Invitation Homes Inc (INVH) — Q3 2019 Earnings Call Transcript

Thank you. Good morning and thank you for joining us for our third quarter 2019 earnings conference call. On today’s call from Invitation Homes are Dallas Tanner, President and Chief Executive Officer; Ernie Freedman, Chief Financial Officer; and Charles Young, Chief Operating Officer. I’d like to point everyone to our third quarter 2019 earnings press release and supplemental information, which we may reference on today’s call. This document can be found on the Investor Relations section of our website, at www.invh.com. I’d also like to inform you that certain statements made during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources, and other 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 2018 Annual Report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. During this call, we may also discuss certain non-GAAP financial measures. You can find additional information regarding these non-GAAP measures, including reconciliations of these measures with the most comparable GAAP measures, in our earnings release and supplemental information, which are available on the Investor Relations section of our website. I will now turn the call over to our President and Chief Executive Officer, Dallas Tanner.

Thank you, Greg. The third quarter was another solid quarter for Invitation Homes. We feel great about the position we are in to finish 2019 strong. As we shared at our recent Investor Day in New York, we are ready to run as we look toward the future. In my comments, I’ll start by discussing the drivers of our continued outsized organic growth. I’ll then transition to external growth. Finally, I want to reinforce why we feel ready to run and what that means. Organic growth remains strong and in line with our expectations in the third quarter, as we continue to execute well to capture favorable fundamentals in our markets. On the revenue side, we again saw year-over-year acceleration in both rental rate growth and occupancy. And on the cost side, we drove another year-over-year decline in controllable expenses. The market fundamentals underpinning these results remain terrific. Across Invitation Homes’ unique market footprint, focused in the Western U.S. and Florida, household formations in 2019 are running at over 2 times the U.S. average. Demand is exceeding supply and Invitation Homes is helping to solve the imbalance by providing high-quality well-located homes with professional service to families that want to enjoy a leasing lifestyle. Put simply, the growth drivers in our specific markets and submarkets give us an advantage. But fundamentals are only the start. It takes great execution to produce results. And we have positioned our teams for success with industry-leading scale and a high-touch service model that combine best-in-class technology with local presence. This translates to a differentiated resident experience that is driving strong financial performance. To that end, given our consistent execution in 2019, we are increasing our full year 2019 Same Store NOI growth to 5.2% to 5.6% or 15 basis points above our previous guidance at the midpoint. Ernie will elaborate on our updated guidance later in the call. Next, I’ll provide an update on our external growth. As 2019 has progressed, we’ve seen more opportunity for accretive acquisitions and have reacted opportunistically to increase our pace of one-off buying. In the third quarter, we purchased 578 homes for $183 million, almost entirely in single asset acquisition sourced by leveraging our in-market investment directors and our proprietary technologies. By comparison, this is more than double our pace of single asset acquisitions in the first half of 2019. Buying in the third quarter was focused primarily in the Western U.S., Dallas and select markets of Southeastern Florida. We continue to see an attractive opportunity in these markets to buy well below replacement cost and generate attractive returns relative to our cost of capital. We also continue to capitalize on our opportunity to enhance our portfolio through the sale of lower quality and less well-located homes. In the third quarter, we sold 668 homes for gross proceeds of $168 million. This brings our year-to-date acquisition and disposition volume to $456 million and $527 million respectively, sourced via our channel agnostic approach. I now like to spend time looking ahead. Those of you who attended or tuned into our Investor Day earlier this month heard us talk about being ready to run. That’s not just a fun tagline. Ready to run is an ethos our whole team is embracing that will help guide the next several years at Invitation Homes. Every good runner knows that their best performances come when conditions on the track are favorable and that they have a clear strategy for how they want to run a race. They’ve done the work in advance to prepare themselves and they have the right team around them to support. And specifically, they’ve set goals of which they are trying to achieve. For Invitation Homes, being ready to run means something similar. First, our industry is in the early stages of a long-term growth story with favorable fundamental tailwinds at our back. Second, we have a strategically located portfolio and scale that create a moat and enhance growth opportunities. Third, we have a refined integrated platform positioned better than ever to optimize our performance. And fourth, we have an innovative team that is committed to the resident experience, running toward common goals that should drive both organic and external growth. Let me touch on those organic and external opportunities in more detail. Earlier on the call, I discussed the fundamentals driving our organic growth. Looking ahead, we are even more encouraged. We believe our business has built-in cyclical hedges and regardless of the direction of the macro economy from here, the millennial generation is coming our way. Over 65 million people or roughly 1/5th of the U.S. population are aged 20 to 34 years. And we believe many in this cohort will choose the single-family leasing lifestyle as they form families and age towards Invitation Homes’ average resident age of 39 years. With our strategically located portfolio, best-in-class platform and industry-leading scale with over 4,700 homes per market, we believe we are ideally positioned to benefit from these demographics. Beyond capturing positive fundamentals, there are a number of things we are doing to augment organic growth by enhancing the resident experience and improving efficiency. To name a few, we are continuing to refine our already best-in-class systems and processes for engaging with residents and carrying out our ProCare service commitments. We are expanding ancillary services, which we believe will bring an incremental $15 million to $30 million of incremental run rate NOI into the business over the next few years. And we are pursuing initiatives to lease faster, which we believe will reduce days of a vacancy and add another $10 million to $20 million of run rate NOI. In addition to organic growth, we’re also running toward accretive external growth by being disciplined about opportunistically buying in the right places and at the right times, we can enhance growth in earnings and NAV per share. At the same time, our asset management team can help us achieve a higher quality portfolio by proactively identifying and selling homes that no longer fit our long-term goals. And by investing value enhancing capital expenditures in homes to enhance risk-adjusted return, asset durability, and resident loyalty. With all these internal and external opportunities to create value for both residents and shareholders, it’s a great time to be Invitation Homes. From top to bottom, I couldn’t imagine a better team to partner with to run this race, and we are grateful for your support. With that, I’ll now turn it over to Charles Young, our Chief Operating Officer to provide more detail on our third quarter operating results.

