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Invitation Homes Inc
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Greetings, and welcome to Invitation Homes Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode at this time. [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 Corporate Strategy, Capital Markets and Investor Relations. Please go ahead.
Thank you. Good morning and thank you for joining us for our fourth 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 fourth 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 non-historical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated in any such statements.
We describe some of these risks and uncertainties in our 2019 Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the period ended September 30, 2020 and other filings we make with the SEC from time-to-time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
During this call we may also discuss certain non-GAAP financial measures. We can find additional information regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures and our earnings release and supplemental information, which are available on the Investor Relations' section of our website.
I'll now turn the call over to our President and Chief Executive Officer, Dallas Tanner.
Thank you, Greg. I'd like to thank you for joining us this morning. I hope you're all doing well and staying safe. It's an exciting time at Invitation Homes as we enter 2021 with positive momentum, accelerating fundamentals and the opportunity to grow our best in class platform.
We feel well positioned for another year of strong organic growth, at the same time we're ending the New Year more active in the acquisition market than we have been in years. We also see exciting opportunities in front of us to further elevate our resident experience.
Before discussing the path ahead though, I want to take a moment to reflect on the unique year we just completed. 2020 was the year in which the durability of our business was tested and validated and in which the value of our differentiated product, service and people resonated with residents and communities more than ever. I'd like to highlight a few of these accomplishments.
We achieved record high same-store occupancy that increased every month in 2020 and ended the year at 98.3%. We executed well to capture market rent growth, which accelerated to a high of 5% on a blended basis in the month of December. We maintained rent collections around 97% of our historical rate throughout the pandemic. As a result, we met the mid-point of our initial 2020 guidance, growing AFFO 4.6% despite the disruption in the world that was around us.
We also raised nearly $700 million of equity and formed a joint venture with a world-class partner to support external growth. With these tools, we ramped up acquisitions to our fastest pace since 2014, buying over $350 million of homes in the fourth quarter alone. At the same time, we decrease net debt to EBITDA in 2020 by almost a full turn.
Finally, of all of our 2020 accomplishments, I'm most proud of the positive impact we made in our communities. We served as a port in the storm for residents, delivering comfortable homes and genuine care when it mattered the most. We worked to create solutions for residents experiencing hardship. We kept our residents and associates safe by reacting quickly to enhanced safety protocols and leveraging the advantage of our virtual leasing and self-show technology, and in doing this we were able to achieve all time high resident satisfaction scores.
As proud as I am of our team for what we have accomplished together in 2020, I'm even more excited as I look ahead. Industry fundamentals are in our favor, with more and more of the millennial generation coming our way. COVID appears to have been beneficial for demand, but we believe its impact has simply been to accelerate a shift from denser urban housing to single family housing that was already poised to take place over the next many years. As such we believe it is quite possible that single family will hold on to the share gains that picked up in 2020.
Our homes compatibility with the work-from-home lifestyle and the relative affordability of our square footage when compared to other residential alternatives give us even greater conviction that we are favorably positioned for a world ahead and which people rethink the ways they use space to work and play. Put simply, we see ourselves as a solution to changing preferences, demographics and housing supply demand and balances for years to come.
In addition, we believe our differentiated locations, scale and local expertise give us an advantage in turning these favorable industry fundamentals into even better results for our residents and for our shareholders. One of the ways we’ll do that is by continuing to focus on the resident experience.
In 2020 we rolled-out new ancillary services for residents, including smart home enhancements, and a convenient HVAC filter delivery service. In 2021 we'll continue down the path toward expanding additional ancillary options.
We're also working to enhance the technology experience through which our associates deliver those services and through which our residents actually interact with Invitation Homes with a particular emphasis on web and mobile capability. On top of creating a better experience for residents, we're growing our portfolio to serve more residents and widen the scale advantages that allow us to serve residents efficiently.
In the fourth quarter of 2020, we purchased approximately 1,200 homes which is more homes that we have acquired in any quarter since the second quarter of 2014. I want to stress that we have elevated our acquisition pace while maintaining our underwriting discipline. We estimate a mid-5 stabilized cap rate on homes acquired in the fourth quarter consistent with our track record over the last several years.
We believe it continues to be a great time to grow the portfolio through our proprietary acquisition IQ Technology, local relationships and experience across multiple acquisition channels, and see the opportunity to acquire at least $1 billion of homes this year between our joint venture and a wholly owned portfolio.
In closing, I'm excited and optimistic about the future as we carry the strong momentum we generated in 2020 into the New Year. With record high occupancy, strong organic growth fundamentals, external growth in a high gear and initiatives in progress to enhance our resident experience, I'm thrilled with how we are positioned entering 2021. I want to say thank you to our exceptional associates for helping put us in this position. Their commitment to genuine care throughout the pandemic has been inspiring and it makes me feel even more confident about the heights we can reach together in our future.
With that, I'll turn it over to Charles Young, our Chief Operating Officer.
Thank you, Dallas. Before I jump into operational results, I want to thank our associates for the remarkable job they did in a year when we asked them to be nimbler than ever. Adapting quickly to change, we’re able to elevate our high level of resident care throughout the year and we drove strong results all the way through the finish line. I’ll elaborate on some of our operational achievement Dallas referenced in his remarks beginning with our leasing results.
Same-store turnover continued its favorable trend in the fourth quarter, bringing our full year 2020 turnover rate to 26.1% versus 29.7% in 2019. When residents did move out, we released homes significantly faster. Fourth quarter day three resident improved 22 days year-over-year bringing full year 2020 day three resident at 36 days versus 46 days in 2019.
As a result of these positive trends and turnover and day three residents, our e same-store occupancy approved sequentially in every month of 2020. We closed the year with fourth quarter same-store occupancy at our record high 98.1%, up 210 basis points year-over-year.
