Q2 2024 Invitation Homes Inc Earnings Call
Greetings and welcome to the Invitation Homes second quarter 2024 earnings conference call.
Operator: All participants are in a listen-only mode at this time. Should you need assistance, call 1-866-422-4222. Please signal a conference specialist by pressing Starkey, followed by. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.
All participants are in a listen-only mode at this time. Should you need assistance?
Please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin.
Senior Vice President of Investor Relations. Please go ahead.
Scott McLaughlin: Good morning and welcome. I'm here today from Invitation Homes with Dallas Tanner, our Chief Executive Officer. Charles Young, President and Chief Operating Officer; John Olsen, Chief Financial Officer, and Scott Eisen, Chief Investment Officer. Following our prepared remarks, we'll conduct a question and answer session with our covering cell site analysts. In the interest of time, we ask that you please limit yourselves to one question, and then return if you'd like to ask a follow-up question.
Scott McLaughlin: During today's call, we may reference our second quarter 2024 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.invh.gov. 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.
Good morning and welcome. I'm here today from Invitation Homes with Dallas Tanner, our Chief Executive Officer, Charles Young, President and Chief Operating Officer, John Olsen, Chief Financial Officer, and Scott Eisen, Chief Investment Officer.
Following our prepared remarks, we'll conduct a question and answer session with our covering sell-side analysts. In the interest of time, we ask that you please limit yourselves to one question and then requeue if you'd like to ask a follow-up question.
During today's call, we may reference our second quarter 2024 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.invh.com.
Scott McLaughlin: 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. Except to the extent otherwise required by law, Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
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.
We describe some of these risks and uncertainties in our 2023 Annual Report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
Scott McLaughlin: We may also discuss certain non-GAAP financial measures during this call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable gap and Yesterday's Earnings. With that, I'll now turn the call over to Dallas Tanner, our Chief Executive Officer. Thanks, Scott, and good morning, everyone.
We may also discuss certain non-GAAP financial measures during this call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, in yesterday's earnings release.
With that, I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.
Dallas B. Tanner: We're a little over halfway through the year, and we're pleased with the results we've posted. Our residents continue to stay, with the same-store average length of stay over three years. Our same-store portfolio remains effectively full, with average occupancy of 97.5% during the second quarter.
Thanks, Scott, and good morning, everyone. We're a little over halfway through the year, and we're pleased with the results we've posted to date. Our residents continue to stay longer, with same-store average length of stay over three years.
Our same store portfolio remains effectively full, with average occupancy of 97.5% during the second quarter.
Dallas B. Tanner: And we're pleased with our financial performance for the year to date through June, with core FFO up 6.5%. It's an election year, and housing is once again a focus on both sides of the aisle. We encourage elected officials and policymakers to have a complete understanding of the facts so that effective and long-lasting solutions to today's housing challenges can be enacted.
And we're pleased with our financial performance for the year to date through June with Core FFO up 6.5%.
It's an election year, and housing is once again a focus on both sides of the aisle. We encourage elected officials and policymakers to have a complete understanding of the facts so that effective and long-lasting solutions to today's housing challenges can be enacted.
Dallas B. Tanner: Like many others, we follow the great work of John Burns and his team closely. I'd therefore like to start off this morning by reviewing some of their latest housing data. There are roughly 133 million households in the United States today.
Like many others, we follow the great work of John Burns and his team closely. I'd therefore like to start off this morning by reviewing some of their latest housing data.
There are roughly 133 million households in the United States today. About 66 percent of those own their own home, a rate that is above the historical average during the last 60 years.
Dallas B. Tanner: About 66% of those own their own homes, a rate that is above the historical average for the last six years, and the other 34% of those who leave. Additionally, roughly 64% rent an apartment. Well, 31% lease a single family home. This means there are about 14 million single family rental homes across the country, with our wholly owned portfolio accounting for just 0.6% of total single family rental supply. Against that backdrop, I'd like to focus on three topics during my prepared remarks today.
And the other 34% leave something.
Of those who lease, roughly 64% rent an apartment, while 31% lease a single-family home.
This means there are about 14 million single-family rental homes across the country, with our wholly-owned portfolio accounting for just 0.6% of total single-family rental supply.
Against that backdrop, I'd like to focus on three topics during my prepared remarks today.
Dallas B. Tanner: We believe there has never been a more compelling time to lease a home than today. We've spoken a lot about the traditional reasons that millions of Americans choose to lease. These include flexibility and convenience, as well as the desire for additional space, privacy, and access to great schools. In addition to these, the past two years have opened an unprecedented affordability gap between home ownership and cost. According to Burns data, two years ago, it was just under $700 a month more expensive to buy than to lease on average in our market. Today, the cost of home ownership is nearly $1,200 a month more expensive than it is today.
First...
We believe there has never been a more compelling time to lease a home than today.
We've spoken a lot about the traditional reasons that millions of Americans choose to lease. These include flexibility and convenience, as well as the desire for additional spaces, privacy, and access to great schools.
In addition to those, the past two years have opened an unprecedented affordability gap between home ownership and the cost of leasing.
According to the Burns data, two years ago, it was just under $700 a month more expensive to buy than to lease, on average, in our markets. Today, the cost of homeownership is nearly $1,200 a month more expensive than it is to lease.
Dallas B. Tanner: The high cost of homeownership has many causes. Chief among them, according to most economists, is the lack of new housing. Add that to the steady increases in homeowners insurance and property taxes. Among Other Costs of Home, And we believe the value proposition of leasing a home with us becomes even more attractive. Various experts estimate our nation's housing supply shortage is in the millions of units. So if we were to address these affordability challenges, it's imperative that homebuilders continue to build more homes to meet that growing demand.
The high cost of homeownership has many causes. Chief among them, according to most economists, is the lack of new housing supply.
Add that to the steady increases in homeowners insurance and property taxes among other costs of homeownership and we believe the value proposition of leasing a home with us becomes even more attractive.
Various experts estimate our nation's housing supply shortage is in the millions of units.
So if we are to address these affordability challenges, it's imperative that the homebuilders continue to build more homes to meet that growing demand.
Dallas B. Tanner: That leads to my second point, which is that we're proud to be part of the solution by partnering with homebuilders to build new homes. We continue to expand our partnerships with some of the largest homebuilders in America, as well as with regional homebuilders focused within our market. Our partners understand that, supported by our appetite for growth, they can build larger and more diverse communities and Finish Those Communities Faster than they otherwise might have allowed.
That leads to my second point, which is that we're proud to be part of the solution by partnering with homebuilders to build new communities. We continue to expand our partnerships with some of the largest homebuilders in America.
As well as with regional homebuilders focused within our markets.
Our partners understand that, supported by our appetite for growth, they can build larger and more diverse communities and finish those communities faster than they otherwise might have alone.
Dallas B. Tanner: More Homes Delivered Faster is a win for everyone, including the 133 million households in America who are looking to lease or buy their next home. Our current pipeline includes nearly 2,700 new homes that we plan to make available for lease over the next few years, in addition to around the 2,000 homes that we've already added since 2021. In total, that's nearly 5,000 newly constructed homes built or in our pipeline since we launched our Build-to-Rent efforts just three years ago.
More homes delivered faster is a win for everyone.
Including the 133 million households in America who are looking to lease or buy their next home.
Our current pipeline includes nearly 2,700 new homes that we plan to make available for lease over the next few years.
In addition to around the 2,000 homes that we've already added since 2021.
In total, that's nearly 5,000 newly constructed homes built or in our pipeline since we launched our Build-to-Rent efforts just three years ago.
Dallas B. Tanner: Furthermore, our attractive returns are leading the, with current opportunities being underwritten at a 6% or better yield on cost, while mitigating most of the risks and costs of on-balance sheet development. My third and final question is, Is it doing right by our residents? means doing right by all of our stakeholders. We pioneered our professional service standards several years ago as a way to differentiate the worry-free lifestyle that we provide compared to the small landlords who make up the vast majority of this industry, in particular. We believe our 24-7 genuine care service and pro care offerings remain unrivaled.
Furthermore, our attractive returns are leading the industry, with current opportunities being underwritten at a 6% or better yield on cost, while mitigating most of the risks and costs of on-balance sheet development.
My third and final point is that doing right by our residents means doing right by all of our stakeholders.
We've pioneered our professional service standards several years ago as a way to differentiate the worry-free lifestyle that we provide compared to the small landlords who make up the vast majority of this industry.
In particular, we believe our 24-7 genuine care service and pro-care offerings remain unrivaled.
Dallas B. Tanner: To highlight this point, through June year-to-date, our market teams turned and released more than 11,500 homes to new residents, nearly all of whom received a pre-move-in orientation as well as a 45-day post-move-in visit. Both of these brand-exclusive customer touchpoints are performed in person with the resident by our service provider. We believe this level of service is feasible, and then our resident-centric approach helps drive our strong occupancy, customer retention, and overall resident satisfaction. It is also why some of the largest and most respected portfolio owners have recently chosen our growing third-party management business to care for their homes and for their residents. We also leverage the size and the scale for the greater good of our communities. I'll call out two more.
To highlight this point, through June year to date, our market teams turned and released more than 11,500 homes to new residents.
Nearly all of whom received a pre-move-in orientation, as well as a 45-day post-move-in visit. Both of these brand-exclusive customer touchpoints are performed in person with the resident by our associates.
We believe this level of service is feasible, in part to our size and our scale, and that our resident-centric approach helps drive our strong occupancy, customer retention, and overall resident satisfaction.
It is also why some of the largest and most respected portfolio owners have chosen, recently, our growing third-party management business to care for their homes and for their residents.
We also leverage the size and the scale for the greater good of our communities. I'll call out two more recent examples. First is our support of the American Red Cross.
Dallas B. Tanner: First, is our support of the American Red Cross and, more specifically, their quote, "sound the alarm on home fire and safety." Our sponsorship helps the Red Cross install free smoke alarms and educate families on fire escape plans and home fire safety.
And more specifically, their quote, Sound the Alarm Home Fire and Safety Program.
Our sponsorship helps the Red Cross install free smoke alarms and educate families on fire escape plans and home fire safety.
Dallas B. Tanner: Secondly, we continue to support the development and improvement of outdoor community spaces through our Green Spaces Program. This past spring, we funded two new grants: Patch Community Garden in Denia Beach, Florida, and the Wellspring Women's Center in Sacramento, California.
Secondly, we continue to support local development and improvement of outdoor community spaces through our Green Spaces Programming.
This past spring, we funded two new grants, the Patch Community Garden in Denia Beach, Florida.
Dallas B. Tanner: As a long-term neighbor and a supporter of our communities, we take great pride in empowering our local associates to make an impact where they live and where they work. I'd like to thank our residents for their trust and their loyalty and thank all of our associates who work hard every day to earn that trust. We proudly stand behind the work that our company and our associates are doing to ensure that our residents have a great experience with us.
and the Wellspring Women's Center in Sacramento, California. As a long-term neighbor and a supporter of our communities, we take great pride in empowering our local associates to make an impact where they live and where they work.