Thank you, Dallas. We delivered another quarter of resident service, which showed up not only in our resident satisfaction scores, but also in our P&L. During the third quarter, which is a busy period for leasing, turns, and maintenance, the quality of our service translated to yet another record low in resident turnover. For the first time, turnover fell below 30% on a trailing 12-month basis. We also continue to set new heights in our resident satisfaction survey scores. I’m proud of my partners in the field, and I want to thank them for their daily commitment to generate care for our residents. I’ll now walk you through our third quarter operating results in more detail. Favorable fundamentals and strong execution led to Same Store NOI growth of 4.5% year-over-year in the third quarter of 2019, in line with our expectations. Same Store Core revenues in the third quarter grew 4.4% year-over-year. This increase was driven by average monthly rental rate growth of 4% and a 40 basis point increase in average occupancy to 95.9% for the quarter. Same Store Core expenses in the third quarter increased 4.3% year-over-year, continued platform refinement and efficiency gains resulted in a 0.4% decrease in controllable costs, net of resident recoveries. Offsetting the improvement in controllable costs was an 8% increase in fixed expenses, net of resident recoveries driven primarily by higher property taxes. Let me add some color to the improvement we have made this year in controllable expenses. Platform refinements have driven a year-to-date reduction in personnel, leasing, and marketing costs of almost 10%. This improvement has been in line with our expectations. Cost to maintain has been 0.4% lower year-over-year to date, even better than our expectations. Process improvements beginning in the summer of 2018 drove a quick and sustainable turnaround in repairs and maintenance efficiency that resulted in a roughly 3% decrease in cost to maintain in the first half of 2019. This was followed by a more inflationary increase in cost to maintain in the third quarter of 2019, as prior year comps became less of a tailwind as expected. In the fourth quarter, prior year comp should again be less beneficial. To be clear though, we continue to see further upside to cost efficiency over the next several years as continued ProCare refinement may help offset some general inflation in cost to maintain. As a reminder, ProCare is our unique proactive way we serve our residents from move-in to move-out, including post move-in orientations, proactive service trips, and pre-move-out visits. Next, I’ll cover leasing trends in the third quarter; demand in our markets remained favorable through the end of peak leasing season, resulting in a 40 basis point year-over-year increase in average occupancy to 95.9%. At the same time, blended rent growth increased 30 basis points year-over-year to 4.6%. Renewal rent growth was 4.7% in the third quarter of 2019 compared to 4.8% in the third quarter of 2018. And new lease rent growth was 4.3% in the third quarter of 2019, up from 3.4% in the third quarter of 2018. Importantly, our teams also did an excellent job managing leasing activity in the later stages of peak season to ensure that we carried high occupancy into the off-season. This has positioned us to finish 2019 strong and we will remain focused in the last couple of months of the year to deliver the leasing lifestyle that our residents expect. With that, I’ll turn the call over to our Chief Financial Officer, Ernie Freedman.

