Invitation Homes Inc

NYSE:INVH

Earnings Call Transcript 2021-Q4

[Operator]

Good morning and good afternoon and welcome to Invitation Homes Fourth Quarter 2021 Results Call. [Operator Instructions] I would now hand you over to Scott McLaughlin to begin. Scott, please go ahead when you are ready.

[Scott McLaughlin, IR]

Good morning and welcome. I am here today from Invitation Homes with Dallas Tanner, our President and Chief Executive Officer; Charles Young, Chief Operating Officer; and Ernie Freedman, our Chief Financial Officer. During this call we may reference our fourth quarter 2021 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 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 2020 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 the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in yesterday’s earnings release. With that, let me turn the call over to Dallas.

[Dallas Tanner, President, CEO]

Thanks, Scott. And good morning to all of you joining us today. In my remarks this morning I’d like to share several thoughts and highlights from this past year, and also take a look at the year ahead. To start we continue to be impressed with the level of demand we’re seeing for high quality housing, the focus is on functional living with the flexibility of a leasing lifestyle. It’s this strong demand that’s helped us maintain our same-store occupancy above 98% for the entire year in 2021, and also taken our average market rents to over $2,000 a month this past quarter. As a result, our core FFO per share increased 16% from the prior year. And thanks to the execution of our teams, we were able to deliver full year 2021 same-store revenue and NOI growth at the high end of our expectations. During 2021, we acquired 4800 homes, which is roughly double our original guidance at the beginning of the year with an average cost basis of over $400,000 and an acquisition cap rate of over 5%. We believe our homebuyers were among the highest quality of those bought by our industry peer group, and accretive to both earnings and NAV. I’d like to mention a few additional highlights from this past year. We achieved three investment grade ratings. We made significant investments in technology, including the introduction of our mobile maintenance app and we continue to work on adding amenities and services that improve our residents experience, such as offering great pricing on pest control and other services by using the value of our size and our scale. We also made great strides with regards to ESG where we improved our disclosures and scoring and launched two big initiatives. First, our step up stand out program in partnership with skills USA which encourages and supports careers in the skilled trades. And second, our Green Spaces Program, which is dedicated to the development and improvement of outdoor community spaces within our markets. So while our teams did an outstanding job in 2021, it’s time to look ahead. Demographics remain solidly in our favor. The leading edge of the millennial generation is now starting to reach our average resident age of 39 years old. In addition, migration trends continue to result in significant household and job shifts to the southeast, southwest and Sunbelt. At the same time, many Americans are showing a preference to lease their home so they can have more space and live in great neighborhoods with improved access to better schools, jobs, and transportation. By contrast, housing supply in the US continues to be a challenge for a variety of reasons and those challenges are even more pronounced within our markets. We believe it’s imperative that we play a more significant role in bringing new housing supply to the market, along with helping to provide additional housing solutions around flexibility and choice. Let me offer two examples. The first is our commitment to invest in new housing supply. As you know, we’ve chosen to focus on being the best owner and operator of single family for lease housing. So when it comes to building new product, we believe it’s better to partner with the best home builders rather than competing with them directly in the home building space. Last year, we announced our strategic relationship with Pulte Homes, which amplified our new home acquisition pipeline, and gave us additional strategic opportunities for future growth. In addition to that important relationship, we’re also working with other home builders across the country to help them break ground on new communities where they are strongly needed. At the end of last year, we were under contract on over 1,700 of these new build homes in eight of our existing markets while staying true to our criteria for location and risk adjusted return. We expect to see delivery of these new homes beginning in 2022, and accelerating in future years. The second example involves our commitment to expanding opportunities for choice. Earlier this month, we announced that we’re the lead investor in Pathway homes. Pathway’s mission is to make homeownership more attainable for more families. They do this by working directly with aspiring homeowners to identify and purchase a home, offering them the opportunity to first lease that home with the opportunity to buy it at a future date if they choose. The new venture with Pathway creates additional options for choice. In addition to being the lead investor in Pathway, our partnership offers us the opportunity to broaden our third party property management expertise. Outside of Pathway another way that we’ve helped families achieve their housing goals is through our resident first look program. For all that we’ve identified for sale for strategic reasons, this program offers residents residing in those homes a first opportunity to purchase. Since we started the program in 2016, we sold nearly 250 of these homes to our residents, representing over $60 million in sales, further living out our mission of together with you we make a house a home. That mission marks a big milestone in 2022. On April 11, we’ll celebrate 10 years of providing high quality housing to people choosing to lease a single family home. When we launched this business, a professional home leasing company with coast-to-coast 24 hour customer service, seven days a week did not exist. Invitation almost was at the forefront of creating a new model and change the narrative by offering an innovative concept built on customer demand and favorable demographics. During this past decade, we’re pleased that an important part of that narrative has been our meaningful impact in the communities in which we serve. We’ve invested nearly $2.5 billion in home renovations within our communities. While last year alone, our associates also volunteered more than 13,000 hours of company paid volunteer time to help local organizations they care about within their communities; a practice we strongly encourage. In conclusion, today in the US there are over 125 million households with 90 million single family homes, of which about 17 million are single family rentals. I’m extremely proud of the 80,000 of those within our portfolio where we believe the highest standard of quality location and genuine care for our residents is both expected and delivered. I’d like to close by saying thank you to our teams for 10 years of curating a unique leasing lifestyle, providing a level of service that gives our residents peace of mind and creating strong communities where our residents and our associates can thrive together. With that I’ll pass it on to Charles, our Chief Operating Officer.

[Charles Young, COO]

Thank you Dallas. Our fourth quarter results helped us finish the year strong. As you mentioned reported same-store revenue growth and NOI growth both at the high end of our guidance ranges. Average occupancy stayed at 98% throughout the year and retention and our resident satisfaction continued their strong highs. We believe we offer the best level of resident service of any single family rental operator and this is reflected in our operating results. Let me walk you through the details. Same-store NOI grew 12.6% in the fourth quarter which brought our full year 2021 same-store NOI growth to 9.4%. Same-store core revenues in the fourth quarter grew 9.5%. This increase was driven by average monthly rental rate growth of 7.1%, 130 basis point improvement year-over-year in bad debt expense and a 53.6% increase in other income net of resident recoveries. Average occupancy of 98.1% in the fourth quarter was consistent with prior year. As a result same-store revenue growth for the full year 2021 was 6.4%. Fourth quarter 2021 same-store core operating expenses continued to come in favorable to our expectations increasing 3.1% year-over-year driven by a 3.1% increase in same-store fixed expense and a 12.6% increase in personnel expense, partially offset by 12.3% decline in turnover expense, net of resident recoveries. Next, I’ll cover our leasing trends in the fourth quarter, which continued to reflect strong demand and favorable market conditions. Our new lease rent growth came in at 17.3% for the quarter, while renewal rent growth was 9%. Together this drove blended rent growth of 11.1% up 630 basis points year-over-year and up 50 basis points over prior quarter. We’re also seeing the strong results continue in January with blended average rent growth of 10.9% up 590 basis points year-over-year and occupancy remained above 98%. As you know, we send our surveys out each quarter to better understand the choices and preferences of our new residents. Let me tell you what we learned this past quarter. About a third of the group chose one of our homes because they wanted more family house seeking above all, a family friendly convenience oriented pet friendly home. Nearly half of our new residents are working from home at least two days a week and 75% plan to continue to work from home after their office reopens. Three quarters of new residents feel safer living in a single family home than an apartment because of the additional space and privacy a single family home provides. Surveying our new residents when they move in is really just the beginning of our listening process. With our pro care services, we help keep our residents’ home in good working order by performing proactive maintenance twice a year. And with the mobile maintenance app that Dallas mentioned earlier, we make communication between our residents and our service teams more convenient and efficient. These are just a few of the many ways we help to make our residents experience more worry free. We may not have invented the leasing lifestyle, but we are certainly working every day to improve while creating a resonant experience that is second to none. I’m excited by the strong momentum our teams continue to maintain as we start the New Year. I’ll now turn the call over to Ernie, our Chief Financial Officer.

