Greetings, and welcome to the Invitation Homes Second Quarter 2019 Earnings Conference Call. All participants are in listen only mode at this time. 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 Q2 2019 earnings conference call. On today's call from Invitation Homes 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 Q2 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 atwww.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 ks 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. Our business is firing on all cylinders as we move through the midpoint of the year. Fundamental tailwinds persist, Operational execution remains terrific on our fully integrated platform. We continue to create value through capital recycling and active asset management and we are making important strides with our balance sheet. I'd like to elaborate on a few things in my comments.
1st, The drivers of our outsized growth and strong results. 2nd, some detail on our capital recycling efforts. And 3rd, why I'm even more excited about the future. I'll start with our performance. Building on a great start in the Q1 of 2019, Highlights of our Q2 included over 6% same store NOI growth, our best ever second quarter occupancy of 96.5%.
At the same time, both new and renewal rent growth were above 5% and prior year levels, and in over 7% reduction in controllable costs, net of resident recoveries. This performance was driven by favorable fundamentals, our differentiated portfolio and service and outstanding execution by our teams. The facts around industry dynamics and our value proposition are simple. Household formation in our markets is robust, supply is limited and home price appreciation continues to outpace inflation. In a market where attractive housing options can be difficult to find, we offer a solution that allows residents to live in high quality homes in desirable neighborhoods at a fair price and enjoy the ease of leasing from a professional management company that puts the resident first.
This is especially true across our unique market footprint, where household formations are expected to grow at almost twice the U. S. Average in 2019, and where the monthly cost to lease a home remains almost 10% below the cost to own a comparable home. In addition, our industry leading scale with over 4,700 homes per market on average enable us to efficiently deliver best in class resident service that enhances resident satisfaction and retention. Our field teams are now delivering that service better than ever, empowered by enhancements to our operating platform.
With better data and tools, our revenue management team continues to strike the right balance between occupancy and rent growth. And on the expense side, our efficiency initiatives continue to be effective at reducing controllable costs, even during the busier summer months. On the back of this strong year to date execution, we are raising our 2019 same store NOI growth guidance range to 5% to 5.5%, an increase of 75 basis points at the midpoint. Ernie will elaborate on our updated guidance later on in the call. Next, I'll provide an update on our capital recycling efforts.
Midway through the year, we have made excellent progress against our capital allocation plan. In the first half of twenty nineteen, we sold 1433 homes for gross proceeds of $360,000,000 and use these proceeds to acquire 948 Homes for $273,000,000 and to delever. In doing so, we removed many lower quality and less advantageously located homes from within our portfolio and reposition capital into homes and locations where we have real conviction in risk adjusted total returns. We have been able to find compelling opportunities to accomplish this because of the advantage of our local presence in markets and the diversity of channels we employ to both buy and sell homes. Just in the first half of twenty nineteen, we have bought homes in bulk transactions, one off transactions, the MLS, at auction, from homebuilders and through iBuying platforms.
We've also sold homes both in bulk and one off transactions as well as directly to residents. After successful execution in the markets in the first half of twenty nineteen, we now expect to finish near or above The high end of the initial $300,000,000 to $500,000,000 guidance we laid out at the beginning of the year for both acquisitions and dispositions. In other words, we are enhancing our portfolio quality in 2019 even more than we had initially anticipated. In closing, I'd like to talk about all the opportunity that lies in front of us. Earlier on the call, I discussed the Supply and demand drivers that have underpinned our outsized growth.
Looking ahead, we are even more encouraged as we have yet to enjoy the full benefit of the millennial generation that is coming our way. Over 65,000,000 people or 1 5th of the U. S. Population is aged 20 to 34 years, and we believe many in this cohort could choose the single family leasing lifestyle as they form families and age toward Invitation Homes average resident age of 39 years. We also have tremendous potential create value beyond the organic opportunity and are shifting more attention to how we can make the resident experience even better.