Thank you, Charles. Today, I’ll cover the following topics: balance sheet and capital markets activity, financial results for the third quarter, and updated 2019 guidance. First, I’ll cover capital markets activity, where we completed a number of steps in the quarter to continue deleveraging our balance sheet. In July, we completed settling conversions of our 2019 convertible notes with common shares. Also in July, we voluntarily prepaid $50 million of higher price secured debt that carried an interest rate of LIBOR plus 231 basis points. In September, we issued $19 million of equity through our newly implemented at-the-market program, at an average price of $28.02 per share. Proceeds were used primarily to fund acquisitions. After the impact of this capital markets activity in the third quarter of 2019, net debt-to-EBITDA declined to 8.5 times, down from 9 times at the end of 2018. Moving forward, we will continue to focus on deleveraging alongside our external growth objectives as we pursue an investment-grade rating. Our liquidity at quarter-end was approximately $1.1 billion through a combination of unrestricted cash and undrawn capacity on our credit facility. Moving on to our third quarter 2019 financial results. Core FFO was $0.29 per share and AFFO was $0.23 per share. Third quarter Core FFO and AFFO each came in about $0.01 short of our expectations, largely due to a timing shift whereby $3.5 million of expenses were accrued in the other net line of our P&L. Because this was a timing issue, the $3.5 million will be offset by $3.5 million over the next two quarters. In addition, we have increased our pace of capital recycling, as Dallas discussed earlier on the call. Our disposition volume has totaled $527 million in the first three quarters of 2019, above the high-end of our initial $300 million to $500 million expectation. While this accelerates improvement in the portfolio quality and enhances our ability to drive long-term growth, margin expansion, and risk-adjusted returns, it resulted in a slight short-term earnings dilution in the third quarter as we cycled out of cash-flowing assets and into new assets. The last thing I will cover in our update is 2019 guidance. Given our year-to-date results, we are tightening and increasing our full-year 2019 Same Store NOI growth guidance to 5.2% to 5.6% versus 5% to 5.5% previously. This is driven by Same Store Core revenue growth expectations of 4.25% to 4.5%, up from 4% to 4.5% previously, and Same Store Core expense growth expectations of 2.25% to 2.75%, tightened from 2% to 3% previously. We’re also tightening our full-year 2019 Core FFO per share guidance to $1.24 to $1.28 versus $1.23 to $1.29 previously, and our 2019 AFFO per share guidance to $1.02 to $1.06 versus $1.01 to $1.07 previously. I’ll wrap up by reiterating our new mantra: we are ready to run. Our portfolio is strategically positioned for growth. Our people are best in class, and the operational refinements we have made in 2019 have primed our platform for efficient execution. Fundamentals remain compelling, and we are poised to create value through our organic growth, external growth, better leasing efficiency, ancillary services, active asset management, and value-enhancing capital expenditures. With that operator, would you please open up the line for questions?

