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Invitation Homes Inc
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Greetings, and welcome to the Invitation Homes First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Greg Van Winkle, Vice President of Investor Relations. Please go ahead.
Thank you. Good morning, and thank you for joining us for our first quarter 2019 earnings conference call. On today's call from Invitation Homes are Dallas Tanner, President and Chief Executive Officer; Ernie Freedman, Chief Financial Officer; and Charles Young, Chief Operating Officer.
I'd like to point everyone to our first quarter 2019 earnings press release and supplemental information, which we may reference on today's call. This document can be found on the Investor Relations section of our website at www.invh.com.
I'd also like to inform you that certain statements made during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated in any such statements. We describe some of these risks and uncertainties in our 2018 annual report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
During this call, we may also discuss certain non-GAAP financial measures. You can find additional information regarding these non-GAAP measures, including reconciliations of these measures with the most comparable GAAP measures, in our earnings release and supplemental information, which are available on the Investor Relations section of our website.
I'll now turn the call over to our President and Chief Executive Officer, Dallas Tanner.
Thank you, Greg. Let me start by saying this is a very exciting time for our business right now. With 18% AFFO growth in the first quarter, we are off to a great start to 2019 and are hitting our stride with merger integration in the rear view mirror. We are thrilled to go into peak season with everyone on a singular unified platform that features better tools than we've ever had before. Cost efficiency initiatives have also been more impactful than expected so far in 2019 enabling us to increase our NOI, core FFO and AFFO guidance, which Ernie will discuss in more detail.
We are continuing to get more efficient and we're not stopping. In my comments, I'd like to touch on three things. First, our strong start to the year. Second, the work our teams have done to wrap up merger integration and third, an update on our capital recycling efforts. I hope everyone had a chance to review the results we reported last night. Highlights of our first quarter performance included 7.3% same-store NOI growth, our best ever first quarter average occupancy of 96.5%. New and renewal rent growth that outpace prior year and a 9% decrease in net cost to maintain.
Let me add some color on what is driving these results. In short, it comes down to three things. Favorable market fundamentals, our unique competitive advantages and strong execution. Fundamentals are fantastic. New single-family supply is not keeping pace with demand, especially in Invitation Homes markets where household formations in 2019 are expected to grow at almost 2% or 90% greater than the U.S. average. With the millennial generation aging toward our average resident age of 40 years old, we are convinced more and more people will continue choosing the convenience of a professionally managed single-family leasing lifestyle.
The affordability of leasing a home versus buying a home also continues to work in our favor. What makes Invitation Homes unique is our locations. Residents are able to enjoy the affordable and convenient single-family leasing lifestyle I just described, while also living in attractive neighborhoods close to their jobs and great schools. Our scale also enables us to deliver a high quality service to our residents at a more efficient costs and provides us with a large amount of unique data that are best-in-class revenue management system can digest to give us a clear picture of the market.
On that note, we continue to get better and better at execution. Our revenue management team and field teams have worked together to develop and refine the data and process for achieving the right balance between rental rate and occupancy. On the expense side the simplification of our organization and systems are driving better results with the integration now behind us. Newly implemented repairs and maintenance initiatives are also making us more efficient and we see additional opportunity to improve as we rollout ProCare more fully across our portfolio.
All of that came together to drive first quarter results that we were very pleased with, but we still have work to do. The most important part of the year lies ahead as leasing activity and service requests pickup in the spring and summer months. We are optimistic given the momentum we are carrying into peak season, but recognize that it takes even more diligence to maintain operational excellence during this period. Our teams are well prepared and energized for this task ahead.
Next, I want to command and thank our teams across the country for the supper job they have done with the final piece of merger integration. Our unified operating platform has now been implemented in each of our 17 markets. With one team operating on one platform, our teams are excited to be equipped with better systems and fewer distractions to do what they do best, focus on the resident and deliver world class service every day. We also continue to innovate and take the opportunity to identify additional areas for platform and process improvements as we start moving on from the integration.
Finally, we continue to refine our portfolio and have made significant strides already in 2019 towards our capital recycling goals for the year. In the first quarter, we sold 654 homes with lower long-term growth prospects for gross proceeds of $155 million. In addition to deleveraging, we use proceeds from these sales to acquire 208 homes with better quality and location for $62 million of investment. In April, we acquired 463 homes and in-fill submarkets of Atlanta and Las Vegas in a bulk acquisition for $115 million. 99% of these homes are occupied with average in place rents of $1,554 per month, which we believe is well below current market rates. In addition, we expect to achieve higher operating margins by bringing these homes into our platform with greater economies of scale.
I'll wrap up by reiterating how enthusiastic I am about the future of Invitation Homes. It's exciting to see everything we have worked hard on for the last 18 months of integration fall into place. Now our operating teams continue to get more efficient. Our asset management teams continue to enhance the portfolio. And our capital markets teams continue to reduce leverage on our balance sheet. I believe we are better equipped more than ever to drive growth and deliver an outstanding living experience for our residents.
With that, I'll turn it over to Charles Young, our Chief Operating Officer to provide more detail on our first quarter operating results.
Thank you, Dallas. Our team's carried the momentum from the end of 2018 and to another strong quarter to kick off 2019. I'm proud of the results we put on the board and the progress we made on controllable expenses. At the same time, we navigated through platform integration in the field. And most of all I'm proud that the quality of our resident service continues to achieve new heights evidenced by further declines in residents turnover. The occupancy in our portfolio and enthusiasm of our teams are showing towards residents service put us in a great position for the upcoming peak season. And we're excited to tackle it together on one platform.
I'll now walk you through the first quarter operating results in more detail. Without standing fundamentals in our markets and excellent execution from our teams, same-store NOI increased by 7.3% in the first quarter. Same-store core revenues in the first quarter grew 4.7% year-over-year. This increase was driven by average monthly rental rate growth of 4.1% and a 80 basis point increase in average occupancy to 96.5% for the quarter. Same-store core expenses in the first quarter were down 0.1% year-over-year. Controllable costs were better than expected down 10.2% year-over-year net of resident recoveries.