[Ernie Freedman, CFO]

Thank you, Charles. Today I will discuss the following three topics; one balance sheet and capital markets activity, two financial results for the fourth quarter and three our 2022 guidance in main drivers. Let’s start with balance sheet and capital markets activity. Our efforts toward improving the balance sheet didn’t stop after achieving our investment grade ratings in April. In November, we closed our second public bond offering totaling $1 billion. The transaction further improved our weighted average years to maturity to 5.6 years as of yearend, and our percentage of homes that are unencumbered to 63.2%. Our net debt to EBITDA ratio at the end of 2021 was more than a full turn lower than at year end 2020 finishing 2021 at 6.2 times, not too far off from our targeted level of 5.5 to 6 times. We finished 2021 with $1.6 billion of liquidity, including $600 million of cash and the full capacity of our $1 billion revolver available. For the year we issued almost $2 billion of unsecured debt to pay down secured debt with an average maturity of almost 10 years in an average coupon of 2.36%. During the fourth quarter, we issued approximately 4.1 million shares of stock at an average price of $41.63 through our ATM program. Total gross proceeds of $169 million were primarily used for acquisitions. In December, we launched a new ATM program, providing us $1.25 billion of capacity that has not yet been used. Subsequent to year end in January, we completed settling conversions of our remaining 2022 convertible notes with 6.2 million shares of common stock. Next, I will go through our fourth quarter 2021 financial results. Core FFO and AFFO per share for the fourth quarter increased 19.7% and 21.0% year-over-year to $0.39 and $0.33 respectively. Our full year core FFO and AFFO per share were $1.49 and $1.28 respectively. This represents year-over-year growth of 16.2% and 18.8% respectively, which was primarily driven by higher NOI and lower cash interest expense. The last thing I will cover is 2022 guidance. As Dallas and Charles outlined, we finished 2021 with tremendous results and we believe that favor ruble supply and demand fundamentals will remain a strong growth catalyst for us again in 2022. Starting with same-store revenue growth, occupancy is anticipated to remain elevated in 2022 in line or slightly lower than 2021 results. Despite a tough comp, our guidance ranges assumes a similar blended rent growth in 2022 as in 2021. It also assumes that bad debt expense improves on 2021 levels, but not yet returning to our pre-pandemic historical average. Taking those assumptions into account we expect same-store core revenue growth of 8% to 9% for the full year 2022. Turning to same-store expense growth, our guidance range for 2022 is expense growth of 5.5% to 6.5%. Our same-store expense growth for each of the last two years has been under 1%. We expect higher expense growth in 2022 due to real estate tax growth, reverting to closer to 5%, inflationary pressures on repairs and maintenance, turnover and personnel costs and a higher turnover rate. That being said, we were pleased to beat our expense growth expectations last year, and we’ll work hard to do our best again this year. This brings our expectation for 2022 same-store NOI growth to a range of 9% to 10.5%. With regards to Dallas’s comments earlier on the pipeline of new homes we’re acquiring from various home builders. Note that we expect these homes to be a more meaningful contributor to growth in 2022 and beyond. You may have seen that we have included new disclosure around our anticipated delivery of these homes, which can be found on schedule 8-B of our supplemental filing. With everything considered, we are expecting full year 2022 core FFO share to be in the range of $1.62 to $1.70 and full year 2022 AFFO per share in the range of $1.38 to $1.46. A bridge of our 2021 core FFO per share to the midpoint of our 2022 core FFO per share guidance can be found in yesterday’s earnings release. I will wrap up with a reminder of our announcement earlier this month that our board has increased our quarterly dividend to $0.22 per share a 29.4% increase over prior year. In conclusion, it’s not just favorable industry fundamentals that are helping us succeed. It’s also our differentiated strategy that’s built upon our locations, our scale and our local eyes and markets. So whether it’s through our growth, our execution or our industry expertise, we believe we have a strong competitive advantage to continue to achieve favorable results. With that Operator, we’re ready to open the line, please for questions.

[Operator]

[Operator Instructions] The first question today comes from Anthony Paolone from JP Morgan. Tony, please go ahead. Your line is open.

[Anthony Paolone, JP Morgan]

Great, thanks and good morning. My first question is on the regulatory risk and regulatory environment. Can you talk about what dialogue if any, you have with the regulator’s what the hot buttons may be and anything you envision changing in the business going forward on that front?

[Dallas Tanner, President, CEO]

Hi, it’s Dallas. First off, thanks for the question. From time to time, we’ll get inquiries from regulators, we’ve disclosed that we’ve been working with the FTC to help them understand our business in a broad sense, but not really any change there and aren’t seeing anything necessarily that suggests a change in the business environment. I think the big focus right now is around rental rate growth across residential generally. Our multifamily peers are coming out, I think with pretty big growth rates as well this year. So I think just that inflationary pressure tends to be more the headline versus necessarily anything on the regulatory front.

[Anthony Paolone, JP Morgan]

And then in your guidance, we can probably back into this, maybe if you’d help us. What do you assume market rent growth to be over the course of 2022 in order to maintain rent spreads that you laid out?

[Ernie Freedman, CFO]

Yes, I think Tony important is, you have to look at it between renewal spreads, as well as new lease spreads. And I know a lot of people pointed out I think you have as well we have a pretty big embedded loss to lease in our portfolio that’s in the high teens, if not close to 20%, you can certainly see in our activity during 2021 and new lease numbers far exceeded renewals. As said in another way that’s probably going to give us a longer period of time over in probably more stability in our renewal increases and as Charles talked about in his call script and we got numbers in the renewables in the 9% range, we’d imagine, there’s the opportunity for that to be pretty steady throughout 2022. With a little bit harder predicted the new lease rates, but remember, Tony renewals are 75% to 80% of our business. So the new lease rates certainly impactful but not as impactful on the renewables, as Charles talked about -- still see an extraordinarily high new lease rates 14% plus in January, but we do expect that that will moderate as year goes through. But when you look at that on an overall basis, we think it’s pretty consistently numbers that are very similar to where we ended up in 2021, which is about a 9% blended growth rate. That’s because renewal being the majority of that not seeing a lot of volatility in that result throughout the year.

[Anthony Paolone, JP Morgan]

If I could sneak one more and just what do you have assumed in terms of just acquisitions over the course of 2022 in your guidance?

[Ernie Freedman, CFO]

Sure, absolutely. And as you can see in our schedule at the builder contributions, pretty small in 2022. If you look at our guidance range, we’re assuming about $2 billion acquisition activity during 2022, about a billion and a half of that would be on the balance sheet, about 400 million of that would be closing out the Rock Point joint venture we expect to have that closed out sometime during the second or third quarter in terms of being fully committed and invested. And then separate from that with a Pathways opportunity, we expect it should be plus or minus about $100 million that will invest in Pathways of our $250 million commitment there. And importantly, Tony, and I saw some people pointed this out this morning, we started the year with a larger cash balance, and we typically wouldn’t kind of got ahead of our needs from a capital perspective as we finished up the fourth quarter. And so when you factor in about billion five of balance sheet activity, we’ve got $600 million of cash sitting on the balance sheet today to help fund that. We do expect this position activity of between $300 million and $400 million in 2022. So slightly elevated from where we were in 2021. And then, of course, you have your free cash flow. Our dividend payout ratio, even with our large dividend increases on the lower side for REITs at about 60%, 65%. With those things taken into account that we’ll find the vast majority of the $1.5 billion, we’re able to -- balance sheet activity, but we certainly will need some capital for us to get all the way there with some combination of debt and equity potentially during years depending on what would be more efficient across capitalist for us to use as we try to achieve that number that’s very similar to we did here in 2021.

[Operator]

The next question is from Jeff Spector from Bank of America. Jeff, please go ahead.

