Q4 2024 Invitation Homes Inc Earnings Call
Welcome to the Invitation Homes 4th Quarter 2024 Earnings Conference Call.
All participants are in listen-only mode. At this time, should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: 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. Thank you.
Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Scott McLaughlin,
Speaker Change: Greetings and welcome. I'm here today from Invitation Homes with Dallas Tanner, Chief Executive Officer, Charles Young, President and Chief Operating Officer, John Olsen, Chief Financial Officer, and Scott Isen, Chief Investment Officer.
Speaker Change: Following our prepared remarks, we'll conduct a question and answer session with our covering sales side analysts.
Speaker Change: During today's call, we may reference our fourth quarter 2024 earnings release and supplemental information.
Speaker Change: This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Except to the extent otherwise required by law, Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
Speaker Change: We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, in yesterday's earnings release.
Speaker Change: With that, I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.
Dallas Tanner: Good morning, everyone, and thank you for joining us today. I'm pleased to report that Invitation Homes delivered another strong quarter of operational and financial results to close out 2024.
Dallas Tanner: Our full year results demonstrated solid execution across our platform, including core FFO per share growth of 6.4 percent and AFFO per share growth of 6.7 percent. I extend my thanks to our dedicated teams and for the continued loyalty of our residents.
Dallas Tanner: On the latter point, we're proud that our residents continue to choose invitation homes for the long term.
Dallas Tanner: We believe this underscores the value proposition that our industry and our platform offer, and the strong relationships we're able to maintain with our residents over time.
Dallas Tanner: It's also a testament to the continued demand for high quality homes in desirable neighborhoods located in some of the fastest growing areas of the country and delivered with our trademark genuine care.
Dallas Tanner: During 2024 we emerged as the professional manager of choice for partners seeking premium service and performance. We grew our JV third-party managed home count by more than six and a half times last year to over 25,000 homes.
Dallas Tanner: We expect this business to continue to have opportunities to grow in the future.
Dallas Tanner: At the same time, we further optimized our wholly-owned portfolio, recycling capital from older assets into newly constructed, growth-enhancing investments. This was possible in part through our innovative builder partnerships.
Dallas Tanner: helping us welcome over 1,800 individuals and families into newly built homes during 2024. In the meantime, our pipeline remains robust with more than 2,000 homes under development by our home builder partners at the start of this year.
Dallas Tanner: Since we launched our home builder partnerships nearly four years ago, we have continued to broaden and refine the traditional build-to-rent model. In doing so, we've moved beyond the binary view of either on-balance-sheet development or completed home purchases.
Dallas Tanner: Rather, our unique broad-spectrum approach considers everything from early-stage builder partnerships to the acquisition of stabilized communities.
Dallas Tanner: As the market has further evolved and our approach has become more sophisticated, we're continuing to evaluate new opportunities and structures to strengthen our growth profile by thinking outside of the traditional SFR box.
Dallas Tanner: Combined, our strategic growth initiatives allow us to enhance our scale and density within our core markets and potentially expand our existing footprint by evaluating new markets with attractive growth profiles.
Dallas Tanner: As we've learned, improved scale and density support better OPEX and CAPEX management across the entire portfolio.
Turning now to current market conditions.
Dallas Tanner: We continue to work through this and are seeing some early signs of improvement. At the same time, we are taking a measured approach with our initial expectations for 2025 and remaining vigilant as we seek better clarity throughout the year.
Dallas Tanner: including with regard to new supply for the year ahead, the impact of potential tariffs, and the chance for prolonged higher mortgage rates, and the effect that builder spec inventory and buyer incentives may have on the market.
Dallas Tanner: Nevertheless, we believe the tailwinds for our business remain supported by the demographics.
Dallas Tanner: As a reminder, there are 46 million American households who lease their primary residence. And among those, nearly one in three choose to lease a single-family home.
Dallas Tanner: With our average resident age of 38 years old, this includes many millennials and young families who desire the flexibility and convenience of leasing a single family home.
Dallas Tanner: It also includes those who appreciate the compelling value of leasing, with the average cost of leasing a single family home nearly $1,100 a month cheaper than owning in our markets according to John Burns research.
Dallas Tanner: As we look ahead, we remain confident in our ability to capitalize on opportunities while maintaining a disciplined approach to capital allocation.
Dallas Tanner: With our dedicated teams, strategic approach to external growth, and operational excellence, we believe we are well positioned to create value for our stakeholders while delivering on our mission to provide high quality homes and superior service to our residents.
Charles, over to you.
Charles: Thank you, Dallas. I'm proud to begin by highlighting our team's outstanding response to the recent wildfires in Los Angeles. Our local team showcased the very best of imitation homes, demonstrating extraordinary dedication and caring for our residents.
Charles: We lost only two homes to the fires, which was thanks in part to the scattered nature of our portfolio that provides a built-in risk mitigate.
Charles: Yet, the more important victory was ensuring all of our residents and associates remain safe. And I extend my deepest gratitude to our LA-based team, first responders, and all those who worked tirelessly during this challenging time.
Charles: Moving on now to same store results. I'm happy to report strong fourth quarter performance with NOI growth of 4.7% year-over-year. This result was driven by core revenue growth of 2.7% and a 1.5% reduction in core operating expenses, demonstrating our continued focus on operational efficiency.