A portion of this improvement is attributable to a favorable comparison to the first quarter of 2018 when repairs and maintenance work order volume was higher than normal. However, the majority of our outperformance versus our expectation for the first quarter was due to great execution from our teams. In particular, I’ll point the three things our teams accomplish that contributed to the results. First, we had success continuing to drive system and process improvements for repairs, maintenance and turns. Second, we incurred lower resident turnover. And third, we realize property-level merger synergies as a result of our integration efforts. Partially, offsetting the significant reduction in our controllable costs was a 4.8% increase in same-store property taxes.
Next, I'd like to expand on one of the main drivers of our strong quarter that I just mentioned. Our efficiency gains for the repair and maintenance or an R&M. On last quarter's call, I talked about the fourth quarter rollout of an important update to our technology platform that enabled all of our internal technicians to perform work on any home in our portfolio. Not just the homes associated with their legacy organization. This made a significant difference in the productivity of our maintenance technicians and resulted in an uptick and the percentage of service requests addressed in-house rather than by third parties.
We are pleased with the impact that had on our first quarter results, but we are not celebrating it. Maintenance volume increases significantly in the spring and summer months, demanding even stronger execution from our team. In line with normal seasonal trends, we don't expect to see the same level in-house completion percentage in peak season that we saw in the first quarter. That said, I believe, we are well positioned for the task ahead. Now the integration is behind us and with all of the R&M systems and process improvements we've made over the last nine months.
I'll now provide an update on the integration of our field teams. As Dallas mentioned, we have implemented our unified operating platform in every market. This is an important milestone for our company. It will allow our field teams to operate in a much simpler environment with better tools at their disposal. It also allows our teams to get back to basics and the vote all of their attention to providing exceptional resident service and operational execution. Feedback from our field teams have been extremely positive and they're excited to enter peak season altogether on one system.
I'm also happy to report we accomplished this integration in the field ahead of schedule and with more synergies than the midpoint of our guidance. Integration efforts had unlocked $54 million of synergies on an annualized run rate basis as of March 31, 2019. This compares the guidance in the $50 million to $55 million range of synergy achievement by the end of the second quarter 2019. In addition, we'll be better positioned to push for more procurement savings going forward and to take the next step in rolling out our ProCare Service model across our portfolio.
Finally, I'll cover leasing trends in the first quarter and April 2019. Both renewal and new lease rent growth were higher in the first quarter of 2019 than they were in the first quarter of 2018. Renewals increased 30 basis points to 5.2% and new leases increased 110 basis points to 3.6%. This drove blended rent growth of 4.7% or 70 basis points higher year-over-year. At the same time, resident turnover continued to decrease reaching an all time low of 31% on a trailing 12-month basis. As a result, average occupancy in the first quarter of 2019 increased 80 basis points year-over-year to 96.5%.
Rent growth and occupancy trends remained very encouraging in April as well. Blended rent growth in April averaged 5.5%, up a 100 basis points year-over-year. And occupancy averaged 96.6% of 40 basis points year-over-year. With fundamental tailwinds at our back and occupancy in a strong position, we are confident as we entered peak leasing and maintenance season.
I like to send a huge thank you to our teams for putting us in this position by focusing on resident service and operational excellence, while also working diligently to complete the integration of our platform.
With that, I'll turn the call over to our Chief Financial Officer, Ernie Freedman.
Thank you, Charles. Today, I will cover the following topics: Balance sheet and capital markets activity, financial results for the first quarter and updated 2019 guidance.
First, I'll cover balance sheet and capital markets activity, where we continue to build on the progress we made in 2018 by deleveraging further. In the first quarter in April of 2019, we prepaid $250 million of secured debt using cash generated from operations and dispositions. The debt we prepaid carried a weighted average interest rate of LIBOR + 255 basis points.
Our first quarter activity brings net debt to EBITDA to 8.6 times, down from nine times at the end of 2018. Pro forma the conversion of our 2019 convertible notes, net debt to EBITDA was 8.4 times at the end of the first quarter. Outside of $370 million of secured debt maturing in 2021, we have no other secured debt coming due until 2023. As such, we continue to anticipate less refinancing activity in 2019 than in 2018.
However, we will remain opportunistic, if attractive refinancing opportunities present themselves and we will continue to prioritize debt prepayments as part of our efforts to pursue an investment grade rating. Our liquidity at quarter end was over $1.1 billion through a combination of unrestricted cash and undrawn capacity on our credit facility.
I’ll now cover our first quarter 2019 financial results. Core FFO per share increased 14.4% year-over-year to $0.33 primarily due to an increase in NOI and lower cash interest expense. FFO increased 17.6% year-over-year to $0.28. Last thing, I will cover is 2019 guidance. As Dallas and Charles discussed, we had a great first quarter and/or positioned well going into peak season. While we are optimistic that we will continue to perform well through peak season, we are not taking it for granted.
As such, we are raising our full year 2019 same-store NOI growth guidance by 50 basis points to 4% to 5%, driven by a 50 basis point reduction in same-store core expense growth guidance to 3% to 4%. We are maintaining our same-store core revenue growth guidance of 3.8% to 4.4% in 2019. We're also raising our full year 2019 core FFO per share and AFFO per share expectations by $0.01 to $1.21 to $1.29 for core FFO and $0.99 to $1.07 for AFFO.
From a timing perspective, I want to remind everyone that occupancy comps were easier at the start of 2019 than they will become as the year progresses. Regarding expenses, our efforts in the fourth quarter of 2018 and first quarter of 2019 provided greater impact and it was contemplated in our initial guidance. We were hopeful that we could perform better than the expectations that we laid out and/or pleased that for the last two quarters we have. At the same time, I want to caution everyone that maintenance and turn volumes are typically lower in the first and fourth quarters and we would expect their seasonal pickup in the spring and summer.
From a big picture perspective, we believe there is a long runway for growth ahead of us. We are not surprised with our revenue performance to start the year as fundamentals continue to favor Single Family Rental and our portfolio locations and scale provide us a differentiated advantage. We also look forward to other opportunities to create value in our business. We are excited about the rollout of ProCare across all of our markets, which should drive better resident service and additional expense efficiency.
We'll also continue to stay active and recycling capital, investing in value enhancing CapEx projects and beginning to pursue ancillary service offerings to enhance our residences experience. As Dallas mentioned at the start of our call, it’s a very exciting time for Invitation Homes.
With that operator, would you please open up the line for questions?
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Drew Babin with Baird. Please go ahead.
Good morning. This is Alex on for Drew. Looking at April leasing spreads, what markets are outperforming or on the other side underperforming your expectations. As you guys kind of get that first sneak peak at your leasing season and generally, at what rate are you guys sending out renewal notices today?
Yes. Hi, Alex, it’s Charles. Yes. So the West Coast has really been driving our results. You look from Seattle into California and over to Phoenix, we've had increases in Q1 on occupancy across the board. And our year-over-year renewal and new lease rates, blended rent growth is up. So all positive signs, where we've been really excited in addition to the West Tampa and Texas have shown really good results in both occupancy and rate. In Denver, it had some really good occupancy pushes as well. We're out in the low sixes in terms of our renewal ask and there's usually a spread from the asked to actual achieved.
Understood. And then follow-up for Charles, on the expense front, it looks like HOA fees have you turned out pretty significantly after being stable last year. I'm sure bumps were up 20% across the board. So can you speak a little color on what's going on in that line?
Yes. No, good question. Look, as we finalize the integration, we realized that there was some improvement we could do in the HOA management process. And so as a result of that our accrual was off on HOA expense line. This is really attributable to the merger. It shouldn't be considered recurring. We expect this short term true-up to be resolved by the end of Q2. And the great news is today after being done with the integration and having the right process in place, we have the right personnel and we're confident that we're well positioned to manage the HOA responsibility smoothly like we did pre-merger.
Perfect. And then one last quick one for Ernie. Last quarter, you talked about recurring CapEx being up about 3% this year, after really strong 1Q and obviously, I know the timing is different. Curious, if we could just get a little more color on what the cadence of CapEx spend looks like and if that 3% number is still holding true?
Sure. Yes, we had talked about the total net cost to maintain, which is both the OpEx and CapEx. We thought we'd be up about 3% year-over-year. The great outperformance by the team in the first quarter actually has allowed us to revise those expectations that we'd expect to be more in the in the slats to 3% increased range. So definitely it should be a little bit better than we talked about a little bit earlier this year.
Great. Thanks for taking my questions.
Our next question comes from Nick Joseph with Citi. Please go ahead.
Thanks. Ernie, just in terms of a full year core FFO guidance, predictive run rate from the first quarter, if you get to around $1.30 is slightly above the high end, you've walked through the difficult comps in terms of occupancy on same-store revenue and some of the same-store expense side. But are there any other line items that make 1Q not a good run rate for the remainder of the year?
Yes. There’s a few things, Nick, I appreciate you’re asking the question. One, we'll see interest expense to tick up for the remainder of the year. As we disclosed in our quarterly 10-Qs, number of the swaps that we inherited in the merger were step up swaps, where it having one rate for the entire swap period. It started with a lower rate and progressed to a higher rate over the three, five, seven year term of the swap. And so a number of those swaps reset in the first half of the year. And so we do expect on a full year basis, if you were to annualize that $1.30, I would reduce that by about $0.02 just for the step up swaps, Nick.
In addition, and we talked about this and there's some footnotes in our supplemental around it. Currently, the convertible notes that we have that come due July 1. Those will convert to shares at that point. We're treating those though at this point still with the debt, because we're still paying interest expense on those. But that is slightly diluted when they convert to shares in the second half of the year. That's what it costs for roughly a $0.005 on the $1.30 that you mentioned. So those two items alone bring us down to more like $1.27, $1.28.
Then the other two things I point out is that, the business is a little seasonal. We do see expenses ramp up and margins decline in the third quarter. That's our peak. Certainly season for work orders, mainly around HVAC, so typically in third quarter, you'll see that historically waffle a bit lower for margin. So to annualize the first quarter for NOI would be slightly off from that.
And then finally, teams are generally pretty conservative with their G&A spent in the first half of the year to save up some money for the second half of the year. So you'll see G&A ramp up a bit as we go into the second, third and fourth quarter. All those things combined would bring you down from the $1.30 number that you mentioned to something that's more than just toward the midpoint of our guidance range.
That's very helpful. Thanks. And just on the cap rate through the bulk acquisition, what was that? I think, you mentioned it was 99% occupied, but that you saw some upside for putting their homes on the Invitation Homes platform. So kind of what's a stabilized cap rate for that bulk acquisition as well?
Yes. Hi, Nick, this is Dallas. On the in-place in terms of just pricing day-one, it's kind of like a 5.7%, 5.8% depending on kind of renewals and things that are going on near term. And that I'd say that, the way to think about that is that, we've modeled that will turn about a third of that portfolio every year. And we'd see that, call it spot cap rate getting the low sixes over the next couple of years.
Thanks.
Our next question comes from Shirley Wu with Bank of America Merrill Lynch. Please go ahead.
Good morning guys. So on the transaction side, other than bulk acquisition in 2Q, could you give us a little bit more color in terms of how you source that and what your expectations are for the rest of the 2019, while, they're going to do – continue to do more bulk acquisition or maybe like the one-off of that?
Well, we’re certainly off to a really good start in terms of meeting our capital allocation goals for 2019. In terms of bulk, we maintain a pretty steady approach. You've seen that in the last quarter, fourth quarter of 2018, we're really active on the disposition side, or we had sold a number of portfolios. And if and when those opportunities present themselves to us, we certainly – we'll take a look both from a buy or a sell perspective. In this particular circumstance, it was a portfolio we've been familiar with for a number of years, as a competitor of ours in the market and we definitely like the footprints of both Las Vegas and Atlanta, in terms of the assets that we bought. And I would expect for us, surely through the remainder of the year, it's kind of maintain our normal guidance. I think we talked about being in somewhere between $300 million to $500 million of both buying and selling this year with kind of a net neutral focus, but we'll definitely pay attention to what comes in front of us during the summer months. There are a few smaller opportunities out there but nothing of real scale right now that would lead us to change our perspective.
Got it. And as the 30-year mortgage rate has come down more recently, do you expect that to – in fact, you move out the home buying, especially in the spring leasing season when people start to consider buying a home?
No, in fact it's been pretty consistent. I mean we've seen some small rate volatility over the past couple of years, but more or less homeownership rates have been pretty constant between 64% and 65% for the better part of the best last couple of years, where we see some bigger shifts is in really affordability and that option to be able to lease as much more attractive than it is perhaps to own in many of our markets today. Roughly 15 of our 17 markets have pretty good dislocation in terms of the affordability factor, pushing maybe customers preferably into a leasing decision versus ownership.
Great. Thanks for the color.
Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead.
Hi everyone. How you doing? Are you planning to push rents even more aggressively in the busy spring and summer leasing season, giving your high level of occupancy? And as you guys were planning, did you consider raising revenue guidance with the other measures and why did you decide to keep it unchanged?
Yes. Hi. So this is Charles. I’ll answer the first question. The way that we have set our lease expiration curve is the high demand season is Q2, Q3 as families are moving. So we really set our rents based on the market and demand that's out there. From our expirations kind of mess with that, so what you'll see is a higher new lease growth in that a high demand season and that renewals will kind of stay steady and both have been really strong for us, really proud of what the teams have been doing. It's just great performance overall, given the integration as well. So that's kind of how we see the demand come to the summer on the new lease side.
And Derek, regarding guidance, first quarter on the revenue line came in – where we expect them to be slightly ahead of expectations. We had signaled that the first quarter was going to be our easiest quarter from an occupancy comp perspective. We're not going to continue to maintain an 80 basis point increase year-over-year in occupancy like we did in the first quarter. So we had mentioned that we thought in rental rate would be up around 4% plus or minus and occupancy will be a little bit better and that was how you'd get to our guidance range of 3.8% to 4.4%. That said [Audio Dip] team kept executing as well as they are on rate as they did in the first quarter as they did in April. He went over the April numbers. That would certainly give us the opportunity to do at the midpoint or slightly better a with revenue. But we started a little bit too early in the year yet to make an adjustment on that based on where we're at currently. But we'll keep an eye on it and, and we'll see how things play out during the second quarter.
That makes sense. And just secondly on turn and churn, so can you discuss how the turn times trended in the first quarter and then how do you see churn shaking out for the rest of 2019?
Yes. This is Charles. So in terms of the actual turning of our homes in terms of a construction and rehab, we were in the 15 days in Q1. What you'll see though, that's a little bit of a seasonal metric as demand gets a little higher in Q2, Q3. It's trending up a little bit in April, but that's typical, but 15 days is where we want to be and we're always looking for efficiency to bring that down. In terms of churn, I think you're referring to days of re-residence, so from and move-out to move-in, we're about where we were last year in Q1, but we're seeing good trends down in April that's very positive.
And there is really hard for us to make a bold prediction on whether turnover will continue to be down year-over-year like it's been overall. And as I was mentioned in the prepared remarks, it's at 31% on a trailing 12-month basis. That's the lowest we've seen. So it's certainly hard to predict that it go lower still, but it certainly is there is that opportunity, but though we're not in a position to make a prediction on, where that may go over in the next few quarters. But we would feel really good where it's at right now and the way we're delivering service, we certainly see the opportunity to keep turnover on the low end of the scale.
Thanks, everyone. Great stuff.
Our next question comes from Jason Green with Evercore. Please go ahead.
Good morning. Just wanted to touch on turnover a little bit more. Turnover came in very low this quarter. I was wondering, if there's anything unique about the homes that were turning over this quarter or anything that you're seeing out there that would suggest that turnover will continue to reduce as we head into the peak leasing season.
All right. Thanks for the question. This is Charles. Nothing special about the homes that turned, I think, as we said, the tailwinds at our back is helpful for the industry in general. But we think turnover is low because of the quality of our resident service and the quality of our homes. Teams, as I said, are really executing well. Now that we're on one platform, it's working in our favor. And Dallas mentioned earlier, affordability is also a factor. So we were really focused on what we can control and that's putting out great service and quality home.
And I guess in same-store expenditures coming in flat, can you quantify how much of that is really due to the fact that a 1,000 less homes turned this quarter versus the comparable quarter and how much of it is really due to increased efficiency and operations?
Yes. Just off the top of my head, Jason, a 1,000 less turns – our turns typically run about a $1,000 of operating expense, I assume that $1,500 of operating expense. So I'd say that certainly about a 1 point, 1.5 points may have come from that. Most of it's come from the fact that the teams are just performing better. And the things that Charles talked about came through for us in today’s with regards to what we're trying to do on the R&M, so lower turnover certainly was a portion of it, but not the majority of it.
Got it. Thank you.
Our next question comes from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning guys. Why don't we just follow-up with you on property taxes, late last year there's obviously a lot of discussion about property taxes and how those would be controllable going forward as the 2018 increases were one-time driven by M&A. So I wondering if you could put the 4.8% increase that we saw in 1Q in context and really what drove that?
Sure. So we had signaled, Rich, that we expect the taxes to be up in the 5%s for the year, because we've had good home price appreciation. And we also mentioned that we thought the fourth quarter would be our best quarter because we'd had the tough comp. So we actually came in a little better than an expectation that the 4.8% and what drove that was the State of Washington actually put out some legislation that limited millage rate increases. And we weren't anticipating that. So State of Washington, we have – we're unique, we have a portfolio of about 3,500 homes in Seattle, it was a bigger good guy than we would have anticipated and that will carry through for the rest of the year. So that helped us. But I will caution everyone that, Washington is one of the few states that that comes out early. Texas does as well. The majority of what we'll find out about real estate taxes, we'll start heading in September and October, especially our bigger states like Florida, Georgia. And so we've got a ways to go, but at least the first quarter put us on a path to be about where we expected with regards to real estate taxes.
Got it. That's helpful. Thank you. And then maybe just going back to the expenses, obviously the guide implies I think 4.75% for the rest of the year. Is this – are you just trying to take a little bit of a conservative approach as you had mentioned, 2Q starts to be at the higher cost portion of the year. How should we be thinking about that?
Yes, I think that's probably the right way to think about it, Rich. We were happy with how things have happened, but it will be our first time going through peak work order quarter season on the new systems and we want to be cautious and inappropriately, so when setting our guidance. You matched the correct math, it certainly implies that the number's going to go up. And let's be perfectly clear with everyone, we do not expect flat growth for the rest of the year. We did, we would revise guidance even through further still. We still want to make sure we're being smart about how we're looking at it and things happen. And so we want to make sure we're trying to leave some room for that as well. So we feel good about the numbers. We're certainly pleased with how the first quarter came in. And we're helping us to set ourselves up to have a successful remainder of the year with regards to expense control.
Great. Thanks, Ernie. Congrats on that, really well executed quarter.
Thank you.
Our next question comes from Hardik Goel with Zelman & Associates. Please go ahead.
Hey guys, great quarter. Congratulations. And maybe just one for Charles, I guess. The turnover decline year-over-year was pretty significant. And I'm just wondering how much of that was intentional from you guys moving leases over the last year end to the peak leasing season to give you better pricing and how much was just organic decline?
Yes, I think a little bit of both. As we put the portfolios together, we were being thoughtful around that lease expiration curve. So that had some help. But look, demand is healthy, we're executing well, we got to the single platform ahead of schedule and it's paying dividends. We will continue to provide high quality service and we think over the long-haul it'll help us. You put all that together and then the teams are really doing the – what the best they can do out there. I can't thank them enough, really best-in-class. So it's a lot of execution in the field.
And just one quick follow-up on a personnel costs. There was some really good expense leverage there. What are the drivers of that? Is that – does that as seasonal as other costs? How would you think about that, because it hasn't been in the past?
Yes, Hardik, this is Ernie. It’s almost entirely due to the merger and integration, where last year we did staffing this time of year that was full, with regards to the platform. We started seeing savings with regards to personnel and other as we rolled it further into 2018. As we gotten in 2019, we just gotten with the integration being completed and we're just about at our final staffing levels. So it's really the staffing levels that drove that from the integration.
Got it. Thanks. That's all for me.
Our next question comes from Haendel St. Juste with Mizuho. Please go ahead.
Hey, good morning out there. So I guess first kudos on the great expense results in the first quarter. Charles, I guess maybe for you. I'm curious just thinking more broadly longer term beyond some of the recent benefits from the improved systems and efficiencies and the merger synergies. What do you think now? The long term expense rate for your platform is after the merger synergies run out, after you get the systems kind of to where you want them.
Yes. So thanks Haendel, we're really focused in on the execution that we did in Q4 and Q1. Teams put up a great cost controls with a lot of the systems that we discussed that we implemented late last year. It's added real benefit I think what's left for us to do with the implementation of ProCare to roll that out as we finish the integration and train everybody on it and get that kind of internal system and partnership with the resident going. We also have in the future fleet management, that's coming out that's going to have some benefit. So it's hard to quantify exactly what that's going to be. We've put up good numbers. We're going to continue to execute. As Ernie said, peak season is the litmus test and that's upcoming here. So hard to predict, but we're doing what we're supposed to. And what we said we were going to do and we're executing well and we're going to continue to focus.
Got it. Got it. And not to press too much on it, but certainly a difficult question to answer, but I guess the few years back we used to think about the expense growth of this business is more or less being inflationary, some operational hiccups last year forced to rethink of that until there was fears of a higher expense projection coming into this year and certainly the guidance’s, reflecting some of the incremental costs. But is it still the view that this is inflationary and that there are factors between the clustering of your portfolio and the systems that can support that? Or should we be thinking about this as an inflation plus maybe 3%, 4% expense growth business over the long term?
Yes. Haendel, I'll take a swing at it. This is Ernie. And I think two of the components, we've talked about it before, I think, we're not going to be much different broadly in general residential. So we’ve laid the equal of the view that residential will be inflationary plus, we probably saw that and that they think it's going to be inflationary. We're probably there are things when you see inflationary minus. I think there's two though important differentiators for us, where we are as an industry and as a company versus the broader residential community, which I talk about the multifamily. One is real estate taxes are a bigger component of our expenses, then they are in residential, because we're not a commercial product. We're residential product. We're close at 50% of our expenses come from real estate taxes and we're in the best markets when it comes to home price appreciation.
So that may lend you to think that we will be a little more inflationary plus because of that. Offsetting that, I think at least for the near term, is that we're still in early stages of running as an industry and as a business. So there's opportunities for efficiencies. And Charles mentioned a couple of those around fleet management around ProCare and things like that. So at least for the near term, you'd hope to have some things there that would help offset that.
But I think overall, this business has been around for hundreds and hundreds of years. There's only been institutionalized for the last few years and it's worked for folks for the last hundreds and hundreds of years to be able to operate a single family homes. And I'd like to think we can do it a little bit better with the scale that we have and the expertise that we have and the technology capabilities we have that others don't. So hopefully that all washes out to be a very similar profile that you would see in the broader residential world.
Thank you for that and Erine, quick one while I have you. Can you talk a bit about some of the ancillary service initiatives you're pursuing here, potential impact and potential timing on revenue.
I'm going to pass that over to Dallas, as he's – certainly, it’s been one of his big focuses, where he's sitting now.
Thanks, Ernie. Hi, Haendel. A couple of things we're working on, as you know, we've done a really good job with our Smart Home implementation and adoption rates. Those adoption rates today are somewhere between 75%-plus or minus. And we're looking to enhance some of those offerings. In fact, working on some of this stuff, I wouldn't expect a lot of it to be 2019, but more 2020 type of events as you start to think about the way that we could see other income grow within our business.
And there's certainly a number of other areas that would fall into kind of two buckets. One would be, things that we're currently doing, like Smart Home that we can do better and we see an opportunity in our structure around pets and some of the things that we're doing there for our residents currently. We know that roughly 50% to 60% of our residents have pets. And we think there's other offerings and things that fit into those that we're now trying to work through and to see what kind of experience we can provide it centers around some of that. We believe that's also an emotional factor for the leasing lifestyle in terms of keeping our customers longer and providing an experience that feels stickier.
And so then there are other things that we're working on outside of that that are maybe newer from an ancillary perspective. Are there other ways that we can perhaps make the experience as we onboard a new resident better by using things like deposit insurance versus deposits. And there's revenue streams that are associated with those types of things. Those are a few of the examples of things that we're working on. And they are near and dear to us kind of post merger integration, so that we can start to roll these out on a unified system. And the delivery mechanisms for that how we do that is really important. So we are focused on it.
Got it. Thanks, Dallas. I appreciate that. And certainly we are looking intently on the rollout. Thank you.
Our next question comes from Buck Horne with Raymond James. Please go ahead.
Thanks. Good morning. Just kind of bigger picture here with the share price starting to afford you a little bit more reasonable cost of capital here. So how do you think or has your thought process around deleveraging or accelerating deleveraging changed at all with a better cost of capital here? Or are you also potentially thinking of accelerating your external growth activities is that a possibility as well? How do you think about kind of using your cost of capital more efficiently?
Yes. Thanks, Buck. We've always talked about we'll be opportunistic when it comes to – we have opportunities to delever or opportunities to externally grow. And certainly the share price behaving better, that may give us some more opportunities. But where does the share price, it stayed still significantly under consensus NAV and where we think NAV is as well. And so to use the shares or equity to delever, that level is a difficult decision to make. And probably one, we wouldn't want to make, we want to see some better performance there.
But we'll always leave all options on the table. And with regards to the external growth, we've been successful and able to fund that through capital recycling. But certainly, again, as the share price behaves, that opens up some more avenues to us. And then it's just a question of finding the right opportunities. So we're very cognitive with that, we talk to the board often about that. And we're pleased in where things have headed and we'll start to see where things play out as we go forward.
That's great. And going back to the acquisition here in the second quarter. So as you're dropping in these new houses into the big existing Atlanta and Vegas footprints. So this is kind of conceptually – so obviously you're going to expect to improve the margin performance of that portfolio overtime, but does it also leverage your costs for the existing homes in the portfolio? Can you improve the existing performance of the portfolio by adding these new homes and making the markets denser?
Yes, great question. And fundamentally you nailed it in terms of the things that we think about in terms of growing our footprint and trying to find the right size and scale. And you hear us say this over and over when we see you guys at conferences and other things, but scale really matters in this business. And so the Las Vegas, example is, one that we can talk about here briefly for a moment.
As you think about our footprint there, with that acquisition, it took our Las Vegas footprint about 2,700 homes. And prior to the merger, Invitation Homes was plus or minus, say I want to say, 1,100, 1,200 homes in the Las Vegas market. And we think about the growth and the margin expansion with Las Vegas similar to what we saw in other markets like Phoenix, we started these businesses. Phoenix was a market for us, it was in the kind of the low to mid 60s. In our world today, Phoenix is a low 70s market and that comes through a couple of things.
One is scale and footprint because we get more efficient. Charles and his team do a fabulous job in terms of creating efficiencies around those pods, those groups that manage a portfolio for us. And about 2,700, 2,800 homes is about the perfect size for us right now for a pod. So that makes us extremely efficient. There shouldn't be additional G&A additions with an acquisition like that.
And then furthermore, your question around how does that leverage the other parts of your portfolio? Well, as Charles and the team look at efficiencies around route optimization for our maintenance techs or the way that we stock our vans with the certain types of supplies and things like that are certainly our work order and our maintenance efficiencies get much more enhanced. And then to add to that on the revenue side, anytime we have another mark in the portfolio or in the book in a market, it makes us that much more competitive to understand what our rates are doing relative to our peers.
Great. Thanks, guys. Good job.
Our next question comes from Douglas Harter with Credit Suisse. Please go ahead.
Hi guys. This is actually Sam Cho filling in for Doug. So, we talked a lot about the turns and I know that turns will pick up during peak season. But, if the turnover rate stays at the current lows, could you see occupancy pushing past 97% for the portfolio on the whole.
I think longer-term Sam, the math would tell you that would be the case, that if you could bring your days to resident down further, and we've done that in April, it's about two or three days better this year than last year and turnover stays low. You can do a quick math exercise, let's say that absolutely that on a stabilized basis, low 97% type occupancy over the course of a year is achievable. And in April we ended up at 96%, so that I would agree with that.
Got it. All right. Thank you so much.
Our next question is a follow-up from Nick Joseph with Citi. Please go ahead.
Hey it's Mike Bilerman. Ernie the $1.1 million of offering related expenses on Page 10 in the supplemental that you're adding back for core FFO. What are those – I guess, why is Invitation paying that when Blackstone sold $1 billion, what does that looks at in regards to?
Yes. That's exactly what it is, because we had to file three shelves, one for Blackstone's selling it shares, one for Starwood Waypoint – Starwood Capital in case they want to do some shares and then the company has a shelf as well. And really those costs spread across all three of those. Now we aren't using our shelf today. But it is out there. If we did one issue, common equity, and that's just normal course with regards to how the shareholder agreements and things are written. And so it's about a third of a penny.
In terms of cost is a onetime cost associated with it. So the Blackstone does further transactions. The only cost that would be associated with those Mike would be comfort letters and things like that and much more smaller amount of legal costs associated with future offerings. But it's standard course for the first time when you get it set up for the company, pick that up.
And you didn't want to put that the G&A, it's just normal course of business. There's always stuff as a public company that you have, things like that to add at core FFO. I know it's a small number, but just from a methodology perspective, it just seems like, we go down this road of having alternative definitions of earnings.
Yes, I can understand that. You kind of said what it was, it was a small amount, we want to call it out so people could see it very specifically. It's onetime and a little more expensive than usual because three shelves that'd be filed versus one that company would do in the future. And shelves you do every few years. But it's fair feedback Michael. We wanted give more disclosure and let people do with it what they thought.
And then the perspective on Page 9 had $1.4 million. Is that just a different amount or is it relating to something else?
No. They should be pretty consistent, Michael. So I'd have to check to see why we might ended up with an extra tens of thousands of dollars that might have rolled in separate from that, that were also in that line, but I don't have an accounting for that on top of my head.
And then you're comment on NAV. You made the comment that Street consensus and maybe these are – I think you said significantly or much, but it was indicating that there was a lot higher than where the stock's trading. SNL's got your NAV at $24.34 in facts that's got an at $25.64 stocks at $25.20. So it's not, I guess it's in the range of where the Street sort of thing it's worth. So I just wanted to sort of follow-up a little bit on that comment about using your equity to accelerate and deleveraging program or to fund external growth.
Yes. And so I'm pleased to hear that it's doing so well this morning. We've been preparing for the call, so I haven't been paying attention to the fact that it's gone up from this morning. So that's good to see. But I say Michael is and we actually pulled the analyst models and I don't think everyone reports into those numbers and we can get to a number that's closer to 26.5% for what the analysts set out there. So I'm calling that consensus, understanding other people to different consensus numbers.
Regardless, we have a different view on where NAV and we haven't disclosed NAV since our IPO. Yes, it's just like any other public company. We'll use that as a source for capital for us. On the deleveraging side, we have a very state balance sheet today. We'd like to get to investment grade faster if we could. We weren't going to do that by diluting current shareholders. We don't have that need, that requirement. But certainly, it's a like – it's a preference to get to investment grade as fast as we can. And we'll keep that option open for us if the stock price continues to perform and do better.
And then regardless, Dallas and Charles come from very acquisitive backgrounds. They both worked in the private world and you've seen what they were able to build in the predecessor companies and we've done here. So we'll certainly look very carefully at what our best cost of capital for us, if we found the right external growth opportunities, Michael. So I'd like to thank management and everyone, board is align line with all of our shareholders and we want to get accomplished there.
And just remind me in terms of processes, Blackstone came and wanted to do another secondary offering of their shares. And you could tag along with that in terms of issuing primary. Do you have the ability and then knock and be melt down or more to just like a pure negotiation with them about what the right sizing of a total offering is? Let's say they came said, we want to do $1 billion. You don't think you can put $1 billion into the market. You want to do $500 million? What's the – is it preset in terms of methodology or it has to be negotiated?
Well, I say it's different things. So anytime that the company is thinking about issuing equity, Michael, it's a decision of our board. So management will go to the Board of Directors and say whatever reason, whether Blackstone is potentially selling at that point, Starwood selling that point or anyone else. We think there's an opportunity for us to issue equities and/or at other times we'd have engaged in discussion with our Board before what we thought was right for the company.
And Blackstone, you'd have to ask Blackstone with regards to how they're choosing – to set how much they want to sell, when they want to sell and things like that. We're certainly are privy to that. And if there's opportunity for us to be efficient and do it all at the same time, then we would get together and do what makes the most sense for the shareholders to get that accomplished. Blackstone first and foremost, is focused on what makes sense for the shareholders. And they certainly, made their intentions known and what they want to do, but they also have – as you know, Michael, a lot of shares to sell and they want to make sure they're doing that in the smartest way as they've demonstrated with the other platform companies. And today they've demonstrated with Invitation Homes. So I'd expect nothing less than that going forward.
Okay. Thanks for all the color Ernie. Appreciate it.
Michael, thank you.
Our next question comes from John Pawlowski with Green Street Advisors. Please go ahead.
Thanks. Dallas, on the dispositions in this quarter and in recent quarters, could you share what NOI growth for these homes, these lower quality homes would look like over the next several years if you're still operating them?
Yes. It's a little bit of a tricky question, John in terms of what we've sold, I have to go back and look and where in some. The NOI growth probably more or less is kind of along the lines of what you'd see from the company. Maybe a little bit less. And that's one of the reasons why we might be selling some of these homes. Remember, we do sell for reasons outside of just – I mean, obviously NOI growth is key and something that we focused on. We want to make sure that the homes in our portfolio long-term are ones that are going to provide some of the best risk adjusted returns to shareholders.
What we typically been doing so far through the first four months of the year and much of like what you saw in fourth quarter is we've been selling homes that are either A, an outlier geography or parts of the portfolio that just really inefficient for us to manage. B, homes that are either suboptimal in nature because of finish, potential CapEx risk down the road or C, we've been selling homes that had been bigger too. We have homes in our footprints that are too big from a square footage standpoint.
