and an outstanding class action lawsuit that came up which presumably are on everyone's mind and come up frequently in conversations.

And then maybe bigger picture do you think any of these risks really derail the opportunity set for invitations ability to continue gaining scale or on the internal growth profile looking forward let.

Well, let me address let me address first the class action references. We this is one we've been dealing with for several years and it in and.

There are two claims but they stem from the same case the first one was dismissed.

Across all states, but they kept the California piece, our general counsel is working with that there we don't comment on anything ongoing but this has taken some time.

Case, that's been going on for a while the second one is the old plaintiffs. After the case has been dismissed a filing in the state of Maryland.

So no new news there outside of the fact that.

These things do arise from time to time and.

It's in regards to our late fee claim and our counsel is working through it.

In terms of the broader environment I think I'll go back to what I said earlier, which is there's a heightened sense of awareness with warehousing costs and supply constraints currently live and we're all feeling them, we're filling them in our own choices around housing whether it's to buy a home and the home prices up 25% then it was a year ago or whether its in at least like a market like <unk>.

Phoenix, where we're seeing new lease growth in the 20 percentile during peak months.

We can't solve the overall supply issue for the country.

And we in our shared remarks at the beginning we do try to make sure that people understand we represent.

A very very small subset of the four leased single family rental housing space and we're part of a broader.

Sector in an industry, that's evolving and getting better I think that the narrative will be that people will continue to vest an SLR because they like the returns it's never been an institutional asset class, but there's been somewhere between 15 and 18 million people that have rented this type of product forever and so we're happy and proud of the small part we play in that story.

Our goal will be to continue to find ways to accretively grow our portfolio, but not just the portfolio, but the services we provide to the residents.

I cannot tell you whether you know the regulatory environment goes up goes down it tends to fall as political cycles, and spectrums and stories that are out there right now you have a high cost of housing.

The reality that we're all dealing with so it will it will get picked down a little bit from time to time at the end of the day. We are part of an industry. That's been around forever and I think we can continue to find ways to make it better than how it was before and so that's really our focus is how do we take an industry. That's been here for 200 years and they get better and I think you'll see with our pathways announcements those are areas.

<unk>.

Candidly opportunities for renters or potential owners to ease into homeownership in a way that is less obtrusive and that you can also cap the way that your rate growth on your rent might be while youre, considering whether you want to own. This overnight. So we're fully supportive as a business and industry and our company and we talked about this all the time, we are all about choice we think the can.

Silver ultimately deserves choice two thirds of the country is going to own something a third of the country is going to lease something in that category around lease we want to be as active as participant as we can and we want to take current practices and make them better and that's ultimately the view of invitation homes in some of these other opportunities that we're going to continue to look and try to invest in.

No. That's helpful. I appreciate the thoughts and then lastly, Ernie on the $2 billion of acquisitions, how much accretion is embedded in guidance.

Well I'll, let you use your.

Sorry about that Austin, how we you know we would expect continuing to be able to buy it.

<unk> similar to where we are right now in the 5% plus cap rate range and we can layer in your own assumptions then around what you think the cost that oil wells in our equity maybe trade.

Got it sounds good thanks, guys.

Yeah.

The next question is from Neil Malkin from capital one. Please go ahead.

Yeah.

Hey, good.

Good afternoon, everyone. Thanks for the time glad to be on with all of you look forward to continuing to cover you guys.

And I guess, the first one just going back to acquisitions.

The announcement about the Zillow offers unwinding their portfolio you know looking at some of those houses that they have on there on the website I don't know if that's the entirety of their inventory but.

A lot of their properties seem to match up with your markets.

Pretty significantly.

Significantly in in a meaningful way.

Infill locations kind of square footage et cetera.

<unk> some of the markets you've talked about such as growing in Texas Nashville you.

Just wanted to look back into.

You know getting into he found the right inventory.

There are several hundred houses in each of these markets have you been have you been looking at those.