[Jeff Spector, Bank of America]

Great, thank you, good morning. My first question is on migration trends. Everyone’s laser focused on some of the comments you discussed, Sunbelt population shifts jobs. I guess anything new to share that you’re seeing, let’s say January into February. Any other trends you could share with us from your data?

[Charles Young, COO]

Great. This is Charles, great question. I shared some of it in my prepared remarks. Honestly, there’s really nothing new than what we’ve seen in prior quarters. We’ve got about 83% are coming from single family prior, meaning that they know what they’re looking for. And as we talked to them, maybe this wasn’t in the prepared remarks. But the two main reasons they’re looking to move to, is to get more space or to be closer to work, which speaks to our locations, where we own our homes. We do see that about 60% are coming from out of town, that’s a combination of different cities or from out of state. And as I’ve talked about previously, we were given a pandemic, seeing a number of people move from the northeast to the southeast, specifically Florida, and you can see it in our numbers. Our new lease rank, relative demand is really high in Florida, Atlanta as well. We’re seeing Vegas with some real high demand. People moving out of California, Texas, as well. So these are some of the migration trends, but things have been pretty consistent over the last few quarters in terms of the demographics. We do also ask if we get a little deeper on around what are they looking for in terms of the community types and it’s the family friendly, kids schools, pet friendly, convenience oriented, that’s really our portfolio and that’s why you’re seeing such high occupancy and great demand within our homes.

[Jeff Spector, Bank of America]

Thanks, Charles. And then thank you for the new schedule 8-B. I guess two questions there. First on South Florida just kind of stands out that nothing is delivering in 2023 or beyond, anything particular in South Florida to note?

[Ernie Freedman, CFO]

I’m sorry Dallas, with that one, we have a specific contract with someone today and over deliver most of those in 2022, and look for future opportunities there to expand that further and 23 or 24. But that’s actually one of the first ones up in the Q1 22 for delivery for us, versus specific projects that we’re working on with them. But that’s a different builder.

[Jeff Spector, Bank of America]

Thank you. And actually, my last question, if I could just ask on the expense growth Ernie, just to confirm the 6% midpoint range are you seeing most of that is estimates for higher real estate taxes?

[Ernie Freedman, CFO]

Yes, good question. Jeff, as I mentioned, the prepared remarks the last two years our expense growth has been at 1% or less, it’s been pretty extraordinary. So I think it’s a combination of a few things. And you point out the biggest one, Jeff, and that real estate taxes are about 60% of our expenses and baked into our guidance, there’s an expectation of about 5% increase in real estate taxes. We’re going to aim to do better than that, if we can have some good news on some appeals and things like that, maybe we can come in a little bit, that’s certainly going to be a big driver. And then the other big driver, they’re just being the inflationary environment we’re in with regards to repairs and maintenance costs in turn costs. And then finally, you asked on the numbers, our turnovers came in again, extraordinarily low here in the fourth quarter, and for the full year at 22.9%. We are assuming the turnover goes up a little bit from that about 23% number to something more in the 24% to 25% range. So not only do the inflationary pressure of labor in supplies, but also baked into our guidance are more terms. Now, to be fair, we sort of thought that was going to start to happen in 2021 and it didn’t. So you’re hard to predict for certain that will happen. But that is what’s embedded in our range of the 5.5 to 6.5 expense growth.

[Jeff Spector, Bank of America]

Okay, thanks and congratulations on a great 21.

[Operator]

The next question comes from Brad Heffern with RBC Capital Markets. Brad your line is open, please go ahead.

[Brad Heffern, RBC Capital Markets]

Thanks, good morning everyone. On Pathway, I’m curious what you consider thinking about doing that model yourself. And then is there any scale that you can give to the key potential there?

[Ernie Freedman, CFO]

Yes. We’re really excited about this partnership and maybe just level setting for a second. We talked about this a little bit in the release, but we have an ability with people that are leaving our portfolio and seeking homeownership to also help bridge some of that gap as this program develops over time. I think your question is a good one, which is why not do this per se yourself. I think out of the gates, what we’d like to do is get smarter around the product, deal with partners that we trust, and that we’ve worked with in the past. And I think Pathways offers us that kind of perfect opportunity. I would expect that as if we like the programs over time and distance, we’ll be able to also extend those programs, buy a Pathway or whatever alternatives are in the marketplace. But I think helping people along the housing continuum and in their journey is something that our company and our people are passionate about. So the investment in Pathways is reflective of that, and we’re excited to see what sort of fruit it can yield in the future.

[Brad Heffern, RBC Capital Markets]

And then any new color on where rental income ratios have trended recently?

[Dallas Tanner, President, CEO]

Yes, great question. We’ve been continuing to see upward kind of movement on that rent income ratio. We’re over 120,000, on the average household income, which is very healthy. And with our rents around 2,000 a month, we ended up at a five to two ratio, which what I would say is one of the strongest in the residential sector. So it’s a testament to our location, demand that we’re seeing, and our team is doing a really good job with screening as well.

[Operator]

The next question is from Nick Joseph with Citi. Nick, please go ahead.

[Unidentified Analyst]

Thank you. As we’ve seen, the increasing amount of capital that’s been earmarked to the single family rental space, where do you see the most change in direct competition, I don’t know either from a quote channel or geography or something else?

[Dallas Tanner, President, CEO]

Hi Nick, Dallas. We’re certainly still hearing a lot of the build for rent narrative out there. And that’s starting to take shape across two or three different categories. You really have garden style apartments that are starting to pop up in suburbs that are much smaller square footages. We certainly have partnerships with companies like we have with Paulte and other builders, where we’re building single family detached product that is generally geared towards for lease product. And then you’re seeing kind of a hybrid, where guys are doing stuff infill on a townhouse basis. But it feels like a lot of the capital coming in is more sophisticated or at least wanting to come in as more sophisticated you’re hearing really kind of insurance companies, sovereigns, pension funds, looking for ways to deploy capital, as we’re having conversations. I think the challenge is largely around kind of a couple of areas of why that’s not as easy. One, you got to have a great platform, which we all know is difficult to build in. And replicate is similar as what we have here at Invitation Homes and I think the second piece of it is which markets and why where’s your thesis and do you have kind of sound logic, but I’m hearing the same things, I think you are Nick, which is there’s a lot of capital that wants exposure to single family in similar ways that they’ve had exposure to multifamily over the years.

[Unidentified Analyst]

Yes. That was Michael speaking here with Nick. Does that alter your views on perhaps growing a much larger asset management program and sort of ventures to take advantage one of all this capitals out there and appears maybe lower return than what you’re willing, and then layering in your operating platform and the management of it, you can try to juice the overall enterprise? Is that an active process for you today?

[Dallas Tanner, President, CEO]

It’s certainly something we’ve gotten a bit smarter out over the last year with a Rock Point venture. Michael, I think you’re touching on kind of key things that are important to us. One, you take a step back absolute shareholder return is our focus. So we do want to do things that allow accretive growth to the portfolio or the platform that has complete upside for shareholders. And the Rock Point venture for us was a way that we could obviously insulate some of the risk for whatever reason, our cost of capital wasn’t in a position to grow as quickly as we wanted to. But there’s also different slugs, there’s probably some different opportunities overtime as we get a bit more sophisticated and how to think about JV businesses overtime and distance that we could do things at our discretion that are very accretive to the platform to shareholder. So I think we’ll continue to be opportunistic. I think that capital coming into the space obviously lends itself to future thinking around some of that. And it can also be price point driven, geographic, I think there’s some things that you could think of outside the box where we could take less shareholder risk, in terms of how to look at markets or opportunities, but drive a ton of value to the platform and actually use the synergies and the efficiencies of the platform to create exceptional returns. So it’s something we’ll certainly look at overtime and distance.

[Unidentified Analyst]

And then the second topic, Charles, you talked a little bit about surveying the new residents that are coming in and you made a comment that about half of those are working from home two days a week and 75% intend to work from home in the future, even with their offices open. I guess what is that new renter, what is that representative of the total portfolio? How representative do you think it is? I don’t think you’re serving all 80,000 homes right now. It’s only that new park. And maybe you can just I don’t know, if there was some geographical impact? Or can you just sort of tease out a little bit more of those comments?

