Invitation Homes Inc

NYSE:INVH

Earnings Call Analysis

Stable Liquidity with Upgraded Outlook and Growth

As of the third quarter's end, the company boasted $1.8 billion in liquidity and a healthy net debt-to-EBITDA ratio of 5.5x. Most debt is secured at fixed rates, with no maturities until 2026. Fitch recognized this strength by upgrading its ratings outlook from stable to positive. Financial performance saw core FFO per share grow by 4.7% to $0.44, while AFFO per share rose 3.7% to $0.36. Looking forward, the company narrowed its 2023 full year guidance, projecting same-store NOI growth between 4.5% to 5%. Despite higher same-store property tax expenses in Florida and Georgia, core FFO per share is expected to reach $1.75 to $1.79, and AFFO per share is anticipated to be between $1.46 to $1.50, marking a 6% year-over-year growth at the guidance's midpoint.

Strengthening Financials and Constructive Guidance

The company entered the earnings call buoyed by their investment-grade balance sheet, touting a strong liquidity position at $1.8 billion—a healthy blend of unrestricted cash and available credit. Notably, their net debt-to-EBITDA ratio remained comfortably at the lower end of their targeted range, standing at 5.5x. This disciplined approach to leverage is supported by cautious financing strategies, with more than 75% of the total debt being unsecured and nearly all fixed or swapped to a fixed rate. This contributed to a recent positive bump in the credit outlook from Fitch Ratings, indicating confidence in the company's fiscal health.

Solid Growth Amidst Economic Headwinds

The third quarter exhibited robust results with core Funds From Operations (FFO) per share increasing by 4.7% year-over-year, thanks to rising Net Operating Income (NOI), while Adjusted Funds From Operations (AFFO) per share saw a 3.7% uptick. As investors focus on the metrics signaling operational efficiency and profitability, these figures suggest that the company is not only managing its finances astutely but is also extracting greater value from its operations despite the economic challenges posed by the pandemic aftermath and inflation.

Adjusted Expectations Going Forward

Looking ahead, the company has tightened its full year 2023 guidance. The expected same-store NOI growth now rests between 4.5% to 5%, pinned on steady same-store core revenue growth ranging from 6.25% to 6.75%. An unanticipated hike in property tax, primarily in Florida and Georgia, has led to revisions in same-store core expense growth estimates, now between 10.25% to 10.75%. This tax impact underscores the volatility present in regional fiscal policies, which have deviated from historical trends. Consequently, full year 2023 core FFO per share is projected to be in the range of $1.75 to $1.79, indicating a 6% growth at the midpoint. AFFO per share is forecasted to be between $1.46 to $1.50, presenting investors with clear markers to gauge future performance.

Preparing for Uncertain Taxation Landscape

Looking beyond the immediate horizon, the company acknowledges the variability of property tax expense growth but withholds precision on 2024 projections. Past averages of annual same-store property tax growth provide a benchmark—historically around 5.5%. However, recent years have seen deviations from this norm due to unexpected municipal revenue needs, likely a result of inflationary pressures. There is a palpable shift in the company's strategy, recognizing that reliance on past experiences with millage rates will take a back seat. The company is recalibrating its approach to property taxation, indicating a cautious stance towards fiscal forecasting, ensuring that their financial strategy remains resilient amidst fluctuating property tax dynamics. They have promised a more detailed discussion about their 2024 outlook in February.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the Invitation Homes Third Quarter 2023 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 Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

[Scott McLaughlin, executive]

Good morning, and welcome. I'm here today from Invitation Homes with Dallas Tanner, Chief Executive Officer; Charles Young, President and Chief Operating Officer; Jon Olsen, Chief Financial Officer; and Scott Eisen, Chief Investment Officer.

Following our prepared remarks, we'll conduct a question-and-answer session with our covering sell-side analysts. [Operator Instructions] During today's call, we may reference our third quarter 2023 earnings release and supplemental information. This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com.

Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those identified. We describe some of these risks and uncertainties in our 2022 annual report on Form 10-K and other filings we make with the SEC from time-to-time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.

We may also discuss certain non-GAAP financial measures during this call. You could find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in yesterday's earnings release.

I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.

[Dallas Tanner, executive]

Good morning, and thanks for joining us. At Invitation Homes, we've worked hard to build and enhance our platform over the last dozen years, the foundation of which is our people, our systems and our unmatched scale.

We believe our platform is industry-leading and difficult to replicate and, as a result, offers significant value for our stakeholders, residents and partners. It allows us to drive strong performance across diverse, geographically dispersed assets while delivering meaningful returns. We've invested heavily in our platform to provide the highest level of professional service, flexibility and convenience to our residents, helping them to live in the home, neighborhood and school system of their choice. We're proud of what we have achieved in this regard.

And in addition to the power of our platform, favorable fundamentals have continued to drive strong tailwinds for our business. In particular, these include the continuing supply and demand imbalance we frequently mention. By most estimates, the United States continues to face a housing shortage of several million units. At the same time, the demand for single-family homes for lease continues to remain robust due to favorable demographics, a growing desire for flexibility and convenience and soaring mortgage rates that make leasing one of our homes much more attractive and affordable than owning a similar home.

According to John Burns, it's now over $1,100 a month cheaper to lease than to own on average in our markets. That's over $13,000 a year in savings that our residents can use to help their families thrive while at the same time benefiting from the choice and flexibility of leasing a home. We believe we remain well positioned to meet this growing demand for single-family homes for lease.

In addition, we remain committed to bringing new supply to the marketplace through our extensive homebuilding relationships. Our multichannel growth strategy allows us to nimbly deploy capital across a variety of acquisition channels, which allows us to be opportunistic, depending on the channel that's most attractive in the various real estate cycles.