Charles: For the full year 2024, we delivered NOI growth of 4.6%, based on core revenue growth of 4.3%, and core operating expense growth of 3.7%. Notably, our property tax expense growth of 5.8% year-over-year was in line with our latest expectations.
Charles: and brought a welcome return to a more normal growth rate following two years of larger increases.
Okay.
Charles: Overall, our results underscore our differentiated performance within the residential REIT sector that we believe our resident focused approach helps to provide.
Charles: During 2024 that included annual turnover of just 22.6 percent, average length of stay of approximately 38 months, same-store average occupancy above 97 percent, and a full-year blended rent growth of 3.9 percent.
Charles: Turning now to our leasing performance. For the fourth quarter we achieved same store blended rent growth at 2.3 percent year-over-year based on a 4.2 percent renewal rate growth and a negative 2.2 percent new lease rate growth.
Dallas Tanner: As Dallas mentioned earlier, we've seen a healthy improvement in same-store leasing as we moved into 2025, and more recently kicked off our spring leasing season.
Dallas Tanner: As we would expect this time of year, new lease rent growth has re-accelerated and was positive here in February. While renewal rent growth has remained strong in the mid-fives for the past couple of months.
Dallas Tanner: Quarter-to-date, including January and preliminary February results, average occupancy rose to 97% and blended lease rate growth climbed to 3.5%.
Speaker Change: Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Charles Young, Scott McLaughlin,
Dallas Tanner: While John will discuss more details of our 2025 guidance with you in a moment, I'd like to share some color around our leasing expectations for the year.
Dallas Tanner: We anticipate our same store new lease rate growth will continue to accelerate through April or May with renewals and average occupancy moderating somewhat as we enter the summer months before improving again towards the last few months of the year.
Dallas Tanner: Overall, we expect full-year same-store blended rent growth in the mid-3s and average occupancy of 96.5% at the midpoint, effectively finalizing our return to a more normal pre-pandemic levels.
Dallas Tanner: Before I close, I'd like to take a moment to congratulate Tim Loebner on his promotion to Chief Operating Officer. Tim joined Invitation Home shortly after it was founded in 2012.
Speaker Change: Following Tim's promotion to COO next week, I'll remain in my role as president, allowing me to focus even more on our strategic plans for growth.
Speaker Change: Together with Tim and the entire leadership team, we're excited for the year ahead with great appreciation for our outstanding associates in the field who remain focused on leasing execution, discipline cost management, and providing the exceptional service that our residents expect.
Speaker Change: This is truly fundamental to our success and the achievement of our goals. Thank you for bringing your best every day. With that, I'll turn it over to John to discuss our financial results in more detail.
John Burns: Thanks, Charles. Today I'll cover the following three topics. First, an update on our balance sheet and liquidity. Second, our fourth quarter and full year 2024 financial results. And third, the introduction of our 2025 guidance and assumptions.
I'll start with our balance sheet.
John Burns: At year-end 2024, we had a robust liquidity position of nearly $1.4 billion, comprised of unrestricted cash on the balance sheet and undrawn revolver capacity.
John Burns: Our year-end net debt-to-adjusted EBITDA ratio was 5.3 times, just below our targeted range of 5.5 to 6 times.
John Burns: Over the last several years we've made substantial progress in optimizing our debt structure. Today, over 83% of our total debt is unsecured, nearly 90% of our wholly owned homes are unencumbered, and over 91% of our total debt is either fixed rate or swapped to fixed rate.
John Burns: Thank you for watching. I'm Scott McLaughlin. I'll see you next time.
John Burns: I'm also pleased to note enhanced transparency regarding our swap book through a new addition to our supplemental, which is posted to the investor relations section of our website.
John Burns: Our new Schedule 2D provides detail around our active swaps as of year-end, as well as forward-starting swaps through 2026, along with our swaps' weighted average strike rates. We believe our swap book positions us well for the foreseeable future, with the vast majority of our floating rate debt locked in at attractive fixed rates for the next several years.
John Burns: Next, I'll cover our fourth quarter results. Total revenues grew 5.6% to $659 million in the fourth quarter, and property operating costs were slightly lower year-over-year at $228 million, a testament to our team's cost controls.
John Burns: This translated into strong year-over-year growth in our fourth quarter results, with Core FFO per share up 5.9% and AFFO per share up 8.9%.
John Burns: For the full year 2024, we delivered 6.4% core FFO growth per share and 6.7% AFFO growth per share.
Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Scott McLaughlin,
Speaker Change: Looking ahead now to 2025, we've introduced our full year guidance ranges.
Speaker Change: with core FFO in a range of $1.88 to $1.94 per share, AFFO between $1.58 and $1.64 per share, and same-store NOI growth in a range of 1% to 3%.
Speaker Change: Our guidance also anticipates $600 million in wholly owned acquisitions at the midpoint, primarily funded through dispositions of $500 million at the midpoint.
Speaker Change: In summary, we enter 2025 in a very healthy financial position, with a strong balance sheet, compelling operating metrics, and a clear strategic vision focused on growth.