Thanks. I appreciate the color on the external growth and maybe the shift to being larger grower going forward. Will that be accomplished by accelerating the amount of acquisitions that you’ve been doing or slowing the dispositions? If you could just talk about the cadence of both of those going forward.

Sure, Nick. Thanks for the question. As we set out for the year and we started to see it really early in the second quarter, we thought we’d be a little bit more net neutral on the year as a whole. But we definitely started to signal this summer that we are seeing some opportunities in markets. I would expect that we maintain a nose towards being a bit more acquisition-focused as we see some of these good opportunities. We’re in a unique environment where we can incrementally add to the portfolio and continue to sell the non-performers along the way. And so, as Ernie mentioned in his comments earlier, we definitely had a little bit more disposition activity throughout the year, but we’ve been equally benefitting from the current condition of the market and seeing additional opportunities for growth.

Thanks and then just in terms of funding, you start using the ATM program. How do you think about use going forward in terms of potentially over-equitizing deals to help lower leverage?

Yeah, Nick. This is Ernie. That’s certainly an opportunity for us to consider and we have considered that. And we’ll just continue to look forward as our most efficient use of capital, or cost of capital I should say for us to fund acquisitions, as we prefer to be more of a net acquirer. And because we are trying to get to an investment-grade balance sheet and bring leverage down, that’s a very good opportunity for us to potentially get there a little faster by over-exercising.

Hey, guys. Ernie, I’d start with you. I’m trying to square away the 3Q 2019 expenses versus maybe what’s guided implied for 4Q 2019. Thinking back to our discussion in 2Q 2019 earnings, where you had mentioned that 4Q was going to be, I think, an easy comp. So help me understand maybe how property taxes are going to go down, but your guide implied is still for a rise in expenses. I’m just trying to square that a little bit.

Yeah, sure, Rich. In talking – all throughout the year we have talked about real estate taxes. Specifically on that line that the 4Q quarter would be our easiest comp and still projecting to be that way. Year to date, we’re at about 6% expense growth, in real estate taxes I think it’s 5.9%. And we’ve provided guidance on real estate taxes all year, that we thought would be somewhere in the 5%. And we feel very comfortable with that. So that does imply, and we do expect that fourth quarter real estate tax growth will be less than we’ve seen year to date. For other expenses, we just want to make sure – we’ve been cautious all year. We want to make sure we build an appropriate amount of conservatism with our expense guidance. We had the opportunity in the first two calls of this year to be able to bring it in this quarter. It was closer to our expectations with regards to expenses on our overall basis. So I know that implied math there shows that there would be an acceleration of expenses. But take that acceleration with what our performance is for the year and how we’ve provided guidance. And we feel good that we’ll come out with a number that’s within our range. And hopefully, beat those expectations like we’ve been able to do most quarters this year.

Got it. That’s very clear, Ernie. Hey, Dallas, I want to go back to you for a second and think about how you’re sort of buying and selling homes right now. Could you maybe talk through the backdrop for single-family rentals and where you’re most bullish on the sectors versus maybe some markets where you’re less bullish? And are there any new markets that at least considering – we keep hearing about Boise, Idaho, for instance? So I’m curious just how you’re thinking about that for maximizing your revenue.