Furthermore, we're off to a great start in 2021, with January same-store occupancy at 98.4% or a 190 basis points above January 2020. At the same time, we seen rent growth continue to accelerate and the fourth quarter of 2020 marked our best quarter of the year. New lease rent growth, which we believe is most indicative of today's fundamentals accelerated to 6.9% in the fourth quarter, up 560 basis points year-over-year.
January new lease growth accelerated further to 7.3%. Renewal rents increased 3.8% in the fourth quarter and 4.2% in January. This brought same-store blended rent growth of 4.9% in the fourth quarter 5.2% for January, up 160 basis points and 230 basis points respectively versus the prior year.
Now I’ll turn to our same-store results for the fourth quarter and full year 2020. Same-store NOI growth of 4.3% in the fourth quarter brought our full year 2020 same-store NOI growth to 3.7%. Same-store core revenues in the fourth quarter grew 2% year-over-year. As a result of our strong occupancy increase and a 3.3% increase in average rental rate, gross rental revenues increased 5.7% year-over-year.
As expected, this increase was partially offset by two factors related to COVID-19. The first was an increase in bad debt from 0.3% of gross rental income in the fourth quarter of 2019 to 2.5% in the fourth quarter of 2020, which had a 221 basis point impact on same-store core revenue growth in the quarter.
The second was a significant decrease and other property income which had 125 basis point impact on same-store core revenue growth for the quarter, primarily attributable to our non-enforcement and non-collection of late fees. This brought same-store core revenue growth to 2.8% for the full year 2020.
With respect to expenses, the freestanding nature of our assets continues to provide an advantage relative to other property types by allowing us to safely serve residents and maintain homes without incurring incremental COVID related expenses. In addition, reduced turnover resulting from strong demand for our homes with benefiting expenses. As a result, same store core expenses in the fourth quarter decreased 2.4% year-over-year, bringing full year 2020 same-store core expense growth to only 1%.
Next I’ll cover revenue collections which remain healthy even as we continue to offer flexible payment options to thousands of residents to meet their individual needs and circumstances. In the fourth quarter our cash collections totaled 96% of monthly billings, similar to our collection rate throughout the pandemic thus far and compared to pre-COVID average of 99%. We believe the sustained strength of our revenue collections is a testament to the quality of our resident base, which had an average income of approximately $110,000 across two wage earners per household, covering rent by almost 5x for move-ins in 2020.
Looking ahead, we have momentum on our side after a strong close to 2020. Our teams in the field are energized to continue raising the bar for resident service and operational excellence. As was the case last year, there are a number of unknowns with respect to how external factors will unfold in 2021, but we will remain nimble and to continue to drive the best possible outcomes for our residents and shareholders.
I'll now turn it over to Ernie Freedman, our Chief Financial Officer.
Thank you, Charles. Today I will discuss the following topics, balance sheet and capital markets activity, investment activity, financial results and 2021 guidance.
I'll start with balance sheet where we further enhanced our debt maturity profile, debt composition and overall leverage through an active fourth quarter in the capital markets. In the quarter we issued approximately 6.5 million shares of stock to our ATM for gross proceeds of $186 million, which we used to acquire homes.
We also closed and upsized a $3.5 billion unsecured credit facility with more favorable pricing than our previous facility. The facility consisted of a $1 billion revolving line of credit that replaced our previous line of credit and a $2.5 billion term loan which replaced our previous $1.5 billion term loan and prepaid secured debt.
We're also proud to have included a sustainability component to our new credit facility whereby our revolver pricing will improve if we achieve certain ESG improvements over time as measured by a third party. As a result of these transactions, we have no debt other than convertible notes reaching final maturity before December 2024.
In addition, our unsecured debt as a percentage of total debt increased from 22% at September 30 to 35% at December 31, and the percentage of our homes that are unencumbered increased from 51% to 57%.
Overall liquidity at year-end was $1.2 billion from unrestricted cash and revolver capacity. Net-debt-to-EBITDA finished the year at 7.3x down from 8.1x at the beginning of the year and we remain committed to reducing leverage further.
Regarding investment activity, in the fourth quarter we acquired a total of 1197 homes for $361 million, using existing cash on our balance sheet and joint venture capital. 1057 of these homes were purchased for our wholly owned portfolio for $316 million and 140 were purchased in the JV for $45 million.
We also sold 277 homes from our wholly owned portfolio for $82 million. Included in this activity were two bulk acquisitions in Dallas and Phoenix that took place in the fourth quarter. In total the homes in these bulk transaction were acquired for $75 million at a 5.5% NOI yield on in-place rents, to which we see upside by bringing the homes onto our platform.
Next, I'll cover our financial results. Core FFO and AFFO per share in the fourth quarter were $0.32 and $0.27 per share respectively, bringing our full-year 2020 core FFO and AFFO to $1.28 and $1.08 per share.
Excluded from core FFO and AFFO was a $30 million unrealized gain that we recorded as a result of an increase in the value of our open door investment. Notably, despite the external factors that came into play, AFFO finished the year at the mid-point of our initial 2020 guidance range we provided at the beginning of the year.
Last thing I will cover is 2021 guidance. Dallas and Charles discussed, we believe we are favorably positioned for both organic and external growth. There remain many unknowns outside of our control related to the pandemic in how local, state and federal regulatory bodies may respond, but I’ll frame how we are thinking about the year at this point.
Let me start with revenue growth. We believe our record high occupancy and strong demand fundamentals position us favorably for rent growth in 2021. The biggest source of uncertainty, largely outside of our control remains our ability to collect rents and enforce the terms of our leases.
The mid-point of our guidance assumes that bad debt remains in the low to mid-2s as a percentage of gross rental income in the first half of 2021, and then improved in the second half of the year. If this were to play out, we would expect bad debt to be a slight drag on overall same store revenue growth for the full year 2021, but to have a positive impact in the second half of 2021. Taking each of these factors into account, we expect same-store core revenue growth of 3.5% to 4.5% for the full year.