To wrap up, I'd like to thank our residents for their trust and their loyalty, and thank all of our associates who work hard every day to earn that trust.
We proudly stand behind the work that our company and our associates are doing to ensure our residents have a great experience with us.
Dallas B. Tanner: And we're honored to be a part of the solution to today's housing challenge. While just a fraction of 1% of the 14 million Americans who lease a home choose to do so with us, we believe we remain. Premier Choice, where individuals and families can thrive. I'll now pass the call on to Charles Young, our President and Chief Operating Officer. Thank you, Dallas.
And we're honored to be a part of the solution to today's housing challenges.
While just a fraction of 1% of the 14 million Americans who lease a home choose to do so with us, we believe we remain the premier choice where individuals and families can thrive.
I'll now pass the call on to Charles Young, our President and Chief Operating Officer.
Charles D. Young: I'll begin by thanking our associates for another strong quarter. This has been the busiest time of the year for us, particularly for leasing and maintenance. And I'm proud of the work they have done to provide exceptional service to our residents. I'll now walk you through our same-store operating results for the second... Same Store NOI grew 3.8% year-over-year, led by an increase in Same Store core revenues of 4.8% and an increase in Same Store core expenses of 7.1%.
Thank you, Dallas. I'll begin by thanking our associates for another strong quarter. This has been the busiest time of the year for us, particularly for our leasing and maintenance teams, and I'm proud of the work they have done to provide exceptional service to our residents.
Charles D. Young: I'll discuss each of these a little further, starting with the 4.8% growth in core revenue. This was primarily driven by a 4.2% increase in average monthly rent. A 9.6% increase in other income and a 50 basis point year-over-year improvement in bed debt. The second quarter marks the fifth consecutive quarter of sequential improvement in our same-store bad debt, and we're pleased to see progress continuing across our. Next, I'll share more detail on our second quarter core expense growth of $7.1 million.
I'll now walk you through our same store operating results for the second quarter. Same store NOI grew 3.8% year over year, led by an increase in same store core revenues of 4.8%, an increase of same store core expense of 7.1%.
I'll discuss each of these a little further, starting with the 4.8% growth in core revenues.
This is primarily driven by a 4.2% increase in average monthly rent, a 9.6% increase in other income, and a 50 basis point year-over-year improvement in bad debt. The second quarter marks the fifth quarter in a row of sequential improvement in our same-store bad debt.
And we're pleased to see progress continuing across our markets.
Next, I'll share more detail on a second quarter core expense growth of 7.1%.
Charles D. Young: This was primarily due to a 10.3% increase in property, which John will discuss in more detail during, as well as a significant year-over-year increase in repairs and maintenance. These increases were partially offset by lower turnover, which drove a 10.8% decrease in turnover, along with reductions and all of our other controllable expenses.
This was primarily due to a 10.3% increase in property tax expense, which John will discuss in more detail during his remarks, as well as a significant year-over-year increase in repairs and maintenance expense due in part to weather conditions.
These increases were partially offset by lower turnover, which drove a 10.8% decrease in turnover expense, along with reductions in all of our other controllable expense line items, reflecting the hard work of our teams to control what we can control.
Charles D. Young: Selecting the hard work of our teams that control what we do, I mentioned that weather impacted our R&M OPEX for the second straight year. It also had an outsized impact on R&M CapEx. As you probably heard, and many of you felt, the summer season arrived early and hotter in most of our markets this year compared to earlier.
I mentioned that weather impacted our R&M OPEX during the second quarter. It also had an outsized impact on R&M CAPEX as well.
As you probably heard and many of you felt, the summer season arrived early and hotter in most of our markets this year compared to last. We saw that come through during the second quarter with higher HVAC spend that impacted both R&M OpEx and R&M CapEx.
Charles D. Young: We saw that come through during the second quarter with higher HVAC spend that impacted both R&M OPEX and R&M. Next, I will review our same-store leasing results for the second... Year-over-year renewal rent growth, which represents about three-quarters of our business, increased 5.7%. Additionally, new lease rates grew 3.6% in Europe.
Next I will review our same store leasing results for the second quarter. Year over year renewal rent growth, which represents about three quarters of our business, increased 5.6%, while new lease rates grew 3.6% year over year.
Charles D. Young: Together, this brought blended rank growth to 5% year over year, which represents a healthy return to our historical pre-pandemic norm for the second half of the year. What's notably different now compared to the pre-pandemic period is that the same store averaged 97.5% in the second quarter of 2025, or approximately 140 basis points higher than our three-year historical average for the second quarter prior. Looking ahead, as the summer leasing season comes to a close, we expect to see a normal degree of seasonality return to our.
Together, this brought blended rank growth to 5% year-over-year, which represents a healthy return to our historical pre-pandemic norm for the second quarter.
What's notably different now compared to the pre-pandemic period is our same-store occupancy, which averaged 97.5% in the second quarter of 2024, or approximately 140 basis points higher than our three-year historical average for the second quarter prior to 2020.
Looking ahead, as the summer leasing season comes to a close, we expect to see a normal degree of seasonality return to our portfolio.
Charles D. Young: While we still have a week remaining here in July, we anticipate that new lease rate growth likely peaked in May and June, as it typically does, and that occupancy this month and next will reflect the usual summer move-outs and a normal seasonal. That being said, we expect to continue to lean in on occupancy, particularly as we move deeper into the second half of the year, as occupancy is traditionally our most impactful core revenue growth. Once again, I'm We've asked a lot of them this year as we've grown our third-party management business, elevated our high standards of Genuine Care, and made additional improvements to the Resident, and their performance has been outstanding.
While we still have a week remaining here in July , we anticipate that new lease rate growth likely peaked in May and June , as it typically does, and that occupancy this month and next will reflect the usual summer move-outs and a normal seasonal curve.
That being said, we expect to continue to lean in on occupancy, particularly as we move deeper into the second half of the year, as occupancy is traditionally our most impactful core revenue growth driver.
Once again, I'm really proud of our teams for the results they've delivered.
We've asked a lot of them this year as we've grown our third-party management business, elevated our high standards of genuine care, and made additional improvements to the resident experience. And their performance has been outstanding.
Charles D. Young: I'm especially grateful for their dedication to living our core values and doing what's right for our community. With that, I'll now turn the call over to John Olsen, our Chief Financial Officer. Thanks Charles. As of June 30th, we had approximately $1.7 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Unsecured debt comprised over three quarters of our total indebtedness, and our net debt to adjusted EBITDA ratio was 5.3 times in June.
I'm especially grateful for their dedication to living our core values and doing what's right for our customers. With that, I'll now turn the call over to John Olsen, our Chief Financial Officer.
Thanks, Charles. I'll begin by providing an update on our investment-grade rated balance sheet and the capital markets. At June 30th, we had approximately $1.7 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility.
Unsecured debt comprised over three quarters of our total indebtedness, and our net debt to adjusted EBITDA ratio was 5.3 times at June 30th.
Virtually all of our debt was fixed rate or swapped to fixed rate, and nearly 84% of our wholly owned homes were unencumbered at the end of the second quarter.
Jonathan S. Olsen: Virtually all of our debt was fixed rate or swapped to fixed rate, and nearly 84% of our wholly owned homes were unencumbered at the end of the second quarter. As we previously announced on our last earnings call in April... Moody's upgraded our issuer and issue level credit ratings to BAA2 from BAA3 with a stable outline. As we've discussed before, we have no debt reaching final maturity until 2026, when our IH 2018-4 securitization, with a current balance of approximately $634 million, reaches final maturity.
As we previously announced on our last earnings call in April , Moody's upgraded our issuer and issue level credit ratings to BAA2 from BAA3 with a stable outlook.
As we've discussed before, we have no debt reaching final maturity until 2026, when our IH 2018-4 securitization, with a current balance of approximately $634 million, reaches final maturity.
Jonathan S. Olsen: As does our five-year credit facility, which is comprised of a $2.5 billion term loan and an undrawn $1 billion revolver. While we have plenty of time remaining prior to 2026, we anticipate we'll address these maturities later this year. This is consistent with our historically proactive approach to managing our balance and is also in consideration of various swap instruments that mature later this year. Specifically, we expect to repay the IH 2018-4 securitization later this year, as planned, with cash that we had earmarked from our August 2023 bond.
As does our five-year credit facility, which is comprised of a $2.5 billion term loan, along with an undrawn $1 billion revolver.
While we have plenty of time remaining prior to 2026, we anticipate we'll address these maturities later this year. This is consistent with our historically proactive approach to managing our balance sheet and is also in consideration of various swap instruments that mature later this year and next.
Specifically, we expect to repay the IH 2018-4 securitization later this year, as planned, with cash that we had earmarked from our August 2023 bond issuance.
Jonathan S. Olsen: We are also in discussions with our bank group regarding a recast of our five-year credit, and we expect to be in a position to share further details on both prior to our next, Next, I'll review our second quarter and year-to-date financial... In the second quarter, CORE FFO increased 7.3% to $0.47 per share, while AFFO increased 4.1% to $0.42.
We are also in discussions with our bank group regarding a recast of our five-year credit facility, and we expect to be in a position to share further details on both prior to our next earnings call.
Next, I'll review our second quarter and year-to-date financial results. For the second quarter, Core FFO increased 7.3% to $0.47 per share, while AFFO increased 4.1% to $0.40 per share.
Jonathan S. Olsen: Year-to-date, core FFO increased 6.5% to 94%, and AFFO increased 5.4% to 81%. These year-to-date results mark a solid finish to the first half of the year, which included growing contributions from our third-party management. A Better Than Originally Estimated Insurance Renewal, http://invitationhomes.com. As outlined in last night's earnings release, we have maintained the midpoint of our full year same-store NOI growth guidance at 4.5%. While moving the midpoint of our same store revenue growth guidance down by 12 and a half, 4.875, and improving the midpoint of our Same-Store Expense Growth Guidance by 50 Basics.
Year-to-date, Core FFO increased 6.5% to $0.94 per share, and AFFO increased 5.4% to $0.81 per share.
These year-to-date results mark a solid finish to the first half of the year, which included growing contributions from our third-party management business, a better-than-originally-expected insurance renewal, and some favorable early outcomes on property taxes in a few of our smaller tax markets.
As outlined in last night's earnings release, we have maintained the midpoint of our full-year same-store NOI growth guidance at 4.5%.
Well, moving the midpoint of our same store revenue growth guidance down by twelve and a half basis points.
to 4.875%, and improving the midpoint of our same-store expense growth guidance by 50 basis points to 5.75%.
