Invitation Homes Inc

NYSE:INVH

Earnings Call Transcript 2020-Q1

[Operator]

Greetings, and welcome to the Invitation Homes First Quarter 2020 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.

[Greg Winkle, executive]

Thank you. Good morning, and thank you for joining us for our first quarter 2020 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 2020 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. They're 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 2019 annual report on Form 10-K and other filings we make with the SEC from time to time, including the potential negative impact of the outbreak of the novel coronavirus, known as COVID-19, on our business, employees, residents and our ability to operate our business. Future impact to the operation is highly uncertain and cannot be predicted. The extent of the impact will depend on future developments, including actions taken to contain and mitigate COVID-19 outbreak. 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 to 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.

[Dallas Tanner, executive]

Thank you, Greg. I want to start by saying I sincerely hope all of you listening are doing well and staying safe. Invitation Homes' mission to provide quality housing for American families impacts many stakeholders, including our residents, associates, vendors, communities and investors. I could not be prouder of the way our teams have embodied our core values of genuine care and standout citizenship to keep these stakeholders safe and bring stability to residents' lives with a comforting home and a friendly experience.

On today's call, Charles and Ernie will provide an update on our results and financial position, but I'd like to begin by telling you what we are focused on as a management team. First and foremost is health and safety. Our homes are ports in the storm for thousands of families, making it our duty to continue serving residents through this pandemic. To perform this duty safely, we implemented important precautions early on. For prospective residents, we are relying on self-showings by utilizing our Smart Home technology and keyless entry systems. For current residents, we are making every effort to fulfill critical service needs while ensuring safety measures, including deferral of nonemergency service trips, health and wellness verification for residents, service techs and vendors before visiting homes, and observation of social distancing best practices in all of our resident and associate interactions. While our focus on health and safety begins with physical health, it also includes financial health. We have created appropriate solutions to financial hardship for those who need it. This includes payment plans without late fees for residents who require flexibility to meet their rental obligations over time and a voluntary moratorium on evictions.

The second important focus area I'll address is the financial well-being of our company. We entered the pandemic in a position of strength with record high occupancy, significant liquidity available to us and 0 debt maturing before 2022. We also entered the pandemic knowing that our business had several differentiators that might work in our favor despite the uncertain environment.

First, we provide the essential human need of housing and a leasing lifestyle that we believe is even more attractive versus other housing alternatives in times of uncertainty. Second, as you know, we have been purposeful about assembling an infill portfolio in locations where we expect greater resilience to economic cycles. Third, the residents we serve, on average, came into the pandemic with 2 wage earners per household, generating income of almost $110,000 that covered rent obligations by 5x. And fourth, we operate a high-margin business. Despite these positive differentiators, we took certain steps beginning in mid-March to further strengthen our operating and financial position, not knowing exactly how things might unfold. These actions included prioritizing occupancy, which climbed to a record high 97.2% in April; drawing roughly 1/4 of our revolver to increase working capital; and pushing pause temporarily on sourcing new acquisitions.

Based on how well our business performed in March and April, it appears that the positive differentiators of our business and the additional COVID-specific steps we took to strengthen our position are working favorably to this point in the pandemic. Shelter-in-place has not impacted our ability to lease homes. In fact, residents have been moving into our portfolio at a similar rate to last year and at a greater rate than they have been moving out. Both renewal and new lease rate growth remained positive in April and occupancy reaches all-time highs.

On this higher potential revenue base, we collected rents at over 95% of our typical collection rate in April, and are tracking even better in May than we were in April through the fifth day of the month.

The third area we are focused on is staying close to information on the ground in our markets. Our platform has been purpose-built to provide real-time feedback. Our teams from operations management to customer service reps, maintenance supervisors and investment directors are in-house and local. This on-the-ground presence has served us well in navigating fast-changing scenarios like natural disasters in the past, and we've been able to leverage our playbook from these past events to help our teams identify and quickly adapt to rapid changes in each of our markets today. We believe our local presence and agility should also benefit us as we emerge on the other side of this pandemic with more clarity about the future.

I'll say a few more words at the end of our prepared remarks, but at this time, I'd like to turn it over to Charles Young, our Chief Operating Officer.

[Charles Young, executive]

Thank you, Dallas. First, I want to say thank you to our teams. We've asked our associates to be nimble and execute on the rapidly changing protocols, and they have delivered. In fact, resident satisfaction has continued its upward trend even in the face of COVID-19 challenges, with our survey scores near all-time highs in April. I'm grateful to be leading a team in the field that cares so deeply about our mission. The selflessness they continue to demonstrate is inspiring.

In my remarks, I'll touch briefly on our first quarter operating results before turning to the operational impact we have experienced so far from COVID-19. Same-store core revenues in the first quarter of 2020 grew 4.5% year-over-year. The increase was driven by average monthly rental rate growth of 3.9%, a 20-basis-point increase over average occupancy to 96.7% and a 13.5% increase in other property income net of resident recoveries. Same-store core expense growth in the quarter was 5.3%. This resulted in same-store NOI growth of 4%, better than our expectation for the quarter.

We are now operating in a very different environment than we were for the most of the first quarter due to COVID-19. I'd like to provide some detail on the impact we have seen, focusing on 3 areas in particular. First, I'll address our occupancy, which is a record high. Second, I'll discuss rent collections, which we are pleased with so far. And third, I'll touch on revenue management and leasing trends, where move-ins are outpacing move-outs. I'll then close by putting these trends into context as we think about the future.

Starting with occupancy, we entered the pandemic from a position of strength. As the pandemic evolved, occupancy climbed even higher and a streak of sequential occupancy increases that begun in October continued each month all the way through April. In April, same-store average occupancy was an all-time high 97.2%, 60 basis points higher than last year, with 12 of our 16 markets averaging 97% or greater. Our total portfolio average occupancy also reached a record high in April of 95.4%.

