Greetings, and welcome to the Invitation Homes third quarter 2019 earnings conference call. All participants are in listen-only mode at this time. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Greg Van Winkle, Vice President of Investor Relations. Please go ahead.
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'll 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 transition to external growth. Finally, I want to reinforce why we feel ready to run and what that means. Organic growth remained strong and in line with our expectations in the third quarter as we continued 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. 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 two 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 sub-markets give us an advantage. 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 the Southeast and Florida.
We continue to see an attractive opportunity in these markets to buy well below replacement costs 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'd 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. 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.
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 macroeconomy from here, the millennial generation is coming our way. Over 65 million people, or roughly one-fifth of the U.S. population, is aged 20 to 34 years. 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're 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-$30 million of incremental run rate NOI into the business over the next few years. We are pursuing initiatives to lease faster, which we believe will reduce days to re-resident and add another $10 million-$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 CapEx in homes to enhance risk-adjusted return, asset durability, and resident loyalty. With all of 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 great 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 continued to set new heights in our resident satisfaction survey scores. I'm proud of my partners in the field and 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 has 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 comps 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, that 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 2018. New lease rent growth was 4.3% in the third quarter 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 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 will 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 8.5x, down from 9x at the end of 2018.
Moving forward, we will continue to focus on de-leveraging 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 bad guy in the third quarter of 2019 will be offset by a $3.5 million good guy 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 through the first three quarters of 2019, above the high end of our initial $300 million-$500 million expectation. While this accelerates improvement in portfolio quality and enhances our ability to drive long-term growth, margin expansion, and risk-adjusted returns, it resulted in 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%-5.6%, versus 5%-5.5% previously. This is driven by same store core revenue growth expectations of 4.25%-4.5%, up from 4%-4.5% previously, and same store core expense growth expectations of 2.25%-2.75%, tightened from 2%-3% previously.
We are also tightening our full year 2019 core FFO per share guidance to $1.24-$1.28, versus $1.23-$1.29 previously, and our 2019 AFFO per share guidance to $1.02-$1.06, versus $1.01-$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, the operational refinements we have made in 2019 have primed our platform for efficient execution. Fundamentals remain compelling, we are poised to create value through our organic growth, external growth, better leasing efficiency, ancillary services, active asset management, and value-enhancing CapEx. With that, operator, would you please open up the line for questions?
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using the speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. I'd ask that you please limit your questions to two per time in the queue. Once again, please limit yourself to two per time in the queue. Today's first question comes from Nick Joseph of Citi. Please go ahead.
Thanks. I appreciate the color on the external growth and maybe the shift to being a 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 to net neutral on the year as a whole. We definitely started to signal this summer that we were 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. As Ernie mentioned in his comments earlier, we've definitely had a little bit more disposition activity throughout the year, but we've been equally benefiting by the current condition of the market and seeing additional opportunities for growth.
Thanks. Just in terms of funding, you started 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. We'll just continue to look for what is our most efficient use of capital or our cost of capital, I should say, for us to fund acquisitions as we pivot to be more of a net acquirer. Because we are trying to get to an investment-grade balance sheet and bring leverage down, you point out a very good opportunity for us, potentially, to get there a little faster by over-equitizing.
Thanks.
Our next question today comes from Rich Hill of Morgan Stanley. Please go ahead.
Hey, guys. Ernie, to start with you, I'm trying to square away the 3Q 2019 expenses versus maybe what's guide implied for 4Q 2019. I'm thinking back to our discussion in 2Q 2019 earnings, where you had mentioned that 4Q was going to be, I think, an easy comp. 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. All throughout the year, we have talked about, with real estate taxes specifically on that line, that fourth quarter would be our easiest comp, and it's 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%. We've provided guidance on real estate taxes all year that we thought would be somewhere in the fives. We feel very comfortable with that. 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've been cautious all year. We wanted to make sure we build in 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 was closer to our expectations with regards to expenses on an overall basis. I know that implied math does show that there would be an acceleration in expenses, but take that into consideration with what our performance has been for the year and how we've provided guidance. 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 on most quarters this year.