Do you think that's going to be a larger part of your.

Investment activity this year and would that be a good way to sort of.

Increase your exposure or get a quicker sort of foothold in my end markets here.

Wanting to grow in.

It's a great question and as you look at I'll tell you this year and our 2021 and we only bought 126 homes thrive our channels.

So it's not a material amount.

The amount for us in terms of how we look at growth, we definitely look at those channels and the headlines always sound good to your point that there's a lot of crossover when.

When you start to get underneath the hood on markets neighborhoods HOA is the amount of refurbishment that might be needed and again I'll go back to the fact that were pretty stingy investor. We we were really particular about where we invest capital and why.

We wanted to line up with our strategy around the resident experience. So we didnt tend to see a lot of opportunities, particularly on the zillow side of things, we certainly look at.

We'd be crazy, if we didn't but.

You know theres price dislocation there is fit and finish standards, there's things that we hold ourselves to is we want to continue to build out our brand in a way that we do business. So while we would welcome any opportunities to buy from my buyers. If they made sense. We just havent lined up on a lot of trades. This year, that's the answer kind of playing a short.

Yeah.

<unk>.

In terms of the.

The platform.

Guys have obviously been.

Leading the way in terms of institutionalizing and sort of making that model more efficient.

A lot of the apartment peers have really been focused on sort of like what I call. It next gen or <unk>.

Putting technology and and the.

The resident experience you know more to the forefront obviously your portfolio is different than a high rise apartment building, but can you maybe just elaborate on.

Things that you're doing beyond the sort of $15 million to $20 million of other revenue increases you talked about achieving your can you just talk about how you see.

You know technology or the operating portfolio a maturation.

You know along with technology.

Impacting the business in terms of potential margins over like a three year period.

Yeah. Great question. This is Charles <unk>.

Innovation is kind of a core of what we've been trying to do in this industry are obviously.

Professionalizing, the single family business and being able to introduce technology, that's been our base of how we deal with and manage.

80000 homes across 16 markets.

Early on we were early adopter in the smart home technology that did a lot towards that and where we're still trying to evolve that side of the business that allowed us to do self shows it allowed the resident them to control the thermostat and safety by introducing video doorbell is I think we're going to be able to do more on that front in terms of.

Making it even more convenient and safer for our residents to tour the homes.

One of the innovations that we introduced this year or in 2021 was around our maintenance mobile App, which has been really helpful.

Had about 30% adoption of our work orders are coming through the maintenance mobile app.

On both Apple and Android and I almost over 60000 downloads, while we find with that is that the resident it's really meeting them on how they want to operate with us it's very convenient.

Our satisfaction scores are higher when people go through the mobile App, we're getting lower number of multiple trips.

These are the types of things that.

Make the resident experience better and makes us more efficient.

And we will continue to do that you brought up the ancillary side I think there is there a huge improvements there as we survey our residents. We constantly asked them. What are you looking for whats going to make it more convenient for you whether its move in services that we can talk about it it's the.

The broadband services Handyman services. These are things that we are.

Experimenting with we'll be piloting and then rolling out and that innovation is really going to be led by what's going to be there.

That leasing lifestyle that our residents want and that we know what's going to make us more operationally efficient and like to your point pulling those margins. If you will and that's everything that we've done in the history of the company as we've expanded.

Handed in and <unk> been able to get more and more efficient in our operating <unk>.

Environment.

Okay, Great sounds like you have a lot of things in the Hopper. That's all I had thank you very much great quarter look forward to continuing to work with you guys.

Thank you thanks, Neal I appreciate it.

Yeah.

Our final question today is a follow up from Nick Joseph from Citi. Please go ahead.

Yeah.

It's Michael Bilerman I. Appreciate you guys sticking with sticking around I, just wanted to come back to sort of the loss to lease, which you talked about being up at 20%. Obviously, that's grown through the year as you've had very strong market rent growth.

You haven't been able to push the renewal strong cause but I was wondering if you can just step back and.