Next, I'll cover rent collections. In both April and May, we have placed a voluntary moratorium on evictions and created payment plans for those experiencing financial hardship as a result of COVID-19. Even with these measures of genuine care in place for our residents, our collection rate in April was over 95% of our historical average. Less than 2% of our residents requested to defer a portion of their April rent to future periods. Collections have improved further since the end of April. Of the 5% shortfall in April rent collections versus historical average, approximately half of those outstanding rents have come through to us already in collections after the month closed. Through the 5th day of May, our May collection rate was over 100% of our pre-COVID historical average. This puts us at almost 109% of where we were at this point in April, as April's collections rate was 92% of historical average at day 5 before accelerating to over 95% by the end of the month.

I'll now turn to an update on our leasing trends and strategy. With respect to renewal activity, our turnover rate is showing signs of declining. In March, turnover was flat year-over-year. In April, our same-store turnover rate was 2.2%, down from 2.5% in April 2019. We achieved rate increases on renewals of 4.2% and 4.1% for March and April, respectively. As a reminder, most residents who moved out in March and April gave notice prior to the spread of COVID-19. But the pandemic has likely been a greater factor in renewal decisions for residents with leases expiring in May. It is too early for the data to be definitive with respect to May turnover, but at this time, we see it trending in the right direction.

Stepping back, we believe that our turnover should perform better in difficult environments compared to other residential sectors, as our residents stay longer, renew more often and are typically families that demonstrate stickier behavior with respect to housing choices.

Now I'll turn to details on new leases. In early March, to proactively position our portfolio for COVID-related uncertainty, we began incorporating concessions into our pricing strategy to prioritize the lease-up of vacant homes. As the pandemic unfolded, we were able to gauge its impact in April. We saw strong move-in velocity that was even better than expected. In March, we signed 2,260 new leases with same-store new lease rent growth -- rate growth of 3.2%, including the impact of concessions. In April, we signed 2,099 new leases with same-store new lease rate growth of 1% net of concessions. Furthermore, day 3 resident in March and April improved by 4 days and 2 days, respectively, compared to last year. Because we experienced such strong uptake that helped drive occupancy meaningfully higher, we have now reduced the concessions we are offering, but remain laser-focused on performance indicators and are ready to be nimble as necessary. Overall, our same-store blended rent growth for March and April was 3.9% and 3.2%, respectively.

I'll now close with a few remarks to help put things in context. Thus far, revenues have remained relatively healthy overall. We are happy with how solid rent growth -- rent collections have been, and record occupancy has been a further positive. Rental rates and leasing volumes so far have also performed well. We like our high-quality, sticky resident base, and we believe that the ripple effects of this pandemic could make the option to lease a single-family home even more attractive relative to other housing alternatives, especially versus those with greater density of units and shared amenities.

As we navigate the uncertainty of the pandemic, though, it is important that we remain nimble and continue to leverage our local market insights to react judiciously. Our outstanding team in the field has done a great job of that so far as they work to keep people safe, provide genuine care to residents and position our company to maximize results and mitigate risk.

With that, I'll turn it over to Ernie Freedman, our Chief Financial Officer.

[Ernest Freedman, executive]

Thank you, Charles. Today, I will discuss 2 topics: first, financial results for the first quarter; and second, our liquidity position.

I'll begin with our financial results. Core FFO and AFFO per share for the first quarter increased 4.4% and 5.1% year-over-year to $0.34 and $0.29, respectively. These results exceeded our expectations. As Dallas and Charles described, we continue to see positive signs in the business and believe we have a differentiated model that is well-equipped versus many other types of commercial and residential real estate for the road ahead. That said, we are withdrawing our 2020 guidance due to uncertainty regarding the future economic impact of COVID-19.

Regarding our liquidity, we entered the current period in a strong position. We have almost $1.1 billion in available liquidity, no debt maturing before 2022 and minimal near-term investing commitments. Our almost $1.1 billion of liquidity consists of $345 million of fully unrestricted cash and $730 million of capacity on our credit facility as of April 30. As we think about our liquidity needs going forward, we are focused in 3 areas: first, operating cash flow considerations; second, investing cash flow considerations; and third, financing cash flow considerations.

With regard to operating cash flow, the 2 primary risks relate to occupancy levels and rent collections. The good news is that we are seeing positive results with respect to both. First, with occupancy, we have seen continuous increases since the start of the pandemic and demand that is stronger than this time last year. Although we are early into this new part of the economic cycle, our thesis with respect to the attractive nature of our product type and the stickiness of our residents appears to be playing out.

Rent collections have also been a positive story. We came into April with a very low amount of past rents due to us. And as Charles described, our collections in April and to this point in May have been solid. Also as a reminder, we retain a security deposit from every resident, typically equal to 1 month's rent when they sign their initial lease, and these deposits total $152 million as of April 30. These deposits are not included in the $345 million unrestricted cash and almost $1.1 billion of liquidity I referenced earlier, but would be available to us to cover shortfalls in rent payments if necessary. While rent collections have remained high to date, we have completed internal stress tests to help guide us to actions that may be considered if rent collections were to decrease. In these scenarios, the high-margin nature of our business and our low dividend payout ratio helps serve as a buffer.

Moving on to investing cash flow. Our business has some unique advantages that help us mitigate risk. First, we are not engaged in any development activity. Second, the granular nature of our assets allows us to be nimble with our investment activity, ramping up or down quickly to adapt to changes in risk reward. After closing $28 million of acquisitions in April, we have only $19 million of acquisitions in our pipeline beyond April and have temporarily paused putting new homes under contract. At the same time, we've remained active selling homes that have been earmarked for disposition, with $31 million of dispositions in April and another $59 million under contract to close after April, and more in our pipeline being prepared for sale.