During the third quarter of 2023, we took advantage of several unique external growth opportunities. This included our previously announced portfolio acquisition of 1,870 wholly owned homes for a contract price of $650 million in July. As we disclosed, we acquired the portfolio at a year 1 yield in the mid-5s. And we anticipate this to grow into the 6s within the next year. Progress to date on marking the portfolio's rents to market, increasing occupancy and selling non-core homes has been right in line with our expectations.

In addition to the large portfolio transaction, we also acquired another 387 wholly owned homes during the third quarter through those various channels at an average cap rate of 6%. We effectively funded these acquisitions through the sale of 397 wholly owned homes at an average disposition cap rate of approximately 4%.

The 200 basis point spread between acquisitions and dispositions once again illustrates our unique ability to accretively recycle capital out of older, higher-dollar value homes and into newer, higher-quality product. We believe our portfolio makeup affords us this opportunity to accretively recycle capital in this way for some time to come.

In closing, I'd like to express my thanks to our dedicated associates. Through their hard work, Invitation Homes has continued to achieve significant milestones and deliver strong financial performance. As we move forward, we remain confident in our ability to navigate these challenges, capitalize on opportunities and leverage our platform in order to drive sustainable growth and value for our stockholders. Thank you for your continued trust and support.

With that, I'll pass the call on to Charles Young, our President and Chief Operating Officer.

[Charles Young, executive]

Thanks, Dallas. To start, I'd like to echo your comments and thank our associates for delivering another great quarter. This includes the hard work by our teams to smoothly onboard the nearly 1,900 homes we acquired in July. Our premier size and scale help make acquiring large portfolios like this one relatively programmatic while it is our amazing associates who ensure the transition is seamless and the ongoing resident experience is worry-free.

I'll now walk you through our third quarter operating results. Favorable fundamentals and strong execution led to same-store NOI growth of 4% year-over-year in the third quarter of 2023, in line with expectations. Same-store core revenues in the third quarter grew 6% year-over-year. This increase was driven by average monthly rental rate growth of 6.2% as well as a 20 basis point improvement in bad debt.

We're pleased to see progress here for the second consecutive quarter, including within Southern California, where court times have meaningfully improved since the first part of the year. In the meantime, we continue to attract high-quality residents with our great homes and professional service. For the trailing 12 months, our new residents earned a combined household income of over $142,000 a year, representing an average income-to-rent ratio of 5.2x.

The financial strength of our customer is also evidenced by our industry-leading partnership with Esusu that we announced in July. In just a short time, we've helped enroll over 160,000 of our residents onto Esusu's free credit reporting program. About half of these residents have already seen an improvement in their credit score with an average increase of over 20 points.

In addition to attracting high-quality residents, they continue to stay longer with us. Length of stay is an indicator of overall resident satisfaction, which we're pleased to see has increased again this past quarter to an average of 36 months. We believe our premier ProCare service, along with the many convenient and value-add services we offer, help contribute to this longevity.

The newest offering that we have just started to roll out is bundled Internet. We're excited to partner with one of the nation's largest providers to offer high-speed Internet and digital media to over 1/3 of our residents across the country. Once again, our scale allows us to provide this essential service at a substantial discount to what our residents might otherwise pay on their own.

Turning back to our same-store results. Third quarter 2023 core expenses increased 10.2% year-over-year. This included year-over-year increases of 11.7% in fixed expenses and 8% in controllable expenses, the latter of which was primarily driven by an increase in turnover compared to the historic lows of last year, along with the cost related to the progress we're making on our lease compliance backlog.

Next, I'll cover same-store leasing trends in the third quarter. Demand in our markets remained strong through the end of peak leasing season. As we've noted previously, we are seeing a return to more normal seasonality, which we believe represents a much healthier and sustainable footing following the extraordinary market rent growth we saw in the past 2 years.

Nevertheless, our third quarter 2023 same-store leasing results are still well above pre-pandemic norms. This includes average occupancy in the third quarter of 96.9%, or 120 basis points higher than our 2018 and 2019 third quarter averages. In addition, blended rent growth in the third quarter of 2023 was 6.2%, or 170 basis points higher than our 2018/2019 third quarter averages.

Third quarter 2023 blended rent growth of 6.2% was comprised of renewal rent growth of 6.6% and new lease rent growth of 5.2%. We're pleased to have seen an acceleration in renewal rent growth each month in the third quarter of 2023. Renewal rent growth is further accelerating with October's preliminary results. This represents a strong performance for the third quarter that is once again attributable to our outstanding associates.

As we approach the end of the year, we remain focused on continuing this momentum and finish the year strong. I'm proud of our teams for their tremendous contributions this past quarter and the great effort I know they will deliver during the remainder of the year.

I'll now turn the call over to Jon Olsen, our Chief Financial Officer.

[Jonathan Olsen, executive]

Thanks, Charles. Today, I'll cover the following topics: first, an update on our investment-grade rated balance sheet; second, financial results for the third quarter; and finally, updated 2023 full year guidance.

I'll begin with our balance sheet. At the end of the third quarter, we had $1.8 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Our net debt-to-EBITDA ratio was 5.5x as of the end of the third quarter, at the low end of our targeted 5.5x to 6x range.

Our outstanding borrowings carried a weighted average interest rate of 3.8%. And we have no debt reaching final maturity until 2026. Over 75% of our total debt is unsecured and over 99% of our debt is fixed rate or swapped to fixed rate.

In August, we closed on an $800 million dual-tranche public bond offering comprised of $450 million of 7-year notes at a 5.45% coupon and $350 million of 10-year notes at a 5.5% coupon. We used a portion of the net proceeds to repay the $150 million we drew on our revolver in July with the remaining net proceeds serving as additional dry powder for growth or future debt repayment while earning an attractive deposit yield from our banks in the meantime.