Expense growth is likely to trend higher in 2021 than it did last year. As a reminder, 2020 benefited from lower turnover. While we expect turnover to remain low in a historical context due to continued strong demand, it is reasonable to expect some degree of higher turnover in 2021. Overall we expect same-store core expenses to grow 4.5% to 5.5% for the full year.
The midpoint of this guidance range assumes that higher year-over-year turnover has a 100 basis point negative impact on our same store core expense growth rate in 2021. This brings our expectation for same-store NOI growth to 3% to 4%.
From a timing perspective, we expect same store core revenue growth and NOI growth to be higher in the second half of the year than the first, primarily due to an improvement in bad debt in late fees, offset some by higher turnover expense. Specific to this year's first quarter, we would expect same-store core revenue growth to be more in-line with fourth quarter 2020 results since the first quarter 2020 results were not impacted by the pandemic.
Beyond same-store growth, there are a few other anticipated drivers of our 2021 results I'd like to address. First, we accelerated our acquisition pace in the second half of last year and expect earnings from those acquisitions to drive the increase in non-same store NOI contribution in 2021.
We also expect to remain a net acquirer in 2021. As fundamentals stand today, we see a path to acquiring at least $1 billion of home this year between the REIT and the JV and selling approximately $300 million of homes. We expect to have the opportunity to fund that level of acquisition activity with current cash-on-hand, cash from operations, disposition proceeds and JV capital.
Second, I would like to remind everyone that we funded a portion of our 2020 acquisitions with equity, which should result in a higher weighted average share count this year than in 2020. Year-end 2020 share count information could be found on Schedule 2(a) of our fourth quarter supplemental.
Finally, a quick note related to our recently formed joint venture. Beginning in 2021 we will report an additional revenue line item for joint venture fee income and another line item for our share of income from investments in unconsolidated JVs. For the purposes of core FFO and AFFO, we will capture our share of recurring JV cash flow in the same manner we do for our wholly owned portfolio.
In 2021 during the ramp up phase of our Rockpoint joint venture, we expect less than $0.001 per share contribution to core FFO and AFFO. Putting this all together, we expect full year 2021 core FFO per share in the range of $1.30 to $1.40 and AFFO per share in the range of $1.09 to $1.19, representing year-over-year growth of approximately 5% at the midpoints for each. As a result of anticipated growth in AFFO per share, we have increased our quarterly dividend by 13% to $0.17 per share.
Taking a step back, we are thrilled about the future of Invitation Homes. In our view, the single family rental sector is favorably positioned within the housing market and Invitation Homes is further differentiated by our best-in-class locations, scale and local expertise. We believe those advantages, coupled with a long runway of opportunity to grow scale and transform the resident experience will be a recipe for growth for years to come.
With that, let's open up the line for Q&A.
[Operator Instructions]. Our first question is from Alua Askarbek from Bank of America, go ahead.
Good morning, everyone. Thank you for taking the questions and holding the call despite all that's going on. Hope everyone is safe. But just to start off on that note, I wanted to talk a little bit about that cold front right now, and it seems like we're hearing a lot a lot about pipes bursting and plumbers are already expecting delays on this. I assume this was not part of the initial guidance, but could this bring expenses past the higher end or just I guess how are you guys thinking this will impact CapEx I mean this year.
Yeah, I appreciate the well wishes. This is Ernie, Alua, and it has been challenging in a lot of parts of the country for sure. The good news is we’ll have insurance coverage for this due to this one event, because it’s across multiple states and so we'll have a $250,000 deductible on it, but any damages beyond that will be able to cover by insurance.
We do take the first portion of losses in our insurance up to a certain amount. We’ve had a very good insurance year that expires in February of 2021. So overall we should be in a pretty good spot from that. There may be some minor things that flow through, that will be outside the insurance. Those were not considered in our guidance.
But that said, throughout the year, things do happen to pop-up and so our base budget has taken acceleration of some type of events happening, but we certainly did not specifically call out what was going on right now. But that's a long way of saying, I don't think this puts our expense guidance range in any kind of risk at this point.
Okay, great, thank you. And then I know you guys talked about your turnover expectations for this year remaining low, but maybe ticking-up from 2020. Have you guys seen any pick-up so far in January and February. Just kind of want to see if there is a little bit of a reversal in demand now that we're starting to see a little bit of normalcy?
Yeah, no this is Charles. We haven't really seen any reversal of that trend to-date. We still see really healthy demand and our residents and our homes continue to want to stay there just given that pandemic is still going. Work-from-home dynamics are in place. We ended the Q4 as I mentioned at 26%. We do have a little higher number in there for the whole year, but in January and so far in February we're kind of trying to get that lower number which is a good sign, which has allowed us to stay kind of assertive on the revenue side, and you can see that on our new lease grow as well as some of our renewals growing.
Got it. And then sorry, just one quick follow up. What is the medium length of stay at this point and how did it compare to last year?
Yeah, that continues to grow for us, as the portfolio continues to season. In this last month it's now over 30 months. With our turnover as low as it is, we would expect it to continue to trend upward toward 35, 36 months by the end of the year. So yeah, we continue to see that people are staying as per lease, a second if not a third renewal. So our average lease term is about 15 to 16 months.
Got it! Thank you so much.
You're welcome.
Our next question is from Sam Choe from Credit Suisse. Go ahead.
Hi, guys. Congrats on a great quarter. I guess, well it’s good to see you guys ramp-up acquisition and as Dallas mentioned, I mean you guys have discipline in mind, maintaining that 5 part yield. But I mean, we are aware of the fact that it's a competitive housing market, where you kind of hear the stories of home builders over built – over bidding for homes, awaiting contingency. So I'm wondering, how are you guys thinking about your buy-box. Are you starting to, I mean I know that location matters for you, but are you guys starting to look at more of the peripheries to the markets you are looking at.