Speaker Change: Our strong liquidity position and largely unencumbered asset base provide us with tremendous flexibility to pursue compelling growth opportunities while maintaining our disciplined approach to capital allocation. More than ever, we're focused on providing genuine care to our residents and delivering superior value for our shareholders.
Operator, we're now ready to open the line for questions.
Thanks for tuning in. Have a great day.
Speaker Change: 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, then 2.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: In the interest of time, we ask that participants limit themselves to one question and then recue by pressing star 1 to ask a follow-up question.
One moment, please, while we poll for questions.
Speaker Change: The first question comes from Eric Wolf with Citibank. Please go ahead.
Eric Wolf: Hey, thanks. I think you said that your blended spreads were already in the mid threes in February, so I was just curious why you're not expecting that to accelerate a bit further since I think your guidance...
Eric Wolf: is based on a similar level throughout the year. And I think Dallas also mentioned that you were taking sort of a cautious approach to guidance. So I don't know if that's sort of what you meant by that or is referring to something else. Thanks.
Thanks.
Yeah, thanks Eric.
Scott.
Speaker Change: We are anticipating blended rent growth for 2025 in the mid threes.
Eric Wolf: So, you know, as you recall, the typical seasonal curve is we see acceleration in new lease rate growth here in the first part of the year. As turnover picks up in the summer months, we see a little bit of a step back.
Eric Wolf: We anticipate that the absorption of that supply will have a flow-through impact on occupancy. So as you saw midpoint of our range is 96 and a half percent. That assumes that turnover for 2025 is generally similar to 2024, maybe a skosh higher, but that the biggest impact on occupancy comes from slightly longer days on market as we go out and try to achieve the best rate growth we can.
Speaker Change: Your next question comes from the line of Michael Goldsmith with UBS. Please go ahead.
Michael Goldsmith: Good morning, thanks a lot for taking my question. Dallas, in your opening remarks you talked about how new home deliveries were impacting last year but you're starting to see some early signs of improvement. So can you walk us through what you're seeing right now and then also what you're expecting from the new home deliveries through 2025? Thank you.
Dallas Tanner: Yeah, hey, great question. You know, to double-click on something that John said, we're certainly seeing...
Dallas Tanner: some re-acceleration as we head into the spring leasing season. We've seen, you know, supplies start to moderate coming off sort of peaks last summer as we called out when we started to see some of these real supply pressures.
Scott Mclaughlin: Scott McLaughlin, Charles Young, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin,
Scott Mclaughlin: But, you know, we've even listened to some of our counterparts with the public home builders and some of their calls, as well as our discussion with regionals, that we would just expect that there may be a bit more of spec inventory as mortgage rates stay elevated.
Scott Mclaughlin: Now, all this is, you know, slight headwinds for new lease, but it's terrific for our renewals business. So, we'll continue to anchor on the renewal side of the house, which has been close to 80 percent of our leasing volume for last year, and be as aggressive as we can on rate on the new lease side. We sort of have to take what the market's giving us, but the skies are a little bit more clear now than they were, say, last summer.
Thank you.
Daniel Tricarico: Your next question comes from the line of Daniel Tricarico with the Scotiabank. Please go ahead.
Daniel Tricarico: Hey, good morning. For either Dallas or Scott, I wanted to ask about your West Coast markets. First, have you seen any increase in activity in SoCal since the fires earlier in the year?
Daniel Tricarico: Is there any incremental impact from that on your guidance that you can quantify? And second, with the West Coast seeing stronger growth today, there seems to be an increasing confidence in the demand recovery out there as well. Potentially better business backdrop too. So have you re-evaluated being a net seller? Thanks.
Speaker Change: Thank you for watching. I'm your host, Scott McLaughlin. And I will see you next time.
Speaker Change: So this is Charles, I'll take it. In terms of your initial question around the impact on guidance for SoCal, really no material impact. If you look at our NorCal and SoCal markets, we run really high occupancy. The fires, very unfortunate, but for us we only had two homes that were lost. You got to remember our book is a little further away from where the fires were located.
And at the time when we were running...
Speaker Change: high 97 occupancy in SoCal. There were only 50 homes that were available on the market at the time and so while yeah there was a little bit more demand it didn't really have a huge impact on how we're running. That book generally runs at a high occupancy because there's a lack of supply in that market and we're also doing really well on rate there on both the new lease and the renewal side so it's been it's been really solid. I don't know if you want to discuss Dallas going into the dispositions.
Scott Mclaughlin: Look, it's a really great question on how to think about accretively recycling capital. Scott and I spend a lot of time...
Scott Mclaughlin: Looking at ways to create, you know, call it highest and best use cost of capital for the company And we've certainly had a successful year in 24
Scott Mclaughlin: selling roughly call it 1,500 homes on balance sheet For proceeds of around 600 million and those are typically, you know sort of priced around a four cap in today's market and then Scott's done a nice job of
you know creatively reinvesting that capital closer to a six.
Scott Mclaughlin: And so I think, as you think about Southern California specifically to your question
Scott Mclaughlin: There will likely always be opportunities for us to continue to refine that portfolio.