This includes Building on the basics by refining our already best in class system and processes for interacting with residents and providing genuine care. Carrying out the ProCare commitment to proactive service and more hands on resident care at move in and move out that our platform is now equipped to provide to all homes in our portfolio. Expanding ancillary services, which we have recently brought on a dedicated team to pursue. Continuing to grow and refine our value enhancing CapEx program and making the leasing process even more efficient at getting new residents in the home quicker. Finally, from an external growth and portfolio perspective, our locations and scale are a significant competitive advantage today, but we have the opportunity to widen those advantage even further.
As we move forward, scale gives us the ability to be selective and continue recycling capital to enhance the quality of our portfolio at the margins. And as we've done throughout our history,
We will
continue to grow scale when the right opportunities arise in the right markets. In summary, I'm very proud of the way we are executing driving growth today. But I'm even more excited about the opportunity that lies ahead for our business to become even better. With that, I'll turn it over to Charles Young, our Chief Operating Officer to provide more detail on our Q2 operating results.
Thank you, Dallas. Once again, we were able to build on positive momentum to drive another great quarter operationally on both the revenue and cost side. I'm even proud of our team's success this quarter because it came in a seasonally busier time of year. Managing through peak season for leases, The quality of our resident service has not wavered. This is most evident in our turnover numbers, which achieved yet another record low of 30.1 I'll now walk you through our 2nd quarter operating results in more detail.
With outstanding fundamentals in our markets And excellent execution, same store NOI increased 6.1% year over year in the second quarter. Same store revenues in the 2nd quarter grew 4.2% year over year. This increase was driven by an average monthly rental rate growth of 4% and a 40 basis point increase in average occupancy to 96.5 percent for the quarter. Same store core expense in the 2nd quarter 0.6% year over year. Controllable costs were better than expected, down 7.2% year over year net of resident recoveries.
The primary drivers of this improvement were lower turn volume and efficiency enhancements to our integrative operating platform that drove lower R and M and personnel costs. Offsetting the significant improvement in controllable costs was a 7% increase in property taxes. We do not expect to achieve the same degree of improvement And in controllable costs in the second half of twenty nineteen as we did in the first half, as prior year comps become less favorable. That said, we still see upside to cost efficiency. In addition to the benefit of constant refinements to our systems and processes going forward, We expect our full ProCare rollout to bear fruit over the next several years.
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. To be clear, ProCare implementation has been rolled out in all of our markets. However, the benefits should materialize over time as proactive visits drive opportunities for savings in both R and M and term results. Next, I will cover leasing trends in the 2nd quarter. Both renewal and new lease rent growth were higher in the Q2 of 2019 than in the Q2 of 2018.
Renewals increased 70 basis points to 5.4 percent and new leases increased 40 basis points to 5.2%. This drove blended rent growth of 5.3% or 60 basis points higher year over year. At the same time, average occupancy remained 96.5 percent in the Q2 of 2019, in line with Q1 and 40 basis points higher year over year. We feel very well positioned for the second half of twenty nineteen with occupancy better than it has ever been at this point of the year. However, we are also approaching a point in the calendar year where new leasing activity begins to slow seasonally, making it prudent to turn slightly more conservative in balancing rent growth and occupancy.
We feel great about our playbook for carrying healthy occupancy through The off season and our lease expiration curve is set up to help us achieve this as well. After a great first half of twenty nineteen, We are excited to keep the momentum going and remain focused on delivering outstanding service to our residents and outstanding results to our shareholders. 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: 1, balance sheet and capital markets activity 2, financial results for the Q2 and 3, updated 2019 guidance. First, I'll cover capital markets activity where we opportunistically refinanced one of our near term maturities and continue to delever. In June, we further diversified our capital sources by closing our first ever term loan from a life insurance company. The loan has a 12 year term and principal amount of $403,000,000 Total cost of funds is fixed at 3.59 percent for the 1st 11 years and flows at LIBOR plus 147 basis points in the 12th year.
Structural features of the loan also provide for more flexibility and collateral release and substitution rights in our other secured financings to date. With the proceeds from this loan and other cash on hand, we repaid $529,000,000 of higher cost secured debt in the 2nd quarter. Now leaves us with no debt maturing prior to 2022. In July, we voluntarily prepaid an additional $50,000,000 of secured debt. Also in July, we completed settling conversions down from 9 times at the end of 2018.