Got it. That's very clear, Ernie. Hey, Dallas, I wanted 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? Are there any new markets that you're at least considering? We keep hearing about Boise, Idaho, for instance. I'm curious just how you're thinking about that from maximizing your revenue.
Yeah, absolutely. 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, and a lot of this goes to my earlier comments around scale and being able to drive some of those great efficiencies and margins out of markets, 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. 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. In terms of some of the smaller markets, like a Boise, they're certainly attractive. There are operators that are going in there.
I think I'd just take a step back and say, "Where is our best use of capital right now?" I think it's in these parts of the country where we already have significant scale. We have the ability to provide more scale into that particular market, which will then enhance greater efficiencies on the margin. 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. Definitely have a strategic advantage with our footprint in the West.
Yeah. 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. Seattle is growing like a weed. What are you doing differently there that allows you to still buy homes and maybe your competitors aren't there?
I think one of the advantages, we highlighted this a bit at our investor days, we've been local from day one. 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. 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. On top of that, you just have to be active there every day. It's 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. Our team that is leading our efforts in sales 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. The fact that we're there every day allows us to see some opportunity.
Yeah, that's great. Thank you. Thank you, guys.
Our next question today comes from Shirley Wu of Bank of America. Please go ahead.
Hey, good morning, guys. As you guys become more acquisitive, how do you balance that with your balance sheet, so your pursuit of deleveraging? Is the plan still one turn a year?
Yeah. Shirley, this is Ernie. I'd say, you said the key word there is we have to balance, because 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. At the same time, we're seeing because of where the market's at today and having some more tools in the toolkit from a cost of capital perspective, the opportunity to be a net acquirer. Against that is we also do want to bring leverage down. There's a lot of different things and a lot of different balls we're juggling in there at the same time.
We have said specifically with the balance sheet, with normal course, with 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 of that, but it's probably more in the half to three-quarters of a turn. I just want to make sure that's out there and people understand that. We do have that opportunity, and one of your other questions talked about that, do you potentially over-equitize acquisitions? We've been fortunate that a year ago, we wouldn't have predicted the cost of debt would be as inexpensive as it is now. That certainly helps as well. We put ourselves in a good position with the balance sheet, make it even safer still with our 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 get to a place 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. My next question has to do with demand, and you kind of touched upon this a little bit as well in your prepared remarks, Dallas. On the demand side, what we're hearing, especially in apartments, is that in 2020, they're expecting a moderation in demand for the apartment customer. How are you feeling about your consumer demand strength going into 2020, and what differentiates your customer base?
It's hard to predict, and this is Charles, by the way. It's hard to predict into 2020. We can react to what we're seeing on the ground right now, which is really positive demand. As we 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 that would slow down in 2020, but we'll see what's ahead.
Great. Thank you.
Our next question comes from John Pawlowski of Green Street Advisors. Please go ahead.
Hey, thanks. Charles or Ernie, could you provide a breakout of the drivers within the repair and maintenance line items, specifically perhaps how wages are growing versus material costs? I don't understand how costs are growing 10% during a period where turnover is going down, and costs went up 13% in the year-ago period.
John, let me start with that, and I'll certainly 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 look at total net cost to maintain, importantly, look at the CapEx side, too. You're 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%, our CapEx costs were down 5.2% in that same period, as I'm sure you saw in our disclosures. On a total basis, it's up 1.8%. We certainly are doing our best to keep that as low as possible, also don't feel so bad about that it's up less than 2% on a year-over-year basis.
Specifically, we have talked about in the past that there are some cost pressures with regards to personnel items, some of our superintendents and things like that, and you have general cost inflation. I'll also point out that, again, as we look at this short period of time, not over the longer period, yeah, from a month-to-month basis, sometimes on a year-over-year basis, you have different results. In the first part of the third quarter, we did see some better performance on repairs and maintenance in the third month. It was a hot September that offset a more normal July and August for us from summer, and those things happen, too. I think you were smart to point out that not to get too hung up on just a one-quarter basis when you're looking at things.
When 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 when you 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've certainly talked about that a bit on past calls and with you and with other investors. They were up 2.5%, and this year, based on our guidance, they're predicted to be down 0.5%. 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 we can do better. That's we're excited about the upside to it.