Yeah, absolutely. So for a little bit of color on what we’ve been selling, it’s been a unique year in that we’ve sold more end-user type of homes back into the market. I think we’re close to almost 2,000 homes through the end of Q3, roughly 1,900 homes and some change. That we’ve actually put back into the end-user market, those would be much lower cap rates, typically homes that would price much better at a retail level. In terms of what we’re buying and where we’re seeing some of the best opportunity, a lot of this goes to my earlier comments around scale and being able to drive some of those great efficiencies and margins on a market. We’re seeing excellent growth in markets like Phoenix and Seattle right now, where we can go and buy meaningfully attractive cap rates and operate those homes at margins that are continuing to optimize. Furthermore, we’re seeing a tremendous amount of demand in Phoenix for most of the year, and our new lease rate growth has been north of 10% for the year. And that continues to just provide us confidence that that’s a market we want to continue to invest in. And in terms of some of the smaller markets like Boise, they’re certainly attractive. There are operators that are going in there. But I think I’d just take a step back and say where is our best use of capital right now. And I think it’s in these parts of the country where we already have significant scale and we have the ability to provide more scale in that particular market, which will then enhance greater efficiencies on the margin. And taking a step back, we’re still seeing exceptional growth in these markets like Phoenix and Seattle. And some limited parts of the southeast as well. But definitely have a strategic advantage with our footprint in the West.

Yeah, and so just one follow-up question to that, and I promise I’ll be quiet. Are you doing something different in Seattle, because it seems like a real significant competitive advantage to me relative to your peers? And your commentary about still buying homes in Seattle resonates. So what are you – Seattle is growing like a weed. What are you doing differently there that allows you to still buy homes and maybe your competitors out there?

Well, I think one of the advantages, we highlighted this a bit at our Investor Day is we’ve been local from day one. So our investment team on the ground in Seattle supported by the back office in Dallas has been working together now for the better part of seven years. So we’re local, we’re high touch. We’ve had the ability to do some unique kind of off-market opportunities with some local builders here and there in the past couple of years. And on top of that, you just have to be active there every day. It is not really anything different than we do in every market, Rich, except that we were in Seattle early and built enough scale to where you could run a business quite frankly the right way. And so, our team that is leading our efforts in Seattle is just doing a fantastic job. I think a little bit of a cooling in the broader housing market has helped us a little bit with some more opportunity there. But it’s still exceptionally tight, but the fact that we’re there every day allows us to see some opportunities.

Yeah. That’s great. Thank you. Thank you, guys.

Hey, good morning, guys. So as you guys become more acquisitive, how do you balance that with your balance sheet? So your pursuit at the leveraging, is the plan still one turn out a year?

Yeah. And, Shirley, this is Ernie. So I’d say, you said the keyword there, is we have to balance. We have multiple goals that we want to achieve. We want to achieve earnings growth. We want to achieve good NOI growth. We want to achieve margin expansion. And at the same time, we want to bring leverage down. So there are a lot of different things, a lot of different balls we’re juggling there at the same time. We have said specifically with the balance sheet on – with normal course, with excellent NOI growth and EBITDA growth that most people are expecting over the next period of time, it’s not quite a turn year anymore that leverage would come down. We’ve kind of gotten past some of the easier stages there. But it’s probably more in the half to 3 quarters of a turn. So I just want to make sure that’s out there and people understand that. But we do have that opportunity. And one of the earlier questions talked about that, potentially over-equitizing acquisitions. We’ve been fortunate that a year ago we wouldn’t have predicted the cost of debt would be as inexpensive today as it is now, so that certainly helps as well. We put ourselves in a good position with the balance sheet, to make an even safer still with the refinancing. We can accomplish many of those goals, maybe not each of them individually to the fullest extent because they do counterbalance each other, but do very well against all of them. And gets replaced that we’re comfortable with that would check all those boxes in a positive way. And importantly, in a positive way relative to other real estate opportunities that may be out there for investors.

Great. That’s helpful. So my next question has to do with demand. And you kind of touched upon this a little as well in your prepared remarks, Dallas. But on the demand side, what we’re hearing especially in the apartments is that in 2020, they’re expecting a moderation in demand for the apartment customer. So how are you feeling about the consumer demand strength going into 2020? And what differentiates the customer base?