While we do not know what the future may hold, the housing market remains open with healthy transaction volumes at present. I'll also point out that we can ramp up acquisition activity just as quickly as we brought it down. While we continue to stay on the sidelines as we assess risks and market conditions today, we will be able to pivot quickly to resume buying when the time is right.

I will now address financing needs and capital markets risk. While capital markets have been volatile and challenging for new issuance in certain channels, we do not have any near-term refinancing needs. As a result of our proactive refinancing over the last several years, we have 0 debt maturing prior to 2022, and weighted average years to maturity of 4.7 years as of March 31. 51% of our homes are unencumbered. Our other approximately 39,000 homes are pledged as collateral for nonrecourse-secured debt of $6.6 billion or 76% of our total debt. On a trailing 12-month basis, these homes generated cash flow that covered debt service by 3.1x. Outside of secured debt, the remainder of our debt consists primarily of a term loan and revolving credit in our unsecured facility. Covenants on this facility leave cushion for an almost 60% drop in EBITDA and an almost 50% drop in total asset value, as measured by broker price opinions. Schedule 2(b) in our supplemental has been updated to include additional detail related to our unsecured facility covenants.

In summary, we have a safe balance sheet today. We are pleased with our strong liquidity position, the quality of our real estate, the strength of our resident base and how the business has performed through the pandemic thus far.

Before we open the call up for Q&A, I want to hand it back to Dallas for some final remarks.

[Dallas Tanner, executive]

Thanks, Ernie. On today's call, we focus more on the near-term than we typically do. Appropriately so, given the importance of the measures we've taken to navigate the current environment with safety and prudence. However, I'd be remiss if I didn't spend some time talking about the big picture for Invitation Homes. Our long-term growth story remains intact, and I am confident we will emerge from the pandemic in a position of strength, ready to run again.

We continue to have conviction that we offer a differentiated product and living experience, catering to the large percentage of the U.S. population that wishes to live in a single-family home while enjoying the flexibility and convenience of leasing from a professional property manager. That thesis has been validated in the strength of our demand, as evidenced by our leasing trends for the past several years.

Demographics point to continued growth in single-family leasing demand over the next decade. The events being experienced in the world today do not change that. And it is possible that they will have a lasting impact that drives Americans to place an even greater value on the space and distance from neighbors that single-family living naturally provides. The locations and high-quality nature of our homes and service further differentiate our resident experience, which we continue to refine and see runway to make even better. While our front lines have been focused on safely serving residents, our strategy and ancillary growth teams have not stopped making progress on important projects behind the scenes.

We remain on track with preparations for our next-generation of ancillary services, and have put ourselves in a position to pilot some of these opportunities at the appropriate time. We also continue to monitor each of our acquisition channels very closely. When we gain more clarity in our footing and the market dynamics, we'll be ready to resume acquisitions in a disciplined fashion. We look forward to returning to a more normal environment, but the passion we bring to supporting residents will prevail regardless of circumstance. The last 2 months have renewed my conviction in the strength and resilience of our people and of our platform. I could not be happier with how we have responded to the pandemic. Let me be clear. These are unprecedented and uncertain times, but we like how we've performed so far. Of all the types of real estate that could be owned, we are happy that single-family homes are what we own today.

Lastly, in times like today, it's natural to reflect on what matters to you most, your core values and your mission. Our mission statement says, “Together with you, we make a house a home,” and that resonates with me today more than ever. Many of our residents are health care professionals and first responders. And it's our absolute honor to support these heroes and alleviate a small amount of stress by providing them with comfortable, well-maintained homes they can return to at the end of the day to recharge and be with their loved ones. We're all feeling some form of disruption in our lives today and deserve the stability that a home can provide. We are proud of the exceptional job our teams have done, adapting to the challenges around them to continue helping residents make a house a home.

With that, let's open up the line for question and answer.

[Operator]

[Operator Instructions] Our first question today will come from Derek Johnston of Deutsche Bank.

[Derek Johnston, analyst]

So you're in a unique position with regard to self-guided tours of properties and, presumably, meeting the social distancing standards of today. Has this been an active channel? And what percentage of the portfolio is able to accommodate self-guided tours? And what percentage of self-guided tours are you actually closing on?

[Charles Young, executive]

Yes. So this is Charles. Thanks for the question. What -- our advantage has been that we implemented the Smart Home technology in self-show tours years ago. And currently, about 60% of our portfolio has the capability and 100% of our on-the-market homes have the self-show capability. It's been our main channel in which how we show homes, given the kind of spread nature. And our talented leasing agents are able to utilize the technology to make sure that residents get to see as many homes as they need to. And -- but at the same time, if they need to work with one of our agents, we will provide that as well. So to your last question, the majority of our homes are going through the self-show.

Now not everybody is comfortable with that. And so at times, we'll do a in-person tour. But given the pandemic, we made adjustments where we would open the home for a resident ahead of time, and then wait for them outside trying to adhere to the self -- the social distancing guidelines. So we made some pivots, but it really wasn't a major pivot for us because this is a core way in which we operate our business on the leasing side.

[Derek Johnston, analyst]

Got it. That's very helpful. And just switching gears quickly for my second one. I think Charles mentioned it. Can you discuss the previous concessions that were in place for new leases, maybe even the nuances by market and kind of where they stand today?

[Charles Young, executive]

Yes. This is Charles again. Thanks for the question. Yes. So as the pandemic unfolded, there was a lot of uncertainty in the market. And so we made a conscious decision with the revenue management team, who's doing a great job, and ops to focus on occupancy to make sure that we're in a position of strength. And what was great for us is we came into the situation with high occupancy. So it put us in really good position.