Jonathan S. Olsen: 5 3, In addition, we have raised the midpoint of our full-year core FFO guidance by to $1.87. The full details of our updated guidance are included in last night's webinar. One area of our guidance where we think continued caution remains appropriate is proper. As you know, property taxes represent our largest same-store expense line item by far, with over half of the total being impacted by two states, Florida and Georgia. Georgia has provided us with limited information to date on assessed values, while millage rates and final tax bills from both states aren't expected for a few months.
In addition, we have raised the midpoint of our full year core FFO guidance by a penny to $1.87 per share. The full details of our updated guidance are included in last night's earnings release.
One area of our guidance where we think continued caution remains appropriate is property tax expense.
As you know, property taxes represent our largest same-store expense line item by far, with over half of the total being impacted by two states, Florida and Georgia.
Georgia has provided us with limited information to date on assessed values, while millage rates and final tax bills from both states aren't expected for a few more months.
Jonathan S. Olsen: As we've previously discussed, we expect same store property tax expense to remain elevated in the third quarter due to the under accrual in the first three quarters of last year. Prior to a partial offset in the fourth quarter of this, our revised expectation for year-over-year property tax growth is 8% to 9.5%.
As we've previously discussed, we expect same-store property tax expense to remain elevated in the third quarter due to the under-accrual in the first three quarters of last year, prior to a partial offset in the fourth quarter of this year.
Our revised expectation for year-over-year property tax growth is 8% to 9.5%.
Jonathan S. Olsen: As I mentioned earlier, we've received some favorable feedback from some of our smaller tax jurisdictions and, in addition, some early signs from Georgia that are encouraging. But we believe it is prudent to remain cautious until better clarity exists later. In closing, we're pleased with what we've accomplished to date and excited to maintain our momentum in the second half of the year. We remain committed to driving sustainable growth, serving as the premier choice in home leasing, and continuing to create long-term value for our citizens.
As I mentioned earlier, we've received some favorable feedback from some of our smaller tax jurisdictions, and in addition, some early signs from Georgia that are trending positively, but we believe it is prudent to remain cautious until better clarity exists later this year.
In closing, we're pleased with what we've accomplished to date and are excited to maintain our momentum in the second half of the year. We remain committed to driving sustainable growth, serving as the premier choice in home leasing and continuing to create long-term value for our stockholders.
Jonathan S. Olsen: That concludes our prepared statement. Operator, please open the line for questions. Perfect. Thank you. We will now begin our question and answer session. To ask a question, please press star, then one on your telephone keypad. To draw your question, please press star 1. If you are using a speakerphone, please pick up the handset before pressing.
Operator: In the interest of time, yes, they will limit themselves and then requeue by pressing star. One moment while we, All right, our first question comes from Michael, of UBS. Good morning.
That concludes our prepared remarks. Operator, please open the line for questions.
All right, perfect. Thank you. We will now begin our question and answer session. To ask a question, please press star, then 1 on your telephone keypad. To withdraw your question, please press star, and then 2.
If you are using a speakerphone, please pick up your handset before pressing the keys. In the interest of time, we ask participants to limit themselves to one question, and then re-cue by pressing star 1 to ask your follow-up.
One moment while we poll for questions.
All right, our first question comes from Michael Goldsmith of UBS. Please go ahead.
Charles D. Young: Thanks a lot for taking my question. I believe in the prepared marks, Charles, you said that you were leaning in on occupancy. Should we interpret that as you're being incrementally cautious on occupancy? Is that driving the reduction of the high end of the same sort of revenue guidance? And then along those lines, are you seeing or expecting potentially more move-outs from tenants looking to, Yeah, this is Charles. Great questions.
Good morning. Thanks a lot for taking my question. I believe in the prepared marks, Charles, you said that you were leaning in on occupancy. Should we interpret that as you're being incrementally cautious on occupancy? Is that driving the reduction of the high end of the same sort of revenue guidance? And then along those lines, are you seeing or expecting potentially more move outs from tenants looking to purchase homes?
Charles D. Young: If we kind of step back where we are, look at the quarter. Q2 was strong overall, 97.5 percent occupancy. It kind of reflects your question that, you know, we've been able to sustain occupancy throughout the year. You saw that early in the year as we were pushing. And as we got to occupancy, our blended rent growth rose every month for the last five months. So Q2 was strong overall.
Yeah, this is Charles. Great questions. If we kind of step back where we are, look at the quarter.
Speaker Change: Q2 was strong overall, 97 and a half occupancy, it kind of reflects your question that we've been able to sustain occupancy throughout the year. You saw that early in the year as we were pushing and as we got to occupancy, our blended rent growth rose every month for the last five months.
Speaker Change: So Q2 was strong overall. What we did see though was a little bit of moderation in a few markets that have been high flyers for us for the last several years in Phoenix, Tampa, a little bit of Orlando and Jacksonville.
Charles D. Young: What we did see, though, was a little bit of moderation in a few markets that have been high flyers for us for the last several years, in Phoenix, Tampa, a little bit of Orlando, and Jacksonville. And as we saw that, I think that's what's reflected in some of the guide that you're seeing. And, you know, that kind of normal moderation is also part of the seasonality that's coming. So as we get into the summer here, you'll start to see that normal seasonality that happens where you'll get occupancy come down a little bit and then pop back up later in the year.
Speaker Change: And as we saw that, I think that's what's reflecting in some of the guide that you're seeing. And, you know, those...
That kind of normal moderation is also a part of seasonality that's coming, so as we get into...
Speaker Change: McLaughlin, Charles Young, Jonathan Olsen, Dallas Tanner, Charles Young, Jonathan Olsen,
Charles D. Young: And so as I talk about that, it's around trying to minimize how far it goes down and be ready for it to pop back up. In terms of the renewal side, you know, look, there's a little bit more loss, less loss to lease in the summer, and we have more going into the fall. And, you know, we went out in the mid-sixties for the summer, and that's where you're seeing some of that moderation show up.
Speaker Change: In terms of the renewal side...
Speaker Change: You know, look, there's a little bit more lost, less lost a lease in the summer, and we have more going into the fall, and, you know, we went out in the mid-sixes for the summer, and that's where you're seeing some of that moderation show up, but as you look forward into September , and specifically October , we get back over seven in our ask, and so we expect that the renewals will come back up, and we'll get our occupancy back up.
Charles D. Young: But as you look forward into September and specifically October, we get back over seven in our ask. And so we expect that the renewals will come back up, and we'll get our occupancy back up. The business remains really strong.
Speaker Change: The business remains really strong. We're healthy overall. You look at the historical numbers, 97 and a half at this time of year with a five blend is as strong as you've ever been outside of a pandemic season. So I'll turn it over to John to talk a little bit more about guidance.
Charles D. Young: We're healthy overall. You look at the historical numbers, 97 and a half at this time of year with a five blend is as strong as you've ever been outside of a pandemic season. So I'll turn it over to John to talk a little bit more about guidance. Yeah, thanks, Charles.
John: We took what we thought was a conservative approach in reassessing guidance this quarter. In doing that, we fine-tuned both our revenue and expense guides, and we may have tried to put too fine a point on it, particularly with regard to the revenue revision.
John: Ultimately, that was based on our desire to be as transparent as possible about what we're seeing in a couple of spots.
Speaker Change: So, specifically, as Charles alluded to, you know, Phoenix, Central Florida, where we've seen some moderation, began around May and continued into June . So, in particular, it seems as though there's a little bit of price fatigue setting in there and some supply sensitivities following what's been a fantastic run in those markets.
Speaker Change: We don't think there's anything to be alarmed about. The markets are still quite healthy, but maybe just not quite as strong as we had expected at the beginning of the year.
Speaker Change: All that said, the vast majority of our portfolio is firing on all cylinders. In particular, I'd call out...
Speaker Change: Chicago, Southern California, Seattle, all of those had new lease rate growth above 5% in the second quarter. And on the renewal side, South Florida saw a nine-and-a-half percent renewal growth, Atlanta was at six-three, and over half of our other markets were in the five. So we feel really good about that.
Speaker Change: I think it's also worth noting that we do believe there's still some conservatism baked into the expense guide. In particular, we've talked about being cautious with respect to Florida and Georgia taxes.
Speaker Change: And we'll know a lot more there in the next few months. So, long story short, we're not seeing any kind of fundamental shift in the business, but we probably tried to be a bit too surgical in the revised revenue gride, and we'll own that.
Speaker Change: All right, thank you. And our next question comes from the line of Josh Dennerlein from Bank of America. Please go ahead.
Joshua Dennerlein: Yeah, hey guys, um, maybe just a follow-up on some of the comments there. I appreciate the caller on Phoenix and Jacksonville. Maybe there's some...
Joshua Dennerlein: is there any kind of, I think Phoenix has been a high supply market for SFR, just building in general.
Joshua Dennerlein: Is there any kind of like dynamic that's playing out from the supply front or is it just kind of like pricing has run and it's kind of at the upper limits of where people can afford it relative to incomes in those markets?
Jonathan S. Olsen: Look, we took what we thought was a conservative approach in reassessing guidance this quarter. In doing that, we fine-tuned both our revenue and expense guides. And we may have tried to put too fine a point on it, particularly with regard to the revenue revision. Ultimately, that was based on our desire to be as transparent as possible about what we're seeing in a couple of spots. So specifically, as Charles alluded to, you know, Phoenix, and Central Florida, where we've seen some moderation began around May and continued into June.
Charles: This is Charles again.
Speaker Change: Yeah, great question. Look, I think you hit on it in a few of these markets, specifically Phoenix, and we mentioned this in Vegas before.
Charles: There is some Build-A-Rent coming on, which creates some short-term...
Charles: temporary supply shocks, and you couple that with the fatigue. I think that's what we're seeing here. Florida as well, Tampa, Orlando, Jacksonville. These are markets where there's a lot of action happening on the build-to-rent side, and you couple that with the kind of moderation, seasonality, a little bit of fatigue. We'll work through it. We've done that. We've seen these kind of ins and outs, and but, you know, we wanted to make sure that we were open and transparent about what we're seeing. So I think it's a little bit of both of that. And then, as John mentioned, there's other markets that are really.
John: Still humming along. Not as much of that kind of fatigue. I think that's what happened in Chicago. Chicago never really had that run, and it's starting to catch up now. And then you also couple it. We're still pretty low on move out to purchase a home, but you can look across the markets and see that there's a little bit more inventory starting to come in some of the markets, and I think it creates a little bit more optionality.
Charles: Again, we're given the supply demand of single-family in this country, long-term, we're in really great shape. You just get some of these kind of supply and fatigue items market by market, but that's why we're in multiple markets.
Charles: All right, our next question comes from Steve Sakwa from Evercore ISI. Please go ahead.
Stephen Thomas Sakwa: Yeah, thanks. I just wanted to maybe circle up with Dallas or Scott just on the capital deployment.
Stephen Thomas Sakwa: What are your expectations going into the back half of the year and where are you seeing more opportunities? I know you talked about that 6% yield. How do you think that yield might trend looking forward over the next 12 months?