Well, it’s hard to predict in – this is Charles, by the way. It’s hard to predict in 2020, we can react to what we’re seeing on the ground, right now, which is really positive demand. As we’ve talked about all year, the top-line growth has been really strong, we’ve seen demand throughout the year. We finished off the Q3 in really good shape, up on occupancy as well as on rent growth, and went into Q4 here in a good position, and we continue to see solid demand. We don’t see any reason that would slow down in 2020, but we’ll see what’s ahead.

Hey, thanks. Charles or Ernie, could you a breakout of the drivers within the repair and maintenance line item specifically perhaps how wages are growing versus material costs? Because I don’t understand how costs are going 10% during a period, where turnover is going down and costs went up 13% in the year-ago period?

Yeah, John, let me start with that and then I’ll turn it over to Charles as well. I think importantly, John, I would advise don’t just look at the operating expenses associated with repairs and maintenance in isolation. I would advise looking at total net cost to maintain, but importantly you look at the CapEx side too, absolutely, right to point out that our repairs and maintenance operating costs for just this one quarter for the last 90 days were up 9.7%. But our CapEx costs were down 5.2% in that same period, as I’m sure you saw on our disclosures. So on a total basis, it’s up 1.8%. So we certainly are doing our best to keep that as low as possible, but I also don’t feel so bad about that is up less than 2% on a year-over-year basis, specifically we have talked about in the past, so there are some cost pressures with regards to personal items of our superintendents and things like that you have general cost inflation. And I also point out that again as we look at this short period of time out of the longer period, from a month-to-month basis, sometimes on a year-over-year basis you have different results in the first part of this the third quarter. We did see some better performance in repairs and maintenance and the third month, it was a hot September, that offset a more normal July and August for us. Those things happen. I think, it was more to point out that not to get too hung up on just a one quarter basis when you’re looking at things. And you look at overall for all of our expenses. And I went back and looked at this, John, prior to the call just to get a sense for where we’re coming in from an expense perspective. We’ve done pretty well over the last three years. I mean, look at our other expenses. In 2017, they were down 6.2%, in 2018, which was a tough year for us with regards to the merger and we certainly talked about that a bit on past calls with you and with other investors, they were up 2.5%. This year based on our guidance, they’re predicted to be down 0.5%. So over that three-year period, that’s a CAGR of about down 1.4%. That said, we want to do better, we think we can do better, there’s areas specifically can do better. And we’re excited about the upside to it, but from the one quarter specific to R&M, I get it, the operating side was up, the CapEx side was down to help offset that our total cost to maintain for the quarter was only up 3.7% for the year is actually down a little bit. So we feel good about where expenses are, but we do can see, we think we can do better.

Okay. I know, I understand CapEx looks better this quarter. But in year-to-date, I expect total cost to maintain to be down meaningfully given the cost around last year and the merger synergies that investors paid up for within a few days of the merger, so perhaps we can talk more online. Charles, could you give offline? Charles, could you give some commentary on sequential revenue growth trends in South Florida and Houston, which looked a bit weak?

Sure. I’ll start with South Florida. I think we talked about it on the last call. South Florida is actually flat as you look at it Q3 year-over-year, but when you look at it year-to-date, occupancy is actually up 40 basis points, which is great. We are seeing, I think, I mentioned this last time a little bit of oversupply in the market. So we’re regulating on the rent growth side to make sure that we keep that occupancy and we’ve been able to maintain that into the fourth quarter. So we’re watching it closely, it does – performance does vary by submarket, and the field teams are working very closely with asset management and doing a great job with selectively pruning, and so as Dallas was talking about some of those dispositions you may see a few more coming out of South Florida. But overall, we’re keeping the occupancy where we want and we’re having to give up a little bit on rate. Moving over to Houston, actually, Houston has had a great year. Year-to-date occupancy of 96.3% versus 94.6% last year, so really a healthy move there. Blended Q3, blended rent growth is actually up 180 basis points to 2.6%. Again, as we’re getting more occupancy, we’re able to push rate. It’s not keeping up with some of our other markets, but it’s doing pretty well. I think what you may be seeing is there was a sequential kind of down from Q2 to Q3, which is normal in that kind of seasonal trend that we’ll see as you get towards the end of Q3, and leasing comes down a little bit. But we were coming out of Q2 at a high watermark of 97.3%. So it coming down to the 95% is not that big of a deal and what we expect seasonality for market.