Scott Mclaughlin: But it's really at our discretion based on a total return model as we look at
Speaker Change: The higher expected rents that Charles just talked about, and in a business that's pretty automatic in terms of our expectations around renewals and newies.
Speaker Change: and weighing that out with where we see sort of appetite on a risk-adjusted basis. And so, for us, we're a total return investor. It's important to remember that we don't look at things in just a binary bubble all the time, either on yield or on total value, but we're looking to creatively kind of grab both over time and distance.
Speaker Change: Your next question comes from the line of Yana Gellin with Bank of America. Please go ahead.
Thank you. Good morning.
Yana Gellin: I was hoping if we could, Dallas, following up on that, talk a little bit more about the capital allocation and the transaction market, kind of what you're seeing right now. Is it primarily portfolios or BTR communities, or is there a little bit more of an opportunity in kind of like the one-off MLS sales?
Yana Gellin: I'll take it, this is Dallas, let me take the first part of this and ask Scott to provide some color.
from a high level.
Yana Gellin: We're absolutely focused on bringing more and more new product into the portfolio.
Yana Gellin: through these builder partnerships and structures that we're seeing, you know, candidly evolve and get better and even create ways for us on a risk-adjusted basis to have less capital out the door early, but to lock ourselves into some really good opportunities over time. You'll see that even in the fourth quarter, we backed off of a few opportunities because we felt some market dynamic shifting and that was at, you know, basically little to no risk to the company. We love the fact that we're kind of asset light in this model, but driving towards, call it, untrended sixes.
Yana Gellin: I'll ask Scott to provide more color on what he's seeing on the ground right now between sort of stabilized transactions bulk and and what really is
Scott Mclaughlin: Yeah, and obviously in terms of where we are sourcing deal flow right now as Dallas said we're not really seeing Very much on the single asset MLS market. We absolutely are evaluating bulk portfolios We have obviously institutional sellers with whom we've engaged
Scott Mclaughlin: Scott McLaughlin, Charles Young, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin,
Scott Mclaughlin: As Dallas said, we've got about 2,000 in the pipeline on a forward basis and we'd like to add more. So we continue to look at all of these channels and we're trying to pick the right channels where we think there's the best risk-adjusted return for us as a publicly traded company.
Speaker Change: Your next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: Great, thanks for taking my question. So, you know, Dallas, at the outset you talked about looking for new and innovative structures for growth, entering possibly new markets.
Speaker Change: You guys added Tim to the C-suite. I think Charles commented that he's gonna be focused on growth. Scott obviously focused on growth too. Can you just help us better understand the management changes?
Speaker Change: exactly the different roles of everyone on the team now. And then also, you know, do you expect to see more changes ahead?
for the team.
Speaker Change: Oh yeah, happy to answer those questions. Thanks for asking. First of all, it's going to be a luxury of riches for me to have Charles freed up to work on a few more strategic things and areas of the business that we see are going to continue to grow for the company over time.
Call it traditional SFR growth
Speaker Change: Charles and I have our eye on a number of opportunities including ones we're already doing like 3 p.m. And and sort of our strategies around how to make the platform more efficient over time That that both Charles and I will get the opportunity to work on together
Speaker Change: Secondly, you know, Tim's been in the weeds on the business for a long time on the cost side of our house, really rehab turn of maintenance for basically a decade. Last year, Charles made the decision in concert.
Speaker Change: You know, with me and the rest of management to give Tim a little bit more flexibility to get more involved on the property management and leasing side of the house.
Speaker Change: and it just makes more sense because so much of our business
Speaker Change: and the boots on the ground part of our organization that is high touch in the field. And that transition went really seamless, I would say, through most of last year.
Speaker Change: I think for Charles and I the goal is how do we widen the breadth of the organization without having to reinvent the wheel and you saw what we did last year and adding 20,000
Speaker Change: plus new units to our 3PM business. We're excited about what that business is, not only because it adds itself to extra efficiencies for our partners, but it creates better margin enhancing profile for our own business.
Speaker Change: We see some opportunities there. We're looking at some things around AI and technology that we'd like to implement with a little bit more of pace and scale and focus. And candidly,
Speaker Change: I think having Charles as a partner to work on some of these things with me will allow us to go quicker, create more innovation, and lend another set of you know senior strategic thinking around the things that we're working on. I have no plans of going anywhere, nor does Charles, and so the goal is to just keep our heads down and keep trying to find ways to create alpha for both our shareholders and better opportunities for our residents.
Speaker Change: Your next question comes from the line of Austin Wershmith with KeyBank Capital Markets. Please go ahead.
Speaker Change: Thanks. Just expanding, I guess, a little bit on the last question. I mean, I guess, how meaningful and growth enhancing do you think some of these projects that you're pursuing and kind of, you know, adding outside the SFR box? And then separately, you hit on, I think, for the first time in your prepared remarks about, you know, evaluating some new markets. And so just curious, you know, if you can share any additional detail about, you know, your ability to, you know, gain immediate scale, if you were to end.
Speaker Change: are a new market, similar to what we saw you do in Nashville last year.