Just talk about your renewal process and the markets that don't have caps on non rent increases are you imposing a self imposed cap.

On those increases.

How do you think youre going to be able to get at this 20%, which arguably.

Should have continued rent growth given everything that we've talked about from a fundamental standpoint.

20% is just going to grow larger by the end of the year.

How do you sort of put them altogether, given some of the regulatory constraints that are going around.

Yeah. It's a good question short answer is there's no hard cap, we're really just trying to be thoughtful around.

How we go out what our renewals, we're seeing what's happening on the new lease side, obviously, we've had a really good numbers.

Even through the January numbers at a really healthy in the mid teens, but what you will notice on the renewal side, it's increased every month.

Over the last year, and we're continuing to see that acceleration and I think over time.

We'll get back to capturing some of that that spread that that we're losing in the loss to lease.

But how we do that practically on on the on the ground as we perceive what we think is that market rate.

And we then go and give that to the field teams and we look at our house by house market by market and trying to be thoughtful and if there really is a high push that you start, adding four $500 and we need to be thoughtful around what we do there we may pull it back, but we're starting to see that we're able to capture more and more of that because our residents.

We're also seeing what the new lease side is looking like out there and.

And Theyre seeing that this is value in our renewal renewal numbers that we're giving them and so.

Over time, we're just trying to be thoughtful that we will continue to push that up and if you look at our January numbers. Our renewal numbers are nine six where we were on the renewal side 93 in December and it's continued to accelerate as we look at as at February . So I will see I expect that we'll continue to push.

On the renewal side, and we'll find out where it goes over time, we'll find that balance, but we would like.

Our teams and how thoughtful they been to try to make sure that we're creating a REIT experience are not spiking turnover as well and putting people out into a tough environment.

Right.

And then do you have a sense when you quote that 20% how much of that attainable. If you were just to take it all the market how much regulatory.

Issues could there be in markets, where you can't lift the rent to that extent right. So if you'd looked at it on a adjust.

Adjusted basis, what would that upside be so.

What you're actually pretty high but.

You probably can do it for exactly the reasons yes.

Yeah, I think that's the key Michael is we're not going to do it even though it's a pretty we could do it legally in virtually every one of our markets, California would certainly be the exception around what we can do with renewal increases their St. Paul recently passed.

Control legislation in the fall of 2021, Minneapolis and has a very specific cap of 3% Minneapolis.

Now allows for rent control, but they are not enacted and what they're able to choose their the vast majority of our portfolio. We could do what youre seeing in the multifamily guys do I saw sort of a thought with their fourth quarter numbers in their January numbers, whether your renewal rates are closer new lease rates, but it sounds like we've made a conscious effort you know in our business. Our residents stay with US three four almost five years when you see our turnover at 20% a little bit different.

And then the multifamily business and so we're not going to capture that it's unlikely we're going to capture that full loss to lease in one year and on the flip side that should allow for less earnings volatility going forward, because if if market rates stay where they're at and to your point. They probably continue to grow a little bit. It certainly gives us a longer path than we otherwise might see for what we can do for renewal increases over the next many years and still have a red.

Under market. So it's kind of a win win for our residents where they've been with us for a long time and it certainly eight or nine or 10% increase was a big increase but it's not where the market rate is so we're playing that balancing act and it's not so much from.

Certainly where there's regulatory pressures will following those 100%.

But it's really just we think it's the right way to run the business right now.

Thanks, Ernie and I appreciate you guys. Thanks.

Yeah.

Thanks, Mike.

This concludes today's Q&A session, so I'll hand back to Dallas Tanner for any closing remarks.

We appreciate everyone's support and participating in our quarterly call and we look forward to speaking with everyone next quarter. Thank you.

This concludes today's Covid and thank you very much for your attendance you may now disconnect your lines.

Uh huh.

Yes.

Okay.

Okay.

Yes.

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Yeah.

Okay.

Yeah.

Okay.

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