In August, as a result of our strong balance sheet and continued access to capital, we were pleased to see Fitch upgrade its ratings outlook for the company from stable to positive and affirm our BBB flat rating.

Next, I'll briefly touch on our financial results. Third quarter core FFO per share increased 4.7% year-over-year to $0.44, primarily due to an increase in NOI. Third quarter AFFO per share increased 3.7% year-over-year to $0.36.

The last thing I'll cover is our updated 2023 full year guidance. Our third quarter year-to-date results have generally been in line with our expectations. With a little over 2 months remaining in the year, last night's release included a tightening of most of our guidance expectations.

This includes a narrowed range for full year 2023 same-store NOI growth of 4.5% to 5%, which is based on a narrowed range for same-store core revenue growth of 6.25% to 6.75% and revised same-store core expense growth of 10.25% to 10.75%. The expected increase in same-store core expense growth guidance is based primarily on a higher same-store property tax expense expectations in Florida and Georgia.

While the fundamentals that have favored housing are well known to us, we originally anticipated property tax millage rates in both Florida and Georgia would decline to at least partially offset some of the unprecedented home price appreciation that's occurred there. Based on the property tax bills we've received or expect to receive during the fourth quarter, that's not been the case and causes us to now expect full year same-store property tax expense growth of approximately 10% to 10.5%.

Our updated guidance also tightens the ranges of expected core FFO per share and AFFO per share. We now expect full year 2023 core FFO per share in a range of $1.75 to $1.79, or 6% growth year-over-year at the midpoint, and full year 2023 AFFO per share in a range of $1.46 to $1.50.

With that, we have now concluded our prepared remarks. Operator, please open the line for questions.

[Operator]

[Operator Instructions] The first question comes from Michael Goldsmith with UBS.

[Michael Goldsmith, analyst]

My question seeks to frame the factors that caused the deceleration in occupancy and the slowdown in lease rent. So how much is attributable to normal seasonality, a return to more long-term pre-COVID averages, lease compliance and moderating underlying demand? I guess, where is the business structurally better now? And where is it reverting back to pre-COVID averages?

[Charles Young, executive]

Yes, thanks for the question. This is Charles here. Now look, I think as you laid out, we're seeing seasonality that we expected. I think we've signaled this all year. Coming off of the pandemic times, which are kind of heady in terms of rent growth and occupancy, we expected that the end of the year, we'd see this more typical seasonality. And let's level set a little bit on what that means.

What that means is new lease kind of goes a bell curve throughout the year with peak being around June or July. And so historically, we've always seen kind of going down that bell curve in August and September as the end of the move-in season happens. Because typically, your summer is when you're getting the turnover and people are moving in. And that's why you get the real pop in the new lease rent growth.

And the peak may vary. But at the end of the day, that downturn, if you will, on the bell curve is August and September. So if you look back pre COVID, and I went back to prior to the pandemic times, that new lease range was around 1.5% to 3.5%. And for our September, we're right around 3% or just below. So this is normal. What's not normal is renewals, on the other hand, historically stayed steady throughout the year.

And so we've been there, but we're running a little warmer than we've seen historically. If you look back pre COVID, renewal rate was around 3% to 5%. Now our September renewal rate is 6.9%. What that tells you is we still are in this really strong fundamentals of the business, where there's high demand, an undersupply of homes, we're leasing well.

And I would add to it that we have, as we expected, a little higher turnover this year, given our lease compliance backlog work. You put all that together, we're in really normal seasonality that we would expect. And Q3 being at 96.9% occupancy, if you go back to those years I was talking about, we weren't this high.

So we're combining really nice blended overall rent growth for this time of the year, really high occupancy and kind of a return to normal seasonality with strong fundamentals kind of driving the business. So I feel good where we are. And I understand how it may seem like it's different. But at the end of the day, we had 2 years that were just abnormal, and we're going back to more typical season.

[Operator]

The next question comes from Eric Wolfe with Citi.

[Eric Wolfe, analyst]

So I appreciate that visibility on 2024 taxes is probably really low at this point. But just trying to understand whether you think it's going to be sort of another year of very aggressive tax increases or if the moderation that you've seen in home prices this year will result in a similar moderation of taxes. And just historically, if you look at in a given year, the degree of change in home prices, is that a good predictor of what next year should look like in terms of tax increases?

[Jonathan Olsen, executive]

Thanks for the question. It's Jon. While we're not prepared to talk about 2024 at this time, I think you really hit the nail on the head when you tied together what's been happening with asset appreciation, what's been happening with home values and what the outsized year-over-year property tax expense growth has been for the last 2 years.

I think it's interesting, if you look over a trailing 5-year period, our annual same-store property tax growth averaged around 5.5%. But within that time period, 2021 was sort of an outlier to the low side. So I think we've seen a bit of a catch-up factor. As we look and think about property tax, we've always been pretty good at predicting where values were going to come in. Values haven't been the problem for us.

The challenge for us is that we have assumed that as values increase, and those increases have been substantial, that we would see some degree of relief on millage rates. That was our experience over much of our history. That is what we expected last year. Obviously, it didn't come to pass. This year, we did not expect that same pattern to unfold.

So as it turned out, I think the revenue need in municipal budgets was greater than we anticipated, probably based on inflation. And we saw little to no relief on millage rates in Georgia and Florida. So as we look to 2024, we're going to be reassessing how we think about property tax. I think we'll be less reliant on what our historical experience has been, at least for the intervening period. But as I said, we're not prepared to give a sense for 2024. We'll talk about '24 in February.

[Operator]

The next question comes from Jeff Spector with Bank of America.

[Jeffrey Spector, analyst]

I just want to, I guess, clarify the comments on seasonality and how we should think about that heading into the fourth quarter, what that may mean for new lease rate growth. And maybe you could talk about historically what you would normally now see, let's say, from September to October, from 3Q into 4Q. Like what should we be expecting?