[Charles Young, COO]

Yes. No that’s great question. Just to be clear, we’re serving new residents who moved in that quarter. So you have a good question. But it’s hard to tease out what you’re asking for, given that we’re really just trying to capture those who are moving in, and kind of what’s their general sentiment at the time, but having looked at it over last few quarters, or last year through COVID it really hasn’t changed that much. As I said, high 40, almost 50% are working from home some part of the time. And the other thing we got from it is about 73% are thinking that single family home gives them that safer environment that they’re looking for their families, for their pet. And so we can try to pull out that information in the future. But right now, we can’t go as deep as you’re asking us.

[Unidentified Analyst]

Yes, I just didn’t want to jump to a conclusion based on a smaller sample set. It was certainly a bigger headline, an eye catching headline, I just want to put it into context relative to the size of your portfolio and all the geographies that you’re in just to try to understand it better, which we can do at a later time. Appreciate it. See you in a few weeks.

[Operator]

Next question is from Keegan Carl from Berenberg. Keegan your line is open.

[Keegan Carl, Berenberg]

Hi, guys, thanks for taking the questions. First, I think this one’s a little more challenging to answer. But I’m just curious, you guys have any broader thoughts at home price appreciation looks like this year? Do you have any sort of internal forecasts for rates and the impact it’s going to have on the housing market?

[Dallas Tanner, President, CEO]

This is Dallas. We would all be in different professions, if we could have predicted what’s happened over the last 24 months in terms of home pricing. So I agree with your sentiment that it is very, very difficult to predict. And obviously, it’s interest rate sensitive. I would say this, as we looked at just the case sheller across our marketplaces, we’re somewhere around 23% on a look back basis. Now I can remember three or four years ago when we look back and that number was closer to 6% or 7%. And then I can think about 10 years ago, when we started the business when we were looking back at that number and it was between 12% and 13%. So the momentum or the inertia of where kind of mean, median pricing in a market is going is impacted by a variety of factors. I said this, this morning in some media we were doing but we don’t expect trees to continue to grow to the sky forever. But with that being said, all the things Charles just laid out around desirability people wanting maybe a little bit more space, people wanting a yard I do think living a couple of years like this now, with these types of things influencing our decisions are likely here to stay longer than they are to go away. And so I do think that pressure around housing prices continues. I think the supply challenges are so much bigger than what we just talked about around months of inventory. This is at a very municipal level, zoning and an implementation level to really course correct and be able to create ease of supply to come into the marketplace. So we would expect home prices to generally stay elevated given that interest rates are by and large, still really low, even though they’re going to creep up if you look at it on a relative basis. When I bought my first home in 2003, I was paying 6%. Today that rate is somewhere in the high three. So it’s still really, really cheap money for somebody that wants to go and acquire a home. I think the key thing is, within municipalities and at the state level to be pro development in some of these markets. That’s going to solve some of the appreciation issues that people are calling attention to.

[Keegan Carl, Berenberg]

Got it. I guess this one’s more for Ernie, but just any sort of commentary the use around insurance renewal rates and what they could look like in March.

[Ernie Freedman, CFO]

Yes, good question. We’re actually just going through our renewal right now and because we’ve had such very good loss history and insurers understand the spread of the risk for us as much different from a catastrophic event. If you think about our homes in Florida, certainly Charles and Dallas have to build scale. But scaling our business is a lot different than having one or two large commercial buildings or residential buildings that could be worth hundreds of millions of dollars. We’re expecting an insurance renewal that’s going to be generally flattish, maybe up 1% or 2% but we’ve gotten good feedback from the market and the share hopefully wrapped up here in the next few weeks. So insurance will be a good guy for us to believe relative to our other inflationary pressures we’re seeing on expenses.

[Keegan Carl, Berenberg]

Yes. No, certainly it’s good to hear. Just want to clarify one thing I know this was mentioned a little bit in the beginning on regulatory. Did you guys mention anything about the FTC investigation or any sort of update on that?

[Ernie Freedman, CFO]

No, no update there. They’re just that we’ve acknowledged that we’re working with the FTC to answer any questions that they have around the company or the industry that the inquiry is pretty broad, and we’re doing our best to make sure we get them the information they need.

[Keegan Carl, Berenberg]

Got it. Thanks for the time, guys. Really appreciate it.

[Operator]

The next question is from Jade Rahmani from KBW. Jade please go ahead.

[Jade Rahmani, KBW]

Thank you very much. As a follow on to the FTC question, could you give a broader update on the regulatory and political environment both respect to rental housing overall, and if there’s anything you’re hearing in single family rental in particular, just around the affordability question and rent growth?

[Ernie Freedman, CFO]

Yes happy to Jade. And by and large, we’ve continued to keep you guys and everyone for that matter updated with inquiries and questions that we’ve got from state, local or federal inquiries overtime. We’ve worked over the last several quarters, with the house congressional subcommittee on the Corona virus to give them a bunch of information, as have many companies within our industry, we’ve done that. Also across the Senate Banking and Finance Committee, as we’ve had inquiries from Senator Warren and others, we’ll continue to do that. Its best practices, also how we’ve been for 10 plus years in terms of making our information available to those that have inquiry. And by and large, one of the benefits of being public is our information is generally available on what’s going on with the industry. I think at the local levels where you’re hearing kind of some of the noise and the pressure really does center around rate discussion. The cost of goods generally, will evolve felted across different categories and sectors is going up. And we just talked about it with home price appreciation, our cost of materials and flooring and paint and all that will also have some of that creep as well overtime. I think Charles and the team have done a phenomenal job, if you look at our expense creep the last two years of keeping that locked in and using our platform and our pricing power to be as effective as we can. But it’s just an environment that creates a heightened sense of awareness and costs. And so I think some of that Jade feeds into the public narrative. And again, we said this every two to four years, we’re in another election cycle and unfortunately, some of this starts to become the headlines. We’ll do our best to continue to take the same approach we always have, which is work with any and all parties that objectively want to dig in and understand what’s going on in single family. We are a very small, small percentage, but a good barometer of what we’re seeing across the space. And so we’ll share that information freely. And outside that Jade, we haven’t had really anything new beyond what we’ve kind of been addressing over the past several years.

[Jade Rahmani, KBW]

And is there anything from the feedback you’re receiving or your sense of the environment that is causing any operational changes? One of your peers, for example, has some limits on the rent bumps that they will take. And some concessions they provide as partial offsets to rent growth. Are there any practical operational implications to the way you’re running the business?

[Ernie Freedman, CFO]

Yes I mean, to be clear, and we talked about this on the last earnings call, we’ve done a considerable amount of rent adjustments, rent forgiveness, and worked with folks through the last couple of years in the tens of millions of dollars, in terms of how Charles has run that program. Going forward with obviously working with all the different rental assistance providers to make sure that we’re erring on even the side of caution, and making sure we’re working with customers and Charles has done a spectacular job. I think we’re close to $50 million. Charles, we’ve secured in rental assistance over the last two years on behalf of almost 8,000 cases with our residents. So the team has done an exceptional job, I don’t think we’re going to change anything that we do outside of following state and local laws around how to operate property management businesses and how to think about the way that you issue new renewals. I think the headline there, also Jade is that we have a lot of embedded loss to lease on the renewal side of our business. So we do look at where our renewal assets are going out. We modify and make sure that we’re being sensitive to market and kind of current market environment. You see that in our numbers, our new lease numbers are substantially higher than our renewal numbers. And so we think that actually has a good long term tailwind for the business overtime.

[Operator]

Our next question is from John Pawlowski from Green Street. John, your line is open.

[John Pawlowski, Green Street]

Thanks a lot for the time. I was curious to get your thoughts on them pretty wide disparity we’re seeing in private market pricing on portfolios versus one offs. And so is there an opportunity to kind of reposition the portfolio more in a step change fashion, take advantage of portfolio premium prevailing right now?

