The operator introduces the Invitation Homes Third Quarter 2023 Earnings Conference Call and hands it over to Scott McLaughlin, Senior Vice President of Investor Relations. He is joined by other executives from Invitation Homes. They discuss their third quarter 2023 earnings release and may reference non-historical statements and non-GAAP financial measures. The CEO, Dallas Tanner, thanks everyone for joining.

Invitation Homes has a strong and unique platform that allows them to provide excellent service and returns for stakeholders, residents, and partners. They have invested heavily in their platform and are proud of their achievements. Favorable housing market conditions, such as a shortage of homes and high demand for single-family rentals, have also contributed to their success. They are committed to bringing new supply to the market through their homebuilding relationships.

During the third quarter of 2023, the company took advantage of various external growth opportunities, including a large portfolio acquisition and smaller acquisitions through multiple channels. These were funded through the sale of older homes at a higher cap rate. The company's unique ability to recycle capital in this way is expected to continue for the foreseeable future. The company thanks its associates for their hard work and remains confident in its ability to navigate challenges and drive growth and value for stockholders. The call will now be passed on to the President and COO.

In the fourth paragraph, Charles Young thanks the associates for their hard work and discusses the company's third quarter operating results. Same-store NOI grew by 4%, driven by a 6% increase in core revenues and improvements in bad debt. The company continues to attract high-quality residents with an average household income of $142,000 and a partnership with Esusu to improve credit scores. Residents are also staying longer, with an average length of stay of 36 months.

The company believes their longevity is due to their premier ProCare service and bundled Internet offering. In the third quarter of 2023, core expenses increased, driven by an increase in turnover and costs related to lease compliance. Same-store leasing trends remained strong, with average occupancy and blended rent growth above pre-pandemic levels. Renewal rent growth has also accelerated each month in the third quarter.

The company had a strong performance in the third quarter, thanks to their dedicated associates. They are focused on maintaining this momentum and finishing the year strong. The Chief Financial Officer, Jonathan Olsen, provided an update on the company's investment-grade balance sheet, highlighting their available liquidity, debt-to-EBITDA ratio, and recent bond offering. He also mentioned Fitch's positive outlook and affirmed BBB flat rating. Olsen then briefly discussed the company's financial results for the quarter.

The seventh paragraph of the article discusses the company's third quarter results, including an increase in core FFO and AFFO per share. The company also updated their 2023 full year guidance, with a narrowed range for same-store NOI growth and increased same-store property tax expense expectations. The company's updated guidance also tightens the ranges for expected core FFO and AFFO per share. The paragraph concludes with the company's prepared remarks and opening the line for questions. The first question asked by an analyst seeks to understand the factors that caused the deceleration in occupancy and slowdown in lease rent.

Charles Young, a representative from the company, explains that the decrease in rent growth and occupancy is due to normal seasonality, a return to pre-COVID averages, and lease compliance. He clarifies that the decrease in new lease rent growth during August and September is typical, as it follows a bell curve pattern. However, renewals are still strong, with a higher rate than pre-COVID times. This indicates a high demand and undersupply of homes, as well as a higher turnover due to lease compliance work.

The speaker explains that the current occupancy and rent growth in the market is in line with normal seasonality, and that the high occupancy and strong fundamentals are driving the business. They acknowledge that it may seem different due to the past two years being abnormal, but overall, they feel good about the current state of the market. In regards to property taxes, the speaker mentions that they are not able to predict 2024 at this time, but notes that recent trends in asset appreciation and home values have contributed to the outsized property tax expense growth in the last two years. They also mention that they have been accurate in predicting property values, and that values have not been the issue for them.

The speaker explains that they had expected property values to decrease and provide some relief on millage rates, but that did not happen. They will be reassessing their approach to property tax in 2024. In response to a question about seasonality, the speaker says that new lease rates typically decrease in the fourth quarter, but they are still seeing good demand and high occupancy. They are focused on maintaining healthy occupancy levels through renewals.

The speaker discusses the company's acceleration in September and October, driven by renewals. They welcome seasonality and are feeling good about their renewals and low turnover. The speaker also mentions that new lease rates are expected to bottom in Q4 and rebound in Q1. They then address the sustainability of their 4% sales yield and 200 basis point spread, given the current market landscape with high mortgage rates. They believe the current market conditions will positively impact their renewals business due to less transaction availability.

The lock-in effect is causing a decrease in home sales and an increase in demand for rental properties. There are currently fewer single-family homes for rent compared to a few years ago, and the company is having success selling homes at high prices and investing in newer, higher-yielding properties. It is uncertain how long this market trend will continue.

The speaker discusses the challenges faced by the company in the current housing market, including a lack of supply and tough year-over-year comparisons. They also mention the progress made in working through their delinquency backlog and the strength of their customers' financial situations. However, they acknowledge that there is still work to be done before they can fully return to normal operations.

The executives of the company are pleased with the results they have posted and believe it highlights the strength of their business and its underlying fundamentals. They mention that they have had a temporary increase in turnover due to compliance backlog, but this has not affected their strong lease rent growth and high occupancy rates. They expect occupancy to continue to rise and turnover to normalize in the coming year. They also mention strong demand and high renewal asks in November and December. They believe that once they work through the lease compliance backlog in a few markets, their business will be in an even better position with easier comps for next year. Analysts on the call also bring up positive tailwinds and the executives mention that they are seeing more positives and good demand across the board.