From the one quarter specific to R&M, I get it that the operating side was up, but the CapEx side was down to help offset that, and our total cost to maintain for the quarter was only up 3.7, and for the year is actually down a little bit. We feel good about where expenses are, but we do concede we think we can do better.
Okay. No, I understand CapEx looks better this quarter. Year to date, I expect total cost to maintain to be down meaningfully given the cost overruns last year and the merger synergies that investors paid up for within a few days of the merger or so. Perhaps we can talk more online. 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. 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 roll side to make sure that we keep that occupancy. We've been able to maintain that into fourth quarter. We're watching it closely. Performance does vary by sub-market, and the field teams are working very closely with asset management, and doing a great job of selectively pruning. As Dallas was talking about some of those dispositions, you may see a few more coming out of South Florida. Overall, we're keeping the occupancy where we want.
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. Really a healthy move there. 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 fairly well. I think what you may be seeing is there was this sequential kind of down from Q2 to Q3, which is normal, in the kind of seasonal trend that we'll see as you get towards the end of Q3 and the leasing comes down a little bit. We were coming out of Q2 at a high watermark of 97.3.
To come down to the 95 is not that big of a deal and what we expect seasonality for a market like that.
Okay, thank you.
Our next question comes from Douglas Harter of Credit Suisse. Please go ahead.
Thanks. Can you talk about how October is performing in terms of occupancy and improvements?
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. It's been built into our expectation around guidance, from both an occupancy perspective as well as a rental rate achievement for us.
All right. Thanks. As far as the continued improvement in turnover, can you talk about what are the key drivers of that improvement in turnover and kind of aspirationally where turnover can go?
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. We're an attractive option for residents who want to have high-quality homes in great neighborhoods and good schools. That being said, we know that trees don't grow to the sky. 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. Dallas and team will continue to purchase great homes. We think we'll be at the low end of that turnover curve.
Thanks, Charles.
Thank you.
Our next question comes from Jason Green of Evercore. Please go ahead.
Good morning. Just a question on disposition CapEx. The number seems to bounce around quarter to quarter, but can you explain specifically what that spend is, and then whether there's a reasonable figure on average we can think about per home sold?
Yeah, Jason, this is Ernie. You are going to see it bounce around a little depending on the type of sale we do. If we're doing a sale to an investor, they'll take the home as is, and they'll underwrite into their own economics any rehab or work they may want to do post-acquisition, just like we do. If we're selling mostly end-user homes, that does represent when someone's moved out of the house. At that point, we want to get it in the state ready to be able to sell to an end user. It can vary from being a few hundred $ to a few thousand $. We factor that in with regards to what's the right economics and how we want to treat that house for that perspective.
Also, then we make the decision around when we think it'll be an end-user sale or investor sale. Let us give some thought, Jason, as to I don't want to wing it as to what number you guys can expect to have. It's going to be impacted, like I said, by the type of sale that's done. For those that go through the end user, let's give it some thought, and Greg and I can get back and maybe give folks an idea from a modeling perspective what an average type cost could be. I just wouldn't want to wing it on the call here with you.
Okay. No, understood. 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 sales that you guys have been talking about, but was the rationale specific to the assets, or are there certain markets in California where you guys are starting to feel that you're tapped out value-wise, or is it kind of neither of those two?
Well, I think it's a little bit of a blend. 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 sub-markets 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've sold year-to-date maybe a little over 250 homes in all of California. It's a really small part of the overall portfolio.
Yeah, 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. Then in some situations, selling because of value.
Got it. Thanks very much.
Our next question comes from Drew Babin of Baird. Please go ahead.
Hey, good morning. Dallas, you mentioned the granular nature of the acquisitions completed during the quarter. I was hoping you could talk about any bulk acquisition opportunities that may have come across the radar during the quarter, sort of where pricing is on those assets relative to the yields, which are probably a little higher, kind of the more granular 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. Any color would be helpful.