Okay. Thank you.

Thanks. Can you talk about how October is performing in terms of occupancy and rental?

Yeah, because the month’s not quite done yet, Doug. We’re not prepared to provide final results. We can tell you it is meeting our expectations and built into our expectations around guidance from both on an occupancy perspective as well as rental rates achievement for us.

All right. Thanks. And then as far as that you continued improvement internal work, can you talk about what are the key drivers of that improvement in turnover and kind of aspirationally there where turnover can go?

Yeah. This is Charles. First, we think that turnover is really driven by the quality of our homes and the quality of our service. We do know that there’s an affordability factor out there and we’re an attractive option for residents who want to have high-quality homes and great neighborhoods and good schools. That being said, we know that trees don’t grow to the sky, and we have had real success in our low watermark below 30% for the first time on a trailing 12, can’t predict where that’s going. We’re just going to continue to provide great service, and Dallas and team are continuing to purchase great homes, and we think it’s going to will be at the low end of that turnover curve.

Thanks, Charles.

Thank you.

Good morning. Just a question on disposition CapEx, the number seems to balance around quarter-to-quarter, but can you explain specifically what that spend is? And then whether there is a reasonable figure on average, we can think about per home sold?

Yeah, Jason. This is Ernie. So you’re going to see a bounce around those depending on the type of sale we do. So we’re doing sale to an Investor Day will take the home as is, and they’re underwriting it to their own economics, any rehab or they may want to do post-acquisition like we do. For selling mostly a user home that does represent when some is moved out of the house. And it absolutely, we want to get in the state ready to be able to sell to an end user, and it can vary from being a few hundred dollars to a few thousand dollars. But we factor that in with regards to with the right economics and how they want to treat that house, for that perspective and also only make the decision around with leading end user sell or investor sell. Let’s give some thought, Jason, as to I don’t want it to be what number you guys can expect to have, it’s going to be an impact like I said by the type of sale that’s done. But for those that go through the end user, let’s give some thought, Greg and I can get back and then maybe give folks an idea of, for modeling perspective, what an average type of costs could be, I just want to bring it on the call here with you.

Okay. No, I understood. And then the other question would be during the quarter about 10% of the dispositions were in California. And this may be more specific to the end user, so if you guys have been talking about what was the rationale specific to the assets? Or are there certain markets in California where you guys are starting to feel that you’re topped out value was kind of neither of those two?

Well, I think it’s a little bit of a blend, in certainly in California we’ve seen some homes appreciate to a point where we think highest and best use of capital would be to sell those homes and then reinvest in parts of either California or other parts of markets where we can drive better overall risk-adjusted return. There’s also a couple of submarkets that quite frankly we think from a service model perspective and ultimately a performance perspective that we haven’t been real bullish on. Now take that with a grain of salt, because I think we sold year-to-date maybe less than 200 homes, a little over 250 homes in all of California. So it’s a really small part of the overall portfolio. But yes, on the margin just like we do with any market, we’re looking at the bottom performing 5% of the assets. And then making decisions with the operating teams on what’s the best path forward, and then in some situations selling because of value.

Got it. Thanks very much.

Hey, good morning. Dallas, you mentioned the granular nature of the acquisitions completed during the quarter. Most of the things, you can talk about any bulk acquisition opportunities you may have come across the radar during the quarter, so where pricing is on those assets relative to the yield, which are probably a little higher kind of the more granular and the composition of the acquisition pool. Just curious what you’re seeing on pricing, how many portfolios are out there that sort of meet the criteria that Invitation typically looks at? And color would be helpful.

Yeah. So in terms of one-off, and how we see that environment today is definitely accretive to our portfolio and most of the markets we’re in today, we’re seeing some good opportunities to buy, some good opportunities to invest. In terms of bulk, some of those larger transaction opportunities are fewer and far between, we certainly as an asset management group take whatever information is available to us some of our bigger operating partners out in the market and try to overlay and look for where there could be potential strategic opportunities. We’re not in a position to talk really about any of that and/or do you see many of those opportunities at any given point. But you saw we did it earlier in the year in Las Vegas, you will on occasion see some smaller bulk opportunities that will come across the desk, where you can really get us down underwriting process to and then hopefully be able to purchase at attractive prices. Las Vegas was a great example where ahead great execution our rehab CapEx underwritings been spot on and we’ve actually outperformed in terms of going in rate. So we’d love to see more of them, quite frankly, we just don’t get the opportunities too. But occasionally do get something that comes across the desk. But the environment today, it feels pretty tight on the bulk side of things.

Thank you. And then a couple for Ernie here. In the third quarter was a $50 million opportunistic secured debt pay down, as we model going forward, and then it’s presumably more assets are bought and sold is there sort of a run rate amount of debt may get paid down opportunistically going forward as part of the deleveraging story. Is there anything that we should sort of be modeling? Or is that something we should be leaving alone for now?

Yeah, I think it’s more the latter, Drew. We come out next quarter with guidance around acquisition disposition activity, I think it will be more apparent is what may be available from a cash flow perspective or not for additional debt pay down beyond the normal course for us. But at this point, it would be hard to say there’s a run rate that would be consistent over the next couple of years for you go to in the model.

Okay. And lastly, the ATM, has anything executed in October from above and beyond what was listed for Q3, when the price of the stock went up?

Yeah. There have been no executions in October on the ATM.

Okay. Great. That’s all for me. Thanks.

Hey, everyone. How are you doing? Just quickly back to the ATM, so $800 million and really just the plans to balance it between the leveraging and home acquisitions, I guess, so far, it’s been mostly focused on home acquisitions. But in the light of any progress with respect to the ratings agencies and what they’ve guided or shared with specifics that they want to see as you work toward an investment-grade rating? Clearly, this looks like an opportunity to push in that direction if you guys can just comment on that. And that would be it for me. Thank you.

Yeah, Derek. Hey, it’s Ernie. If I’m not surprising, I’m taking this one. Specifically around the balance sheet, we’re going to look at all opportunities to bring leverage down in a smart way, in a balanced way, because we want to have lower leverage. Again, I want to make sure I reiterate and people heard me say this. We have a safe balance sheet today. We’ve done what we said we’re going to do in terms of deleveraging since our IPO. We made good progress there. We see bit of cash flow growth. We’ve actually accelerated, making the balance sheet even safer still through refinancing activity, going from about 80% hedge position in terms of fixed rate to closer to 100%, so all those things feel good. And there is a point in time where it may make sense to look for other source of the capital, bring leverage down other than cash flow from operations to delever further. And we’ll be opportunistic about that, where it makes sense. But for us, when we think about deploying capital, whether it’s to grow the business externally by acquiring, we’ll factor in where the cost of capital is, where that makes them the best long-term sense for us. We want to balance what we’re trying to accomplish amongst all our goals. I mentioned earlier around earnings, around external growth, around margin expansion, and things like that. And so, it’s kind of a long way of saying, we will keep that option open for us and if it makes sense for us to move forward, we’ll consider using the ATM in the right way so that will create value for our shareholders over the long term.

Thank you. We’d like to thank everyone for joining us again today. We appreciate everyone’s interest in Invitation Homes. And look forward to seeing many of you at the upcoming Nareit conference. Operator, with that, that will conclude our call.