[Ernie Freedman, CFO]

Yes. It’s a great question, John and you’re seeing similar things, really more so last year, I felt like we saw a few portfolios traded really high premiums on a relative basis to whether we were we thought maybe our cost of capital was or what we would consider call it end user retail pricing. That appeal, we’re seeing less of those opportunities going out. So yes, it is part of our asset management practice, we’re constantly looking at parts of our portfolio where we think could we drive a premium. And you might be able to argue that our California portfolio has pretty high values to it. But again, it’s also got the Prop-13 protections, it’s got a really steady tenant base. And there’s a lot of upside in terms of a risk adjusted return profile. So anytime we look at our portfolio itself, we don’t rely analysis. We have a discussion around where we have conviction and why and so you’ll see us continue to call and turn and look for opportunities. I don’t think there’s an opportunity, necessarily in the near term that’s immediate or wholesale that would take us off course, from what we’re doing currently. But it’s certainly something that we do as a matter of best practice internally.

[John Pawlowski, Green Street]

Maybe just one follow up on the acquisition side as you’re underwriting, even small and mid-sized portfolios. Could you help quantify portfolios, you’ve looked at what a typical spread is and a cap rate basis on the portfolio versus if you had to assemble that portfolio on a one-off?

[Ernie Freedman, CFO]

Yes, it just depends by market. I mean, we saw some trades last year in Sunbelt, in southeast markets that we’re trading, what I would say on an in place cap rate, kind of in the high threes. You might be able to buy those assets, one by one at a five cap today, or high fours. And again, your cap rate will compress the more you buy, because there’s just sort of limited opportunities out there. But those deltas can swing pretty widely, and it’s based on the product and how big the deal is. I think you’re highlighting an important point, it goes to the one that Michael talked about earlier, which is with the balance sheet, we’re going to be really careful. We want to do things that are creative, we want to do things that make sense and are buying 4,000 or 5,000 homes a year one-off is extremely accretive for us. So we’ll continue down that path. I think, to be aggressive on some of those other portfolios you have to look at other slugs of capital over time, and you have to have conviction that you believe in the assumptions. And those are the things that we look at when we looked at those opportunities, John.

[John Pawlowski, Green Street]

Alright, appreciate the time.

[Operator]

The next question is from Haendel St. Juste from Mizuho. Haendel your line is open. Please go ahead.

[Haendel St. Juste, Mizuho]

Thank you, thank you, good morning. I guess the question, I think you guys mentioned earlier that you expect to extinguish the remaining capital from the Rock Point JV this year. So I guess I’m curious how you thought maybe about potentially expanding it or maybe adding a new JV partner here. So I’m curious how you’re thinking about JV capital and how it might play a role or not in your term? Thanks.

[Ernie Freedman, CFO]

Yes, I already mentioned that the initial Rock Point venture will likely be finished in the second or third quarter. And we view that that buying would then go back on the balance sheet and be additionally accretive growth for the REIT. I think I mentioned it earlier, we want, we’re thinking outside the box are there markets, are there sub markets within our markets at different price points that can be accretive with outside capital, where the platform could benefit on that over time and distance. I think, Haendel, we are spending time trying to get smarter around what that approach could be without confusing our core business, which is to continue to buy accretively for our shareholders. So I think anything that we can look at with, outside JV partners, or maybe long call it core ventures could be interesting over time, you got to find the right type of capital, you got to think about what those price points are, why they make sense. And you don’t want to do anything that distracts you from what you do day to day. So just being smart about the opportunities, the geographies, the price points, and making sure that the story is really clean, and that we don’t compete against ourselves. And at the end of the day, we have a really good generally good cost of capital. We have an infrastructure that supports really good shareholder growth. So we want to make sure that we maximize that over time on anything that we will look at outside of investing on balance sheet.

[Haendel St. Juste, Mizuho]

Got it, thank you. And a follow up on Pathway I guess. Can you talk a bit more about the pace of capital deployment? It sounds like you’re expecting half of that to be deployed, have the 250 this year and maybe a bit more on the scope of fees and invest returns and trying to understand how this might impact the numbers earnings going forward? Thanks.

[Dallas Tanner, President, CEO]

Yes Haendel, very happy to address that. And part of it also, in terms of how fast they’ll deploy in the Pathway home announcement, they’re also looking for additional capital, not just ours. So right now we’re the lead investor, but they’re out seeking additional capital. So during this period of time where we’re the only investor any homes that they’re firing is purely from our capital. But there’s certainly enough potential later in the year that other investors will be added to, which would then proportionately reduce what our capital requirement will be during the year. That’s the best way to think about this Haendel is that they’re buying homes very similar to what we’re doing on our balance sheet today, in terms of stabilized deals made, maybe even slightly higher. And then the difference here is they’re doing the work around sourcing the homes, sourcing the customer. So the Pathway homes operating company, which we’re an investor in, is being paid an asset management fee. And then we’re paying the property management fee on running the homes like we do with our current portfolio. So where you can really see some really good leverage for us with regards to having a really nice return here is if additional capital comes in. So earnings management fees, not just have our own capital, but also someone else’s capital is too. So a lot of it’s going to be the base case, it looks pretty good if it’s just our capital, but it gets really nice if we can start bringing in other people’s capital as well and really blow that platform, then, of course, we would our investment in the operating company as well, there’s potentially a valuation on that operating company that could certainly be beneficial to us in the future to get it.

[Haendel St. Juste, Mizuho]

Got it. That’s helpful, Dallas if I could just, one more, and this is regarding I’m going to guess, understanding and it’s always a sensitive matter. But anything you can share a comment on the whistleblower lawsuit in California that was in the press yesterday?

[Dallas Tanner, President, CEO]

Yes, happy to share what I can. We don’t really comment on, pending legal and whistleblower is not really a fair term. What we had was the city saying that our general contractors were pulling permits, on rehabs and as a matter of practice, this is kind of the only comment I’ll make on this. Because I want to let make your mark and our legal team can deal with this the appropriate way. As a matter of practice, in our contracts with our general contractors, much like you would expect they’re required to pull appropriate permits with the city. So again, when these things come up from time to time, we typically make sure that our lawyers look and review. And then we point municipalities to the proper direction of where the issue actually lies. And so outside of that Haendel, I can’t really comment on pending legal but just know, as a matter of practice for our business, in our contracts with our GC, they are required to pull appropriate permits.

[Haendel St. Juste, Mizuho]

Got it, thank you. Appreciate the color.

[Operator]

The next question comes from Brian [Indiscernible] of Evercore. Brian, your line is open.

[Unidentified Analyst]

On the supply side, are you seeing any bottlenecks currently affecting you and your building partners? And how do you see that trending during the year?

[Dallas Tanner, President, CEO]

Yes, we’re not seeing any real direct bottlenecks given the structure of our homes. When we buy a new home, about 10% of the purchase price goes into the rehab. So it’s in that 30,000 to 40,000 range, mostly paint carpet and all that. So early on, we saw a little bit of noise late in the middle of last year. But today, not really, I think most of it is coming just on the kind of labor side and sourcing GC. We’ve had a really good healthy buy acquisition year. And from an ops perspective, we’re doing a good job of catching up. But there’s a little bit of catch up and to keep up with what we’re trying to do this year. So it’s really just to make sure that we are making an streamline for GC to work with us. And we’re doing a lot of things on that front in terms of make it easy for them to be paid quickly, supporting them, writing quick scopes and all that. And so really haven’t seen much on the material side, it’s mostly on making sure that we’re sourcing the right GC who are going to turn the house around and from our requirements.

[Unidentified Analyst]

Okay, thanks. And then just on the ancillary income side, real quick. You’ve talked about reaching that stabilized goal of 15 million to 30 million by the end of this year. Just want to check, if any, any changes to the timing, there’s that’s still kind of the target goal?