Jonathan S. Olsen: So in particular, it seems as though there's a little bit of price fatigue setting in there, and some supply sensitivities following what's been a fantastic run in those markets. We don't think there's anything to be alarmed about; the markets are still quite healthy, but maybe just not quite as strong as we had expected at the beginning of the year. All that said, the vast majority of our portfolio is firing on all cylinders.
Jonathan S. Olsen: In particular, I'd call out sugar Chicago, Southern California, Seattle; all of those had new lease rate growth above 5% in the second quarter. And on the renewal side, South Florida saw nine and a half percent renewal growth, Atlanta was at six, three, and over half of our other markets were in the five. So we feel really good about that.
Jonathan S. Olsen: I think it's also worth noting that we do believe there's still some conservatism baked into the expense guide. In particular, we've talked about being cautious with respect to Florida and Georgia taxes. And we'll know a lot more there in the next few months. So, long story short, we're not seeing any kind of fundamental shift in the business. But we probably tried to be a bit too surgical in the revised revenue grid, and we'll own that. Yeah, great question.
Dallas B. Tanner: Hi Steve, Dallas I'll start and then I'll hand it to Scott who can add you know maybe a little bit more detail real-time. Look we feel really good about our sort of guidance in terms of being in line with what we laid out at the beginning of the year both from an acquisitions perspective and and what we were generally seeing from a yield on cost.
Scott: point as well.
Scott: I would say, and Scott can confirm this, that, you know, the majority of our relationships are expanding. We're seeing product in a lot of new areas. What's been sort of interesting has been maybe the regional operator wanting to lean in a little bit harder and figure out if there's ways to work together.
Scott: Feels like Yield on Costs.
Speaker Change: Kind of on our numbers or in the six pluses and we're looking at some creative ways to even maybe make that better over time but
Speaker Change: We're certainly having more deal flow than I'd say we'd seen even in the last couple of years. Good opportunities. Yeah. And look, Steve, it's a good question. Thank you. We continue the same strategy that we, you know, started, you know, when I came on board about a year ago.
Speaker Change: which is to expand our relationships with both the national builders and the regional builders.
Scott: You know, they have, you know, been very open with us on their pipelines. We're obviously picking and choosing the locations and the communities that make the most sense for us. We're trying to find communities that are both proximate to where we have existing operations and existing homes and also communities that we think have the best infill demand.
Scott: We continue to underwrite new homes and communities every day in our dialogue with the builders. We've probably got another thousand plus homes in the backlog that we're trying to see whether they make sense for us and whether we can come close to getting those under contract or not.
Scott: And, you know, we're looking within the same markets that are the IH target markets, albeit maybe with, you know, also trying to see if we can do more in Nashville in particular, given, you know, the new presence we have there with the third-party management contracts.
Speaker Change: As far as yields and pricing, I'd say that they are consistent with sort of what the guidance is we've been giving to the street for the last six months.
Charles D. Young: Look, I think you hit on it in a few of these markets, specifically Phoenix. And we mentioned this in Vegas before, there is some build-up of rent coming on, which creates some short-term, temporary supply shocks. And you couple that with the fatigue.
Speaker Change: And look, there are some markets where it's going to be a little lower, like a market like Denver, where it's a higher price point, and some markets where it's going to be a little higher on the cap rate.
Speaker Change: And, you know, we're trying to get to the right blend across the company. But we continue to be pleased with the supply and dialogue we have with the builders. And again, it's we're picking and choosing what we like. Not everything we see from them makes sense.
Charles D. Young: I think that's what we're seeing here in Florida as well. Tampa, Orlando, Jacksonville, these are markets where there's a lot of action happening on the build the rent side. And you couple that with the kind of moderation, seasonality, a little bit of fatigue. We'll work through it. We've done that.
Speaker Change: We pick the locations we like. We do a very detailed analysis on the demographics, on the location, on the performance of our assets.
Scott: We underwrite where competitive supply is, etc. We're trying to make the right decisions that are consistent with our operating strategy. But I'd say that the dialogue continues to be strong and significant, and we're trying to add more builders to our stable of partners every day.
Dallas B. Tanner: We've seen these kind of ins and outs. But you know, we wanted to make sure that we were open and transparent about what we were seeing. So I think it's a little bit of both of those. And then, as John mentioned, there are other markets that are really still humming along, not as much experiencing that kind of fatigue. I think that's what happened in Chicago. Chicago never really had that run, and it's starting to catch up now. And then you also couple it with the fact that we're still pretty low on move out to purchase a home.
Scott: Our next question comes from Eric Wolfe from Citigroup. Please go ahead.
Eric Wolfe: Hey, thanks. I think at NERI, renewals were looking pretty strong for June and similar to May.
Eric Wolfe: So I was just curious whether you saw any increased pushback from tenants in June , such that the take rate was maybe a little bit lower than normal versus where you're sending things out. And if you could also just share where you're achieving renewals for July and August versus where you're sending them, I think that would be a helpful context as well. Thanks.
Speaker Change: Yeah, I'll start with the July and August . We're not done, so we're not going to share the numbers in terms of the July numbers, but going back to your original question, you know, look, we were in a high fives for all five months of the start of the year, 5.8, 5.7, 5.9. April actually came in at 6.0 and May was 5.9.
Speaker Change: What we did see, and this is part of what we're talking about here, there was a little bit of moderation in June . We ended up at 5-0 for a blend of 4-7. So that's where we just got cautious, and we looked across the markets, and there were a few markets that...
John: That as we talked about Phoenix in Central, Florida that kind of dragged down a little bit We do have some markets that are still high-flying We have you know, South Florida as John mentioned is in the nines and other markets are still there So I think there's a couple of things. It's not always pushback. What what I think we mentioned this at May read as well
Tanner: There's a bit of thinner Lost Elise in the summer.
Speaker Change: Because we've been pushing that time of year for years. And so as that portfolio turns over at that time of year, there's just not as much there. And as we're trying to stay focused on occupancy, we don't want to lean in too far.
Tanner: And, uh, but that loss to lease gets, uh, wider as we get into the end of the year. So you're going to see renewals start to come back up. And that's reflected in kind of what we went out for August in the mid-sixes for renewal and September high-sixes and October actually above seven.
Tanner: So you put all that together, you'll start to see the renewals come back. I think it's really more driven by loss of lease and seasonality of move-out season. And again, we're still going through some, you know, the lease compliance clean-up and we're getting a little bit more move-outs.
Tanner: Now than we did in historical years and we're trying to make sure we stay full and so it's a balance as we optimize to revenue
Tanner: Our next question comes from Austin Wurschmidt from KeyBank. Please go ahead.
Austin Todd Wurschmidt: Hi. Good morning, everybody. I guess I'm still just trying to reconcile a few things, a little bit of the why, and the fact that turnover was down this quarter, occupancy was stable throughout the quarter. So what was it that you saw happening from a demand?
Speaker Change: McLaughlin, Charles Young, Jonathan Olsen, Dallas Tanner
Speaker Change: And so a pricing strategy of the third-party management platform had any impact on the in-place portfolio.
Speaker Change: Thanks.
Speaker Change: This is Charles again. I'll take the last part again. There's really third parties had no impact here. This is really a kind of market situation. You know, what we saw, you know, at NARED is
Speaker Change: May into June , we're still going strong. We saw some moderation in the second half of June , and as we looked at July , that seasonality started to show. We typically peak on blend in June , May, and July , August , you get the moderation that comes with the seasonality as people move out.
Speaker Change: And you couple that with the markets and, you know, to the earlier question, there's a little bit more negotiation and we want to stay full.
Speaker Change: Best we can. We are going to come down on occupancy for a few months and then pop back up. And as we do that, that's the balance that we saw. It just seemed that in these few markets, and at this time of year, showed up a little earlier than we expected, and we wanted to make sure that we're being transparent with what we see.
Speaker Change: Our next question comes from Brad Heffern of RBC Capital Markets. Please go ahead.
Bradley Barrett Heffern: Yeah, thanks. I'm sure you're limited on what you can say, but can you give whatever color you can on this FTC inquiry, and then is this a cruel guess, placeholder, or is this close to what you think the real liability might be?
Scott G. Eisen: But you can look across the markets and see that there's a little bit more inventory starting to come into some of the markets, and I think it creates a little bit more optionality. Again, given the supply and demand of single families in this country, long term, we're really in great shape; you just get some of these kind of supply and fatigue items market by market. But that's why we're in multiple markets. Hi Steve, Dallas. I'll start, and then I'll hand it to Scott, who can add, you know, maybe a little bit more detail in real time.
Dallas B. Tanner: Thanks, this is Dallas. You hit it. I mean, we can't say much because it's a pending legal matter. You know, as we disclosed in the summer of 21, we received an inquiry from the FTC requesting
Bradley Barrett Heffern: Information about how we conduct our business generally and specifically during the COVID-19 pandemic.
Bradley Barrett Heffern: fully cooperated with the FTC.
Bradley Barrett Heffern: that we've begun some preliminary discussions with them about a potential resolution.
Bradley Barrett Heffern: Those discussions have continued since that time. They've been productive and
Bradley Barrett Heffern: We certainly appreciate the dialogue with them today. And as you know, GAP...
Bradley Barrett Heffern: requires a company to accrue for contingent liabilities when you know certain amounts
Bradley Barrett Heffern: Our circumstances have been met, including consideration of a settlement offer that could be made in good faith. The amount we were accrued as of the end of June reflects...
Bradley Barrett Heffern: The amount that the company would consider paying to resolve the matter without any admission of liability and to avoid the inconvenience and expense of it continuing.
Bradley Barrett Heffern: And we do think a potential resolution of the matter will have no material ongoing impact on our business. And that being said, presently, we can't say how it will proceed going forward or how it could ultimately be resolved.
Bradley Barrett Heffern: Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead.
James Colin Feldman: Great, thank you. Can you talk about the earnings impact from
James Colin Feldman: You know, the incremental third-party homes added in the quarter and what's in your guidance for the rest of the year?
Dallas B. Tanner: Look, we feel really good about our sort of guidance in terms of being in line with what we laid out at the beginning of the year, both from an acquisitions perspective and, and what we were generally seeing from a yield on cost point as well. I would say, and Scott can confirm this, that, you know, the majority of our relationships are expanding, and we're seeing product in a lot of new areas.
Speaker Change: Sure, thanks.
Speaker Change: So recall at the outset of the year when we introduced guidance, we thought that there were about two pennies of incremental AFFO contribution from third party business.
Speaker Change: The increase to the Core FFO Guide at the midpoint is sort of reflective of finding that there's a little bit more in it with the upcoming Upward America onboarding and a couple other smaller things, but that's really what drove the midpoint increase on Core FFO.
Speaker Change: Our next question comes from Linda Tsai from Jefferies. Please go ahead.