[Charles Young, executive]

Yes. As I described, the new lease kind of bell curve goes up and down through the year and goes into Q4 and will kind of bottom out and then go into Q1 and build up later on. Where we will kind of low point will be, it's hard to predict. But we're still seeing good demand. We have high occupancy. As you look at that, some of that is we are trying to drive towards what we know are kind of the healthy occupancy, given our low turnover at this point.

And so that will be kind of the balance there. But I don't expect it will go much lower than we are right now. And we'll see where it goes. I think the strength is on our renewals, as I talked about. Again, we're seeing acceleration from September into October, as I mentioned. And keep in mind that given our low turnover, 75% of our newly -- of our leasing business is renewals. And so that really does drive our overall results. So seasonality is -- on the new lease side is a part of the business.

It actually -- we look at it and welcome it because it brings us to a more normal period that we're used to. And we understand how that works. And when you look at the blend throughout the year, we're really strong. And our blend is much higher than we've been historically pre COVID as well. So business is in good stead. And I expect we'll -- Q4 is where new leases kind of bottom. And then we go into Q1, we'll start to bounce out of there and go while I'm feeling good around our renewals, given our loss to lease and overall low turnover.

[Operator]

The next question comes from James Feldman with Wells Fargo.

[James Feldman, analyst]

So if I could just grab a quick rebound off of Jeff's question, which is can you talk about new lease rates in October? But my question is actually, you had talked about 4% yields on your cap rates on your asset sales versus 6% on acquisitions. I mean, how sustainable is it? We've got the 10-year treasury at 5%, mortgage rate is high. I mean, how sustainable is it to keep that 4% sales yield or cap rate or even your 200 basis point spread, given how much rates have moved and just where the market looks today?

[Dallas Tanner, executive]

Yes. This is Dallas. And look, as we look at the overall landscape of the marketplace, there's no doubt that the elevated mortgage rate and mortgage rate environment is certainly shifting behaviors in the home buying and selling arena. Now our view of that landscape currently is, as Charles pointed out, it's probably going to impact to the positive our renewals business because there is less transaction availability in the marketplace overall.

The lock-in effect and things that we're hearing as we talk with economists out there and homebuilders, and we obviously have a lot of great relationships there, is very real. And I think the resale environment is evidenced by, I think, NAR's number on annualized sales are predicting somewhere around 4 million, which is off by like 30% in terms of how you think of normal transaction volumes.

What does that mean for the rental business? And I think, by and large, if you look at all the data, there are less single-family homes for rent on market today than there were 2 or 3 years ago. Many homes get sold back in as MLS inventory. And candidly, it's not enough. And I think what we've experienced, we see it on both sides of the transaction, right? We are active in the MLS market as a buyer trying to buy assets at what we think are clearing price of capital is at any given point.

We are not finding a lot of transactions in that environment because we get outbid. And so there is ample demand for homes in the marketplace on a resale basis as evidenced in the data that we have around selling. And that's been really consistent. So we feel really comfortable. As Jon talked about before, our values are up dramatically over the last several years.

As we go to sell homes in the market, we're having little to no problem selling a home for any particular reason that we deem from an asset management perspective. And we're selling those at really great marks. And then being able to accretively invest that capital back into homes at much higher cap rates, as we talked about in the release, we view as a very good capital allocation strategy for our business going forward.

We're selling older homes, maybe they have some form of CapEx risk and generally recycling those into newer homes with very little CapEx long-term risk at much better yields on cost. So I don't know the answer as to how long that can -- that market can be out there. But it feels like there is a homebuyer market even at today's mortgage rates, albeit it's much more muted. However, the absolute lack of supply in the marketplace is a very real factor. And we don't see that changing anytime soon.

[Operator]

The next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

You guys have highlighted some of the unique challenges this year from kind of normalizing conditions. And you've had tough year-over-year comps in lease rate growth. You've had the lease compliance backlog to work through and just higher turnover. I guess, are those challenges behind us? And when you referenced occupancy and lease rate growth above the 2018 and 2019 period, do you expect you can sustain occupancy above those periods as well as lease rate growth, given some of the tailwinds to the business?

[Jonathan Olsen, executive]

Yes, I'll let Charles speak to the occupancy piece. But I think as far as your question, if I heard you right, are we through this transitional period? I think the short answer is not yet. Charles and his team have been doing yeoman's work on the ground. We're really pleased with the progress we've made working through our delinquency backlog. Quarter-over-quarter, bad debt was down 20 basis -- sorry, year-over-year, bad debt was down 20 basis points, but rental assistance was down 80%.

So the health of our customer as we get those homes released is quite strong if you look at our income-to-rent ratio. So I think we've still got a little bit of wood to chop. Certain of our markets have been able to move more quickly than others. But we're certainly heartened by the fact that it seems as though court systems are now moving a little bit more quickly. California, in particular, is becoming a little bit easier to navigate.

But it's going to take us a little bit of time yet before we truly can say we've returned to normal. But I think the results that we've posted and what we're seeing in our portfolio in light of that transitional experience we've been going through all year, I think, really underscores what a great business we have and how strong the underlying fundamentals are.

[Charles Young, executive]

Yes, this is Charles. I'll just add a couple of thoughts. You're asking around some of the tailwinds. Look, there's more positive that we're seeing. We knew for this year, we had the least compliance backlog to go through and it was going to elevate turnover temporarily. Given that backdrop though, we've had tremendous new lease rent growth all year long. We're just returning to normal seasonality, as I discussed.

We've been in occupied north of 97% all year long. Q3, normal seasonality, 96.9%. As I look at the portfolio going forward, this is what typically happens, Q4 will bottom out on occupancy and start to rise back up. And we are doing this in a backdrop where we've had higher turnover that will ultimately start to -- we see it as transitory and start to normalize as we go into next year.