As we go forward, we will continue to prioritize debt prepayments in pursuit of an investment grade rating. Our liquidity at quarter end was approximately $1,100,000,000 through a combination of unrestricted cash and undrawn capacity on our credit facility. Moving on to our Q2 2019 financial results, core FFO per share increased 5.2% year over year to $0.31 primarily due to an increase in NOI and lower cash interest expense. AFFO per share increased 4.1 percent year over year to $0.25 The last thing I will cover is our updated 2019 guidance. After maintaining strong execution through the first stage of our peak leasing and service season and with supply and demand remaining favorable, We are tightening and increasing our full year 2019 same store NOI growth guidance to 5% to 5.5% versus 4% to 5% previously.
This is driven by same store core revenue expectations of 4% to 4.5%, up from 3.8% to 4.4% previously and same store core expense expectations of 2% to 3%, down from 3% to 4% previously. We are also increasing our guidance for core FFO and AFFO in step with our same store NOI guidance increase. We now expect full year 2019 core FFO of $1.23 to $1.29 per share versus $1.21 to $1.29 previously. AFFO is expected to be $1.01 to $1.07 per share versus $0.99 to $1.07 previously. Lastly, on guidance, I want to remind everyone of 2 things that will impact our results in the back half the year from a timing perspective.
1st, given the progression of occupancy in 2018, occupancy comps will not be as favorable in the second half of twenty nineteen as they were in the first half of twenty nineteen. 2nd, the year over year increase in real estate taxes is expected to be lower in the Q4 of 2019 than in the first three quarters of 2019. I'll wrap up by reiterating Dallas' enthusiasm for the future. Fundamentals remain favorable, which we expect to continue driving strong revenue growth at the same time we enhance expense controls. Furthermore, we believe that our business is well positioned to succeed in all parts of the cycle.
We are excited to begin creating more value in addition to growth as we ramp up our focus on enhancing the resident experience with ancillary services, value enhancing CapEx and other initiatives. And last but not least, we remain active with our best in class investing platform to recycle capital, widen the location and scale advantages within our portfolio, and grow opportunistically in the right markets at the right time. With that operator, would you please open up the line for questions?
We will now begin the question and answer The first question comes from Douglas Harter of Credit Suisse. Please go ahead.
Thanks. Dallas, you touched on this a little bit, but kind of given the attractive return characteristics You're seeing the supply demand. Can you talk about your appetite for kind of increasing the kind of the external growth Opportunities and kind of where what markets those might be most attractive?
Thanks Doug. Yes, happy to. As Ernie mentioned, we want to look for some of these opportunities in the right places at the right time as well. And we're certainly seeing a bit more opportunity in the last couple of quarters in terms of grinding out incremental buying through our platform. Mentioned in my comments that we still see through a variety of channels opportunities that are at pretty attractive return profile.
So I would expect that we'll maintain an opportunistic approach that if and when we see opportunity to make sense, we could then look for meaningful ways To add to our portfolio, I think one of the benefits of being local is that we do get to see a lot of stuff off market and things that are brought to us In advance of maybe a public sale. And so for us, we are going to continue to look for those opportunities.
Great. And just which markets are you finding most attractive today?
If you look at the balance of where we're having some of our greatest expansion in terms of rate growth and home price appreciation, certainly Our West Coast markets are outperforming. A market like Phoenix is a good example of this where over the last 3 months in a row we've been north of 10% from a new lease growth perspective. We're seeing some interesting opportunities in that market. We've been able to do some things like buy directly from some boutique homebuilders in that market in Q2 and have looked to do the same in markets like Seattle. I would expect our mix to be relatively What we've done over the past couple of years, which is continue to find higher barrier to entry submarkets in parts of the West and parts of the Southeast that
The next question comes from Rich Hill of Morgan Stanley. Please go ahead.