Linda Tsai: Hi. With your average stay at three years, do you think this is the peak given interest rates coming down, or would you expect this to go higher by next year given the John Burns comment about it being $1,200?
Dallas B. Tanner: What's been sort of interesting has been maybe the regional operator wanting to lean in a little bit harder and figure out if there are ways to work together. Feels like yield on costs, kind of on our numbers, is in the six pluses. And we're looking at some creative ways to maybe make that better over time. But we're certainly having more deal flow than I'd say we've seen even in the last couple of years. There are many good opportunities.
Speaker Change: dollars more costly to buy versus rent.
Dallas B. Tanner: Here's a great question. This is Dallas. Look, I think we've seen...
Speaker Change: Sequentially, every quarter, our average length of stay continue to grow. And if you look at how the business was started, we started in the West Coast markets early on in 2012. Our West Coast markets are, you know,
Speaker Change: Getting close to, you know, in some markets outside of California, almost four years.
Speaker Change: California is well into almost its fifth year of average length of stay. I wouldn't expect this to be a peak at all. As you look at the housing, you know, call it supply-demand imbalances.
Speaker Change: We would expect that as we bring on additional services, as we create the flexibility and efficiency of the scale of the platform that, you know, this leasing lifestyle outside of a cost differential is appealing to the masses in much greater scale.
Speaker Change: and I would just furthermore add that.
Speaker Change: Well, this may be a tipping point or close to in terms of the bid-ask spread between ownership
Speaker Change: and Cost of Lease.
Speaker Change: Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead.
Juan Carlos Sanabria: Hi, thanks for the time. Just a question, you mentioned higher R&M costs both on the OPEX and CAPEX line.
Juan Carlos Sanabria: So just curious if you can give more details around that and how maybe your CapEx budget has changed. I noticed the AFFO or FAD guidance didn't change despite the change in core FFO. So if you could remind us what we should be assuming for CapEx, that would be helpful. Thank you.
Juan Carlos Sanabria: Thank you. I'll start. This is Charles, and I'll give it to John . Look, as I mentioned, we saw the weather really heat up earlier than is typically seen for us, and, you know, specifically relative to last year. The curve looks the same in terms of it gets hot, and, you know, our markets...
John: You know, around the start of the summer, but it started about a month early.
John: And that curve of just how we budgeted, you know, comes through in the R&M line on both the OPEX and CAPEX. When you're dealing with HVACs, you can get into a little higher cost around repair and replacement and doing what's right by the resident and make sure the house is cooled.
John: So it's really just happening earlier and in many markets across our portfolio from Florida to Phoenix.
John: Texas, where we are today. It just got hotter earlier and that's the the impact there. I'll let John talk about how it impacts the the guidance.
John: Thanks Charles. Yeah Juan, I think you hit the nail on the head. So if you look at the revision to the core FFO guide and the fact that we did not move AFFO, it's sort of reflective of the fact that
John: [inaudible]
John: The peak temperatures of summer kicking in a little bit earlier, CapEx has been running hot. So in terms of the year-over-year increases there, they're sizable on both the expense and capital side. And so given where we are relative to where we expected to be, we just weren't in a position yet to...
John: to make a move on the AFFO front. The teams are very focused on cost controls.
John: Typically, what we see is when HVAC season starts is you see a big pickup in work order volume as people start turning those systems on.
John: and discovering, you know, what sort of repairs or other maintenance might be required. And then once we've gotten through that, you see the volume of work orders sort of dissipate on the back end. The shape of that curve this year looks really familiar and very comparable to last year. It's been just shifted forward a little bit.
John: So we're going to continue to watch that with respect to CAPEX and the ASFO guide and more to come on that probably next quarter.
Speaker Change: Our next question comes from Jesse Lederman of Zellman & Associates. Please go ahead.
Speaker Change: All right. Nice job in the quarter and thanks for taking my question. A quick one on acquisition guidance.
Speaker Change: So if I take your current spending, year-to-date, and incorporate roughly 700 homes you expect to be delivered from home builders in the second half of the year.
Speaker Change: and normalize for a consistent number of existing homes.
Speaker Change: that you've acquired the last couple of quarters, looks like you'd still need to purchase about 800 homes.
Speaker Change: Beyond that, to get to the midpoint of the $800 million. So I just wanted to ask, currently, what do you view as the most likely source of these additional homes between additional deliveries from home builders, the existing home market, which seems to maybe have loosened up, or a portfolio acquisition? Thanks.
Scott G. Eisen: And also communities that we think have the best in terms of build demand. You know, look, we continue to underwrite new homes and communities every day in our dialogue with the builders. You know, we've probably got another thousand plus homes in the backlog that we're trying to see whether they make sense for us and, you know, whether we can come close to getting those under contract or not. And, you know, we're looking within the same markets that are the IH target markets, albeit maybe with, you know, also trying to see if we can do more in Nashville, in particular, given, you know, the new presence we have there with the third-party management contracts.
Speaker Change: Yeah, great question. This is Scott. Thanks. Um, look, in terms of our acquisition backlog and where we're focused
Scott: You know, we continue to negotiate directly with the national and regional builders on buying, you know, the partial and full communities from them.
Scott: So part of the incremental acquisitions that we would expect to get under contract between now and year-end is just continuing buying directly from the home builders.
Scott: You know, we are also looking at some, you know, full community acquisitions. There are, you know, sponsors out there that have developed full communities and, you know, are ready to monetize and exit them that are either partially or fully stabilized.
Scott G. Eisen: As far as yields and pricing are concerned, I'd say that they are consistent with sort of what the guidance we've been given to the street for the last six months. We pick the locations we like. We do a very detailed analysis of the demographics, on the location, on the performance of our assets.
Scott: And there are, you know, we obviously look at various of these communities when they come to market and there are a few of them out there that we're taking a hard look at and, you know, to the extent, you know, we could find something that makes sense for us and is at the right yield, we could supplement buying directly from the home builders by buying some, you know, full communities from some specific BTR developers.
Scott G. Eisen: You know, we underwrite where competitive supply is, et cetera. We're trying to make the right decisions that are consistent with our operating strategy. But I'd say that the dialogue continues to be strong and significant.
Speaker Change: Our next question comes from Haendel St. Just from Missoula. Please go ahead.
Charles D. Young: And we're trying to add more builders to our stable of partners every day. Your next question comes from Eric Wolfe from Citigroup. Hey, thanks.
Charles D. Young: I think at NERI renewals were looking pretty strong for June and similar to May. So I was just curious whether you saw any increased pushback from tenants in June, such that the take rate was maybe a little bit lower than normal versus where you're sending things out. And if you could also just share where you're achieving renewals for July and August versus where you are, Yeah, I'll start with July and August. We're not done. So we're not going to share the numbers in terms of the July numbers.
Charles D. Young: But going back to your original question, you know, look, we were in the high fives for all five months of the start of the year, 5-8, 5-7, 5-9, April actually came in at 6-0, and May was 5-9. What we did see, and this is part of what we're talking about here, there was a little bit of moderation in June; we ended up at 5-0 for a blend of four or seven. And so that's where we just got cautious.
Speaker Change: Hey there, thanks for taking my question.
Charles D. Young: And we looked across the markets, and there were a few markets that, as we talked about Phoenix in Central Florida, that kind of dragged down a little bit. We do have some markets that are still high flying. We have, you know, South Florida, as John mentioned, is in the nines, and other markets are still there. So I think there's a couple of things. It's not always pushback.
Speaker Change: Charles, I want to go back to something you mentioned earlier about the expectation for
Speaker Change: Renewal Pricing to Pick Up.
Speaker Change: into the fourth quarter. Obviously, we're going through a bit of seasonality here, but an expectation for that to rebound.
Speaker Change: You know, just looking back the last couple of years, that hasn't really been the case. I know COVID, obviously, the last couple of years has impacted numbers, but even before COVID. So I guess I'm curious, you know, your thoughts or what gives you the confidence that you will see that that recovery, indeed, into the fourth quarter? Thank you.
Charles D. Young: I think we mentioned this at Mayread as well. There's a bit of a thinner loss to lease in the summer because we've been pushing that time of year for years. And so as that portfolio turns over at that time of year, there's just not as much there. And as we're trying to stay focused on occupancy, we don't want to lean in too far. But that loss to lease gets wider as we get into the end of the year, so you're going to see renewals start to come back.
Speaker Change: Thanks, Haendel. Yeah, I think you called it out. You know, coming off of COVID, there was no seasonality.
Speaker Change: and and the numbers the supply demand you know what was going on with lease compliance and all that renewals were just high for a few years and you didn't get the kind of up-and-down that
Speaker Change: We're talking or seeing in the normal seasonal curve that we're seeing this year. There's just not as much loss, at least in the summer.
Speaker Change: Because historically that portfolio, we've, you know, we have a long length of stay and we renew and we've been pushing.
Charles D. Young: And that's reflected in kind of what we went out for August in the mid-sixes for renewal, September in the high sixes, and October actually above seven. So you put all that together, and you'll start to see the renewals come back. I think it's really more driven by loss to lease and seasonality of the move-out season.
Speaker Change: There's just not as much to capture and you balance that with trying to stay occupied.
Speaker Change: you know you don't see it but what we do see is that
Speaker Change: You can look at the numbers. There's a lot more loss to lease as we go into the fall. And so I, you know, we're back to that normal season or curve. And, you know, we're past that, you know, the pandemic period that
Speaker Change: expect and already starting to see with the ask of October in the sevens coming up from the mid sixes that we're going to start to see that so you know time will tell what it looks like but this is kind of the normal historical that we've seen and it's it's it's math in terms of the loss to lease and what we see in the portfolio
Charles D. Young: And again, we're still going through some, you know, the lease compliance cleanup, and we're getting a little bit more move-outs now than we did in previous years, and we're trying to make sure we stay full. And so it's a balance as we optimize for revenue. Our next question comes from Austin Wurschmidt from KeyBank. Please go ahead. Hi. Good morning, everybody.
Speaker Change: Our next question comes from Daniel Tricarico from Scotiabank. Please go ahead.
Charles D. Young: I guess I'm still just trying to reconcile a few things, a little bit of the why and the fact that turnover was down this quarter, and occupancy was stable throughout the quarter. So what was it that you saw happening from a demand or notice to move out perspective that led you to dial back? This is Charles again.
Daniel Peter Tricarico: Thanks. Charles or John , could you put some numbers around the change in growth expectations for those Florida, Phoenix, and Vegas markets this year?
Daniel Peter Tricarico: [inaudible]
Speaker Change: I don't know if we typically give specific by market, you know, I'm speaking for John here a little bit, we typically are kind of give, you know, what we think our blend will be for the year. And, you know, we had, I personally had expectations watching how Florida had performed late last year and early this year.
Charles D. Young: I'll take the last part again. There really are third parties that have no impact here. This is really a kind of market situation. You know, what we saw at NARED is that from May into June, we're still going strong. We saw some moderation in the second half of June, and as we looked at July, that seasonality started to show, you know; we typically peak on blend in June and May. In July and August, you get the moderation that comes with seasonality as people move out.