Yeah. In terms of one-off and how we see that environment today, it's definitely accretive to our portfolio in 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's available to us amongst 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 nor do you see many of those opportunities at any given point. You saw what we did 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 give a sound underwriting process to. Hopefully be able to purchase those at attractive prices. Las Vegas was a great example where we've had great execution. Our rehab CapEx underwriting's been spot on, and we've actually been a little bit of an outperformer in terms of going in rate. We'd love to see more of them, quite frankly. We just don't get the opportunities to, but occasionally, you do get something that comes across your desk. The environment today feels pretty tight on the bulk side of things.
Thank you. A couple for Ernie here. In the third quarter, there was a $50 million opportunistic secured debt paydown. As we model going forward, and as presumably more assets are bought and sold, is there sort of a run rate amount of debt that may get paid down opportunistically going forward as part of the de-leveraging story? Is there anything that we should sort of be modeling, or is that something that we should be leaving alone for now?
Yeah, I think it's more of the latter, unfortunately, Drew. When we come out next quarter with guidance around acquisition disposition activity, I think it'll be more apparent as what may be available from a cash flow perspective or not for additional debt paydowns beyond what would be normal course for us. At this point, it'd be hard to say there's a run rate that would be consistent over the next couple of years for you to build into the model.
Okay. Lastly, the ATM, was anything executed in October above and beyond what was listed for 3Q as the price of the stock went up?
Yeah, there's been no executions in October on the ATM.
Okay, great. That's all for me. Thanks.
Our next question today comes from Hardik Goel of Zelman & Associates. Please go ahead.
Hey, guys. Thanks for taking my question. I just wanted to ask about renewal rates and what you're seeing in terms of pricing power. Obviously, your blended was strong, but how do you see the trade-off between new and renewals? I noticed that fell a little sequentially. I just wanted to get your thoughts on that and what you see going forward.
Yeah. This is Charles. Renewal rate year to date through Q3 has been 5.1, which is really strong, up from 4.8 last year. We had some great execution early in the year. As we come into Q3, and we know we're getting a little slower leasing season and trying to make sure that we optimize the portfolio in the Q4, you may see us regulate that down a little bit, just to make sure that we're keeping occupancy. It varies market by market, depending on where we are in occupancy. Been an overall a strong renewal year. I think we'll continue that, but you may see it come down slightly here in Q4 as we make sure that we want to set up 2020 as a really strong year.
Thanks. That's all.
Great.
Our next question today comes from Haendel St. Juste of Mizuho. Please go ahead.
Hi, Zachary Silverberg here for Haendel. Back to revenues and expenses, do you guys see any margin expansion going into next year, or what could be a potential headwind or tailwind into next year?
Yeah, I want to be careful about getting too specific about that because that's bordering on potentially providing guidance for revenue and expenses last year. Yeah, I'd say over the longer term, and I'm not saying it won't happen next year, I just don't want to provide specific guidance, we certainly see a great opportunity for margin expansion. On the revenue side, we have opportunity to do a little bit better, as we talked about on our Investor Day very specifically, and Dallas talked about on those prepared remarks around some of these ancillary income items that are their high margin drop to the bottom line. Some things like days to re-resident goes right to the bottom line because it improves occupancy. We see opportunities there. On the expense side, we're going to fight the battle of inflation.
We do think over the next period of time, real estate tax growth will be more muted than it's been the last few years for a combination of reasons. One, home prices are still going up, but they're not going up as much as they were the last few years, so that will help. Secondly, some of the internal things we've had to deal with real estate taxes due to rules in certain states about when corporate activity happens, like our merger, like our IPO and things like that, those will be fully earned in. Those will certainly help us on the expense side going forward. Without giving specific guidance for next year, we do see the opportunity to bring margins up from the mid-60s% where we're at today to the higher 60s% over the next period of time.
Great. Thanks. You just touched upon it, but what some other types of benefits do you think you can generate from improved efficiencies and ancillary revenues moving forward?
On the ancillary income side, we talked about the fact that we think there are services that we can provide our residents that they will value, that will help them. They'll likely want them to stay in our homes longer. We can collect income off of those. It's kind of a win-win. It's something they want, and it's something that will help us. We talked about specifically some things around making sure we're doing things right around and on pets. We talked about a filter program which will help on the repairs and maintenance side, as well as it will be a convenience for residents. Of course, we've talked about, for a long time, greater opportunities with our smart home offerings and things that we're doing there.