Good question. This is Dallas, Sam. First and foremost, it is a tight environment as you mentioned. But we still feel pretty confident in our ability to buy between say $200 million and $300 million a quarter, even in this existing environment. We wouldn’t have to change our buy-box to use your phrase in any sort of way. We are pretty disciplined around making sure that we're in parts of markets that lend themselves and some of that outperformance, we see in, our both new and renewal rates.
In terms of you know the work we're doing with partners and builders, you mentioned that's an area of focus. Historically we’ve been buying about 10% to 15% of our homes through builders. We're also seeing opportunities to roll-up and aggregate smaller portfolios. You saw us do a little bit of that in the fourth quarter. The good news on those, as you walk into stabilized cash flow day one, and we typically see some imbedded losses to least in those opportunities and so those will continue to be on our radar.
So we feel pretty confident at the beginning of this year that that run rate should stay pretty consistent and we’ll continue to work to find avenues and ways to maybe expand channels, not necessarily the box, but really keep focusing in on the parts of the country that we are active in, but just making sure that we are aligned with as many opportunities as possible.
Got it. Okay, I mean that makes sense. With that said, I mean the bulk opportunities I mean you did to this quarter. Was that more one-off in nature or could we see that kind of playing a factor in 2021 as well?
We have a good track record. You know at least a couple of times a year of rolling-up you know 200, 300 kind of home portfolios and I would expect that we’ll see more of those; just the people aggregating for the last five to eight years that have you know wanted to maybe harvest some gains are looking for other opportunities to deploy capital.
As you mentioned, it is kind of hard to grow scale unless you've got the infrastructure to do it. We are fortunate that we're you know local on the ground, so we get access to a lot of these opportunities in working direct with partners. So the two that we did in the fourth quarter, perfect example of those.
One of them was a competitive process, is the one at Phoenix and the one in Dallas, we've known the operator for a long period time; we're able to just get a transaction done. So those relationships are meaningful and they matter and it's a big focus for our teams in market.
Got it, alright, thank you so much guys.
Thanks
Our next question is from Carl Keegan from Berenberg. Go ahead.
Hey guys, thanks for taking my question. I know you touched on a little bit briefly, but I guess what are the expectations for seasonality going forward? Meaning the longer the pandemic persists, you see turnover trending lower. Is it fair to assume that less move outs and high demand will kind of diminish some of year’s path in the seasonality aspect?
Yes, this is Charles. You know seasonality is a natural part of the business. However, with the pandemic we saw last year that those trends were disrupted by people working from home, uncertainty with school. We've returned to somewhat of a high demand environment, so it would be interesting to see how the summer comes. I think some of it is going to be based on what happens with the vaccine rollout, herd immunity and all that.
What we like is, you know we are seeing numbers in this time of year Q4 that are typical of our summer season. So the demand for our product is really high and we would expect that come summer we may end up in a similar circumstance where with maybe a little bit more turnover which is natural for the seasonality is a kind of higher turnover in Q2, Q3.
That being said, given that people are still looking for our market, you know they're moving to the states that we are in, we would expect that that demand will continue. Hard to predict, but we're watching it and right now we like the position that we are in with the rate growth on the new lease side and renewal side, both kind of improving and getting better. New lease side, this is the best we've seen in a Q4, since I've been in the business frankly.
So it'll be interesting to see how it plays out, but we think demand will still be high in the summer, especially if people are thinking about finally repositioning and thinking about schools for the fall.
Got it. And if we don't mind pivoting a little bit, as my next question is on new lease growth. Obviously it continued to trend up. How sustainable do you guys think that this particularly in the Western U.S.?
Yeah, a big part of it has been our occupancy and you know I'll just step back and give our teams a shout-out. They’ve just done a phenomenal job in a changing landscape; I can't thank them enough. And when you look across our markets, almost every market’s at high 97% or 98% occupancy.
What that does is give us a position to have, a low supply of homes so we can push those markets, and then you get all the dynamics I just spoke about around people moving to – wanting space, wanting to get out of the urban cores and move to our homes.
So I think the west is continuing to drive your new lease growth in Phoenix of 50% in Q4. January continues the same, Vegas is real high, California new lease growth is near 10%. So if we keep executing the way we are, days of re-resident down, keep occupancy up, I think we'll be able to continue to push and we have high expectations going into the rest of the year.
Alright, thank you, that’s it from me.
Our next question is from Nick Joseph from Citi, go ahead.
Thank you. Hope everyone is staying safe. On the $300 million of dispositions expected this year. Does that contemplate any market exits, any portfolio sales or is it more one off dispositions?
Hey Nick! Dallas. No, it's just normal ordinary calling. We're not anticipating you know market exit discussions at all.
Thanks, and then just as leverage has moved down Ernie, how are the conversations with the rating agencies going? Is there any update on the timing?
Yeah Nick, we're feeling more and more opportunistic seeing where we're at and seeing how you know the business has done as well as it had in 2020. So I think we're going to be in a position, you know some time over the next few quarters to more formally engage, where I would have said you know maybe it would have been a year and a half to two years out, maybe a quarter or two ago.
It feels like we need to do a little bit better than that Nick, so I think 2021 will be a time for us to really figure out what’s the right timing to engage with the agencies and see if we can get there, because if the business is doing well and the metros continue to improve. So we're optimistic that we're on the right path and hopefully have you know better news about that in the next many quarters here.
Which metrics still need some level of improvement or what's the focus on today?
Yeah, you know I think with the credit facilities that we were able to recast in December Nick, we were able to get our unencumbered pool larger, which gets us really close to where the rating agencies would like us and importantly we pivoted more to unsecured financing; we've been mainly a secured borrower.
I think the one area where we're still maybe a little bit off is, I believe the rating agencies would like to see our net debt to EBITDA number in the sixes and I think we'll be able to show them and as a lot of you guys have in your model, show that we get into the sixes you know it’s not by – if we don't kiss the sixes by the end of this year, we’ll certainly be there next year I would expect, and so the question will be then, is that soon enough for them with the clear path.