[Dallas Tanner, President, CEO]

We’re at the high end of that guidance that we gave a few years ago, really being driven by seven areas and through the pandemic, we’re able to maintain and keep real good momentum on the ancillary growth. We’ve built a really nice team over there. And from an OS perspective, it’s really rolling out nicely. Main focus has been on smart home optimizing that program, as well as introducing video doorbells this year, pet programs are going well. Our filter program that we were rolled out about a year and a half ago, insurance, a partnership with Terminix on [Indiscernible] utility partnerships, and then starting to work on landscape stuff. That’s really the base case, that’s going to get it to the high end of that guidance that we gave. And we think that continues to grow from there. As we go. Ernie, if you want to add anything, sorry to cut you off.

[Ernie Freedman, CFO]

No, no, you nailed it. All good.

[Operator]

Next question is from Dennis McGill from Zelman & Associates. Dennis, please go ahead.

[Dennis McGill, Zelman & Associates]

Thank you. Thanks for taking the question. First one, I guess just looking at the Texas markets, if we were to take 21 as the reference point, both rent growth and occupancy is among the lowest in the portfolio and migration data are away people are talking about migration, that narrative would kind of lead you to the opposite conclusion. So just curious from your perspective, I know Texas looks good versus history, but relative to other markets, and relative to the migration narrative, why aren’t numbers better there?

[Dallas Tanner, President, CEO]

Well, let me start off by saying we love Texas, we were able to acquire the beginnings of that footprint in our merger with calling Starwood and we’re trying to grow it, Dennis, quite frankly, I think some of the dislocation that you see in the numbers has more to do with the size of the sample some of the existing assets that it does the market as a whole to be fair. We are in our homebuilder program, really trying to target Texas growth, the fundamentals are off the charts, feels like the net migration patterns which have gone on here for 20 years are only going to get better. So we’re bullish, like extremely bullish. And we would expect, we saw this a little bit to if you remember back when Charlotte was a smaller market for us, the Carolinas, we struggled to see kind of the growth rates and the trends. And as we were able to scale up and provide services that candidly a better level, you started to see the acceleration and you start to get better at the pre leasing and your loss, the lease comes down and you actually start to see better programs within your renewal categories. So I don’t want to say it’s a nothing birder, it’s something that we focus on, but it will adjust and change overtime as we get the right product in the portfolio. I don’t know, Charles, if you want to add anything?

[Charles Young, COO]

Yes, no, I think it’s a good call, out size does matter long term very, very bullish. And if you look at this specific trends within the market, Houston in Q4 was 97/7 occupancy, same as it was last year, which is still really healthy. And today, our ending January -- was 72 versus 28 Q4 of 2020. So while it’s not keeping up with some of the Florida and Vegas and Phoenix, which are just extraordinary numbers, these are good numbers for Houston and Dallas, we saw a little bit of turnover spike in Q4 which brought our occupancy down to 968 in the quarter. But January’s already up to 97. And we’re increasing in the blended rate growth with 99.6 in Q4. So that’s really healthy up from 3.7 before and in January, we’re still in that 8% blend. So, given seasonality, given occupancy, we think this is going to I think the numbers in Texas will continue to be healthy. And overtime, I’ll start to compete with some of the other migration markets we talked about.

[Dennis McGill, Zelman & Associates]

Okay. Thanks. That’s helpful. And then a little bit separately, do you have, how much of your leases are month to month, and how that’s shifted over the last year or two years?

[Charles Young, COO]

Yes, month to month is I think about 3.5% of our portfolio today. And it shifted a little bit some of that is the California effect when you have a limit on the renewal leases, and they’re kind of matching up to what would be our month to month rate, some of our residents out there decide to go month to month and that’s what’s pushed it up. Otherwise, it’s pretty typical to what we’ve seen in a small part of the portfolio.

[Dennis McGill, Zelman & Associates]

Great. And then just one last one on the development pipeline of 1,700 homes, maybe just a little more detail on the asset types or all of those single family detached or percentage would be true single family detached and then are these typically hold communities or partial communities any additional detail there?

[Dallas Tanner, President, CEO]

Yes. No happy to it and bear with me because I’ll give you a few bullet points here. You know, I think we just close it we’ve got plus or minus about 1,700 homes in contract that are you know in play right now that will start to take deliveries on later this year. We have another two or 300 homes right now that are pretty close to contracts. So call it 2,000 that are kind of in our ultimate pipeline. Their majority of these are single family detached Dennis, we are going to experiment a little bit with some townhome product in much more infill locations, which we bought in the past to be clear. We’ve done some of this back in the early days and also picked up some of this along the way, but it’s really location driven. And we believe that on a margin basis, some of this can be pretty accretive. We think kind of going in cap rates right now are kind of in the low to mid fives. So really accretive in terms of where we think we take delivery. And then about 80% of what we’ve got in our current pipeline is kind of largely Sunbelt and Southeast markets. So we’re going to expect that to continue to insulate that narrative around Texas, and the Southeast, and where we’re seeing some of the highest growth. And we’re also trying to get smart around new markets. We’ve talked about markets in the past that we’d like to be in markets like Salt Lake, and Austin and San Antonio, are all really interesting for us. And we want to continue to try to see if there’s accretive ways to ultimately as a business, maybe be in some of those markets, and the network of built rent providers will continue to expand. John Gibson, and Peter DiLello on our team do a really good job of spending time with a number of different builders and they’re looking at 1000s of opportunities, over a three to five year horizon. So we’re excited about where we are, what we laid out a couple of quarter quarters ago, in my opinion is working, we haven’t taken the majority of these deliveries, but we’re doing things with tried and true partners. And building these on like the right foundations that are built on trust, transparency and an initiative to candidly bring more leasing supply into the marketplace, and I think we’re going to do it, like we’re going to do a good job of it as well.

[Dennis McGill, Zelman & Associates]

Now, so you’re experimenting at all with that sort of ultra high density product beyond?

[Dallas Tanner, President, CEO]

No, because at the end of the day, no, I think because at the end of the day Dennis, our customer wants an 1,800 to 2,400 square foot home at about $2,000 a month where it blends, and that ultra high density tends to be a little bit more amenity based, I would never rule out the never. But those start to tend to get to be smaller product. It’s a little different customer not saying it’s a bad customer. It’s a little different from the customer that we have the state of this now almost three to four years and wants, the ancillary businesses and the things that Charles talked about. So I’d actually expect this maybe in some ways to go the opposite way continue to do what we do really well, and drive additional services into the platform and make everything mobile to where a customer can adjust kind of what’s part of that experience from their phone over time and distance, I think that will lend itself to great growth for the business beyond just the real estate and being location focused with our investments.

[Dennis McGill, Zelman & Associates]

Makes sense. Thanks, guys. Good luck.

[Operator]

The next question is from Sam Choe from Credit Suisse. Sam please go ahead.

[Sam Choe, Credit Suisse]

Hi guys. Thanks for taking my question. Just since we’re talking about acquisition pipeline, again, just wanted to know what percentage of the current pipeline is from Paulte? I think you guys threw around a number like 1500 last quarter.

[Dallas Tanner, President, CEO]

If you look on schedule stuff, we’ll know to add, the vast majority of that is from Paulte probably 80%m 90% of us fail. But in terms of what’s going to happen in 2022, in terms of we actually intend to buy very little comes from Poulte. Poulte really doesn’t start to kick into gear for us until 2023. And then the vast majority of it seen in supplemental schedule AD comes through in 2024. And as we do more deals with Poulte I think you’ll continue to 24 build out as well, you’ll start seeing 25 and 26.

[Sam Choe, Credit Suisse]

Right, and that’s where the 7500 homes kick in, right? So after 23. That’s the five year period where you guys expect that relationship will build and you guys will eventually try to get to the 7500. Is it the correct way to think about it.

[Dallas Tanner, President, CEO]

Yes, and we announced the relationship here about two quarters ago. And so, over the five years that will certainly get us into 20 26 million to early 2027. And because we’re getting involved with policies really at the beginning of the process with regards to when we’re thinking about acquiring the land when they have acquired the land. So certainly from there takes the certainly a couple years to get the land ready for the developments to start to happen. So that’s why you’ll see a lot of the stuff deliver in the out years for us. It takes into account the fact and the same number of homes in terms of what the growth rate will be and ultimately other than crewing appropriately for outperformance. If we’re so fortunate to have that later in the year, I think you’ll see kind of a steady growth with regards to the cost associated personnel and then just overall for expenses Sam, real estate taxes you take your best guess at the end year how it’s going to go. And then again you’d put that increase through pretty evenly throughout the year. And then as you get more information, you tweak those accruals. So I would expect you to see and again, profit with property taxes being 60% of our expenses, you’ll see a, we would expect a relatively smoother expense growth in 2022 with regards to where it’s at, and maybe we’ll get some slightly easier comps until we get the second half of the year around repairs and maintenance and turnover, things like that, because the inflationary environment really started to kick into gear for us here towards the end of 2021.

[Sam Choe, Credit Suisse]

Got it, guys. That’s really helpful. One more from me. I guess the total occupancy for Seattle and Denver were kind of low compared to the rest of the portfolio at like 91 and 87. What was going on during that quarter?

[Charles Young, COO]

Yes. Just quickly on Seattle, what’s standing out there is there was a freeze on the renewal side of the business that the Washington had in place. And when we could start to move rents back to market and we did that in a very thoughtful way some residents decided to move out. So it created a little bit of a spike in turnover. And so that’s why you see occupancy went down to 971 was still very healthy from 985. But it’s already rising up in January, we’re at 976 and you’re going to see the renewal rank growth and rent growth go higher.

[Dallas Tanner, President, CEO]

So Sam, I know you were talking about the total portfolio, not same store. And so on total portfolio the activity we’ve had a significant amount of acquisitions in both of those markets. And so what’s happening is we’re acquiring homes and Charles talked about a little bit earlier, we did see some labor supply shortages in the fourth quarter of 2021, with our general contractors. And with this, the quick ramp up and acquisition activity in the second half of the year, we did see it taking us longer to get our initial renovations done. And we’ve been very acquisitive in both the Denver and Seattle market. So what you’re just seeing there, it’s taking about 30 to 45 days longer than historically, to get homes ready. And that’s impacting our occupancy. We would expect that to work itself out over the year, actually the first half of 2022 to get to more normalized total portfolio numbers.

[Sam Choe, Credit Suisse]

Got it. Appreciate the color guys and congrats on the great quarter.

[Operator]

The next question is from Austin Wurschmidt from KeyBanc. Austin, please go ahead.

[Austin Wurschmidt, KeyBanc]

Great, thanks, everybody. Wanted to circle back on the pathway investment really quickly, just to better understand it. So is the $250 million investment, your total commitment or just an upfront investment that could grow from here over time? And then second are you structuring these deals, essentially, to ensure you achieve your targeted return? And then any upside from home price appreciation over the term of the rental period is enjoyed by the resident, just any detail you could provide would be helpful?

[Ernie Freedman, CFO]

Yes Austin this Ernie, and Dallas may chime in as well. With the first part of your question, we committed $250 million to the platform, we funded 25 million of that to the operating company, the group is actually they set up an operating company to source the customers and source homes. And our capital partners have also put some cash into that entity as well. And we own 15% of that entity. And then the remaining $225 million is committed to the property funds, where were the homes will actually be owned. And there will be leveraged that will be used there as well and then the hope is that in Pathway homes, folks that are around trying to raise additional capital there to grow that even further. And then from return perspective, we would expect return one stabilizing and they stabilize very quickly because they’ve been someone’s moving in right away. There’s a very light renovation apps on these homes because the current consumer, the residents can pick out the home. It’s the home that they want to potentially buy after a period of time, we expect the yields at the property level would be similar or slightly better. But the least clearly states with what the renewal rates will be over the period of time that they’re leasing and pre negotiates with the purchase prices will be. So if you do see some outsize home price appreciation that will certainly accrue to the benefit of the resident, but that’s all factored into the lease that’s put in place to get together with that resident.

[Austin Wurschmidt, KeyBanc]

Got it. That’s really helpful Ernie, thank you for that. And then just secondly, back on the regulatory side, I guess, how do you let a lay investor concerns about the regulatory backdrop and outstanding class action lawsuits that came up, which presumably, are on everyone’s mind and come up frequently in conversations, and then maybe bigger picture. Do you think any of these risk release derail the opportunities set for Invitation’s ability to continue gaining scale or on the internal growth profile looking forward?

[Dallas Tanner, President, CEO]

Let me address first the class action references. We’ve been dealing with for several years in. And there are two claims, but they stem from the same case, the first one was dismissed across all states, but they kept the California piece. Our general counsel is working with that there, we don’t comment on anything ongoing. But this has taken some time, just a case that’s been going on for a while. The second one is the old plaintiff, after the case have been dismissed filing in the state of Maryland. So no new news there outside the fact that these things do arise from time to time. And it’s in regards to a late fee claim and our counsel is working through it. In terms of the broader environment, I think I’ll go back to what I said earlier, which is, there is a heightened sense of awareness with warehousing costs and supply constraints currently live. And we’re all filling, we’re filling in our own choices around housing, whether it’s to buy a home, and the home price is up 25% than it was a year ago, or whether it’s in a lease like a market like Phoenix, where we’re seeing new lease growth in the 20 percentile during the peak months. We can’t solve the overall supply issue for the country. And our shared remarks at the beginning, we do try to make sure that people understand we represent a very, very small subset of the forward lease single family rentals, housing space, and we’re part of a broader sector and an industry that’s evolving and getting better. I think the narrative will be that people will continue to invest in SFR, because they like the returns. It’s never been an institutional asset class. But there’s been somewhere between 15 million and 18 million people that have rented this type of product forever. And so we’re happy and proud of the small part we play in that story. Our goal will be to continue to find ways to accretively grow our portfolio, but not just the portfolio, but the services we provide to the residents. I cannot tell you whether the regulatory environment goes up goes down, it tends to follow political cycles and spectrums and stories that are out there. Right now you have a high cost of housing, reality that we’re all dealing with. So it will get picked on a little bit from time to time. At the end of the day, we were part of an industry has been around forever. And I think we can continue to find ways to make it better than how it was before. And so that’s really our focus is how do we take an industry that’s been here for 200 years, and make it better. And I think you see with our Pathways announcement, those are areas and quite candidly opportunities for renters or potential owners to ease into homeownership in a way that is less obtrusive. And that you can also cap the way that your rate growth on your rent might be while you’re considering whether you want to own this home or not. So we’re fully supportive as a business and industry and a company. And we talk about this all the time, we are all about choice. We think the consumer ultimately deserves choice, two thirds of the country is going to own something, a third of the country is going to lease something in that category around lease we want to be as active as participants we can and we want to take current practices and make them better. And that’s ultimately the view of Invitation Homes and some of these other opportunities that we’re going to continue to look and try to invest in.

[Austin Wurschmidt, KeyBanc]

That’s helpful. Appreciate the thoughts and lastly, Ernie in the 2 billion of acquisitions, how much accretion is embedded in guidance?

[Ernie Freedman, CFO]

Well, I’ll let you use your, sorry about that Austin. We would expect them to be able to buy environments similar to where we are right now. And 5% plus cap rate range, and you can layer in your own assumptions and around what you think your cost data or work or equity may be traded.

[Austin Wurschmidt, KeyBanc]

Got it. Sounds good. Thanks, guys.

[Operator]

The next question is from Neil Malkin from Capital One. Neil please go ahead.

[Neil Malkin, Capital One]

Good afternoon, everyone. Thanks for the time. Glad to be on with all of you, look forward to continuing to cover you guys. I guess first one is going back to acquisitions. The announcement about the Zillow offers unwinding their portfolio looking at some of those houses that they have on their, on the website, I don’t know if that’s the entirety of their inventory, but a lot of their properties seem to match up with your markets pretty significantly in a meaningful way, infill locations, kind of square footage, etc. Particularly in some of the markets you’ve talked about such as growing in Texas, Nashville you’d want to look back into getting into you found the right inventory. There’s several 100 houses in each of these markets. Have you been looking at those? Do you think that’s going to be a larger part of your investment activity this year? And would that be a good way to sort of increase your exposure or get a quicker sort of foothold in markets you’re wanting to grow in?

[Dallas Tanner, President, CEO]

It’s a great question. And as you look at and I’ll tell you this year, in or 2021, we only bought 126 homes thrive our channels. So it’s not a material amount for us in terms of how we look at growth, we definitely look at those channels. And the headlines always sound good to your point that there’s a lot of crossover. When you start to get underneath the hood on markets, neighborhoods, HOAs the amount of refurbishment that might be needed. And again, I go back to the fact that we’re pretty stingy investor. We were really particular about where we invest capital and why. And we wanted to line up with our strategy around the resident experience. So we didn’t tend to see a lot of opportunities, particularly on the Zillow side of things. We certainly looked. And we’d be crazy if we didn’t, but there’s price, there’s location, there’s 10 finish standards, there’s things that we hold ourselves to is we want to continue to build out our brand and the way that we do business. So while we would welcome any opportunity to buy from my buyers, if that made sense, we just haven’t lined up on a lot of trades this year. That’s the answer kind of playing a short.

[Neil Malkin, Capital One]

Yes, makes sense. In terms of the platform, you guys have obviously been leading the way in terms of institutionalizing and sort of making that model more efficient. A lot of the apartment peers have really been focused on sort of like what you call next gen, or putting technology and the resident experience more to the forefront. Obviously, your portfolio is different than a high rise apartment building. But can you maybe just elaborate on things that you’re doing beyond the sort of 15 million to 20 million of other revenue increases? You talked about achieving? Can you just talk about how you see technology or the operating portfolio maturation along with technology impacting the business in terms of potential margins over like a three year period.

[Charles Young, COO]

Yes, great question. This is Charles. Innovation is kind of at the core of what we’ve been trying to do in this industry, obviously professionalizing, the single family business and being able to introduce technology that’s been our base of how we kind of deal with and manage 80,000 homes across 16 markets. Early on, we were early adopter in the smart home technology that did a lot towards that. And we’re still trying to evolve that side of the business that allowed us to do self shows, and allow the residents to control the thermostat and safety by introducing video doorbells, I think we’re going to be able to do more on that front in terms of making it even more convenient and safer for our residents to tour the homes. One of the innovations that we introduced this year or 2021 was around our maintenance mobile app which has been really helpful. We’ve had about 30% adoption of our work orders are coming through the maintenance mobile app. It’s on both Apple and Android and almost over 60,000 downloads. Well, we find what that is that the resident, it’s really meeting them on how they want to operate with us. It’s very convenient. Our satisfaction scores are higher when people go through the mobile app. We’re getting lower number of multiple trips. So these are the types of things that make the resident experience better and makes us more efficient. And we’ll continue to do that. You brought up the ancillary site. I think there is huge improvements there. As we survey our residents, we constantly ask them, What are you looking for, what’s going to make it more convenient for you whether it’s moving services that we can talk about, it’s the broadband services, handyman services, these are things that we are experimenting with, we’ll be piloting and then rolling out and that innovation is really going to be led by what’s going to be that leasing lifestyle that our residents want, and that we know it’s going to make us more operationally efficient. And to your point, pull in those margins, if you will, not everything that we’ve done in the history of the company as we’ve expanded and been able to get more and more efficient in our operating environment.

[Neil Malkin, Capital One]

Great. Sounds like you have a lot of things in the hopper. That’s all I had. Thank you very much. Great quarter. Look forward to continuing to work with you guys.

[Operator]

Final question today is a follow up from Nick Joseph from Citi. Nick please go ahead.

[Unidentified Analyst]

It’s Michael, appreciate you guys sticking around. I just wanted to come back to sort of the last release, which we talked about being 20%. Obviously that’s grown through the years you’ve had very strong market rate growth and you haven’t been able to push the renewal for strong. And I was wondering if you can just step back and just talk about your renewal process in the markets that don’t have caps on rent increases? Are you imposing a self imposed cap on those increases? And how do you think you’re going to be able to get at this 20% which arguably, should have continued rent growth within everything that we’ve talked about, from a fundamental standpoint, that 20% just going to grow larger by the end of the year. So how do you sort of put this all together given some of the regulatory constraints that are going around?

[Dallas Tanner, President, CEO]

Yes, it’s a good question. Short answer is there’s no hard cap. We’re really just trying to be thoughtful around how we go out with our renewals. We’re seeing what’s happening on the new lease side, obviously, we’ve had a really good numbers, even through the January numbers that are really healthy in the mid teens. But what you will notice on the renewal side, it’s increased every month, over the last year, and we’re continuing to see that acceleration. And I think over time, we’ll get back to capturing some of that spread that we’re losing in the loss to lease, but how we do that practically on the ground is we perceive what we think is that market rate and we then go and give that to the field teams, and we look at it house by house market by market and trying to be thoughtful. And if there really is a high push that you start adding $400, $500, then we need to be thoughtful around what we do there, we may pull it back. But we’re starting to see that we’re able to capture more and more of that, because our residents are also seeing what the new lease side is looking right out there. And they’re seeing that this has value in our renewal numbers that we’re giving them. And so over time, we’re just trying to be thoughtful that we will continue to push that up. And if you look at our January numbers, our renewal numbers are at 9.6, where we were on the renewal side 93 in December. And that’s continued to accelerate as we look at February. So I expect it will continue to push up on a renewal side. And we’ll find out where it goes over time. We’ll find that balance. But we are very proud of our teams in how thoughtful they’ve been to try to make sure that we’re creating a right experience and not spiking turnover as well and putting people out into a tough environment.

[Unidentified Analyst]

Right. Do you have a sense and you quote that 20%? How much of that attainable if you were just taken off the market? How much regulatory issues could there be in markets where you can’t lift the rent to that extent? Right. So if you looked at it on a adjusted basis, what would that upside be? To what you actually put -- exactly the reasons. Yes.

[Ernie Freedman, CFO]

Yes. That’s the key Michael is we’re not going to do it, even though we could do it legally and virtually every one of our markets, California would certainly be the exception around what we can do there. St. Paul recently passed rent control legislation in the fall of 2021. Minneapolis has a very specific cap of 3%. Minneapolis now allows for rent control, but they have not enacted what they’re going to choose there. The vast majority of our portfolio we could do what you’re seeing the multifamily guys do, I suppose to start with our fourth quarter numbers that are January numbers where there are no rates are close or new lease rates. But it shows that we’ve made a conscious effort in our business, our resin stay with us three for almost five years when you see our turnover at 20%. A little bit different than the multifamily business in so we’re not going to capture it. It’s not unlikely we’re going to capture that full loss to lease in one year. Now on the flip side, that should allow for less earnings volatility going forward, because if market rates stay where they’re at, and to your point, they probably continue to grow a little bit. It certainly gives us a longer path we otherwise might see for what we can do for renewal increase over the next many years and still have our residents under market. So it’s kind of a win-win for residents where they’ve been with us for a long time. And it’s certainly an 8% or 9% or 10% increase is a big increase. But it’s not where the market rate is. So we’re playing that balancing act. And it’s not so much from certainly where there’s regulatory pressures. We’re following those 100%. But it’s really just we think it’s the right way to run the business right now.

[Unidentified Analyst]

Thanks Ernie. I appreciate you guys sticking around. Thanks.

[Operator]

This concludes today’s Q&A session. So I will hand back the call to Dallas for any closing remarks.

[Dallas Tanner, President, CEO]

We appreciate everyone’s support and in participating in our quarterly call. We look forward to speaking with everyone next quarter. Thank you.

[Operator]

This concludes today’s call. Thank you very much for your attendance .You may now disconnect your lines.