Speaker Change: Yeah, this is John. I'll start off by just, I think, framing up how substantial some of these opportunities have already been for us. So, in 2024,
Speaker Change: Our third-party management businesses contributed about $0.09 per share to CORE FFO and AFFO. And for 2025, we anticipate that, you know, between our JVs and our third-party management business, that'll contribute an incremental $0.02 a share. So, you know, I think
Speaker Change: very clearly that the third-party management business has been a really solid contributor to, you know, capital light earnings growth.
Speaker Change: enhanced scale, better efficiencies, which I think you'll continue to see in terms of, you know, the cost related to managing our book. So we think that that has been absolutely a needle mover and we're eager to try to find new opportunities that will continue to move the needle.
Dallas Tanner: I'll jump in on the second part of your question. This is Dallas and I don't want to put Scott on the hot seat on a quarterly call, but we're definitely doing work on how to expand our current markets, how to think about new markets. You've heard us talk about markets in the past that we love, that we aren't in today like Salt Lake City. We talked about San Antonio in the past, Nashville getting a little bit more scale, and we've done the latter too. I think we would like to find ways
to both widen and extend our advantage of scale.
Speaker Change: in the markets that we're currently in, I would say generally almost all of them.
Speaker Change: making a strategic investment. And we don't take it lightly if we go into a market because we want to offer the same services. And I think some of the things that we talked about a second ago around AI, automation, we've already seen that in some of our new leasing business. We're implementing some of that in our renewals business today, is allowing us to leverage
Speaker Change: our leadership team, in example, Charles, to be able to start to think about some different things and ways that we can grow our company over time. So all of the benefits of technology and the move to digital automation.
Speaker Change: to John's point, being able to flex and extend the infrastructure of the platform are going to allow Invitation Homes over a long run rate to create more efficient returns on our own capital and those of our partners.
Speaker Change: Your next question comes from the line of Handel Saint Just with Mizuho. Please go ahead.
Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Scott McLaughlin,
Speaker Change: Hey guys, good morning. Dallas, I guess I'm curious how you're thinking about the sustainable long-term
Speaker Change: Stain Store Revenue run rate for this business? Seems to me that we could be nearing a low point for new lease pricing this year, especially if supplies pressures could be abating. So if renewal pricing can stay sticky here around 4%, this year could potentially be a trough year for Stain Store Revenue in your blend. So I'd love to hear how you're thinking about this year's Stain Store Revenue outlook in context of the longer
longer-term core growth opportunity for the portfolio. Thanks.
But, to your point, we're seeing good velocity.
Thank you.
Speaker Change: I think as you go back, Handel, and you think about the business since we went public in 2017.
Thank you.
Speaker Change: You know, we've had an unbelievable run in terms of rate in this country, which is driven by a lot of different things, as you know.
Speaker Change: And new lease is always going to be sort of a story around supply and expectations around future deliveries.
and how you optimize your lease expiration curve.
Speaker Change: We've done some really great work over the last six months.
Speaker Change: on our lease expiration curve. We feel like we're in a pretty defendable position going into the year, this summer. And so we'd expect that, you know, we can lean a little harder on rate hopefully, but we gotta see what the market's willing to give. It's a different environment than it was pre-pandemic.
Speaker Change: It was a lot more predictable in terms of deliveries, and I do think as the deliveries come down and all the data that we follow suggests that deliveries are going to be somewhere between 50 and say 70% down this year versus last, but that doesn't take into consideration starts.
Speaker Change: that are bringing product to the market, that are fighting to get full, and do create some
Speaker Change: some tougher operating environments, particularly in the Sun Belt right now, but I would just take a step back. And as much as we're impressed with our, you know, rate of growth in the Midwest right now, we're still very long on our fundamental beliefs around the Sun Belt and Southeast.
All the demographic information suggests.
Our average customer today is right around 38 years old.
Speaker Change: All the profile of that customer has been pretty resilient over the last five to seven years. So there's nothing in our business today that suggests that we need to change course, rethink a strategy or invest in different parts of the country. In fact, maybe the opposite. While things are a little bit soft, we may actually look to extend our lead and scale and density in some of these markets while pricing softens.
Speaker Change: So that we can be in a position to really capture a bull run as the supply side sort of works through itself.
Speaker Change: Your next question comes from Rich Hightower with Barclays. Please go ahead.
Rich Hightower: Hey, good morning guys. Obviously covered a lot of ground today, but maybe just to pick up on a point that you just made, Dallas, you know, in terms of the core renter demographic and maybe drawing a contrast between multifamily and single family. I think, you know, there's kind of this emerging thesis that the core multifamily.
is expanding, you know, for all sorts of
Scott McLaughlin, The College of Agricultural and Environmental Sciences, www.scottmclaughlin.com
Rich Hightower: proposition between multi and single than maybe we, you know, had earlier appreciated. Or do you think it's, you know, the pie is big enough for everybody kind of to enjoy it, you know, for the next several years in that, in that sense?
Rich Hightower: Yeah, this is Charles. Thanks for the question. If I'm understanding the question, look, we're, we're, we think we're...
Speaker Change: serving a unique part of the market that you know we have this opportunity it's $1,000 more affordable to rent a home than it is to buy in today's market you know we are three four or five bedrooms so we're serving families
The majority of our families, 60%, have kids, have pets.