The speaker is asking for clarification on the new leasing numbers and whether they are within the expected range for October. The company's representative, Charles, states that the month is not over yet, but they are comfortably in the expected range and above 2%. He also mentions that the focus should be on renewals, as they will drive the blend and keep occupancy high. The next question is about the impact of lease compliance and COVID-19 on expenses and when they will work through these issues. The speaker also asks for an estimate of the expense profile once these issues are resolved.

The company's bad debt has been historically around 50 basis points, but in the third quarter it was at 133 basis points due to the pandemic. The company believes they can return to pre-pandemic levels over time, but timing is uncertain. Turnover has also been elevated due to skips and evictions, which have higher costs and longer timelines. The company is confident in their ability to return to normal operations and sees a path to a portfolio similar to pre-pandemic levels. In the third quarter, the company did a debt offering, resulting in a higher cash balance than usual.

Dallas Tanner discusses the company's approach to acquisitions and capital deployment, noting that they want to maintain a strong position and be ready for potential opportunities in the future. They are still seeing opportunities with significant loss to lease from smaller portfolios and are open to potential M&A deals. However, they do not see the MLS as a significant source of growth for their business.

The company prefers to stack newer products at discounted prices while selling older assets at updated marks to insulate their balance sheet. They are keeping their options open for external growth opportunities and have plenty of cash available. The CFO mentions that they can sell assets at a 4% cap and earn 5.35% by parking the cash in the bank. They plan to use some of the cash to take care of one of their 2026 maturities. The company does not comment on speculation about entering property management.

The company is looking for opportunities to grow and enhance their operating margins, but currently have nothing to report. They have existing relationships with homebuilders and are looking to expand those partnerships to create more deal flow. They are also interested in forming joint ventures with partners who share their ambition in the single-family space.

The company is actively seeking partnerships for its new construction business, but there are no new announcements at this time. The guidance for joint venture acquisitions has decreased due to changes in the debt capital markets. The company is looking for opportunities with a yield in the 6% range.

The speaker is discussing their use of concessions in the current market and how they plan to navigate through it. They mention that they expect to run some select concessions in softer markets, such as Vegas and Phoenix, in order to maintain occupancy levels and be in a good position going into the new year. They also mention their strong occupancy rate and their goal to push it back over 97%. A question is asked about their underwriting for cap rates in their builder relationships.

Dallas Tanner, CEO of Invitation Homes, discusses the company's relationship with Pulte and the success they have had with lease-ups on new homes. He mentions that they have generally outperformed underwritten rents and that the market needs to be in the 6s for it to make sense. They are total return investors and look for asset appreciation and demographic trends. He also notes that their average customer stays for 36 months and they have a large pipeline of potential customers who want to live in new communities with new schools.

The speaker believes that their business has a strong value proposition. A question is asked about the impact of rising apartment availability on the rental market, but the speaker explains that the majority of their renters come from single-family homes and there is not much overlap with the luxury apartment market. They pay attention to market nuances, but their main competition is mom-and-pop rental homes. The speaker believes their marketing and professional services give them an advantage in the market. Another question is asked about potential impacts on the rental market, but the speaker reiterates that their main competition is single-family homes.

Bradley Heffern asks Jonathan Olsen about the size of the true-up for under-accrued property taxes in the fourth quarter and the implied growth guidance for OpEx. Olsen responds that the reasonable expectation for year-over-year Q4 property taxes is between 6.5% and 7.25%. Anthony Paolone follows up on this, asking about the impact on expenses for the full year and whether there are enough levers to bring them down in 2024. Olsen declines to discuss 2024 yet but says they will evaluate everything and give guidance in February. He acknowledges the outsized growth in property taxes and insurance and notes that they are in the midst of a return to "normalcy" with temporary structural impacts that will take time to resolve.

Dallas Tanner, CEO of Invitation Homes, answers questions from analysts about the company's single-family rental acquisitions and outlook for home prices. He mentions that the company could see high single-digit to low double-digit returns on these acquisitions, depending on leverage. He also discusses the potential for asset recycling and selling older assets to fund the company's growth, but notes that they have a "high-class problem" of strong valuations and growth potential. The company regularly evaluates its portfolio and considers selling assets for various reasons.

The speaker expects the company to be more aggressive in recycling capital due to the current market environment. They have a good track record of being good capital allocators and have sold many homes back into the market over the past decade. They view the U.S. single-family housing market as a highly liquid asset class and will continue to evaluate their capital opportunities. They will provide an update on their thinking in February. The speaker also addresses concerns about shadow supply and mortgage rate lock-in, stating that they do not underwrite for these factors when purchasing properties.

Dallas Tanner discusses the impact of mortgage rates on the housing market, noting that higher rates may make people more likely to stay in their current homes. He also mentions that Invitation Homes is seeing elevated renewal rates and expects this trend to continue due to the current economic climate. In response to a question about expanding their JV platform and fee management, Tanner mentions that they may consider entering new markets or types of homes, and that they may also take equity stakes in portfolios in addition to collecting fees.

Invitation Homes has been successful in the residential space due to their deliberate investment in high-growth markets and their focus on scale, density, and offering desirable services. They do not plan on changing this philosophy and may experiment with townhome-type properties, but their main focus will remain on larger properties with amenities.

The company is confident in its ability to cater to its target demographic and has a track record of successfully integrating scale into its platform. They are focused on controlling the controllables and evaluating potential opportunities for growth that are accretive and capital-light. They believe their business is set up for success in the future and are looking forward to seeing investors at an upcoming conference.

This summary was generated with AI and may contain some inaccuracies.