So what we ended up doing is this one across the market with less than 1 month's average rent concession, so about $1,500. And we did that for about 2 to 3 weeks, and then we decided to pull it back slowly market-by-market depending on what we were seeing and what our kind of demand indicators were telling us. It worked really well. You can see we're at all-time high in occupancy. Yes, it has some impact on rate, but we think that's a good trade-off given where we are, and it's always easier to dial those concessions off. We think it's a great tool. It creates urgency for the resident, and it's easy for us to dial back.

To your last question, as we got into April, we started to see demand pick up a little bit, and we then began to pull them off. So as where we sit today in May, we have no concessions going out with. So effectively, California, Seattle, Phoenix, Denver, Vegas, and even the Carolinas, we're not running concessions now. We're into that peak leasing season. We're seeing good demand there. We pulled back about 1/3 in Florida and Atlanta and Dallas, and then we've taken 2/3 down in terms of the amount in Chicago, Minneapolis and Houston. It's still early in May. We're going to watch these play out. We anticipate that we may pull them back even more. But obviously, it's helping our occupancy, and we should start to see our growth -- rate growth kind of step-up from where we were in April.

[Operator]

Our next question will come from Jeff Spector of Bank of America.

[Jeffrey Spector, analyst]

My first question is on demand. If you can talk a little bit more about the renter. Where are they coming from? Any changes that you're seeing? We're getting lots of questions on folks leaving cities, looking for suburban renting homes. I guess, can you give us a little bit more color on possibly even by region?

[Charles Young, executive]

Yes. So thank you for the question. Charles, again. As I said, demand has been strong, especially as we got past the initial couple of weeks of uncertainty. And so by the beginning of April, into the middle of April, we started to see demand kind of across the board step up when we looked at our number of showings and applications that were coming through. And it was really kind of across the board. Early on, as you can imagine, there were some hiccups in markets like Vegas with the casino shutting down early and some of the Florida hospitality impact. But even now, we're still seeing okay demand, and that's what we've done in terms of pulling back our concessions in those markets.

That being said, it's hard to say exactly where people are coming from. That's not something that we typically gauge. But as you look at demand and as you look at our occupancy rise, I think we're really in a healthy position. I think it's a statement to single-family and the resiliency of our industry, that there's demand for our solid neighborhoods, more space that's offered by our homes, backyards. It kind of helps in the social distancing situation as well as how do we think about any of the people moving out of the cities and maybe coming into homes with their parents or with their families or co-habitating with other family members. So can't tell you specifically, but we have seen some good demand across the board, with our typical markets out west probably seeing a bit more than others.

[Jeffrey Spector, analyst]

And my second question, just pretty amazing that May collections were stronger. Can you provide any comments on your thoughts on how that happened? Or any color there?

[Charles Young, executive]

Yes. Thank you. It's a good question. So look, as we think about April and how this all unfolded, it was quick. Late May -- sorry, late March, this all kind of was surprising for folks. And many of our residents were really in an uncertain position of trying to figure out what is their employment situation, what does shelter-in-place mean, where -- is there going to be any stimulus? And so what we decided to do in April was to be really flexible with our residents and meet with them one-on-one and try to understand so we could get a feel for the landscape. And it worked. We had good numbers in April. May, even stronger. And I think what we learned through April was our ability to utilize technology and upgrade a bit of our website so people could fill out a hardship form quickly and easily. We worked on our communication to our resident around what's expected and how they can submit for a hardship. What we found in both months was that people really just needed to pay later in the month. So most of what happened in April was people wanted a chance to just pay a little later in April. And as we said in our remarks, 1.5%, 2% needed to delay a month or 2. And so that's what you saw in April.

As we've gotten early in May, as I said, we've understood kind of how do we continue to operate with genuine care, living up to our mission. And at the end of the day, our communication and our systems made it really streamlined so we could do even better in May. So -- and in that, you're getting some of the collection that came through in April that's showing up in May. And I just -- I go back to the resiliency of our resident base. What you're really looking at is a household income of over $100,000, 2 wage earners, and it's a testament to where we think this space can go long term.

[Operator]

Our next question will come from Michael Bilerman of Citi.

[Michael Bilerman, analyst]

I wanted to ask about guidance, in the sense that you look at your resilient business model, you think about the lower turnover, you think about the data that you have from April and May. And I recognize it's an unprecedented situation. There's a lot of uncertainty, but you have such good handle on what your revenues and expense trends are. Why not even provide just a quarterly update in terms of where you view your operating metrics from a revenue expense and NOI perspective and even drill down to an actual FFO number? Because you really have all the tools necessary to be able to do that, especially given the fact that you have such resilient cash flows, why not be one of the companies that provides that comfort to the Street about where your cash flows are likely to be?

[Ernest Freedman, executive]

Michael, this is Ernie. I appreciate the question. It's a great question. And we debated it here internally, and we ran a lot of different scenarios internally with the data we have. But you sort of said it. It's an unprecedented situation. We're 6 days now into May collections, and we're really pleased with where we're at, but we are only 6 days in the May. We're only about 7 to 8 weeks into this whole process. For instance, in the month of April, we did not charge late fees. Some of that -- and quite frankly, we're not sure what we're going to do yet for May. We're keeping that open as we consider route we want to move forward. We're certainly seeing a lot of -- to be able to get then the guidance to a range that was -- as a reasonable range for something that's very wide, that wouldn't be very helpful. We think this early into this, with -- even though we're very pleased with where we're at, and for all the reasons you said, those are the reasons why we thought very deeply about whether we felt we could be comfortable put in a position to do that, there's just still too much unknown at this point. Certainly, as the year progresses, if we're in a position and we see how things have played out and with the data we have and we are able to reestablish guidance, we'll do that as soon as we can. We just thought it was a little premature for this quarter, Michael, to do that.

[Michael Bilerman, analyst]

Can you talk a little bit about maybe some of the components? So what you've seen across the REIT sector is you have companies that have maintained their guidance of providing it and reforecasting. You've seen those that have removed the actual FFO, but given the actual details of the components. And then you've had companies like yourself that have just said, we're not going to give you anything.

So can you give us a little bit more sort of details around the revenue, expense and NOI, at least on the near term, because you have the data, right? So in the first quarter, you're running at 4.5% revenues, 5.3% expenses, 4% NOI. You had a range out there of 4% revenue, 3.75% expenses, 4.25% NOI for the year. At least in the second quarter, based on what you see, where should those ranges be? Is there more pressure on expenses? Are revenues trending a little bit lower than what you had seen? Just so that we at least get a current momentum on the numbers. And then is there anything else that may be impacting the P&L from a G&A perspective? All the liquidity things, Ernie, that you talked about that you've brought down, what sort of impact or drag could that create on a near-term basis? Just to give us a little bit more detail around the financial impact of all these.

[Ernest Freedman, executive]

Yes, Michael. Let me see if I can help with -- again, reiterating that we've chosen not to give guidance. I think you're aware, we've never provided quarterly guidance in the past. But let me provide some trends that may be helpful for folks. So…

[Michael Bilerman, analyst]

It's an unprecedented time. So why not start now?

[Ernest Freedman, executive]

So let me answer it the best way I can because I just really don't want to do something on the fly within the call. But I certainly prepared to answer some questions about this. So in the first quarter, as we talked about, we're actually very pleased with where the results came out. From an FFO and AFFO perspective, we came in a little bit ahead of our expectations. On a revenue perspective, we came in significantly ahead of our expectations. On expenses, we came in slightly better than expectation. And we know it was a larger number, but we had let folks know at the beginning of the year that we expected the beginning of the year to be a little bit harder from expense growth perspective. So that led us to a better NOI result. So all is good in the first quarter.

As we think about the second quarter, there's absolutely going to be pressure, and people should not be surprised on the revenue line item. We did not budget in our original guidance that we'd be using concessions, like Charles has used here in -- as he ended March as it went in April. But importantly, he talked about that we backed off of those concessions, and maybe we'll have the opportunity to back off further still.

On the renewal side, we're still going out with renewal increases. But again, where our expectation would be, it'll probably be a little bit less than we would have thought at the beginning of the year. So we certainly didn't expect the pandemic situation we had. So you're going to start to see the most pressure on the revenue line, and that's even before talking about where a bad debt expense may come in. We're very pleased with where collections are. But as we did talk about for April, they did come in less than where they do historically. And so that's just going to take some time for it to play out and see how that happens. And again, we're only 5 days into May.

On the expense side, we fully expected at the beginning of the year, expense comps to get easier as we went through the year. And if anything with expense comps, will get a little bit easier still. We don't have some of the challenges that you have in the other residential spaces around having density in common areas and things like that. So we think for the shorter term, we could see a little bit of easing of pressure on expenses. There may be some catch-up of expenses later in the year as we get to those deferred work orders that Charles talked about. At least for the near term, we should have something that's a good result on the expense side.

And then with core FFO and AFFO, we're actually being very careful where we spend our G&A dollars or our property management dollars. We certainly aren't traveling and doing things like that. So we're having savings there. So we would certainly hope that we'd have a run rate on G&A and property management that will be favorable to what we saw in the first quarter. What I don't want is to get so specific, Michael, and then provide a specific range or dollar amounts or percentages around those things. But hopefully, that provides at least from a trending perspective where we would hope things would go here in the near term.

[Michael Bilerman, analyst]

Right. And anything on the liquidity, just raising the additional capital just in terms of the drag cost on that?

[Ernest Freedman, executive]

Well, you saw we have on our line, which we wouldn't have expected in a year of about $270 million at the interest rate that, that gets charged if we were to leave that outstanding for the full year. That'd be a little bit more than $0.01 of drag from what we would have expected. But if things continue to progress well, we may come to the conclusion we don't need to leave the working capital cash balances as high as they are today because we did that really just to be cautious and to be careful, but things have played out very well for us to date. And so we certainly have got the opportunity to do a little bit better than that.

[Operator]

Our next question today will come from Hardik Goel of Zelman & Associates.

[Hardik Goel, analyst]

I just wanted to understand better how the accounting will work for, number one, the concessions, and then the delinquency reserve. So your core revenue number will net out the concessions, I'm guessing. And the delinquency will be reported as a reserve until you know what bad debt is? Or can you walk me through how that will work?

[Ernest Freedman, executive]

Yes, of course. So concessions aren't new for us, but we are using them more than we have in the past. So our accounting policy has been in the past is if a concession is less than $500, we'll just go ahead and take that loss immediately, which we won't try to straight-line that over the period of the lease. If there's a concession greater than $500, then we do follow GAAP, and we spread that over the lease. So let's say, it's $1,000 -- let's say, it's a $1,200 concession, just to make the math easy, and it's a 12-month lease. You spread that out over $100 over each month and recognize it over a period of time. So we'll continue to do what we've been doing with concessions in the past there.

With delinquency, our policy has been in the past that any amounts that are over 30 days past due, or any current amounts that are in eviction, which aren't very many, we go ahead and reserve for those 100%. Anything that's in the current bucket, 0 to 30, we've not reserved for because of a security deposit that will cover that. Early days to see what we're going to do going forward, because we have had payment plans in the past, but we're going to have more payment plans we've ever had before. But to Charles's point, there aren't that many. It's about 1%, 1.5% of our residents who've asked for some help. And so we may get to the situation with some of those payment plans, and if we have confidence, we won't reserve for the balance if it's greater than 30 days. We haven't made that determination yet. The good news is it's not a very big number at this point.