Hey, good morning, guys. Congrats on a good quarter. I wanted to just maybe focus on revenue and Revenue met our expectations, but was maybe a little bit lower than where it's trended in the past. And I think the guide implies some deceleration. So I'm wondering if you can maybe just comment on that real quickly and if there's anything driving that seasonally or
Rich, this is Ernie. So far revenues put out a little better than we expected at the beginning of the year and hence why we were able to increase guidance here with the second We had mentioned at the beginning is that we expected that rent growth, rental rate growth would be about 4%. And we're actually doing a little better than that, but pretty much right there. And then we talked about at the beginning of the year and it's holding true is that in Q1, I think we had an 80 basis point year over year increase in occupancy. 2nd quarter was 40 basis point year over year.
We're not going to continue to see those types of numbers, Rich, in the half of the year, we think embedded in our guidance, we expect occupancy to be flat to just slightly up in the second half of the year to where it was last year. And so you take a roughly 4% rental increase, roughly flat occupancy and then other income for us has been trending a little bit lower from a growth rate strong relative to where else you can see and puts us in a good spot for our 4% to 4.5% guidance for the year.
Got it. And on the expense side of the equation, you've obviously had an impressive start to the year in terms of expense growth. Looks like there's going to be some pretty hefty implied expense growth in the second half of the year. I think I heard that taxes are going to be down though. So maybe you could help us just square that a little bit?
Yes, sure. So again expenses, we've had some good surprises for the first And I'll remind everyone that we're still in the middle of peak season when it comes to work orders. July and books aren't quite closed yet. And of course, August and So we still want to be cautious as we think about expenses just as we were earlier this year both with our first set of guidance and our second set of guidance that That said, Rich, real estate taxes are trending sort of exactly where we expected them to trend. We said at the beginning of the year, we thought for the year, taxes would be up in the 5% somewhere between 5% 6%.
Year to date they're at 5.9% and we have mentioned a couple of times that the 4th quarter is an easier comp for us in real estate taxes. We had a big adjustment that we had booked last year in Q4. So we're kind of right on pace for where we thought we'd be at real estate taxes, where we really have the outperformance and
The team has done a
phenomenal job is around repairs and maintenance, churn, all the work that's being done in ProCare that Charles talked about in our learnings and getting better. And we're hopeful to see that carry through for the second half of the year and we'll do our best to try to beat the numbers that we've laid out there. But again, we just I want to make sure we're being cautious about where we set our guidance for the year and put ourselves in a position to hopefully exceed expectations, but we'll see how the rest of the year plays out.
Thank you very much. I appreciate it.
You got it, Rich.
The next question comes from Shirley Wu of Bank of America. Please go ahead.
Good morning, guys. Thanks for taking the question. It sounds exciting when you guys mentioned that you hired a new ancillary income team. So could you talk about some initiatives That you're seeing there that's tracking the growth that we see and maybe some of the initiatives going for 2020, perhaps the smart home adoption as well?
Sure. Hi, Shirley. Thanks. This is Dallas. We are excited.
We talk about our business really in 2 buckets and the first piece being kind of the real estate ops piece, which Ernie and I answered in previous questions. The second bucket is really this customer experience side of our business and we're really focused on making sure that we can deliver a best in class experience for our customers, which we believe will lend itself to better performance in some of those ancillary targets and other income opportunities. Specifically as a company, we've rolled out things around smart home and have piloted a couple of smaller initiatives historically. Where we think there's room to improve specifically is around the smart home offerings and some of the added features that we can add to that package. Remember, Our adoption rate has historically been between 75% 80% on something like that.
So we are experimenting with pricing and some different offerings that we think will lend itself Even better performance hopefully in that category. The other part of what we think could drive a stickier experience for our customers may set around pets, insurances, Some different offers, working with some national partners, we're researching a bunch of kind of interesting and what we think are fun initiatives that will not only lend itself to some other ancillary, probably make the overall experience better, which we think will could potentially have a benefit to even better retention. So if we do it right and continue to deliver and we deliver that in a way that it feels meaningful, personal and creates a connection between our customers and the property. We think it will have a lot of impact to our
Thanks for the color. And so back to the synergies from your merger. Previously, you mentioned that potentially there might be more on the procurement side. Have you seen more of those conversations happen throughout this year? And what do you think is Impact to potentially margin improvement for next year.