And so if you look at the types of homes that we're typically buying, our sweet spots kind of between 1,600 and 2,200 square feet, 2,300 square feet. And so for those variety of reasons, we might be a net seller and typically we see lower growth coming out of some of those homes.
Okay. Then if NOI growth is not maybe a bit lower, could you share how much higher their all-in cost to maintain is?
It would vary again to my earlier points around square footages and geographies. We have different fit and finish standards. For example, in a home like Seattle where we might put down vinyl plank flooring every time. And so if a homework coming through our asset management review in that market, we would certainly take into consideration some of those longer-term CapEx needs that home might need. Whereas maybe a home in one of our warmer Southwest markets may have a little bit different CapEx approach and our margins may be better. So we may be inclined to keep that home a bit longer. It all goes into kind of the cycle of how we do our rebuy analysis on a home by home basis.
Okay. On the portfolio acquisition. I understand the margin benefits. Could you share how far below you think the market rents were versus market?
Yes. I think, to just high single digits from a rent perspective, in terms of where we think there's immediate turn on these rents as they renew. And then also kind of going in price. As I mentioned earlier, being kind of 5.7, 5.8 on an in place cap raise is much higher than we typically are able to see in that marketplace. Vegas is a hard market to buy in. So we're actually thrilled with our ability to buy this type of portfolio.
Yes, John. I'd say, if you look at our supplementals you've seen Vegas has really ramped up in terms of new lease growth rates in the last year for us. And the vast proportion of the portfolio was in Vegas. So just the embedded lost the lease in the portfolio is higher than we would typically see in our portfolio. So between that and then the fact they were running at a very high occupancy, so we don't think they were pushing as much as we might have chosen to do. And they were choosing to run the business a little bit differently. It gives us confidence that we've got potentially an opportunity for some rent bumps on that portfolio as leases turn.
Okay. Then one final one for me. Charles, could you share the bad debt trends year-over-year? And any notable outliers by markets either downward or upward inflection points in bad debt?
I'll answer that one, John it's Ernie. We've actually see bad trends are consistent year-over-year within a few basis points and we haven't seen any outliers in any markets positive or negative. It's all been relatively consistent on a year-over-year basis.
Okay. Thanks for taking all the questions.
Our next question is from Jade Rahmani with KBW. Please go ahead.
Thanks very much. Just thinking about the cadence of turnover and new lease activity. Do you expect occupancy to dip in June sequentially?
Yes. Typically we'll see occupancy go down in Q2, Q3 as we talked about the turnover of volume. So we do think that April, while we came in high, as we go deeper into the summer, we're going to see that occupancy number trend down.
Thank you. Secondly, have you sold any assets to iBuyer such as Zillow or Opendoor? And if so, could you quantify the percentage?
To date, we really haven't sold much through the iBuyer platforms. It's something we certainly considered Jade, it's a good question. We've been more of an acquire of properties I should say, through the iBuyer platforms. But we certainly look at it as another form for us to be able to transact. And as they develop their systems get a bit more robust and a bit more user friendly, you could certainly anticipate they were especially on some of our vacant or end user sales that we might choose to sell through some of those platforms.
And just lastly, in terms of home purchase trends, are you seeing any change in the percentage of move out to the buy? Has that declined notably on a year-over-year basis?
On a year-over-year basis just up, just a bit. Not much more than anything that's been normal. Typically been between 22% and 25% of our move outs. And it's still kind of right in that range depending on the month and the quarter.
Thanks very much.
Thanks, Jade.
Our next question comes from Wes Golladay with RBC Capital Markets. Please go ahead.
Hi guys. A quick question on the renewals. So it's like supply and demand is quite favorable especially compared to last year. Is there anything holding you back from pushing more on the renewals? Do you have any internal governor?
Really like we said before, really set by market and we look at a number of factors that determine what that price will be. We'll go out with healthy assets as we talked about in the low 6's. But we want to find that right balance between keeping occupancy and minimizing turnover. And our revenue management teams working with the field teams do a great job of finding that right balance. So market sets it. And also we – it's our performance on the resident customer service that we're providing and do they want to stay with us and we'd been doing better and better as our teams are really focused on making sure we create a great resident experience. And so demand is looking good for us.
Okay. And then one quick one on the acquisition – the bulk acquisition. You mentioned about the rental uplift, but you imagine there's quite a bit of a difference on the margin between your existing portfolio in the market and in which you bought. Do you know that off hand? And then would you expect to close most of that in the first year by just plugging it into your platform?
When we underwrote, we expected the revenues to be – we didn't really dig into the expense history so much on their side. We just, when we model a bulk acquisition, we'll look to see what's happening from an R&M perspective on that portfolio. But we'll run it through our model Wes, with regards, we expect margins to be. That said, based on – we're in the cap rate, we came out for us. We think it was a win-win, it was a win for the sellers for where they could run the portfolio, I think they got a fair price and they were clearly pleased with that otherwise we wouldn't have moved forward. On the flip side, we think it's a win for us because it was a little bit of a different model in terms of how we want to run the revenue side, what we would do on the expense side.
So whether we have an uplift or not from where they are. We're comfortable with that we'll get this to our margins. And as we talked about earlier, especially in a market like Vegas, we increased our footprint by almost 10%, allow us to run even more efficiently across the entire footprint of Las Vegas. Not so much with Atlanta, with only a couple of them – only about 100 homes, we buy in Atlanta with 12,000 it was a little unhappy, will have much of a difference there, but certainly allows us in one of the best markets today and one of the fastest growing market today Vegas to increase our footprint and improve the margins across the whole portfolio in Vegas.
Great. Thank you very much.
This concludes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Thanks for joining us today. We appreciate everyone's interest in Invitation Homes. We're excited about where we are today with our business and the opportunities in front of us. And we look forward to seeing everyone, hopefully at NAREIT in June. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.