You know fortunately I think we have a very clear path to demonstrate how we've done that; we've got a good track record and we've certainly been talking about wanting to have our net debt-to-EBITDA number in the low sixties as our target. So I think all that bears well for us and it’s just we’re getting one step closer each day to that number.
Thanks.
Thanks Nick.
Our next question is from Alex Kalmus from Zelman & Associates, go ahead.
Alright, thanks guys. Looking into the average price point per home this quarter on the acquisition front, it seems like the rock point JV homes were a higher value, like 15% over the wholly owned acquisitions. Is this emblematic of the strategy for the JV or do you expect this to revert to the mean later on.
Alex, it’s a good question. It’s actually going to revert to the mean, because the type of buying we're doing in the JV is absolutely consistent with what we're doing with regards to the balance sheet.
What you see in the fourth quarter though is that the two bulk transactions brought our average price down. The homes we bought in Dallas, you know Dallas is a lower price point market for us anyway and what we bought there, as well as what we did with the Phoenix portfolio, if you were take out that you’d probably see. I don't have it in front of me, but I think the math would show you that we’d be right on top of each other with regards to what the JV bought versus what the balance sheet bought because of those bulk transactions.
Yeah, I got it, it makes sense. And on the – for move outs, obviously occupancy is extraordinarily high, but for the few that are moving out, do you have a sense where they're going? Are they requiring homes or are they moving out to apartments or other single family rentals? Do you keep track of that data?
Well, we have a – this is Charles. We track them without reason. We don't have specifically where they are going. You know we're going to in the future start to track kind of the addresses, the forwarding addresses.
You know the purchase for homes, the move our reasons have been in the mid-20’s, slightly up in Q4, but not material as you would expect with interest rates. You know overall I think the overall turnover number being so low, we're just not seeing a lot of move outs and there's no real drastic change from what it's been historically. So we'll continue to monitor it, but we're proud of what we've been able to do with the overall turn numbers.
Got it. And I guess that you’re not really seeing a lot of move outs through apartments, so that once the rental, a single family home that they are staying within that sort of style of living overall.
Correct, correct. Yeah, it's pretty consistent that you know most people who move into our homes or out of our homes are you know coming from a single family residence or – and what we're seeing now, you know from our tracking of people who are moving into our homes, we are seeing a lot of people come out of the urban core to our suburban locations, in field locations and so you know we're not seeing people move out for that reason. In fact we’re up because people are trying to come to the single family, extra bedroom, work-from-home, backyard, all the kind of safe things that you get from a single family home in today's world.
Great! Thank you very much.
Our next question is from Richard Hill from Morgan Stanley, go ahead.
Hey, you got Ron Kamdem on for Richard Hill. Just two quick ones from me. Sticking with the acquisitions, maybe can you talk a little bit more about sort of the competition? Is it still sort of end user or your starting to see more institutional players coming in, and you know on the guidance for the $1 billion for 2021, is it fair to say that we’ve done without bulk acquisitions or it's sort of bulk acquisitions sort of embedded in that number? Thank.
Hey, yeah I think it's safe to say that that $1 billion number doesn't include a lot of bulk acquisitions in it and I think you know landscape is pretty similar to how it's been. It really last three or four years. The one exception might be that you just keep hearing about more capital wanting single family rental exposure, which we you know quite frankly view as a positive.
You know remember, there’s 6 million plus or minus transactions that happen in the U.S. around single family housing every year and so the SFR footprint is a very small percentage of those. It's still end users buying and selling homes in a vast majority of those transactions, so we wouldn’t expect it to really change all that much. I think if anything, a few more of these aggregators will lend themselves and some other opportunities for us down the road.
Great! My second question was just going back to sort of the same store revenue guidance. If I think about 4Q on a gross basis, portfolio has grown sort of 5.7 versus sort of the guide for 2021 of 4. Is it fair to say that the delta is really coming back to sort of the late fees and the bad debt headwinds that you mentioned in your opening comments? I’m just trying to get a sense of how much conservatism is baked into that, especially as we roll into the easier comp in the second half of the year. Thanks.
Yeah, no Ron, it’s a good question and you're exactly right. When you look at what we've been able to do, you know occupancy gains as well as just rent achievement as Charles and the team kept putting up stronger and stronger numbers throughout the year on the renewal side and on the new lease side, you know the rental growth as we tailed into the last part of 2020 was like you said in the high fives.
Offsetting that unfortunate were you know bad debt comparisons to the prior year. We didn’t have the pandemic which you know was up a couple of 100 basis points and our other income being a drag down about 100 basis points as well. So that's how we ended up at 2% revenue growth.
You know as we go out throughout 2021, we do expect sequentially that our bad debt number will come down each quarter from the prior quarter, but we just do think in the environment that we're in right now, we’re just a little bit uncertain and you still have you know the vaccine being rolled out; you don't have herd immunity yet and you know the regulatory environment does continue to move on us. You know the deadlines that were supposed to expire in December and January got pushed out appropriately and understandably because of the environment we’re in to later in the year.
We just think you know the appropriate thing from a guidance perspective and provide that detail in the prepared remarks is that we think, so that we think the first half of the year probably has you know bad debt number that's more like what you saw on the third and fourth quarter, which is in the low to mid-twos. Hopefully that's conservative and hopefully we do better, but we want to make sure people understood whether our guidance was coming in from the mid-point and then we started to see things return to getting better in the second half year, but to be clear, not back to what we saw pre-pandemic.
Pre-pandemic we saw our bad debt numbers typically in the 40 basis points. We’re not anticipating that here in 2021. We certainly think it's going to get better in the second half of the year, but not back to those levels. It’ll just continue to improve.
Then importantly when you're looking at our full year numbers Ron, you know don't forget the first quarter of 2020 was not impacted by the pandemic. We had a bad debt number in the high-30’s in terms of bips and again, based on what I said earlier, we’re expecting a much higher number here in the first quarter.
So then what you'll see is hopefully if the year plays out as per our guidance range at each month, which I mean, each quarter, you’ll see a better revenue growth number, because we’ll have any easier comp for bad debt, we’ll have an easier comp for other income and then we’ll continue to have the really strong earn-in from what's happening on the rental achievement side and then we'll eventually have a high level of occupancy like we had in 2020, you know hopefully carrying through for the most part in 2021.
Thank you for helping clear. Thanks so much.
Got it, yeah.
Our next question is from John Pawlowski from Green Street, go ahead.
Great, thanks. Ernie, maybe sticking with bad debt, just a very modest sequential uptick this quarter. Was that more regulate regulatory driven in California or did some other non-California markets kind of erode on the collection front?
No, it’s a question John. We are seeing a little bit of deterioration in California; it’s only Southern California. Northern California has not been a challenge for us. That's been behaving like the average across the whole portfolio.
We did see some degradation in Southern Californian and then it’s like it’s just the earning overall across the board. In terms of things, you know we're slightly off. When you start talking about roundings and things, we’re less than 100 basis points different than what we saw in the third quarter. It's just a narrow gap in which we should round the numbers there.
So I just think that we're kind of in an environment where we've kind of hit the point where every month we seem to collect somewhere between about 96% to 97%. You know some months it's just under 96%. We’ve got a couple of months it's been a little bit over 97%, but around in both cases 96% and 97% and that's been pretty steady for us really since July. It just kind of how it plays out you know month-by-month.
So we're not seeing any trouble spots, we don’t see anything that's really concerning and Charles and team are just doing a wonderful job working with residents, having contact with them and the only place where we're seeing a material variation from the mean, from the average is Southern California.
Okay, understood. And then Charles or Ernie, obviously new lease spreads are fantastic. Just curious, the acceleration and revenue enhancing CapEx in recent years, can you give me a sense for how much benefit is flowing through the new lease figures from revenue enhancing CapEx?
Yeah John, let me touch base with you offline to give you a more specific number. We're not doing a whole lot when you look at the grand scheme of it and the size of how big we are. So in my guess, it's probably maybe a tenth of a point to two-tenths of a point in terms of helping the new lease side. Let me go back and check my notes and we can – Greg and I can touch base with you offline to make sure I'm not speaking out of turn with them.
Okay, thank you.
Yes John.
Our next question is from Haendel St. Juste from Mizuho, go ahead.
Hey, good morning out there. Hope everyone's okay.
Thanks Haendel.
So, I guess first question or maybe for Charles on days to re-resident. I know the improvement there, I think you said 22 days in the fourth quarter versus fourth quarter of ‘19 and 13 days overall in 2020 versus 2019. I guess can you talk a bit about some of the drivers of that, what you've been able to perhaps do to perhaps help that, lower that number, and then sitting here in the mid-thirties, how much better do you think that can get and you're thinking here for 2021? Thanks.
Hey Haendel, its Charles here, thanks for the question. First of all just to clarify, year-to-date we're down 10, not 13, so we probably ended up at 36 days in 2020 versus 46 days in 2019. A significant reduction and as you said Q4 was down 22.
You know the real impact has come from a combination of items. One is, reducing our turn times, which we brought down significantly at the start of 2020 from the high teens down to the low teens. 10 days in some markets, single digit in some markets. So we can keep that going and we have been looking at that as a key piece. We're not going to be able to get much lower there, but we can look at a day or two as we go.
The other big piece that we found is really focusing in on aged inventory and that's been a big advantage of making sure that if something is aging, let's get the price right or check the asset, eyes on assets, make sure that it's going right.
The big piece that moved us this year also is focusing on pre-leasing, I think that's the opportunity going forward. So as you think through what we can do in 2021, we keep our occupancy at a healthy level, the demand continues to be strong the way that we're seeing it and we can market our properties you know effectively using virtual tours and other pieces and really being thoughtful around how do we try to show that home while its either being worked or at least have all the information up on the website while it's still in residence.
So when it moves out and we can turn it quickly, that'll get us into the teens on some of those days. So then you go back to making sure we average out the age inventory. We’ll see where we can go. We're looking to move it down this year and we'll see if we can get out of the thirties, but we got to stay – get in those low-thirties and stay there for a while and we'll continue to see what happens, but we have an opportunity to do even better than we did. The low hanging fruit is gone though, so you're not going to see another 10 day move, but we will continue to try to bring it down a day or two as we go.
That's good color, that’s good color, thank you. And Dallas maybe one for you; certainly we’ve noted the – that the increased competition for acquisitions, the industry overall has obviously very good fundamentals, strong revenue NOI growth, there’s proof of concept in single family rental development and you've got an improved balance sheet here. Maybe not quite where you want it just yet, but I guess I’m curious on stepping back and thinking about on-balance-sheet development here. How your view is evolving, is there any change, are you more inclined to consider on-balance sheet here today and if not, what could get you to change your mind. Thank you.
Hey, hi Haendel. You know our philosophy stayed the same, just being so focused and being in the right locations. I think we've done a nice job of and the last couple of quarters is really starting to develop out some good channels in working with you know development partners and builders in market and I would expect that will continue to put resources and focus on finding ways to deliver new product into the portfolio.
In terms of taking on balance sheet risk, our position really hasn't changed there and we want to be as flexible as we can, quite frankly to be a good partner for the builders that are out there and less of a threat in terms of going out and competing against neighborhoods that they might also be pursuing.
So I think our approach in terms of building up really good pipelines with a couple of really, you know call it good partners, both at the national local and kind of boutique levels; having direct access to communities and product that they're building; and being discretionary in terms of where we think it's a good use of our own capital, because you pointed out you know and rightfully so, our balance sheet is getting into a really strong position and our ability you know to either raise equity or to issue at an appropriate price is a tool that we want to use when it makes sense.
And so I think we'll continue to be deliberate about when we do that, continue to focus on making sure we’re finding the right opportunities, but not necessarily having to take all that risk on balance sheets. We’ll stay open minded as we look at opportunities, but right now it feels like there's some really good runway in front of us, in perhaps partnering with a few builders and/or you know continually building out those channels for opportunity.
Yes, so that's not exactly a no, but certainly not a – it’s not right now.
Yeah, it’s definitely not a yes. I mean right now we're really focused on taking the least amount of risk possible, but making sure that we can provide the company access to some of these great projects, and so that seems to be working. And I think you know builders are really good at what they do; we're really good at what we do, and if we can somehow match those two together over time and distance, we're going to be in a good position going forward.
Got it, got it, thank you.
Thanks Haendel.
Our next question is from Rich Hightower from Evercore, go ahead.
Hey, good morning everybody, thanks for taking the question here. Just a quick one for me on the Opendoor investment. Obviously you're sitting on a nice gain, keeping it on the balance sheet for the time being, but just wondering what you know future plans are for that investment and are you restricted in the mean time you know with a lock up or anything that would prevent you from liquidating entirely. Just a little more color on that, thanks.
Yeah, absolutely Rich. This is Ernie. Yeah, it's been a great partnership for us from a business perspective and we've been real pleased with the outcome on the investment and of course that mark was at December 31, so the investments up even further from where it was at December 31.
We are currently under a lock-up arrangement Rich, so we're not able to do anything and you can actually see the Opendoor public documents to be very specific about how that lock up works. We have the opportunity to sell some of the shares later in the second quarter and if the stock price stays at a certain level and it's been well above that level for a while, we’d have the flexibility to sell the entire position before the end of the second quarter.
We haven't made any determinations as to what we may want to do there. We do continue to work with Opendoor on a lot of different things. They are a great organization and so we'll just – we’ll come to a conclusion with our investment committee of our Board probably later in the quarter to decide what our longer term hold maybe for that position.
Great, thanks for the color Ernie.
You got it.
Tony yeah. Our next question is from Jade Rahmani from KBW, go ahead.
Thank you very much. Some questions I’ve gotten from investors concerned the – relate to the competitive landscape and the increasing number of new entrants in this space. I think the front yard residential takeout is a recent example with the partnership that [inaudible] established with ARE.
So I just want to think about or get your thoughts as to whether you believe that newer entrants have a competitive edge advantage operationally over the established players such as Invitation Homes and American Homes for Rent or whether you think the reverse is the case, that the lessons learned that you've gone through having built the scale and investments in technology you've made will always provide yourselves and others like you with the upper hand over these newer entrants.
Yeah Jade, it’s the latter. I mean quite frankly, as your new coming into this business, there are so much you got to figure out, not only how do you run the assets, create the service model and build a team, but just the inner workings and how those all connect. It’s quite difficult and it’s taken companies like ours years to get better at and we're continually finding more efficiencies.
You know the flip side of that too Jade is when you get to our scale and are structured density and the communications and the tools and resources we have, we can onboard 1,200 homes in a quarter like we did in the fourth quarter and I don't mean make this you know sounds easy, but it's pretty easy for our company to digest that, and you know a new company would have all kinds of challenges in trying to just run the customer experience side of that. So the short answer is, it's much better to be in our position than coming into this space right now.
And as a follow-up have you seen any of these private entities have a either lower cost of capital or longer time horizon with respect to where they are underwriting cap rates You mentioned the homes were purchased with the med-5% stabilized cap rate. Are you seeing any of these bids come in materially below that 100 to 150 basis points below that, perhaps on a five to seven year view that if rent growth sustains itself, a private company would be able to absorb that drag, where as a public company so as to meet expectations with respect to the earnings outlook.
It’s a good question. I mean there's definitely different niches within the space that I think different operators are trying to focus in on. And I would say, and as everybody in the call knows, we tend to buy a little bit higher price point asset, little higher gross economic rent. You know it’s a differentiator, so we don't typically see in the market place where we're really competing all that much with single family operators per se, maybe one or two.
I do think, your point around how people are using debt, thinking about leverage, especially at lower price points, they probably argued with themselves that they can lag into some better yields over time and maybe can't absorb some of that drag. I don't know, because we're not in their investment committees and thinking through kind of what their cost of capital is, but it varies.
I will say this, I do think that there are advantages to having a longer term lends and approach, because we certainly think about CapEx, what you want to do on your properties in the near term that can have a profound impact on how you operate those properties over the long term. And so you know I feel like we've kind of figured out internally what kind of the best finish standards are; you are seeing it in our return costs over time and distance; you're seeing it in our renewal rates; Charles and the team are doing a really good job around things like luxury vinyl plank flooring, which a new entrant may you know not be as keen as putting into a home, because it costs money and you've got to be able to have conviction that you can manufacture the returns over the life of that asset.
So things like that Jade come with experience, time the seat having managed thousands of properties and I think at Invitation Homes we’ve figured out kind of that right balance as we head into year nine as a business today.
Thank you very much.
Thanks Jade.
Our next question is from Rick Skidmore from Goldman Sachs. Go ahead.
Hey Dallas, good morning. Just a question, as you think about acquisitions and the geographic mix, how should we be thinking about that $1 billion being deployed in 2021 across your foot print? Is it going to be reasonably evenly distributed, focused more in the West, in Texas, can you just maybe give us some color on how you think about geographic mix going forward? Thanks.
Yeah good question. The mix I wouldn't expect too much change. I mean, if you just look at what we did in the fourth quarter, we are obviously very active in Dallas, active in a couple of the Florida markets. The JV actually I think is a good tool for us to give us more exposure in the Florida markets and the typical kind of Sun Belt focus for us has been a pretty consistent theme over the four to eight quarters. I would expect that to change all that much.
We would certainly love to be able to buy more homes in California and Washington. They are just very competitive markets from an end user perspective and we don't chase too hard when things get out of whack from a pricing perspective in terms of what works for us. We just kind of pick our moment. But I would expect that that focus remained the same.
We've also seen really good activity out of Charlotte, Atlanta. They' are good markets and I think you know more importantly if you look at the rate growth that we're seeing in the fourth quarter in markets like Atlanta and even South Florida, it gives us a lot of conviction around where our risk adjusted return profile could look for the next several years. So all these markets have the right fundamentals around them as we’ve talked about on the call.
Right. Thanks and then one follow-up, in your prepared comments you talked about some of the ancillary revenue opportunities in 2021. Can you just elaborate on what you're planning to roll out in 2021 and how that might contribute to revenue growth in ’21? Thanks.
Yeah, there’s a couple of things. We’ve upgraded our smart home hardware; we’ve created some new structures that make that actually a little bit more profitable for us going forward. We updated in ’20 a HVAC filter program that was going out on all of our new leases that will then start to be brought in on some of our new opportunities with customers this year.
We have pilots going around pest control, in the state of Florida that has merely adoption as that seasons and we figure out the right way of delivering that service that could be something that will roll out across more markets. And then there are a couple of other things that we are going to pilot this year. We've got a big focus around pet compliance and controls that are focused for us that we think not only are revenue generators, but will also help us kind of mitigate some of those on going expenses.
So there's a couple things were focused in on. We've also got you know a few things in the test kitchen that we're not ready to talk about yet, but keeping things exciting and finding ways to deliver kind of some of that optionality to our resident is really a foremost focus.
We have figured out that our residents are adopting into a lot of the services. They like it, they like the flexibility of going in and out. So some of these will be optional, then some of them will obviously be included with the lease.
Great! Thanks Dallas.
Thanks.
Our next question is from Todd Stender from Wells Fargo, go ahead.
Hi, thanks. Just one from me. In your prepared remarks you indicated that you might see a little more turnover this year. Is that you guys pushing rate a little more? You've got occupancy so high, but you also you got potentially residents on better financial footing. So maybe that naturally they have more housing options? Maybe just some color there? Thanks.
Yeah Todd, we had a great outcome with turnover in 2020 relative to 2019. It went from basically you know 30% down to 26% and we just, as we see the landscape this year, we think it's, you know it’s possible at the mid-point of our guidance that we see turn up and pick up somewhere kind of between those two numbers, just because it’s a naturalist evolution.
And the pandemic’s had some impacts in terms of what's happening with residents who are currently in place. Some likely chose to hunker down for a little bit longer, because of the uncertainty that we had in the spring and so yeah, we think we're going to see the continued downward trend in turn over all the leasing last seven or eight years age. It seemed to be accelerated a little bit in 2020. And so just for prudence purposes, we want to take the mid-point of our guidance, where we are going to assume that we kind of get somewhere that's a little bit North of where we were in 2020, but certainly a downward trend from what we saw in 2019.
Understood. Thank you.
The next question is from Tyler Batory from Janney, go ahead.
Hey, good morning, thanks for taking my question. Just one for me. I wanted to go back to the discussion on rent growth and bring in the relationship between higher home prices and rent growth. Just want to talk on the home sales side about affordability and obviously there is a different calculus there with lower interest rates. But can you talk more about how you're thinking about affordability on the new and the renewal side in terms of how much more you might be able to push price. And I understand the demand has been so strong, but at the same time, you know I imagine you want to price out potential renters as well, so just curious of your updated thoughts on both dynamics.
It’s a really good question Tyler, thanks and we think about our lease optimization curve and our revenue management system as you know really one of the darlings in our business. Because every year it gets a little bit smarter as we go through the portfolio of 80,000 homes. Every year the data gets better and we're certainly learning some things about how the portfolio behaves. Charles talked about this earlier in terms of what our expectations might be around the summer months.
Now, all things being constant in a normal year, we would expect certain things out of the portfolio. It's been a little bit different given – I would call it the nature of the decision making from a residence that they are wanting to stay put a little bit longer. It does bring in outside dynamics that have nothing to do with housing. So that's obviously added some increased demand and we’ve expect some of that to stay in place afro this year.
Now as you look at striking that balance around affordability, you got to take a step back. Interest rate volatility to your point can create some nuance around whether a home is more affordable to lease or to own in a particular market. Generally speaking, most of our portfolio is much cheaper to lease than it is to own when you look at down payment and the cost to maintain that home over its life cycle.
We offer a pretty friendly alternative to most folks as we manage all the maintenance expense and the potential CapEx risk that’s associated with that home. So you are taking a step back; it's much more affordable generally to leasing and you're right around that interest rate volatility maybe throwing those numbers out of whack.
We still see an opportunity to provide a pretty affordable product in most of our markets on a relative basis. Now that will vary with times and seasons, based on product price points and different submarkets, but you know all-in-all when you got a $1,900 rental in a market with great schools, good affordability, transportation corridors that lend themselves to close proximity to adjust, at the end of the day that’s a much more affordable product in more cases than not, than to be down payment heavy and to take on the burden of maintenance and maintenance expense.
So we're always trying to look at the portfolio and find ways, especially on the new lease side when a home goes vacant, to see, to make sure that we are capturing that market rate that is available out there and that on the renewals it’s been smart, finding the right balance, working with your normal supply and demand fundamentals and then lastly, also being considerate of what's going on in those markets.
So California a good example of that where we’re sensitive to the rank cash and everything that have been put in place and in Seattle where quite frankly we haven’t been able to really do anything around renewal rates for almost a year now. So that's the dynamic we're living in and I would say it's mostly healthy with some of that nuance that we’re having to navigate through with the portfolio today.
Okay, I appreciate all that detail. Thanks very much.
Thanks.
This concludes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Thank you. We appreciate everyone joining us for the call and our thoughts and our sympathy with all those in Huston and Dallas, our residents and our associates there, during this weather. Hang in there, we’re all in this together. We appreciate everybody joining us today. Thanks.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.