Speaker Change: And, you know, our portfolio, whether it's our scattered portfolio or build-to-rent, is around safe neighborhoods and good school districts.
Speaker Change: And so we have an opportunity to continue to serve that group, that demographic. We're seeing really good demand there. People are staying for 38 months and rising each quarter. You know, the demand is healthy. We talked a little bit about the book, but, you know, we built back occupancy in Q4 and looking at where we are in January and February, we're seeing good absorption and good demand. And I think it really comes down to that, you know, we have some markets that are working to absorb.
Speaker Change: our turnover is low, our renewal is high, and I think that's the differentiation of our product relative to Multifamily. And we like where we are, and we're serving an ecosystem that's part of the business. And when you really look at it and compare it to Multifamily on a price per square foot, given that you're getting more space.
Bigger houses
Speaker Change: and how we're renewing right now, even in a period that is typically slower in Q4, we're seeing really good demand as we go in. So we're working through it and we like our product and where we stand long-term relative to multi.
Thank you. Bye bye.
Speaker Change: Your next question comes from the line of Adem Kramer with Morgan Stanley. Please go ahead.
Speaker Change: Hi, good morning, this is Derek Metzler on for Adam. Thanks for the time.
Speaker Change: I don't know if we could just double click on the same store revenue growth assumptions a little bit. I don't know if you gave new and renewal lease expectations in that blended rate in the mid 3% range. And then it looks like your bad debt has been trending around 1% in 3Q and 4Q, so just curious about the confidence in the...
improvement to 60 and 90 basis points in 25. Thanks.
Hey, it's John. Thanks for the question.
Speaker Change: I'll start with bad debt. Our bad debt range reflects our expectation that we'll continue to see improvement in bad debt expense.
Speaker Change: but a degree of cautiousness about the rate at which that improvement will continue. As you correctly noted, 2024 was sort of a tale of two halves. We saw a real material improvement in the first half of last year, then a little bit of a backup in the second half.
Speaker Change: I think the first half improvement was down to a number of markets where
Speaker Change: And then I think what we're seeing today is we still have, you know, a couple, three markets where
Um
Speaker Change: where the timelines remain elongated. You know, markets like Atlanta, the Carolinas, specifically Mecklenburg County, Chicago, you know, it still takes quite a while to get some of these, to get some of these situations worked through the system. And so we just want to be cautious. So we do believe we'll continue to see improvement. We're really focused on collections. We're really focused on being as efficient as we can be, but want to be mindful of kind of what that second half experience was last year.
Speaker Change: We did not give a guide around new versus renewal rate growth for 2025 And we're not going to do that, but you know feel very comfortable that the mid three blended guide incorporates sort of our expectation for Renewal rate growth that continues to remain sticky Sort of in that four to five percent range that Dallas talked about high renewal rate
Speaker Change: And then, you know, a typical seasonality curve that, you know, maybe looks a little bit different than it did pre-pandemic, but I think the pattern in terms of the quarterly trends really remains the same. I would also note that, you know, as you look at 2025,
Speaker Change: I would expect that, you know, core revenue growth and NOI growth will be a little bit higher in the second half of the year than the first half of the year, primarily due to how our quarterly comps shake out. But, you know, as we said at the outset, we think that this, that our guidance and our sort of outlook on 2025 is appropriately measured given the supply backdrop. You know, we feel good about the trends we're seeing on the ground here in the very early part of 2025, but, you know, it's really early in the year.
Just want to be mindful of that.
Thank you.
Jesse Letterman: Next question comes from Jesse Letterman with Zellman & Associates. Please go ahead.
Hi, thanks for taking the question.
Jesse Letterman: It sounds like you're expecting a pretty nice contribution from third-party management in 2025.
Jesse Letterman: Just looking under the hood in the fourth quarter, it looks like...
Speaker Change: So can you talk about the moving pieces there and embedded within the two cents of incremental for 25, do you expect that to come mostly from units or expanding margin? Thanks.
Speaker Change: All of them to improve the overall growth and margin profile of their own book.
by sort of shedding those assets.
Speaker Change: And so, look, we feel very good. The contribution, as I noted at the outset.
Speaker Change: to 2025 earnings will be about two cents incremental from our third-party management business and our JV business.
Speaker Change: You know, that reflects sort of a full year earn in this year, as well as the various structures in terms of how we receive fee income over time.
Look, as I said, I think it's a great business.
Speaker Change: We have, and I think you sort of implicitly suggested, we have seen higher PME expenses. We've had to scale to absorb that new line of business. I think as you look at 2025, our run rate in terms of PME and GNA will probably be a skosh lower than it was here in the fourth quarter as we continue to extract efficiencies. When we first introduced this new line of business,
Speaker Change: We noted that we were going to need to scale up.
Speaker Change: make some investments in the platform, make some investments in people, and that over time and distance we would understand kind of what was the appropriate structure to efficiently manage that business.
John Pawlowski: Your next question comes from the line of John Pawlowski with Green Street. Please go ahead.
John Pawlowski: Thanks. I have a two-part question around your comments on external growth. One, are you actively considering expansion into international markets?