John: that we might keep some of that momentum going.
John: You know, the reality is, as we talked about, just a bit of moderation and return to seasonality, and it happened a little earlier than we expected. And so I think that's what's...
John: Reflecting in our adjustment to the guide and just being thoughtful around what we're seeing in those markets. Again, a little bit more negotiation, a little bit of short-term supply based on build-to-rent. Same thing with Phoenix. We've seen that for a little while. It's starting to come back.
Charles D. Young: And you couple that with the markets. And, you know, to the earlier question, there's a little bit more negotiation, and we want to stay full as best we can. We are going to come down on occupancy for a few months and then pop back up.
Dallas B. Tanner: And as we do that, that's the balance that we saw. It just seemed that in these few markets and at this time of year, they showed up a little earlier than we expected. And we wanted to make sure that we're being transparent with what we see. Thanks. This is Dallas. You hit it.
Dallas B. Tanner: I mean, we can't say much because it's a pending legal matter. But you know, as we disclosed in the summer of 21, we received an inquiry from the FTC requesting information about how we conduct our business generally and specifically during the COVID-19 pandemic. Since then, we've fully cooperated with the FTC.
Dallas B. Tanner: And as we previously disclosed during the first quarter, we'd begun some preliminary discussions with them about a potential resolution. Those discussions have continued since that time, and they've been productive, and we certainly appreciate the dialogue with them to date. And as you know, GAAP requires a company to accrue for contingent liabilities when certain amounts or circumstances have been met, including consideration of a settlement offer that could be made in good faith.
John: But, you know, this is some of the things that you see on markets that have been flying high for a while. This is a little bit of moderation here, and we'll get back to kind of equilibrium over time.
Speaker Change: Yeah, I think the only thing I would add to that is to reiterate that, you know, we probably tried to get a little bit too surgical in terms of
Speaker Change: You know, referencing what we saw in Phoenix and some of the non, you know, the Florida markets other than South Florida.
Speaker Change: But I think the reality is, you know, we felt comfortable that overall...
Speaker Change: You know, growth remains robust. We feel really comfortable with where the business is.
Speaker Change: As Charles mentioned, we see that lost lease opens back up for us here in the next couple of months. But we want to be really thoughtful about striking a balance between rate and occupancy because
Speaker Change: As Charles said, occupancy is much more impactful and ultimately our guide is to core revenue growth. And that is what we want to optimize and the levers we have to pull are the trade-off between rate and occupancy.
Dallas B. Tanner: The amount we accrued as of the end of June reflects the amount that the company would consider paying to resolve the matter without any admission of liability and to avoid the inconvenience and expense of it continuing. And we do think a potential resolution of the matter will have no material ongoing impact on our business. And that being said, presently, we can't say how it will proceed going forward or how it could ultimately be resolved. Your next question comes from Jamie Feldman. Do you know the incremental third-party homes added in the quarter and what's in your guidance for the rest of the year? Sure, thanks.
Jonathan S. Olsen: So, recall at the outset of the year when we introduced guidance, we thought that there were about two pennies of incremental AFFO contribution from the third-party business. You know, the increase in the core FFO guide at the midpoint is sort of reflective of finding that there's a little bit more in it with the upcoming Upward America onboarding and a couple other smaller things, but that's really what drove the midpoint increase in core FFO.
Speaker Change: Our next question comes from Adam Kramer from Morgenstern.
Speaker Change: Stanley.
Adam Kramer: Hey guys, just on the property taxes, I'm wondering which kind of the markets that came in below expectations. I think you mentioned some of the kind of non-Florida, Georgia markets. Just wondering if you could call out the specific markets that came in below expectations.
Speaker Change: Yeah, sure. Great question, Adam. In Washington state and Minnesota, we had good guys in the first quarter. So the revision to the top end of that property tax guidance range is entirely attributable to actual good guys that we recorded in the first half. So just to be crystal clear, you know, our underlying assumptions for property tax expense growth
Speaker Change: outside of those markets are unchanged right so we haven't we haven't touched up our Florida or Georgia assumptions as I've referenced in my prepared remarks
Speaker Change: The Georgia values that we are getting back and have gotten back have shown that assessed values are coming in below what we'd incorporated in our assumptions. Obviously, we don't have millage rates or final tax bills yet, so that's not something that we're going to take to the bank.
Speaker Change: But when I said that there were some signs that we thought supported cautious optimism, that's what they are.
Jonathan S. Olsen: Our next question comes from Linda Tsai: down, or would you expect this to go higher by next year given the John Burns comment about it being $1,200 more costly? Here's a great question. This is Dallas. Look, I think we've seen. Our next question comes from Juan Sanabria. Hi, thanks for the time.
Speaker Change: Our next question comes from Umatayo Ukasanya from Deutsche Bank. Please go ahead.
Charles D. Young: Just a question, you mentioned higher R&M costs, both on the OPEX and CAPEX lines, so just curious if you can give more details around that and how maybe your CAPEX budget has changed. I noticed the AFFO or FAD guidance didn't change despite the Changing Core, FFO Strategic Reminder. Our next question comes from Jesse Lederman. Hey, nice job in the quarter. And thanks for taking my question. A quick one on acquisition guidance. So if I take your current spending year to date and incorporate roughly 700 homes you expect to be delivered from homebuilders in the second half of the year, and normalize for a consistent number of existing homes that you've acquired in the last couple quarters, it looks like you'd still need to purchase about 800 homes beyond that to get to the midpoint of 800 million.
Charles D. Young: So just wanted to ask currently, what do you view as the most likely source of these additional homes between additional deliveries from homebuilders, the existing home market, which seems to maybe have loosened up, or a portfolio acquisition? Thanks. Yeah, great question. This is Scott.
Umatayo Ukasanya: Good morning. With some of the incremental supply you're highlighting in markets like Florida, could you just talk a little bit about who's doing that building, how much is actually coming online, and how quickly one can expect that to be absorbed in these markets?
Scott G. Eisen: Thanks. Look, in terms of our acquisition backlog and where we're focused, we continue to negotiate directly with the national and regional builders on buying partial and full communities from them. So part of the incremental acquisitions that we would expect to get under contract between now and year end is just continuing to buy directly from the home builders. You know, we are also looking at some, you know, full community acquisitions. There are, you know, sponsors out there that have developed full communities and are ready to monetize and exit them that are either partially or fully stabilized.
Speaker Change: Yeah, I think, you know, I can't give you exactly a Florida-specific answer on absorption and new home starts in a succinct answer, but I think Scott and I would both agree.
Speaker Change: We're out in the market. We are seeing both build-to-rent operators in regional and I'd even add national homebuilders.
Speaker Change: that are much more willing to deal on pending pipeline.
Speaker Change: And some of that, it comes from a natural slowdown of, you know, the home buyers with mortgage rates is, you know, in the sevens or in the low sevens.
Scott: And also, you know, there are some BTR operators that are, you know, we've seen it, Scott, even in some of our conversations, where they're thinking about where they are kind of midway through a project and or call it entitlements delivery, and look, rethinking things. And so there's definitely some new supply, where we've been able to sort of
Speaker Change: You know, cherry pick. It's hard to tell you how much of that is absorption, but like, you know, to re-echo or to re-emphasize what Charles and John have said, you've certainly seen some supply sensitivity in Phoenix, Tampa, and Orlando. Some of that's driven by average listings, some of it's driven by new product coming into the marketplace.
Scott G. Eisen: And there are, you know, we obviously look at various of these communities when they come to market, and there are a few of them out there that we're taking a hard look at. And, you know, to the extent that we could find something that makes sense for us and is at the right yield, we could supplement buying directly from the home builders by buying some, you know, full communities from some specific BTR developers. Our next question comes from Haendel St. Just for a moment, Hey there, thanks for taking my call.
Charles D. Young: Charles, I want to go back to something you mentioned earlier about the expectation for renewal pricing to pick up in the fourth quarter. Obviously, we're going through a bit of seasonality here, but there is an expectation for that to rebound. Just looking back on the last couple of years, that hasn't really been the case. I know COVID, obviously, the last couple of years have impacted numbers, but even before COVID. So I guess I'm curious, what gives you the confidence that you will see that recovery, indeed, into the fourth quarter? Thanks, Haendel. Yeah, I think you called it out.
Speaker Change: Hi, good morning. Thanks for your time. Do you have any thoughts on whether the lower turnover recently is signifying a larger trend going forward? And if so, how should we look at quantifying the impact to OpEx and CapEx from the lower turn?
Charles D. Young: You know, coming off of COVID, there was no seasonality. And the numbers, the supply and demand, you know, what was going on with lease compliance and all that. Renewals were just high for a few years, and you didn't get the kind of ups and down that we're talking about or seeing in the normal seasonal curve that we're seeing this year. There's just not as much loss to lease in the summer. Because historically, that portfolio we've, you know, we have a long length of stay, and we renew, and we've been pushing, and there's just not as much to capture. And you balance that with trying to stay occupied. You know, you don't see it.
Speaker Change: I can start on the turn, kind of trends here.
Speaker Change: Prior to last year, as we were really going through the bad debt lease compliance clean-up.
Speaker Change: Turnover, year over year, it got kind of abnormally low during the pandemic, just given the dynamics. But last year it went up, and a lot of that was as we were trying to work through the lease compliance.
Speaker Change: We're still working through some of that, especially in some of our bigger markets. Atlanta, SoCal's made some good moves, we're still dealing with Carolina, Chicago a bit. And so, from a historical perspective...
Speaker Change: It's still a little higher than it might have been, but relative to last year, where we, especially in the second half of the year, we talked about why we pushed so hard on occupancy because we had a big turnover spike as we were cleaning up there.
Charles D. Young: But what we do see is that, you can look at the numbers, there's a lot more loss to lease as we go into the fall. And so I, you know, we're back to that normal season or curve. And, you know, we're past that, you know, the pandemic period that we expect and already starting to see what the ask of October in the sevens is coming up from the mid sixes, that we're going to start to see that. So, you know, time will tell what it looks like. But this is kind of the normal history that we've seen.
Speaker Change: And so what you're seeing this year is kind of returning back to that kind of normal trend as we work through a little bit of that cleanup.
Charles D. Young: And it's, it's math in terms of the loss to lease and what we see in the portfolio. Our next question comes from Daniel Tricarico. Thanks.
Speaker Change: How it balances out, we still have some cleanup in markets like Atlanta and a few others, so time will tell, but so far it's trended nicely, and we talked a little bit here about
Speaker Change: The R&M expense, again driven by weather, but if you look at our turn costs and other parts, those have come in really well, and that's mostly because we are starting to see that trend down. Hard to predict where it ends up.
Speaker Change: But I like our trend and, you know, being in that low 20s is a really healthy place and it's part of what's driving our occupancy as well as coupling it with good days to re-resident. The teams are really executing well. So the things that we're controlling...
John: that we can't control, proud of the teams and how they're behaving. Do you want to add something, John ? No, I think the only observation I would share, and I think it's a good question, is that, you know, the least compliance move-outs that we continue to see, while we're seeing some moderation in the quantum of those, it's still a pretty good number, right? So about, you know, 17.5% of move-outs in the second quarter were for sort of least compliance backlog cleanup. That was down about 200 basis points from the first quarter, and it's about 100 basis points lower than what our average has been over the last five.
Speaker Change: We're seeing very reasonable turnover, inclusive of some ongoing cleanup of the COVID hangover. And I would say the turn costs being down year over year.
Speaker Change: Take into consideration that we did have still a relatively sizable number of those lease compliance move-outs and the fact that those are typically in the neighborhood of 50% more costly than a standard term. If we put it all together, we feel quite good about controlling the things that are within our control, as Charles said.
Speaker Change: Our next question comes from Jade Romani from KBW. Please go ahead.
Jason Sabshon: Hi, this is Jason Sabshon on for Jade. My question is, how much do rates need to come down for acquisitions to really accelerate?
Speaker Change: I think from our, hey, this is Scott, thanks, it's a great question. I think from our perspective, look, we have a certain hurdle rate that we set for our acquisitions and what we're trying to achieve. And as we've said to the market, we're in the market today achieving, you know, especially with our builder deals, you know, deals in the six plus percent range. You know, as markets move and as interest rates move, we will evaluate, you know, what we think our cost of capital is and what we think we're prepared to pay for transactions in the market. It's hard for me to sit here and tell you exactly how much we're going to move our acquisition cap rates for every, you know, basis point move in treasuries. But obviously, we look at our weighted average cost of capital. We look at where we, you know, see opportunity in the market, whether it's buying from builders, buying portfolios or buying.
Speaker Change: you know stabilized assets and you know we will pivot accordingly as the market moves but I can't sit here and tell you you know prescriptively exactly how much you know cap rates are going to move based upon interest rates.
Speaker Change: and I'm going to be talking about the new new new new new new new new new new new new new
Speaker Change: Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead.
James Colin Feldman: Thanks for taking the question. I just want to clarify because John you've now said a couple times you think you may have taken too surgical a view of this in your revised guidance or too surgical a cut. Are you suggesting maybe you're better off not revising guidance? I just I've had a couple people ping me on this and I just want to I think everyone wants to understand exactly what you mean by that. I think you said you know too surgical and you'll have to own it.
John: Yeah, well, I think that we were a bit surprised by the reaction, candidly, and I think we were maybe too mechanical in how we approached
John: The puts and takes that we saw based on what we learned in the first half of the year.
John: And so I think it's a little bit of a mea culpa because, you know, we weren't trying to launch a thousand ships and give people the sense that...
John: You know, we see underlying weakness in our business because we don't. What we were trying to do is sort of acknowledge that, hey, you know, we sort of alluded to this at NARI, over the course of the balance of June , we saw that that that was a trend that was continuing. And that was moderation in, you know, certain of the markets that Charles referenced based on, you know, maybe a little bit of price fatigue on the part of the customer. And, you know, in the interest of trying to be transparent.
John: You know, that was what was reflected in the guide.
John: Our next question comes from Omatayo Okusanye from Deutsche Bank. Please go ahead.
Omatayo Okusanye: Thanks for having me back on. The pipeline you talked about, the 2,700 homes, which I think includes the 1,000 homes you just announced, how quickly do you expect that to be delivered?
Speaker Change: Great question, thank you. The way that these builder pipelines work is when we get something under contract, let's say we're buying 150 homes in a community from a builder, the builders deliver those homes to us, let's say 10 homes a month within any given community.
Speaker Change: So, when we talk about our backlog, we're obviously giving visibility to a pipeline that frankly is getting delivered over the next eight quarters or so. And so, in our supplemental, we obviously disclosed that we have a backlog here of, call it 2,700 homes in the pipeline. We've been very specific that we expect 691 of those homes to be delivered in the second half of this year, and then the balance is what gets delivered over time. But again, each time we get a community under contract, there is a forward delivery schedule and the builders on average tend to deliver somewhere between eight and ten homes a month.
Speaker Change: And so, you know, that's why when you look at that pipeline, that's why you see a certain percentage of it as second half, and a certain half percentage of it is in 2015. So we don't get, you know, 150 homes delivered to us all at once, but it gets spread over time. And obviously that, you know, from a leasing perspective also makes it a little more efficient for us. So instead of having, you know, a community that's, you know, 100% vacant for 150 homes, we get 10 homes a month. And so we can sort of balance our leasing of those homes as they get delivered.
Speaker Change: And so that's the right way to think about that pipeline, and that's why we have that disclosure in our supplemental the way we do.
Speaker Change: Our next question comes from Eric Wolfe from Citigroup. Please go ahead.
Eric Wolfe: Hey, thanks. Apologies, a line dropped out for a second. So if you've already answered this, my apologies. But I was just curious, what's sort of embedded in your guide for the back half of the year for blended spreads?
Speaker Change: You did, I think, 4.7% in the first half, so I was just curious what would be in the guide for the second half of the year, and sort of, if you could give a little bit of building blocks of how you're going to get there.
Eric Wolfe: It's a good question, Eric. I mean, recall that
Speaker Change: Our guidance is around core revenue growth, but we did articulate that we thought that blended rent growth would be high 4s, low 5s for the balance of the full year. You know, as you know, we were 4.7 through the first half.
Speaker Change: The path forward from here is going to be a story of balancing rate and occupancy.
Speaker Change: We're going to take as much rate as we can, when we can take it and where we can take it.
Speaker Change: But we're going to be conscious of wanting to stay full. So I think, you know, as I think about the levers we have available to pull in order to maximize revenue in NOI,
Speaker Change: You know, we react to the signals we see in the market, we try to lean in and be aggressive where we can. But at the same time, you know, if we need to give a little bit to stay full and keep driving revenue and NOI contribution, that's what we'll do.
Speaker Change: Our next question comes from Austin Wurschmidt from KeyBank. Please go ahead.
Austin Todd Wurschmidt: I appreciate you taking the follow-up as well as just kind of the thought around being transparent and just confidence in the underlying business.
Austin Todd Wurschmidt: I guess it's just, you know, not providing a July update maybe sends a little bit of a different message, and so trying to understand what gives you the confidence around renewal rate growth reaccelerating during what is the seasonally slower part of the year, you know, you highlighted, I think, mid 6% to 7% plus.
Speaker Change: from August to October . So, you know, maybe just help us understand what you expect to achieve relative to that asking rate, because there has been some give back on the ask versus what was achieved here, you know, within recent.
Speaker Change: Yeah, this is Charles. Look, there's always a little bit of a spread between what we ask and what we pull in. And it can be 100 basis points, it can be 200 basis points, it goes back and forth. We've never, if we're in a month and we're only in a 25th, we've never given exact numbers on kind of where we are. There's still time left.
Speaker Change: But what I can say is, you know, as we looked at...
Speaker Change: Kind of the June , May to June , we're seeing similar trends. We kind of peaked out, as I talked about, on the new lease side in May to June at, you know, 3.8, 3.7. July is going to, you know, moderate slightly as we get into seasonality on the new lease side. Renewals aren't far off from where we are in June , maybe down a little bit, like we talked about, because of the loss of lease and the spread. But we expect that those renewals will come up over time. So, as we talked about, again, we went into...
Speaker Change: You know, the ending the quarter at 97 and a half.
Speaker Change: 5% blend. We're going in the seasonality. Still seeing good demand. We have a few markets that are softening. We have some markets that
Speaker Change: are, you know, really strong. We talked about Chicago, we talked about SoCal, what we're seeing in cell flow, even Atlanta has really strong kind of rate growth at this point in the kind of top half of where we are.
Speaker Change: Look, there is a...
Speaker Change: We're in a position that we want to go into the summer like this.
Speaker Change: Coming in at 97 and a half, we'll find that kind of normal moderation of occupancy over a couple of months and everything will kind of pop back up and we think the renewals that are two-thirds of what we do will start to come back. So I like the position that we're in. We saw a little bit of moderation and seasonality show up a little earlier than we expected. And, you know, other than that, things are still robust. Demand is there. We're getting the leads.
Speaker Change: and we'll keep pushing and driving towards revenue.
Unknown Executive: This completes our question in the intercession.
Dallas B. Tanner: I would now like to turn the conference back over to Dallas Turner for any closing remarks. We appreciate all the support and look forward to seeing people at the Paul Conferences. Thank you.
Speaker Change: This completes our question and answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Dallas B. Tanner: We appreciate all the support and look forward to seeing people at the fall conferences. Thank you.
Unknown Executive: The conference is now concluded.
Unknown Executive: You may disconnect. Please wait.
Speaker Change: The conference is now concluded. You may disconnect.
Charles D. Young: Charles or John, could you put some numbers around the change in growth expectations for those Florida, Phoenix, and Vegas markets this year? I don't know if we typically give specific by market, you know; I'm speaking for John here a little bit. We typically kind of give, you know, what we think our blend will be for the year.
Unknown Executive: The conference will begin shortly.
Charles D. Young: And you know, we had, I personally had expectations watching how Florida performed late last year and early this year that we might keep some of that momentum going. But, the reality is, as we talked about, just a bit of moderation returned to seasonality, and it happened a little earlier than we expected. And so I think that's what's reflected in our adjustment to the guide and just being thoughtful around what we're seeing in those markets. Again, a little bit more negotiation, and a little bit of short-term supply based on build to rent. Same thing happened with Phoenix.
Charles D. Young: We've seen that for a little while. It's starting to come back. But you know, these are some of the things that you see on markets that have been flying high for a while. So a little bit of moderation here, and we'll get back to some kind of equilibrium over time. Yeah, I think the only thing I would add to that is to reiterate that, you know, we probably tried to get a little bit too surgical in terms of, you know, referencing what we saw in Phoenix and some of the non-Florida markets other than South Florida.
Jonathan S. Olsen: But I think the reality is, you know, we felt comfortable that overall, growth remains robust, and we feel really comfortable with where the business is. As Charles mentioned, we see that lost to lease opens back up for us here in the next couple months. But we want to be really thoughtful about striking a balance between rate and occupancy because, as Charles said, occupancy is much more impactful.
Jonathan S. Olsen: And ultimately, our guide is to core revenue growth. And that is what we want to optimize. And you know, the levers we have to pull are the trade-off between rate and occupancy. Our next question comes from Adam Kramer from Morgan Stanley. Please go ahead.
Jonathan S. Olsen: Hey, guys, just on the property taxes. Wondering which kind of the markets that came in below expectations. I think you mentioned some of the kind of non-Florida and Georgia markets. Just wondering if you could call out the specific markets that came in below expectations. Yeah, sure. Great question, Adam.