So we'll continue to recognize rental income that's based on the lease. And we're seeing that we're getting the cash collections that will certainly justify that. We'll make the determination of how we want to deal with a deferred payment plan as we get further into the second quarter and see how many we have and what our history has been then during the second quarter on people making good on their promises to pay when they will. So for the most part, it's a cash collection because we've been very successful, but there may be a buildup of receivables throughout the year if payment plans continue to trend in that small range that we've had so far.

[Hardik Goel, analyst]

And just real quick on the R&M and turn. I know there's somewhat of a comp issue, but the expenses are up roughly 18% to 20%. And I'm wondering you're deferring some of the stuff -- you said you're deferring noncritical stuff. What would have they been up if you were not deferring anything and it was a normalized environment?

[Ernest Freedman, executive]

Yes. It's interesting. So we -- because it's all happened so late in March, the answer is very, very small. These items that we're deferring today are typically done by our service techs. And so our service techs have lost some productivity on the side of going out and doing work orders, but we've actually redeployed them to do other things: keeping houses spot clean for self-showings, helping out with turns, things that they have done a little bit in the past, but doing a lot more now because they're generally focus on service. And so, really, the only cost that we're not absorbing right now, that we would have had in the first quarter for those last couple of weeks, what about any supplies that they would've to purchase to do their routine work orders. And those dollars are much smaller. Much higher dollar spend are on the more significant work orders that have to get done, that are sometimes done by our guys and sometimes done by vendors. So you wouldn't have seen much of a difference in our first quarter results regardless of what's happened with the pandemic.

[Hardik Goel, analyst]

And just lastly, if you'll indulge me. What is the -- if you had to take out all your swaps today, what would that cost you guys if you have to settle them all?

[Ernest Freedman, executive]

Yes. And that will be disclosed today in our -- when we release our 10-Q a little bit later today. It's a little bit over -- the mark-to-market on the swaps today is a little bit over $600 million. It was in the $350 million range at year-end with interest rates going down. The duration got shorter, so that helped a little bit on the mark, but interest rates went down more significantly. Good news is there's no cash collateral required on that. Something we need to do. But yes, the mark-to-market has certainly gotten larger with the lower interest rates.

[Operator]

Our next question today will come from Jade Rahmani of KBW.

[Jade Rahmani, analyst]

It's good to hear from you guys. And hope you're all doing well. I wanted to ask about tenant demographics. Is there any color on employment industry profile that you could provide as well as perhaps some read on unemployment rate across the tenant base?

[Dallas Tanner, executive]

Yes. Jade, this is Dallas. In terms of the demographics and what they do, we obviously do income verification on the way in. I think the headline there is really that their monthly rent to income ratios right now are at 5x. In some markets, we're even seeing a stronger strength than 5x. But the average is 5x. But it's all walks of life in terms of where they come from. As I mentioned in my previous quarter remarks, first responders, teachers, health professionals, et cetera, kind of run the gamut. And so you'll see that vary by kind of cohort and submarket, but it's not something that we track independently.

[Jade Rahmani, analyst]

Okay. And I suppose there's a risk of unemployment insurance not being renewed at the end of July. Do you have any idea how much that stimulus is helping with respect to current rents? And a related question is, do you know what percentage of April and May rents were paid out of security deposits?

[Ernest Freedman, executive]

Well, I'll answer the second part of that question.

[Dallas Tanner, executive]

Yes, go ahead.

[Ernest Freedman, executive]

None were paid out on security deposits at all. That has not been an issue for us. And I'll let you talk about the first one, Dallas.

[Dallas Tanner, executive]

Yes. I mean, anecdotally, there's -- we haven't heard a whole lot about stimulus checks or things like that coming in and being a part. Little bit in May, with some people that have requested late pay cycles, but -- I mean, those numbers are pretty few and far between at this point, Jade.

[Jade Rahmani, analyst]

I do appreciate the conservatism around the decision to not provide guidance. I think that's the right decision.

[Dallas Tanner, executive]

Thanks, Jade.

[Operator]

Our next question today will come from Rich Hill of Morgan Stanley.

[Richard Hill, analyst]

Wonder if I could just follow-up on Michael's questioning. Completely recognize that you're not wanting to give guidance. You did give a lot of transparency on some moving parts thus far in April and early May. So I just wanted to make sure I was sort of thinking about the methodology correctly.

So look, there's 3 things that I'm focused on. Number one, what you collected in April and what you collected in May thus far; your lease on -- lease renewal rates, including rent concessions and your occupancy increase. So if I'm thinking about this correctly, let's assume you never get back April and you collect 100% of May and June. I think that's around 2% headwind. Then let's assume you get the 3.2% increase on 30% of your portfolio. That's about a 1% tailwind. And then you get the occupancy increase. Doesn't that push you for same-store revenue in the flattish range for 1Q (sic) [ 2Q ]? And I guess that's a very long way of saying, what am I missing in those and sort of those moving parts?

[Ernest Freedman, executive]

Rich, that's a lot of math to do on the fly here in the middle…

[Richard Hill, analyst]

I had 45 minutes. I had 45 minutes to do it. So…

[Ernest Freedman, executive]

No. That may be right. But I certainly want to think about that after the call and take a look. But you're looking at the right components in terms of what could happen. I guess the big question is, and we're excited that we're at 100% collections for May as we stand today. That's based on historical average of where we are typically on a day 5. Rent collections come in throughout the entire month like you see with the other residential companies, too. And again, being that we're only 2 months into this, again, we feel really good about the business. I don't want any mixed messages about that. But June is still unpredictable. And so we want -- and so you could certainly set up a set of assumptions like you did, run the math and get to the answer. We're just -- we think it's -- if we were to give guidance, we'd do a pretty wide set of what those assumptions would be so we -- because we want to hit it. We want to give you numbers, and we actually want to beat it. That's what you try to do typically. But yes, I think everyone -- you can see -- you got -- everyone should do kind of what you're doing and think about those reasonable things. And we'll have better data 3 months from now on how we've done 4 months into the pandemic versus 7 or 8 weeks into it, and may have more confidence at that point to be able to provide a better guide for a quarter or for the rest of the year.

[Richard Hill, analyst]

Got it. Helpful, Ernie. And sorry to put you on the spot, but I had to ask the question. One follow-up to that. It seems like you have a pretty good handle on the COVID-19 implications to earnings, at least near term. But have you given any thought to what this recession means medium to long term? I recognize that there might be more demand as people move to greater spaces and single-family rental benefits from that. But have you given any thought to what this means longer term? And I guess I'm asking that because we just don't have a lot of history as a public company. I recognize Dallas has a fair amount of history owning homes through a recession, but how are you thinking about the recessionary impacts post COVID-19?

[Dallas Tanner, executive]

Well, I think -- Rich, this is Dallas. I think it's a thoughtful question. As you think about -- there's really kind of 2 parts to think about in unpacking that and answering it the right way. One is, based on what's going to happen in housing development and new units coming online, say, over the next year or 2, if we were to go into a recessionary period for some while, we're still going to have the fundamental lack of supply to meet normal household formation and all the demand factors that we're seeing in that cohort of what our current resident is, age 39. There's 65 million people between the ages of 20, 35 coming our way. So that does not -- that actually makes that demand, I think, greater from that perspective.

What you'll typically see, and what we saw in the last recession in our private portfolios was that occupancy stayed really healthy. You did see people kind of collapse. You see some kids living with parents a little bit longer and some of that stuff. And you'll see modest rate growth with some market differentiation depending on what's going on. I think the good news for our business, our portfolio and our asset quality and resident quality is that we've insulated ourselves to some of the risks that may be more prevalent in Midwest and parts of markets where you might see less growth or less demand. I really like our chances and our ability to lease having a much more infill portfolio with a higher, call it, gross economic rent band, higher rent-to-income ratio resident that's a bit more qualified, to be able to meet that occupancy. I think the way you'll see additional pressure put on leasing, and it'll be interesting to see how this plays out with homebuilders and deliveries and things like that, is that you're ultimately going to have pretty healthy demand for our product, if it's located close to job centers, major transportation corridors, and ultimately, 3 to 4 bedrooms that can allow a family to fit comfortably. I think that's the key. So I would have bet in this next kind of cycle, outside of not knowing what the future may hold 3, 6 and 9 months, we like our position going in.

[Richard Hill, analyst]

Got it. And congrats on a really good quarter.

[Dallas Tanner, executive]

Thanks Rich.

[Operator]

Our next question today will come from Jason Green of Evercore ISI.

[Jason Green, analyst]

Just on the limited uptake regarding the payment plans. I guess, what do you think is driving that given, in other REIT sectors, we've seen some opportunistic tenants seeking relief. Is that underlying strength from the tenants? Or is it more a reflection of your willingness to work with these tenants should they experience some distress?

[Charles Young, executive]

Yes. This is Charles. I think it's a little bit of both. And just to be clear, we're also working within any kind of local rules and jurisdictions. California, Washington, they have specific rules that we're making sure we follow. But in April, our ability to work with them one-on-one and understand their circumstance, talk with them. And the reality is most of them just wanted some time to figure this thing out and see what it meant, and we gave them that flexibility. Those who had really lost their job or impacted health-wise, those are the ones that ended up going on payment plans. And to be clear, it's a small part of our portfolio. So I think it's a little bit of both. And in May, I think it became clear kind of what's going on, and stimulus was in place. You could see the future begin to open up state by state and people feel a bit more comfortable, and they weren't asking for as much as they were when they were really uncertain in April.

[Jason Green, analyst]

Got it. And then just on the home purchase side, we've seen a pretty public battle between the mortgage servicers and the GSEs. I guess in the marketplace today, do you see a greatly diminished ability for homebuyers to obtain financing to buy homes?

[Dallas Tanner, executive]

Well, I can tell you this, we've seen the statistics be a little bit more towards people moving out for home purchasing. And it's clearly a friendly rate environment. So if somebody's got the down payment ability, they're in a strong position. But we're not seeing any trends in our own portfolio that suggest big wholesale shifts.

[Operator]

Our next question will come from Haendel St. Juste of Mizuho.

[Haendel St. Juste, analyst]

I hope you guys -- can you hear me? Hello?

[Charles Young, executive]

Haendel, we can hear you.

[Haendel St. Juste, analyst]

Great, thanks. So thanks for all the color. Wanted to go back to expenses for a second, just get a bit more color. You talked earlier about some of the near-term pressures and uncertainties. I was hoping you could talk a bit more about maybe some of the potential positive offsets, some of the things that you're seeing within the portfolio, maybe lower maintenance, less unit turns, maybe less leasing personnel? And how meaningful could those be in helping to offset some of the pressures you noted earlier?

[Ernest Freedman, executive]

Yes. Absolutely, Haendel. Our business is -- fortunately, it was able to shift pretty quickly and pretty easily to the new environment just because of the way we do things all the time. So there won't be a radical change in our expenses because of that. But I think there are some opportunity areas for us.

If you think about on the fixed expense side, from the last time we spoke with you guys, we actually had a very favorable insurance renewal that we didn't anticipate when we spoke in the last quarter. And insurance costs are going to be closer to flat year-over-year for the remainder of the year versus where we thought they'd be up high single digits. So that's a good guide that's out there that will certainly help us out.

On the items -- and then on the property tax side, we're just going to have to see what happens, Haendel. I do think there'll be pressure for local jurisdictions not to push real estate taxes as hard on local residents, and we're a local owner as well. So I know jurisdictions are probably going to be a little bit cash-strapped. At the same time, people aren't going to be able to afford higher real estate taxes because of what's going on with the pandemic, so that could potentially help us on the property tax side.

On the controllable expense side, you sort of said it, Haendel. The biggest one is probably going to be turnover. We did see a material decline in turnover in April. We're seeing retention rates going higher. They're trending that way also in May. So we'll see how that plays out at the end of the day. I know you're seeing that in the other residential sectors as well. And turnover is one of our biggest expenses. So not only do you get the benefit of higher occupancy, you get the benefit of, typically, when there's not a turn -- a higher rate in terms of where you bring the new lease to the next lease, because we are still having rent increases on the renewal side, but you save on the expense on the turnover side. So that's probably the biggest one. Anything with R&M would probably just be more of a shift in timing. We'll probably have a little bit less R&M cost over the next period of time from what I talked about in one of the earlier responses. But that's going to catch up. We're going to get to those deferred work orders. And we may actually have a little pressure on us from an expense perspective that, to get through them more quickly, we may choose to outsource a few more of those than we might in the past just to get through them more quickly, but we haven't made that determination yet.

But overall, that probably puts us in an expense environment similar to what we thought at the beginning of the year, or maybe slightly better. But we'll just have to see how things play out over the next many months.

[Haendel St. Juste, analyst]

Got it. That's helpful. So maybe a bit of a follow-up on that, the retention point you made. It looks like the first quarter was unchanged versus the fourth. But you mentioned that retention has picked up here in April into May. How is that in relation to the 70% retention look like you've had over the last few quarters? And how high do you think that can go? Certainly, we expect residents to stay longer. But just curious on maybe some thoughts on while there's 75%, maybe 80% of the new normal in this post-COVID paradigm?

[Charles Young, executive]

Haendel, it's Charles. Thanks for the question. Yes, year-over-year, we were flat Q1, but still very good. That's less than 30% on a trailing 12. In April, we came down turnover from 2.5% to 2.2%. So we'll take that. Like you said, we're solving for occupancy right now. In this uncertain period, that feels like the right answer. So we may give up a little bit of renewal growth. But we're still getting some. They're trending down a bit. Where those numbers go, we'll see. [ We’d ] expect that low-70s, mid-70s is where we're going to operate in the -- as a goal in the short-term here. But we're really staying nimble and looking at it month-by-month to make sure that we're making good decisions. And as we think about -- when we put our guidance, we'll have some more months under our belt. It's still uncertain times, and we think people are going to come our way, but we want to prove that up.

[Haendel St. Juste, analyst]

That's helpful, Charles. If I could squeeze in one more, Dallas, forgive me. But just curious on your cost of capital and capital deployment thoughts, understanding you guys are putting a pause, and rightfully so. You guys have a bit more higher leverage, market uncertainty, discounted stock price here. But you more than have that discount on the stock side in the past few weeks alone, though you're still trading at a discount here, this consensus spot NAV. So curious on your thoughts how you or the Board might be thinking about potentially issuing equity at a modest discount to NAV to fund what could appear to be a compelling investment opportunity? Is that something you're open to? And how do you as a team and a Board think about that trade-off?

[Ernest Freedman, executive]

Haendel. This is Ernie. And I apologize, we are -- we're running long here. We got another call bumping up against us, and we have other people who want to ask questions. So we're going to be smart capital allocators going forward. And it's not going to be any different than we've done in the past with regards to how we think about things. If tools are available to us, we'll use them. But we're going to be very focused on remaining liquid and being smart about our capital allocation.

[Operator]

Our next question today will come from John Pawlowski of Green Street Advisors.

[John Pawlowski, analyst]

I'll be -- try to be very quickly brief here. Charles, were there any markets in April that actually saw higher turnover?

[Charles Young, executive]

All right. Let me see if I can give that for you. We really didn't see -- I think there was maybe -- you're saying April or are you asking for Q1, to be clear?

[John Pawlowski, analyst]

April.

[Charles Young, executive]

April. Yes. We were pretty much on target and flat relative to prior. Chicago, North Cal and in the West Coast, low as usual. Maybe a little higher in the Florida markets, Jacksonville, Orlando, Tampa, but that's really about it. And it wasn't -- it was really just marginal. We're still seeing really good trends when it comes to turnover.

[Operator]

And our next question will come from Doug Harter of Credit Suisse.

[Douglas Harter, analyst]

Ernie, can you just talk about -- in the first quarter, what -- how large were late payments that you received, and what that impact could be if you continue to waive them?

[Ernest Freedman, executive]

Sure. Yes. So we typically get between about -- about $1 million, $1.25 million of late fees per month. So for the quarter, it would have been about $3.5 million, maybe about $4 million. As I mentioned, in the month of April, we did not charge late fees. We'll see what we're going to do in May and June. Certainly, in some jurisdictions, we're going to follow local rules, and we won't be able to do that, which is appropriate. And so that could -- for us, late fees over the year are about 1% of our revenue, so little bit less. And so we'll just have to see how that plays out through the remainder of the next few months.

[Douglas Harter, analyst]

And just along that, are there any other kind of ancillary fees or other kind of add-on fees that you're kind of not looking to collect at this point? Or is everything else sort of collecting per usual?

[Ernest Freedman, executive]

Everything else should be billing and collecting as usual. The things where we see some of our largest ancillary items are utility reimbursements, and so we're certainly still billing for those. We are seeing -- in any of our other typical fees around applications and things like that, pet rents and all those types of items, those are still being processed and being paid by our residents.

[Operator]

And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Dallas Tanner for any closing remarks.

[Dallas Tanner, executive]

Thank you again for joining us today, everybody. We wish you all the best. Please stay safe. Operator, this will conclude our call.

[Operator]

Thank you. And we thank everyone for attending today's presentation, and you may now disconnect your lines.