On the expense side, it's just really all about just getting better and more efficient in what we do and utilizing technology to do that. That was certainly a big part of what we discussed with investors and analysts. I know people had a chance to tune in a few weeks ago on that as well. We just see, when you factor all that in, and then what's happening macro fundamentally in the industry with regards to supply and demand, things that's, I think, why people are so excited and favorable about the space, and we certainly have an opportunity to participate in those upsides.
Thank you.
Our next question today comes from Jade Rahmani of KBW. Please go ahead.
Thank you very much. I was wondering if you could provide some additional color on the asset sales, and what percentage of those are driven by CapEx expectations, and are there any common attributes in terms of price point, geography, level of rent, et cetera?
Yeah, Jade, in your question, I think you did a nice job of summarizing the different types of buckets that we look at. There's definitely some that are geographic. There's some that are based on, call it maybe some future potential CapEx risk. That's ordinary course for us in terms of how we analyze the portfolio. To get a little bit into the weeds, we will rank our properties based on quality type and location internally. That's not something we share externally, but it's certainly a metric and part of our proprietary systems of how we look and rank ourselves in terms of asset performance and overall expectations around what we may or may not need to put into an asset over the long term.
We're probably a bit more focused right now on just making sure we get specific sub-market alignment the way that we want our portfolios to be able to operate. We work very closely with Charles and his team in terms of making sure that not only the portfolio mix is right, but that also that we have the right shift mix within the portfolio in terms of size, bedroom, bath counts, the right ratios, et cetera. That's all very important in terms of how we offer a consistent service level to our customers. It can be a variety of things. It could be geographic. It could be that we think a home's, quite frankly, too big, and has potential turn risk to it. We're very sensitive about some of those things.
It all goes into formulas that we look at and the ways that we measure success internally.
Are you trying to optimize to a certain function that maximizes future rent growth expectations or margin expansion expectations? Are you targeting all-in return on invested capital? How are you thinking about that?
Well, to be clear, we're total return investors, right? We are looking for value in both asset appreciation as well as where we think the potential yield on a particular asset will go. What goes into that, Jade, are all the decisions around sub-markets, markets, neighborhoods, school districts, and a number of different factors. With that rebuy analysis, whenever we decide to sell a home, we treat it the same way as if we were going to buy that home today. What kind of conviction do we have around those expected total risk-adjusted returns and why? It's really a similar process. As I mentioned earlier, we're always looking at the bottom parts of our portfolio, regardless of market or location, to look at total performance. As you look at total return, yield is one component of that.
All those decisions will come into play as well as some of the market decisions going forward.
Thanks very much.
Our next question today comes from Wesley Golladay of RBC Capital Markets. Please go ahead.
Hi, guys. I'm just looking at the blended rent growth year to date. It looks like the Western region is doing almost 2X the rest of the portfolio. Would you expect that to start to converge meaningfully over the next year or two to long-term averages? Do you see supply pressure pressuring any of those markets on the West next year?
Well, we see a lot of supply pressures generally across our portfolio, to be clear. In the west, you just don't have enough rooftops to keep up with household formation. We would expect demand to be strong generally across our portfolio. You're probably going to feel a little bit more of that out west with lower barrier to entry markets. Excuse me.
Okay. When you look at the single asset acquisitions, what is the capacity of Invitation Homes to do per quarter?
Well, to be clear, I'll use Ernie's line that he said, which is we don't want to provide any specific guidance. Just in terms of historically, the things that we've done as a business, we bought our first 30,000 homes one by one over a period of 18 months. We have the abilities, the systems, the processes, and people that if the market opportunity and cost of capital is available to us, that we can certainly look for meaningful ways to grow.
Got it. Thank you.
Our next question today comes from Ryan Gilbert of BTIG. Please go ahead.
Hey, thanks, guys. Can you talk about the lease-up process for the homes that you've acquired this year, just in terms of how they're leasing up relative to your expectations? I guess I'm just trying to understand to the extent that there was some earnings dilution in the third quarter from acquisitions, how much of that's from just higher volume versus maybe a slower than expected lease-up?