So there's a lot of really good things going on. And we're seeing good -- still seeing really good demand across the way. Again, it's around the balance of new lease and renewals. And just to highlight the renewals, for November, we went out at over 9% for November and December on new lease -- renewal asks. So ultimately, I think that leads to the steadiness of the business, the demand that we have.

And ultimately, I think it puts us in a more kind of stable footing that we know what to expect, especially as we work through this lease compliance backlog. And as Jon said, many of our markets are back to normal. We're still working through it in a few markets like Atlanta and California and a couple of others. And once we do that, then those tailwinds will get even better as easier comps for next year.

[Operator]

The next question comes from Steve Sakwa with Evercore.

[Steve Sakwa, analyst]

I guess, I've got a -- just a follow-up because I'm getting hit by a few people on this number and just trying to nail this down. You've been very clear about where, I guess, renewals are coming in and where they're going out. But it seems like there's a little bit more opaqueness on the new leasing.

So Charles, I think you said that historically this time of year, the range would normally be in kind of the 1.5% to maybe 3% range. So are you in that range for, say, October? And are you kind of towards the higher end of the range or the lower end of the range? Because I think folks are just trying to get their arms around where new leasing is today.

[Charles Young, executive]

All right. Very good. This is Charles. Look, we are -- the month is not over for October. So this is all preliminary on both numbers. We are comfortably in that range. And it will be what we expect to be, above 2%, for October. We'll see where it settles out. But that again is normal in terms of the seasonality and also given a little bit of elevated turnover, given the seasonality and what we're doing on the lease compliance backlog.

So I like where we are. And I think if you're looking ahead, it's the renewals that should give a lot more optimism. Given that the new lease is only 25% of what we do on our leases, the renewals is what's going to drive the blend as we go forward and keep our occupancy steady and high.

[Operator]

The next question comes from Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, analyst]

Just on the lease compliance or COVID era issues, when do you think we'll work through that? And do you have a sense of what the expense profile would be if those items -- if those homes that churn over is kind of stripped out, just to think about what the cost growth would normalize to once that debt is cleared out?

[Jonathan Olsen, executive]

Juan, it's Jon. That's a good question. I think a couple of things to bear in mind. Historically, bad debt for us has run, give or take, 50 basis points if you go back to the pre-COVID period. For the third quarter, we came in at 133 basis points, which was down materially from what our experience has been over the last several quarters. So we're absolutely heartened by that.

We do believe that over time and distance, we can get back to those pre-pandemic levels. That said, it's hard to predict the timing. There are a lot of factors that come into play. Certain of those factors are out of our control in terms of how quickly courts can work through their backlogs. The various steps in the process of resolving those delinquency issues can sometimes take longer than we would hope. That said, I think we do see a path to a return to normalcy.

I think the other thing I would note is turnover has been elevated for all the reasons Charles talked about. I think roughly 19% of our move-outs in the third quarter were related to skips or eviction move-outs. That's up, I think, 400 basis points year-over-year. And those skip and evict turns can cost 50% more than a regular way turn.

So if you adjust for sort of the -- both the elevated turnover, the higher cost of a larger subset of those turns, the fact that those skip and evict turns on average are going to take a few days longer, which has an additional impact on occupancy beyond the impact of turnover already, I think when you put it all together, we feel really good that as we continue this march towards a return to normal, if you will, that we see a path to getting back to a portfolio that operates in a manner very similar to what we experienced before the sort of anomalous last few years of COVID.

[Operator]

The next question comes from Adam Kramer with Morgan Stanley.

[Adam Kramer, analyst]

Just wanted to kind of talk about the -- kind of the cash on the balance sheet. I know you did the debt offering in the quarter. I think cash is kind of sitting higher than it has historically as a result. You took up the kind of the acquisition guidance by a little bit.

I think it only kind of implies maybe, I think, $100 million or so of acquisitions from here on the wholly owned side. So maybe just walk us through kind of what the opportunity set is like in terms of acquisitions now. And just in terms of the capital deployment, anything else that we're maybe not thinking about that some of that cash can be used for?

[Dallas Tanner, executive]

This is Dallas. Great question on the environment. I think we're -- and I'll let Jon speak a little bit around how we're thinking about cash as I finish. I think we want to stay in a position of strength. And the goal would be to make sure that we have as much flexibility between cash, our JV businesses, our pipeline with new construction, which continues to be an interesting area for us as we continue to evaluate better opportunities and then ultimately also being ready for some additional hopeful M&A over the next couple of years as smaller portfolios sort of get in a position where they have a decision tree moment and have to make a decision based on the capital markets, maybe in availability that's out there.

And so look, while we don't have anything pressing or current and we just digested 1,800 homes that we did last quarter, we certainly want to be ready if or when the opportunities come in front of us. We are still seeing opportunities out there with significant embedded loss to lease from some of the other smaller portfolios. We're having sort of the inbounds that I've talked about at Nareit in June. And we still continue to see sort of what-if type of moments. I think people are still trying to get their heads around where those opportunities are if you're a seller.

As I mentioned earlier on the call, we do not see the MLS as a big source of opportunistic external growth for our business. We prefer to continue to stack a bunch of this newer product at pretty meaningful discounts to where kind of they're selling in neighborhoods and being able to sort of insulate our balance sheet, so to speak, with newer product, less CapEx risk while we sell older assets at really updated marks.

So I think from an external growth perspective, just keeping our options open, making sure that we have plenty of cash available, Jon can talk more about what we're doing with that cash, and then also just making sure that we're keeping our eyes out on just any and all kind of balance sheet activity that could be available to us.

[Jonathan Olsen, executive]

Yes, Adam. With respect to cash, I mean, the thing that feels really good at the moment is the fact that we can sell assets at a 4% cap, put the cash in the bank and earn 5.35%, right? So we don't need to have an immediate sort of capital redeployment opportunity. We can basically park the cash, and it is still accretive, up until such a point that we find something that is interesting to go after on the acquisition side.

So in this moment in time, being liquid, having a lot of capital just makes sense to us, right? So a portion of that cash on the balance sheet is, if not directly earmarked, it's certainly, in our minds, circled to take care of one of our 2026 maturities, which is the $615 million 2018 for securitization. But I think all things considered, right now, we want to maximize flexibility. We want to maximize optionality. And that means sort of having as much dry powder on hand, particularly if holding that cash is accretive. It just makes sense.

[Operator]

The next question comes from Keegan Carl with Wolfe Research.

[Keegan Carl, analyst]

Just wondering if you could provide any color on recent news that you're entering property management, given the articles that came out.

[Dallas Tanner, executive]

We appreciate the question. We have nothing to report. By nature, we don't comment on speculation. We've said in the past that with the strength of our platform, we're going to continue to look for opportunities, find ways to grow that can both be capital-light and accretive and also look for areas where we can actually leverage the platform to enhance our own operating margins. But as of today, we have nothing to report.

[Operator]

The next question comes from Buck Horne with Raymond James.

[Buck Horne, analyst]

Following up on that, I was just wondering if you could maybe comment on your thoughts on expanding joint venture relationships or any partnerships there. And also, your thoughts on working with homebuilders, if there's any interest or you're finding any availability with builders to do more build-for-rent communities.

[Dallas Tanner, executive]

Buck, thanks for the question. On the second one around builders, yes, I mean, we are definitely -- we have existing relationships already with some of the bigger builders in the country that I think everybody on this call is aware of. Those relationships have been excellent for us. I hope they've been equally as excellent for them. We are all looking to expand those pipelines and create additional, what we would call, deal flow through the channel of partnering with our homebuilder partners.

And just by sort of a way of kind of reminding everyone, one of the things we love about that, just call it C of O, C of O-plus-type relationship is we get meaningful discounts. We can put sort of limited deposits out there. And we manage that business in that pipeline, which today sits at roughly $1 billion or more, in a way that is very effective and efficient for us.

As we look for other opportunities, I think one of the areas that we've been pretty vocal on, especially in light of where the capital markets are treating equity prices for REITs, is doing more in and around ventures with partners that are sophisticated and also have sort of the same ambition around the single-family space that we do.

And so we don't -- while we don't have anything sort of new to announce on that front, we are always having inbounds and active dialogues with potential partners. One of the areas of which that seems to be the most appealing is around our new construction business.

And that, to me, feels like a natural fit for us as we continue to build out our JV businesses over time that we could bring on strategic capital and still be a partner with them with our balance sheet capital, to Jon's point, and put meaningful opportunities to work over time. And I think that business will continue to develop and evolve for us. And we'll obviously keep everybody posted if or when there's anything to talk about there as well.

[Operator]

The next question comes from Daniel Tricarico with Scotiabank.

[Daniel Tricarico, analyst]

Question on the JV acquisition guidance coming down, Dallas, can you talk to what you're hearing from your partners and how their outlooks or expectations have changed over the last 90 days?

[Dallas Tanner, executive]

I just think there's been honest conversations around where the clearing price of capital is. And I think that has more to do with where the debt capital markets are or aren't as they've shifted. It feels like it's sort of a new conversation every 30 or 40 days in terms around where debt facilities are. I mean, if you look at the deal Jon and the team did in August in the bond market, we had basically a blended cost on that $800 million of around 5.5%. And I think that market is far different today, being 60 days later.

And so as we think about where we would need to be as a partnership either with our own capital being partnered with theirs or if we were to just do things on-balance sheet, like where is sort of our strike price? And it definitely feels like it's in today's world in the 6s. We've talked about that in the last earnings calls. We're looking for accretive opportunities that are sort of in the 6s on a yield on cost for us today. And being outside of that, I think capital is willing and able. I think capital market is less so willing at times. And that's what we're trying to sort of navigate through right now.

[Operator]

The next question comes from Alan Peterson with Green Street.

[Alan Peterson, analyst]

Charles, I was just wondering, what markets are you seeing the most concession usage across the portfolio today? And what's the average concession being offered? As you kind of stare out to the end of the year, are you anticipating needing to dial up concessions to build back occupancy into year-end?

[Charles Young, executive]

Yes. So we ran no concessions through Q3. But as we're looking at the landscape now, and to your point, thinking about occupancy and trying to go into 2024 on a solid footing, we're looking to go selectively while the market is still kind of pumping. We feel the demand is here. But things slow down typically on the holidays. And so I would expect that we'll run some select concessions in markets that have been a little softer.

As I look around Vegas, I've talked about this before, it softened a little bit. We're seeing a little bit of softness in Phoenix lately. Those two markets sometimes run similarly. But a lot of it will be around thinking about homes that may be on the market a little longer. And so we'll try to move that product. So it's a balance.

And it's really, just to your point, around trying to make sure that we are in good footing going into the start of the year. At 96.9% occupancy, I expect October to kind of be at that same level, plus/minus, and then will rise from here. That's what typically happens in the seasonality. And we want to push to get that back over 97% as fast as we can. And that's how we'll use concessions as need be.

[Operator]

The next question comes from Tyler Batory with Oppenheimer.

[Tyler Batory, analyst]

A follow-up question on your builder relationships. Can you remind us what your underwriting for cap rates in that channel? And then when you look at some of the homes that you've taken down already, especially from Pulte, with that relationship, can you talk a little bit about lease-up trends, maybe you're getting better unit economics on those assets and comparable homes?

[Dallas Tanner, executive]

Yes. On your latter point, and while we don't have any specifics we're releasing, I'd just tell you that we are -- we've generally really outperformed underwritten rents on the communities as we've taken them in. I think Scott shared that on some of our Investor Days and things that he's held out at some of the different communities as they've onboarded. And I just mentioned before, it sort of feels like the market today needs to be somewhere in the 6s to have it really want to make sense as you start to measure absorption risk and new construction pricing and the like.

But to be fair, that shift mix can vary by market-to-market. And we're total return investors at the end of the day. So we're looking for, one part, asset appreciation going-in basis on cost or how we think about replacement costs in a way that feels like measured risk. And then we need to have convictions around where we see demographic trends going because we believe that's ultimately a proxy for where rents go.

And I think as you look at our business, the one thing that we have fundamentally more and more conviction around, the customer today with us this quarter is staying almost 36 years as you average that across the portfolio. That is a much stronger -- did I say 36 years? 36 months, excuse me. I wish it was 36 years. But 36 months is meaningful.

As Jon talked about turnover and the costs that are associated with it. And as you look at our business in that demographic window, the average customer between 38 and 39 years old, we have a massive pipeline of customers potentially coming into our business. And many of them want to live in a new community with brand-new schools. And that to us is a winning value proposition for our business.

[Operator]

The next question comes from Jesse Lederman with Zelman & Associates.

[Jesse Lederman, analyst]

Are you hearing or seeing any impacts from rising apartment availability across any of your markets that might be keeping renters in the multifamily asset class for longer than they otherwise would be, recognizing that the new multifamily supply is largely catered toward luxury products and any concessions offered by apartment operators might make the value proposition for apartments versus single-family rentals more attractive?

[Charles Young, executive]

Yes, it's a good question. I think I'd start with the majority of our renters come from single family. So there's not a lot of overlap. It's somewhere around -- the number that are coming from historically that have been coming from multifamily is 10% or less. And so it will vary market-by-market in terms of the size of the market. But generally, we'll not see that have a direct impact on us and -- but we'll pay attention to it.

I think a couple of years ago, we felt it a bit in South Florida, when there was a bunch of condo product out there. And so I think again, each market will have its own nuances. But given that most of our folks are families, pets, looking for school districts, having a backyard and having extra space for a Zoom call, all of these things drive people that are looking for single-family homes, as Dallas said, moving their kids for the good schools. That's the driver.

And so the multifamily isn't a direct competitor most of the time. And that's not in all the cases. But generally, we're looking at kind of the mom-and-pops that are out there that are offering homes. And that's been our main competitor throughout. And what we know is, given our marketing kind of platform and universe, we do well against that, given our professional ProCare service and all that we provide.

[Operator]

The next question comes from Brad Heffern with RBC Capital Markets.

[Brad Heffern, analyst]

Jon, I was wondering if you could give the size of the true-up for the under-accrued property taxes that fell into the fourth quarter. I think the implied growth guidance for the fourth quarter is roughly 6.5% for OpEx. Just wondering what that figure would have been without the out-of-period taxes.

[Jonathan Olsen, executive]

Well, I think -- for the fourth quarter, I think the reasonable expectation is that year-over-year Q4 property taxes will be up between 6.5% and maybe 7.25%. I think that's the right way to think about it.

[Operator]

The next question comes from Anthony Paolone with JPMorgan.

[Anthony Paolone, analyst]

I guess, along the same lines, if -- given what's happened on the property tax side and just insurance this year, if we're thinking about the full year impact and starting to think about '24, can you maybe just help us with any brackets? Like are there enough levers to even bring expenses down into a more normalized growth range next year? Or does the full year impact really just keep these up such that your OpEx is going to run high again for another year?

[Jonathan Olsen, executive]

Thanks for the question, Tony. As I said, we're not in a position where we're going to start talking about '24 yet. I think we are going to evaluate everything in totality. I think when we are prepared to talk about 2024 in February, we will give you a sense for what our expectations are around both of those line items. Because look, we certainly understand that we have seen outsized growth in both of those over the last few years.

And I think as we take a step back and think about where we are, we are in the midst of a return to "normalcy." I think there have been a lot of factors in our business and other businesses that have had some temporary structural impacts that are going to take some time to resolve. How long that is, I think, remains to be seen. And we'll be happy to chat about that a little bit more when we release our '24 guidance.

[Operator]

The next question comes from Jade Rahmani with KBW.

[Jason Sabshon, analyst]

This is actually Jason Sabshon on for Jade. So at current cap rates, what do you think the IRR is on single-family rental acquisitions over a 5- to 7-year hold? And do you view that as attractive? And separately, what's your outlook for home prices over the next year?

[Dallas Tanner, executive]

I think as you look at going-in cap rates, reasonable assumptions around home price appreciation, in our markets, it feels like on an unlevered basis, you could certainly be in the high single digits, low double digits based on sort of the returns that we're seeing out there. I think that, obviously, that equation sort of depends on your inputs around leverage over time.

[Operator]

The next question comes from Haendel St. Juste with Mizuho.

[Haendel St. Juste, analyst]

Dallas, you mentioned earlier the portfolio still has, I guess, more of an opportunity to generate accretion from asset recycling, selling older assets to buy new ones. Could you maybe put some broad brackets around that opportunity? Do you see that as perhaps 10%, 20%, 30% of the portfolio? And how much large of a role should we expect for disposition to play in funding your business near term?

[Dallas Tanner, executive]

Haendel, good question. One of the things, and Jon mentioned it, is we have sort of a high-class problem right now. And it's that we have assets that have really good valuations to them, a market that is starved for product if you're selling a home. But we also have a business that's got really amazing growth fundamentals behind it. And so anytime homes come up for a renewal where we reprice, we call it, a rebuy analysis and we look at the portfolio as a whole, and there's a lot of different reasons for holding an asset, and there's a lot -- there can be several different factors to why you may consider selling an asset.

I think in today's environment, with equity being so precious, I think if there are opportunities to recycle capital, expect us to be probably a little bit more aggressive there. And we've certainly shown that the last couple of years. I think the company itself generally has gotten really good high marks for being good capital allocators. We've sold probably 13,000, 14,000 homes back into the market over the last decade. And we look at the U.S. single-family housing market as the most liquid asset class in the world. And there -- our homes are generally located in areas where if we want to sell that home, there are a lot of buyers as well as there normally would be a lot of renters for that home.

And so that's a high-class problem. I think we'll evaluate our capital opportunities over time. If we think that, that makes sense to keep recycling because of sort of the spreads between where values are and where we can reinvest accretively, expect us, as I mentioned before, to be a little bit more aggressive there. But in terms of issuing like a guidance on that, we'll update our thinking in February again. We did that at the beginning of this year. We've been a little bit more of a seller relative to what we laid out at the beginning of the year. And that's been based on the market opportunity.

[Operator]

The next question comes from Anthony Powell with Barclays.

[Anthony Powell, analyst]

Could you update us on your views on the risk of shadow supply and mortgage rate lock-in? I think this comes up from time-to-time, question to us. With mortgage rate at 8%, people may want to hold on to their current mortgage for longer. Do you expect to see more supply from, I guess, accidental landlords going forward? And is that something that you underwrite when you buy properties or when you look for developments?

[Dallas Tanner, executive]

My own view is that, just based on conversations we're having with both economists and homebuilders, it certainly feels like mortgage rate sensitivity has been more of a factor for people. Builders have had, obviously, tremendous success in buying down mortgage rate. And they've been able to do that for the better part of the last year, 1.5 years.

As these rates get more and more elevated based on where the 10-year and sort of treasuries are, I would expect that, that probably increases people's willingness to stay locked in, in a home that they currently own. I was looking at this the other day, and I think it's still somewhere around 80% of the country is still at a sub-5% mortgage rate. And we talk about this in our earnings release. It's about $13,000 a year cheaper to rent a home right now, an Invitation home, than it is to go out and buy.

And I don't see that changing in the near term. If anything, I think, with this higher-for-longer period that people keep referring to, it sort of seems like the new reality right now. And I think it's probably a really good thing for those in our business in terms of the inherent demand that Charles talked about. And I think we're probably seeing some of that in the elevated renewal rates that are still sticking around through Q3 and likely into Q4.

[Operator]

Our final question comes from James Feldman with Wells Fargo.

[James Feldman, analyst]

I just wanted to go back to your comments on JV opportunities and fee opportunities. So if you were to expand the JV platform meaningfully, would you think about entering new markets, maybe new home types? Or do you think you kind of stick with the exact same strategy you have and types of markets you have? And then similarly, if you think about the -- if you do more kind of fee management, is that purely just a fee collection business? Or do you take equity stakes in those types of portfolios as well?

[Dallas Tanner, executive]

To your question on markets -- this is Dallas. To your question on markets, we love the markets we're in. I think one of the reasons that we've had the sort of performance that we've had historically, and we've been one of the top 5 -- we've had probably the best numbers in the residential space the last 5 years running, is in large part because we've been very deliberate about where we invest capital and why. And if you look at our concentrations, we've been in some of the highest-growth parts of the country, and I wouldn't expect us to change that philosophy.

In addition, I think one of the reasons we get the operating margins that we do, and right now we're in the high 60s and we have markets that are well into the 70s, is because of our focus on scale, density and being able to lay out services that people are going to want for longer periods of time. And so as we continue to focus on being in not just the right states but the right markets within those states and then building out scale and product density that allows you to meaningfully impact your service model, that is a winning proposition for Invitation Homes over the long term. And don't expect us to change from that.

Now to your question around product type, we've certainly experimented a little bit as we've done more and more infill with some townhome-type product and some product that was a little bit higher density. One of the purchases we made in Q3 was a community like that in Arizona. That was a little bit higher-density product, really good location, right off a meaningful transportation quarter in the west side of Phoenix.

I think you could see us continue to try to experiment a little bit on townhome-type product. But remember, square footage matters and amenities matter in those situations. We certainly aren't an apartment investment -- an apartment investor today doing 800 to 1,000 square foot units. That's not our business. We want to be 1,500, 1,600, 1,700 square feet minimum and preferably a little bit bigger than that. That lends to the demographic that we think we cater to the best.

In terms of your question around fee management, look, I think you've seen us as a company over the first decade prove out a couple of things. One, we have an ability to take on scale in a meaningful way time and time again and integrate that into our platform and see margin expansion in our numbers. We've done that last quarter with the 2,000 units we added with that trade meaningfully. It will add to additional scale and density and what we believe will be margin expansion over time.

I think as we start to consider things around -- we get the question around property management and as we've expanded our JV businesses, we want to look for things that are accretive, that are going to give us scale but that won't take away from the disciplined approach we already have to our business. And so if it has scale, if it's meaningful and if it can actually lend to our own operating margins in a way that we think that our business becomes more profitable, especially in a capital-light way, those are things we're going to look at in the future and continue to evaluate.

So focused on controlling the controllables right now within our business. I feel like Charles talked about this. Our business from a controllable perspective is running really, really well. I think as we get through some of this near-term noise and what we call kind of the pandemic transitory winds of property tax and bad debt, our business is set up for success for the future. And we feel really good about where we are.

[Operator]

This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.

[Dallas Tanner, executive]

We want to thank everyone again for joining us today. And we're going to look forward to seeing many of you again in a couple of weeks at Nareit. Thanks again.

[Operator]

The conference has now concluded. You may now disconnect.