John Pawlowski: And to Dallas, when I hear we're exploring avenues outside of traditional SFR, my mind goes to new property sectors. So more detail around the non-traditional avenues of growth would be appreciated.
John Pawlowski: All right. Thanks, John. On the first question, no, we're not currently contemplating.
John Pawlowski: an office in Rio de Janeiro or anything like that. All jokes aside, we see a great opportunity here in the U.S. to continue to...
John Pawlowski: look for ways to meaningfully add scale, as I mentioned earlier, both, you know, as we mentioned in our prepared remarks...
John Pawlowski: Our NOI margin continues to enhance, and we get better at offering our services in a more cost-effective way over scale. I guess you could never say never, but that's not in the cards right now.
John Pawlowski: Secondly, as we think about, you know, stuff that's outside of traditional so far, there's sort of two ways to think about that.
one is
John Pawlowski: You know, Scott and I are looking at a number of opportunities where we can, you know...
John Pawlowski: lend strength to regional operators or builders in a way that might help, you know, sort of lower their cost of capital to create meaningful opportunities for us to close on those assets at the end of maybe a construction or delivery cycle. So those are things that we're looking at.
John Pawlowski: We've done more townhome projects, candidly, in the last year. Looked at more opportunities of, you know, where...
Dallas Tanner: Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin,
John Pawlowski: Typically, on the townhome product, we're looking at stuff that's much more infill, so higher gross economic pricing, higher gross economic rents, and ability to sort of compress costs.
across that scale.
John Pawlowski: And, you know, I think lastly, we're going to pay attention.
John Pawlowski: in parts of markets that we're already in and or maybe new markets as I mentioned before.
Speaker Change: Question comes from Juan Zanabria with the BMO Capital Markets. Please go ahead.
Juan Zanabria: Hi, good morning. Thanks for the time. I was hoping you could talk a little bit about GNA and kind of what we should be modeling for 25.
Juan Zanabria: noted some step-ups with regards to 3 p.m. in the joint venture business and also just give us some color on the expectations around catbacks for homes that has been pretty flat and how that may or may not be impacted by tariffs that are out there.
John Burns: Sure, thanks Juan. It's John. I think in the fourth quarter PME and GNA on a combined basis was around
John Burns: 54-ish million, 56 million, I think. And as I noted a couple of questions ago, we think that the run rate on that is gonna be a skosh lower. So, you know, kind of 51, 52 million quarterly as we have sort of rationalized some of our costs and figured out how to maximize the efficiency with which we, you know, operate our business.
John Burns: Our hope is that we'll continue to extract additional efficiency gains over time, but that is not baked into our guide.
Thank you. Bye. Bye.
John Burns: Juan, can you remind me the second part of your question? I'm sorry.
Spending per home
Oh, thanks. Yeah, look, I think...
John Burns: Part of the reason that you've seen a flattening there, honestly, is we have been investing the majority of our external growth opportunities into new product.
John Burns: Additionally, as we've talked about in the past, we have a unique ability in the real estate landscape to asset manage on a unit-by-unit basis.
John Burns: So, to the extent that, you know, certain homes within the portfolio start to exhibit patterns of materially higher sort of capital reinvestment need, we can go ahead and dispose of those assets and recycle the capital into newer homes and locations that we feel good about that are going to have a lower long-term cost to maintain.
John Burns: Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Charles Young, Scott McLaughlin,
Scott McLaughlin, Dallas Tanner, Charles Young, Scott McLaughlin, Scott McLaughlin,
Thank you.
John Burns: Your next question comes from the line of Julianne Blouin with Goldman Sachs. Please go ahead.
Julianne Blouin: Thank you for taking my question. Dallas, you gave some really helpful color on the supply dynamics, and you mentioned that you expect a bit more spec inventory.
Julianne Blouin: maybe based on comments from publics and regional builders. Can you help frame sort of how large that spec supply impact could be? And also, what's your sense of how the quality, maybe the features and the locations of those homes in that spec inventory compares to your own portfolio?
Julianne Blouin: partners and people that we do a lot of business with.
Julianne Blouin: You know, every month, every quarter, just sort of getting to see opportunities on spec that sort of fit the profile of our traditional product.
We love, candidly, we love the product quality.
that both the public and the private builders.
generally have in place.
We're not seeing anything that alarms us in terms of...
Julianne Blouin: builders both at a big scale or maybe a regional scale that are putting so much product out in the pipeline that it causes us to be fearful. I think we're just recognizing the fact that there is a badass spread in the market right now between where mortgage rates are and maybe where deliveries are coming in.
Speaker Change: And so with that, I would expect that Scott and the team will be a little bit more aggressive.
in buying both scattered.
Speaker Change: in those opportunities and also in our strategic thinking around when we do a development. Remember, we're pretty agnostic. We're fine taking
Speaker Change: development bets on large sections of master plans. We're also fine sprinkling within a community over scale and density. It looks and feels like 80,000 of our current home business. So I don't see anything on the horizon that suggests
Speaker Change: that there's such a major tilt that it's a problem, just recognizing that we're seeing a little bit more deal flow. And this stuff tends to change quarter to quarter based on the market dynamics. And right now those dynamics, as you guys know, is mortgage rates are elevated.
Speaker Change: People still want access to good quality product. It's about $1,100 a month cheaper to lease a home from us than it would be to buy that similar home in that market. So we're taking advantage of that dislocation.
Speaker Change: Your next question comes from Linda Chai with Jeffries. Please go ahead.
Linda Chai: Yes, hi. You were over 97% in occupancy for most of last year and are guiding to 96.5%. Which markets are you expecting a bigger shift to blend to this lower rate?
Linda Chai: Yeah, this is Charles. Good question. Look, this time of year, we've set ourselves up well to capitalize on spring leasing season and building occupancy kind of across the board. But as we mentioned last year, we're starting to see some supply challenges in central Florida, Texas, Phoenix.
Linda Chai: Those are the markets that we're just being thoughtful about that may not build back occupancy as high as we have in California or Seattle or, you know, maybe the Carolinas. So, you know, as we look at.
Linda Chai: about the numbers coming in based on how long we're having to stay on market, and certain markets have more supply than others. Across the board, we're seeing a little bit of an uptick on supply, which is normal coming off of COVID, but that's not material in most markets. It's in the markets that we're talking about that I think we'll see a little less occupancy.
Speaker Change: Your next question comes from Jade Raman with KBW. Please go ahead.
Speaker Change: Hi, this is Jason Saption on for Jade. Are you guys seeing any increased interest in third parties in partnering or taking an interest in the portfolio because SFR certainly remains a high interest sector for institutional investors? Thanks.
You know Scott and I get inbounds all the time
Speaker Change: With people that are curious like what's our program? How do we think about 3 p.m.? Could we help operating margins be more efficient for you know prospective partners? I want to reemphasize
Speaker Change: Sort of two broad points and then Scott feel free to add any color One is that we're only really interested in partners that have scale and that have pretty similar market overlap
That's the first point, and two...
Speaker Change: that want to operate their portfolios in a manner that's very in line with how we run our own business.
Speaker Change: So, leaning in on the areas that scale and efficiency give you.
Scott, there's nothing really...
Speaker Change: And also for people, we also want to look at portfolios that sort of are in our buy box.
Speaker Change: in terms of the types of homes that we manage today. There are some people that come to us where markets where we don't operate. There are people that come to us with a different business segment that's not necessarily where we're trying to operate. And so we try to be focused on that. But clearly, this is, you know, in terms of.
Speaker Change: You know, and obviously when we look at our potential partnerships.
Speaker Change: These partners are obviously holders of assets, but we'll explore selling or pruning some or all of those portfolios over time. And clearly, when our partners decide if they want to prune a little bit or a lot, we get a first look at those assets. And every single time a partner would like to sell assets out of the portfolio, we evaluate the acquisition. And we have an early look and a discussion with them on whether it's an opportunity for us to wholly own it within our portfolio. And that is part of our regular dialogue.
This conference is being opportunities for future growth for us.
Speaker Change: Your final follow-up question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: And if you know, I'll ask a follow-up question now since I can't do it Regularly, so and if that's the case, how would you think about what would go on balance sheet verse into third-party structures? And if we could see down the road you adding a promote Promotes to your either business model or your comp structure
Jamie Feldman: Thanks for the questions, plural. I'll try to make sure that I tackle basically just broad strokes around how we think about our JVs and what we're focused on. As we mentioned and as we reconfirmed in the earnings transcript, we were successful in raising another joint venture with what we think is a very high quality
partner here in the US that gives us
added flexibility as we come across opportunities.
Jamie Feldman: primarily probably in the new construction space, but it'll lend itself to lots of creative thinking together as we look to maximize returns both for our shareholders and for theirs. Right now our focus has been, and this is our
Third joint venture
Jamie Feldman: that we've announced in the history of the business, and really probably the third in the last four to five years.
It gives us an extra layer of creative capital.
to go after opportunities that may warrant...
different structures, different leverage structures as well, and so...
Jamie Feldman: We're finishing deploying one other venture right now while looking at opportunities to invest in this new venture. And we have a very matter-of-fact, clear, and transparent structure on how we rotate those opportunities. They don't all fit into the same buckets, which makes it easy for us as well.
Jamie Feldman: And we certainly are looking for ways to protect the reeds so that we can grow on balance sheet as much as possible.
Jamie Feldman: and what's nice about these joint venture partners and I would argue that they are partners is that we can work you know collectively to be smart around
Scott Mclaughlin: Scott McLaughlin, Charles Young, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin, Scott McLaughlin,
Scott Mclaughlin: We have excellent partners. They give us added flexibility. It's making us more opportunistic and allowing us to look at more opportunities for growth, knowing that we've got that added layer of flexibility.
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.
Speaker Change: We want to thank everyone again for joining us today. These are really exciting times for our company, Invitation Homes, and we feel...
Privileged to work alongside such a talented team.
Speaker Change: I also want to extend gratitude and appreciation to Charles and join him in congratulating Tim. Both are exceptional leaders. They'll both play pivotal roles in driving Invitation Homes forward in the future and helping us achieve our long-term goals.
Speaker Change: We look forward to seeing everybody at the Citi Conference. Thanks.
Speaker Change: That concludes today's call. Thank you all for joining. You may now disconnect.
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