Yeah, Ryan, this is Ernie. I'll take that. It's interesting. This year, we've actually seen on our acquisitions, we're doing better than underwriting with regards to our rehabs in terms of those coming in a little bit cheaper than we underwrote, so helping our current yields. We're also seeing that those are actually running up in the time we expected them run up at prices slightly better.
You're right to point out there's a dilution item, but it's really not on the acquisition side. It's on the disposition side. What we're seeing on the disposition side is that the ones that we're selling to end users are taking a little longer for us to sell than we would've thought at the beginning of the year. Part of that's just, it's the reason why the acquisition opportunity's better for us right now, is that we've seen things slow down a little bit. We are seeing that when we're selling to an end user, we have to vacate the house, then we have to get it ready for sale, and then we have to put it under contract and sell.
That process is probably taking us about 30 to 45 days longer than we would've thought when we put our numbers together at the beginning of the year, Ryan. That's what's causing some dilution there. It's actually cost us about a penny and a half in terms of how long that's taking. Now, we underwrote and expected some of that to be in our numbers. We probably would've expected about three-quarters to a penny to be in our numbers. Because it's taking longer and because we're selling more homes, that's why it's seen a little bit more dilution. We're pleased with that because we're improving our portfolio, and that dilution goes away when those homes go away. It is a bit of a drag for us, but it's not on the acquisition side, it's more on the disposition side.
Okay, got it. Understood. Are there any markets where you're seeing for rent competition, whether it be other institutional operators or maybe mom-and-pop operators offering rents that are what you would consider to be below market or nonprofit maximizing rents?
This is Charles. I'll take that.
Okay.
From a professionalized perspective, we're out there in the market with mom and pop, so we don't really see them as direct competition because we're optimizing our portfolio, solving different than what they may be solving for. If there are other institutional market or professional firms out there, they'll show up in some of the Southwest markets that we're seeing, whether it's Florida, Atlanta, and otherwise, but they've been there the whole time. Now, there may be a few more pushing in, and we see some supply pieces, as I've talked about in South Florida, a little bit in Orlando right now, although we're still performing well there. Nothing that's materially impacting. You can see from our results and our occupancy being up and our blended rent growth being up almost 50 basis points. It's not slowing us down.
We are watching it closely and paying attention to what the competition is doing.
Okay, got it. Just one more quick one. In Phoenix, can you talk about the sub-markets that you're seeing the most opportunities to buy in?
Yeah, in Phoenix, you got to be particularly focused on staying inside the major beltways, the 101 and 202 freeways. I think that's where we're seeing a terrific amount of demand. Our stuff in Tempe and also South Scottsdale's done really, really well. Anything in the East Valley is strong as well. That market just has a tremendous amount of net migration, employment growth, and quite frankly, not enough supply to keep up with demand. Generally, the market as a whole is strong, but anything on the interior is doing really well.
Okay, great. Thank you.
Today's final question comes from Derek Johnston of Deutsche Bank. Please go ahead.
Hey, everyone. How are you doing? Just quickly back to the ATM. $800 million, and really just the plans to balance it between deleveraging and home acquisitions. I guess so far it's been mostly focused on home acquisitions. 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, it's Ernie. Probably 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 and a balanced way because we want to have lower leverage. Again, I want to make sure we're reiterating. People have heard me say this, we have a safe balance sheet today. We've done what we said we were going to do in terms of delevering over since our IPO. We've made good progress there. We've actually accelerated making the balance sheet even safer still through refinancing activity, going from about 80% hedged position in terms of fixed rate to closer to almost 100%. All those things feel good.
There is a point in time where it may make sense to look for other sources of capital to bring leverage down other than cash flow from operations to delever further. We'll be opportunistic about that where it makes sense. For us, when we think about deploying capital, whether it's to grow the business externally by acquiring, whether it's used for deleveraging, we'll factor in where the cost of capital is, whether that makes the best long-term sense for us. We want to balance what we're trying to accomplish amongst all our goals, as I mentioned earlier, around earnings, around external growth, around margin expansion, and things like that.
It's kind of a long way of saying we'll 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 that will create value for our shareholders over the long term.
Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Thank you. We'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 will conclude our call.
Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation.