Invitation Homes Inc (INVH) — Q4 2021 Earnings Call Transcript

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.

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 4,800 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 Homes was at the forefront of creating a new model and changing 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.

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 points 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 years. 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 a 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 the 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 a more family-friendly home 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.

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 and 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 year-end, 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 favorable 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 assume 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 for questions.

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 regulators, what the hot buttons may be and anything you envision changing in the business going forward on that front?

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.

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?

Yes, it's important to consider both renewal spreads and new lease spreads. We have a significant loss to lease in our portfolio, around 15% to 20%. In 2021, we saw new lease numbers greatly surpass renewals, which should result in a longer period of stability for our renewal increases. We anticipate renewal increases in the 9% range, which we expect to remain steady throughout 2022. While predicting new lease rates is more challenging, it's important to note that renewals make up 75% to 80% of our business. New lease rates are impactful, but they won't affect renewals as much. We experienced very high new lease rates over 14% in January, but we do expect those to moderate throughout the year. Overall, we believe our numbers will be consistent with where we ended 2021, which reflects about a 9% blended growth rate, as renewals are stable and do not exhibit much volatility throughout the year.

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?

Sure, absolutely. As indicated in our schedule regarding builder contributions, they were quite small in 2022. Looking at our guidance range, we are anticipating about $2 billion in acquisition activity during 2022, with roughly $1.5 billion reflected on the balance sheet. About $400 million of this will be allocated to conclude the Rock Point joint venture, which we expect to finalize in the second or third quarter. Additionally, we plan to invest approximately $100 million in Pathways from our $250 million commitment. Importantly, we commenced the year with a larger cash balance, which allowed us to proactively manage our capital needs as we wrapped up the fourth quarter. Factoring in the $1.5 billion in balance sheet activity, we currently have $600 million in cash available to support this. We also anticipate position activity of between $300 million and $400 million in 2022, which is slightly above our 2021 levels. Furthermore, our dividend payout ratio is on the lower side for REITs, around 60% to 65%, even with our significant dividend increases. Considering these factors, we plan to finance the majority of the $1.5 billion in balance sheet activity, though we will likely need some capital to reach that target, potentially through a mix of debt and equity, depending on which would be more efficient for us as we aim for a number similar to what we achieved in 2021.

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?

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, are 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.

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?

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.

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 as estimates for higher real estate taxes?

Yes, good question. Jeff, as I mentioned in 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 it’s 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.

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?

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.

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

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.

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?

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 Pulte 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.

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 capital 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?

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 over time as we get a bit more sophisticated in how to think about JV businesses over time 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 are 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 over time and distance.

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?

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.

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?

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.

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.

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 guide for us to believe relative to our other inflationary pressures we’re seeing on expenses.

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?

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.

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

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?

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 over time. We’ve worked over the last several quarters, with the house congressional subcommittee on the coronavirus 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 over time. 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.

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?

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 over time.

Thanks a lot for the time. I was curious to get your thoughts on the 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?

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.

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?

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.

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.

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 submarkets 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.

Yes, and that’s a good transition into the opportunity with Pathway. I want to add on that a little bit, actually. So in talking about JV and working with our partners effectively, to highlight a little bit what we’re trying to do there we bring up Pathway as really a great way to talk about building a platform on investing. I mean, our commitment there is to bridge the gap from renting to owning without a big large escalation. It will also allow us to add what we believe will be some really attractive yield on those homes. So we'll effectively be providing the appropriate growth, the right partnership with a great existing platform that has very strong relationships through other marketplaces, and we think it’s going to yield not only a level of returns for us, that we look for at scale but also really help drive the sustainability and interest of families looking to leave renting and looking towards owning.

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?

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.

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?

We are at the high end of the guidance we provided a few years ago, driven by seven key areas. Throughout the pandemic, we maintained strong momentum in ancillary growth and have built a solid team. From an operational standpoint, our rollout is progressing well. Our main focus has been on optimizing the smart home program, along with the introduction of video doorbells this year. The pet programs are also performing well, as is our filter program launched about a year and a half ago. We have a partnership with Terminix and are exploring utility partnerships, while also starting to work on landscaping initiatives. This foundation will help us reach the high end of our guidance, and we believe it will continue to grow from here. Ernie, feel free to add anything; sorry for interrupting.

No, no, you nailed it. All good.

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?

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 over time as we get the right product in the portfolio. I don’t know, Charles, if you want to add anything?

Yes, I believe it’s a positive situation; size does matter for long-term prospects and I am very optimistic. Looking at specific trends in the market, Houston had an occupancy rate of 97.7 in Q4, which matches last year’s figure and remains quite healthy. As of the end of January, our occupancy was 72 compared to 28 in Q4 of 2020. While this doesn’t quite match the extraordinary numbers from Florida, Vegas, and Phoenix, they are still solid figures for Houston and Dallas. We did experience a slight increase in turnover in Q4, which lowered our occupancy to 96.8 for that quarter. However, January has already risen to 97. Additionally, we have seen an increase in blended rate growth with a 99.6 in Q4, which is a healthy rise from 3.7 previously, and in January, we are maintaining an 8% blend. Considering seasonality and occupancy trends, we believe the numbers in Texas will remain strong, and over time, we expect to compete more closely with the other migration markets we've discussed.

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?

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.

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?

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 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.

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

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.

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.

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.

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.

If you look on schedule stuff, we’ll know to add, the vast majority of that is from Paulte probably 80%, 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.