Jonathan S. Olsen: In Washington State and Minnesota, we had good guys in the first quarter. So the revision to the top end of that property tax guidance range is entirely attributable to actual good guys that we recorded in the first half. So just to be crystal clear, you know, our underlying assumptions for property tax expense growth outside of those markets are unchanged, right? So we haven't, we haven't touched up our Florida or Georgia assumptions.
Jonathan S. Olsen: As I've referenced in my prepared remarks, the Georgia values that we are getting back and have gotten back have shown that assessed values are coming in below what we've incorporated in our assumptions. Obviously, we don't have millage rates or final tax bills yet, so that's not something that we're going to take to the bank.
Jonathan S. Olsen: But when I said that there were some signs that we thought supported cautious optimism, that's what they were. Our next question comes from Omotayo Okusanya from Deutsche Bank. Please go ahead. Good morning.
Dallas B. Tanner: With some of the incremental supply you're highlighting in markets like Florida, could you just talk a little bit about, again, who's doing that building, how much of it is, how much is actually coming online, and how quickly one can expect that to be absorbed in these markets? Yeah, I think, you know, I can't give you an exact Florida-specific answer on absorption and new home starts in a succinct answer. But I think Scott and I would both agree; we're out in the market, we are seeing both build-to-rent operators and regional, and I'd even add national home builders that are much more willing to deal on the pending pipeline.
Dallas B. Tanner: And some of that comes from a natural slowdown of, you know, homebuyers with mortgage rates in the sevens or in the low sevens. And also, you know, there are some BTR operators that are, you know, we've seen it, Scott, even in some of our conversations, where they're thinking about where they are kind of midway through a project and or call it entitlement delivery, and look, rethinking things. And so there's definitely some new supply where we've been able to sort of, you know, cherry pick. But it's hard to tell you how much of that is absorption.
Scott G. Eisen: But like, you know, to re-echo or to re-emphasize what Charles and John have said, you've certainly seen some supply sensitivity in Phoenix, Tampa, and Orlando. Some of that's driven by average listings. Some of it's driven by new product coming into the market. Our next question comes from Anne Kim from Green Street. Please go ahead. Hi, good morning.
Dallas B. Tanner: Thanks for your time. Do you have any thoughts on whether lower turnover is better? [inaudible] I can start on the turnover kind of trends here. If Prior to last year, as we were really going through the bad debt lease compliance cleanup, we'd been lowering turnover year over year. It got kind of abnormally low during the pandemic, just given the dynamics.
Charles D. Young: But last year, it went up, and a lot of that was as we were trying to work through lease compliance. We're still working through some of that, especially in some of our bigger markets. Atlanta, SoCal, made some good moves.
Charles D. Young: We're still dealing with Carolina and Chicago a bit. And so from a historical perspective, it's still a little higher than it might have been. But relative to last year, where we talked about why we pushed so hard on occupancy because we had a big turnover spike as we were cleaning up there. And so what you're seeing this year is kind of returning back to that kind of normal trend as we work through a little bit of that cleanup. How it balances out, we still have some cleanup in markets like Atlanta and a few others. So time will tell. But so far, it's trended nicely.
Charles D. Young: And we talked a little bit here about the R&M expense, again driven by weather. But as you look at our turn costs and other parts, those have come in really well. And that's mostly because we are starting to see that trend down. Hard to predict where it ends up, but I like our trend. And being in that low 20s is a really healthy place.
Charles D. Young: And it's part of what's driving our occupancy, as well as coupling it with good days to re-resident. The teams are really executing well. So the things that we're controlling that we can't control. We are proud of the teams and how they're behaving. Do you want to add something, John?
Jonathan S. Olsen: No, I think the only observation I would share, Ann, and I think it's a good question, is that the least compliance move-outs that we continue to see, while we're seeing some moderation in the quantum of those, it's still a pretty good number. So about 17.5% of move-outs in the second quarter were for sort of least compliance backlog cleanup, which was down about 200 basis points from the first quarter.
Jonathan S. Olsen: And it's about 100 basis points lower than what our average has been over the last five. So we're seeing very reasonable turnover, inclusive of some ongoing cleanup of the COVID hangover. And I would say the turn cost is down year over year, taking into consideration that we still have a relatively sizable number of those least compliance move-outs and the fact that those are typically in the neighborhood of 50% more costly than a standard turn.
Jonathan S. Olsen: If we put it all together, we feel quite good about controlling the things that are within our control, as Charles said. Our next question comes from Jade Romani from KBW. Please go ahead. Hi, this is Jason Sabshon on 4G.
Scott G. Eisen: My question is, how much do rates need to come down for acquisitions to really accelerate? I think from our, hey, this is Scott. Thanks, great question. I think from our perspective, look, we have a certain hurdle rate that we set for our acquisitions and what we're trying to achieve. And as we've said to the market, we are in the market today achieving, you know, especially with our builder deals, deals in the six plus percent range. As markets move and as interest rates move, we will evaluate, you know, what we think our cost of capital is and what we think we're prepared to pay for transactions in the market.
Scott G. Eisen: It's hard for me to sit here and tell you exactly how much we're going to move our acquisition cap rates for every, you know, basis point move in treasuries. But obviously, we look at our weighted average cost of capital; we look at where we see opportunity in the market, whether it's buying from builders, buying portfolios, or buying, you know, stabilized assets, and we will pivot accordingly as the market moves.
Scott G. Eisen: But I can't sit here and tell you, you know, prescriptively exactly how much cap rates are going to move based upon interest rates. Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead.
Jonathan S. Olsen: Thanks for taking the question. I just want to clarify, because John, you've now said a couple times that you think you may have taken too surgical a view of this in your revised. I think everyone wants to understand exactly what you mean by that. I think you said, you know, too surgical, and you'll have to... Yeah, well, I think that we were a bit surprised by the reaction, candidly, and I think we were maybe too mechanical in how we approached the puts and takes that we saw, based on what we learned in the first half of the year.
Jonathan S. Olsen: And so I think it's a little bit of a mea culpa because, you know, we weren't trying to launch 1000 ships and give people the sense that, you know, we see underlying weakness in our business because we don't. What we were trying to do was sort of acknowledge that, hey, we sort of alluded to this at Nary, over the course of the balance of June, we saw that that was And that was moderation in, you know, certain of the markets that Charles referenced, based on, you know, maybe a little bit of price fatigue on the part of the customer. And, you know, in the interest of trying to be transparent, that was what was reflected in the guide. Our next question. Yes, thanks for having me back on.
Scott G. Eisen: The pipeline you talked about, the 2,700 homes, which I think includes the 1,000 homes you just announced, how quickly do you expect that to be delivered? A great question. Thank you. The way that these builder pipelines work is when we get something under contract, let's say we're buying 150 homes in a community from a builder, the builders deliver those homes to us, let's say 10 homes a month within any given community.
Scott G. Eisen: So when we talk about our backlog, we're obviously giving visibility to a pipeline that, you know, frankly, is getting delivered over the next, you know, eight quarters or so. And so, you know, in our supplemental, we obviously disclosed that, you know, we have a backlog here of, call it, 2,700 homes in the pipeline. We've been very specific that we expect 691 of those homes to be delivered in the second half of this year, and then the balance will be delivered over time.
Scott G. Eisen: But again, each time we get a community under contract, there is a forward delivery schedule, and the builders, on average, tend to deliver somewhere between eight and ten homes a month. And so, you know, that's why when you look at that pipeline, that's why you see a certain percentage of it as the second half, and a certain half percentage of it is in 2015. So we don't get, you know, 150 homes delivered to us all at once, but it gets spread over time.
Scott G. Eisen: And obviously, that, you know, from a leasing perspective also makes it a little more efficient for us. So instead of having a community that's 100% vacant for 150 homes, we get 10 homes a month, and so we can sort of balance our leasing of those homes as they get delivered. And so that's the right way to think about that pipeline, and that's why we have that disclosure in our supplementary the way we do. Our next question comes from Eric Wolfe. Hey, thanks. Apologies, a line dropped out for a second. So you've already answered this. My apologies.
Jonathan S. Olsen: But I was just curious, what's sort of embedded in your guide for the back half of the year for blended spread? I think you did 4.7% in the first half, so I was just curious what would be in the guide for the second half of the year and sort of if you could give a little bit of the building blocks of how you're going to get there. Yeah, it's a good question, Eric.
Jonathan S. Olsen: I mean, recall that our guidance is around core revenue growth, but we did articulate that we thought that blended rent growth would be high 4s to low 5s for the balance of the full year. As you know, we are 4.7 through the first half. The path forward from here is going to be a story of balancing rate and occupancy. And so we're going to take as much rate as we can when we can take it and where we can take it, but we're going to be conscious of wanting to stay full.
Jonathan S. Olsen: You know, as I think about the levers we have available to pull in order to maximize revenue and NOI, we react to the signals we see in the market. We try to lean in and be aggressive where we can, but at the same time, if we need to give a little bit to stay full and keep driving revenue and NOI contribution, that's what we'll do. Our next question comes from Austin Wurschmidt from KeyBank. Please go ahead.
Charles D. Young: I appreciate you taking the follow up. Yeah, this to Charles, look, there's always a little bit of a spread between what we ask and what we pull in. And it can be 100 basis points to be 200 basis points, it goes back and forth.
Charles D. Young: We've never, if we're in a month, and we're only in the 25th, we've never given exact numbers on kind of where we are; there's still time left. But what I can say is, you know, as we looked at, kind of the June, May to June, we're seeing a similar trend; we kind of peaked out, as I talked about on the new side, in May and June at July is going to, you know, moderate slightly, as we get into seasonality on the new side, renewals aren't far off from where we are in June, maybe down a little bit, like we talked about, because of the loss, the lease, and the spread.
Charles D. Young: But we expect that those renewals will come up over time. So, as we talked about, again, we went into ending the quarter at 97 and a half, 5% blend. We're going in the seasonality, still seeing good demand, but we have a few markets that are softening. We have some markets that are, you know, really strong. We talked about Chicago, we talked about SoCal, and what we're seeing in SoFlow. Even Atlanta has really strong kind of rate growth at this point in the kind of top half of where we are.
Charles D. Young: So, look, we're in a position that we want to go into the summer like this. Coming in at 97 and a half, we'll find that kind of normal moderation of occupancy over a couple of months, and everything will kind of pop back up. And we think the renewals that are two-thirds of what we do will start to come back. So, I like the position that we're in. We saw a little bit of moderation and seasonality show up a little earlier than we expected. And, you know, other than that, things are still robust.
Dallas B. Tanner: Demand is there. We're getting the leads, and we'll keep pushing and driving towards revenue. This completes our question and answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks. We appreciate all the support and look forward to seeing people at the fall conferences. Thank you.
Speaker Change: Thank you for watching!