Yes. So Shirley, what I'd say is, like any business, you're always looking to do things better and improve It's certainly a great example. We continue to see good opportunities to leverage our scale both on a national basis and a regional basis. At some point, we would be doing that whether there's a merger or not. So that's why we've kind of stopped tracking merger synergies at this point as we put the merger and integration behind us about a quarter ago.
That said, we have a dedicated team and they're working hard at that. And I think it's one of the many things that can help us in terms as we continue to have margin expansion going forward as we can leverage our buying power. And importantly, on the procurement side, it's Going forward, as we can leverage our buying power and importantly on the procurement side, it's not just on the operating expense side that would impact our NOI margins, but very importantly on the capital So now things around are the appliance packages that we put in as an example as a capital item, there's some great opportunities there too. So I think it's Just going contract by contract, working our way down from the national to the regional all the way to local levels. We're continuing to hope to find More opportunity and some more nuggets for us to slowly but continually improve our margins.
Great. Thanks for the color.
The next question comes from Nick Joseph of Citi. Please go ahead.
Thanks. Dallas, you talked about the transaction How many more non core homes are left to sell in the near and medium term?
Well, without giving any real specific guidance, because we can't really do that here. We certainly are looking to right size the portfolio post merger in terms of just making sure we have the right allocations in submarkets and at the market level. You saw that we're pretty active through the 1st 2 quarters of this year in markets like South Florida and Chicago. And just by way of just making sure that I'm really clear, We will always be looking at the bottom performing parts of our portfolio. That will be ordinary course for us.
I would bet that our activity for this You know, yours stays pretty consistent, but I wouldn't expect that we have a whole lot more
to call, generally speaking. Thanks. As you think about kind of the more exciting opportunities you're seeing on the external growth front and if the non core asset sales Maybe start to slow a little, so you become more of a net acquirer. How do you think about funding larger scale external growth? Leverage has obviously ticked down, but still is higher than where you'd like.
How do you think about the ability to fund any kind of net acquisition growth going forward?
I think we want to look at anything that makes sense, right? And I think at that point, we'd have to look at whatever the best available cost of capital that's in line with our General strategy would be. And so we have we could have a number of tools. We have a revolver that's available if we needed something in a moment's notice. We could Always use a tool of issuing if we thought it made sense or we could just continue to recycle and make smart investments.
Yeah, Nick, we're still very committed to where we want to go from a balance sheet perspective. So we balance out what the cost of capital that's available for us on the various tools
The next question comes from Jade Rakhmani of KBW. Please go ahead.
Thanks very much. On the amenities and ancillary services front, Are there specific vendors you've identified that are offering best in class services perhaps in the multifamily sector that could be exported To single family rental, such things as I believe, for example, resident, e commerce, Amenities, but also in terms of improved operations, I think RealPage, for example, just rolled out AI tenant screening, which really expedites the tenant That in process, just wondering if there's any anything you're seeing on that front?
We're certainly talking to a number of groups that are doing work in both the single family and the multifamily space. You're right in that there are a lot of roll ups occurring in call it the real estate tech space. To date, I would say that there are also differentiated opportunities that So there are I think additional opportunities available to us. RealPage and number of those companies are rolling up different AI platforms and things that will help you around customer service. We've met with a number of those types of companies and have looked at some of their products, haven't felt necessarily that any of it was yet ready for prime time for our business, but we're going to continue to maintain an opportunistic approach in terms of making sure we're vetting anything that's out there.
Thanks. And I think that's an interesting Point about the longer length of stay in single family, which would seem to suggest potential greater opportunities for ancillary revenues. Just turning to the build to rent front. Today, another public homebuilder announced a joint venture. Considering Bryce Blair's Chairman of both IH as well as Pulte Group, you probably have unique insights.
So wondering if you could share your updated thoughts on the build to rent sector.
Well, I think my thoughts on build to rent have been pretty consistent. And I think as a team, we feel the same way. We want to Every channel that makes sense, but we do never want to compromise our approach to location. So for us, if something is in the right location, we're agnostic of necessarily which channel comes through. Now build to rent is really interesting because there's a couple of things that are going on.
There's More of a garden style apartment approach, which are smaller, you know, plats, smaller square footages, which are typically done on HUD financing and people are calling it build to rent. And then there's Communities that are being built with fit and finishes and square footage standards that line up with a single family neighborhood that are usually much more synonymous with the product that we would own. And we certainly get approached by a lot of different angles in terms of opportunities. We get calls all the time on that. We're open minded to looking at buying and scale from builders, But the locations have to be in the right spots and then also the fit finish standards, the types of sizing around square footage And what the overall amenities in that neighborhood is going to have to it, we're going to weigh into our decisions.
Specifically on your question around Bryce, I think Bryce does a really nice job of separating between the two companies. He's been terrific in terms of insight and what he's seeing in the homebuilding space like the other members of our Board who are close to a lot of different types of real estate. So We certainly are going to continue to look at those opportunities and we've made some good strides I think with local builders and markets and have been able to review a lot of opportunity.
Thanks very much.
Thanks.
The next question comes from Drew Babin of Baird. Please go ahead.
Hey, good morning. Question on recurring CapEx year to date For the total portfolio up about 5%, I was glad to see the AFFO growth guidance range increased in tandem With FFO, can we assume about the same kind of year over year increase in recurring CapEx in the second half of the year? And given the easy comp in the Q3, might we even see a decline?
Hey, Drew. You're trying to answer the question yourself there with the way you led that. What I'd say is we haven't provided specific level of guidance for that, I will say is we're actually performing a little bit better than expectations on the CapEx side and much better than expectations on the OpEx side with the colors when it comes to Current cost in total around the net cost to maintain. Part of the reason why we were confident in being able to raise our AFFO range as well as our FFO range is because of that behavior. So not in a position to provide specific guidance as to how it may look relative to the first half of the year.
But on an overall basis, On a net cost to maintain perspective, where we at the beginning of the year, Drew, we had said we thought it would be flat to up 3%. I mean, we feel pretty confident at this point that flat would be the high end of the range now terms of where it would be and maybe actually be slightly down year over year for us.
Great. That's very helpful. And one more for me, just to follow-up on Nick's question about Markets, South Florida, I noticed this new leasing spreads went negative in the Q2. I noticed also there's really been nothing acquired this year. It's been a source of funds on the
disposition side. So I guess how do you feel
about that market, short term, long term, So I guess how do you feel about that market short term, long term? Is it a market that you still would like to be one of your top markets? Do you think that's going to continue to be a source?
Yes. Thank you. Drew, it's Charles here. We're a fan of South Florida. If you look at our performance in Q2, to overall occupancy actually went up to 95.5% from 95.3%, lender rent growth 2.8% versus 3.2%.
So it did go down slightly. Renewal rates are actually up year over year. And to your point, the new lease rent growth, we saw some impact in certain submarkets. And so with that softening, we've worked very closely with the field teams with asset management to really look at the field markets at those submarkets and make Smart kind of pruning decisions as you're seeing some of the homes that we've been selling out of there. You'll see a little bit more relative sales out of South Florida as a large We have 25,000 homes in Florida overall and it's a very large market in South Florida also.
So we can really be smart around what markets We want to be in and optimize that by pruning. So long term, we're a fan of South Florida, but we're looking to try to optimize the portfolio short term.
Great. Thanks, Charles. That's all for me.
The next question comes from Hardik Go of Zelman and Associates. Please go ahead.
Hey, guys. Thanks for taking my question. Just focusing on taxes, since it's such a big item on expenses, The run rate this year you've kind of outlined, just looking ahead and you look across your markets where appeals have come through and tax rates have been decided, What do you see going into the future as far as how much that line can kind of grow and how are the different pieces if you look at your regions, which ones are kind of overburdening you?
Yes. Marty, I'll talk a little bit what's happened so far this year and then without giving guidance, give you some thoughts about how we see things going in the future. This year, talked about it last quarter. We had a significant good guy in the state of Washington, specifically with Seattle. I understand the multifamily guys are seeing That as well just around some legislation changes that happened there.
We're pleasantly surprised we're not surprised to see the Texas Came in hot for us this year in terms of coming in high, but we've had more appeal success than we would have anticipated so far and what we've gone that's gone through the process here in Texas. Georgia is also running a little bit on the high side, but we haven't seen millage rates in the appeal process there. So we'll have to see where Georgia plays out. And of course importantly for us, our real estate tax really comes down to the state of Florida and we'll have better information on Florida in the next month or 2 when assessments are finalized and millage rates come out kind of in the October November Time frame for Florida. And as a reminder, Florida is about 40% of our tax bill.
That said, looking to the future, I think one important differentiators for us And we'll get some more stability in the real estate tax line really for two reasons. 1 is 20% of our portfolio is in California. And we've talked about in the past and it was a little bit of a sore Last year that reassessments are allowed upon corporate events and or sale activity in California and we were dealing with 4 different of those events over the last When you look at the merged companies, most of that noise has run through our numbers at this point. There's still a few more to come through, but we're going to the vast majority of that So California is going to reset to kind of just that normal 2% growth you see under Prop 13. So that's an important differentiator for us in terms of thinking about real estate taxes.
And then we And part of the reason why we're seeing some external growth opportunity as well is that we are seeing home price appreciation continue to be positive and continue to grow, but not at the rates that we've seen in the last So longer term hard, I think real estate taxes are still at risk to probably grow higher than inflation with the exception California, but certainly not at the rates that we've seen in the last couple of years as home price appreciation has been so strong. So this year we think real estate taxes will Somewhere in the 5% to 6% range as I stated earlier, there seems to be a momentum that would allow for that to start coming in a little bit more over the 2 years without providing specific guidance for specific years going forward.
That's great. Thanks for the color. Just one quick follow-up if you'll indulge me. If Florida is flat, let's say Florida doesn't change, what is the percentage growth rate in your tax rate on the same store pool roughly, like to give have to speculate on a range.
Well, Florida, we assumed a relatively healthy assumption in terms of the growth rate within our numbers. I don't want to get into specifics
On 2020, I mean, let's assume hypothetically 2020 Florida taxes don't increase. What does the full portfolio tax growth rate then become if Florida is 0% growth?
Sure. Well, so Florida is 0%, which is 40%. I'm doing some math on the fly here. California is 2%, which is at another 20%. Assume for the rest of the portfolio, Certainly higher than inflation, without you know, I want to give guidance for specific markets, but it's 40% of your number is 0, you're going to be at really good starting place in terms of where that would be.
And to be clear to everyone, we're not saying if we think Florida is going to be 0% in 2020, that's just Hardik's Presumption here just in the pipeline.
Just thinking through it. Yes.
No, I don't want anyone to read the transcript later and be confused Hardik about what we're talking about here.
Sorry for creating problems for you, Ernie. Thanks. All right. Thanks.
The next question comes from John Pawlowski of Green Street Advisors. Please go ahead.
Thanks. A follow-up on Rich's second half of twenty nineteen expense question. And Ernie or Charles, I guess I'm scratching my head on Charles' prepared remarks on the comps in the back half on controllable costs get tougher. 3Q repair and maintenance costs in 3Q 'eighteen were up 13% and 4Q repair and maintenances were up 10%. You had a pop in So can you help me understand that prepared remark comment?
Yes, I can give you some context for that, John. Certainly in the Q3 real estate taxes are a more difficult comp for us, in the Q4 they are an easier comp for us. With regards to other line items that you see, We did start to earn it into some merger synergies starting in the second half of last year. I don't expect we'll see a strong performance in personnel and other services, We'll still see good performance and favorable performance relative to last year. And then on the R and M and churn side, we've Seeing some great, great results with around turnover with regards to you know, because turnover keeps trending down further and further.
We were cautious to bake that continued trend of it continue getting to record lows in the second half of the year, but it's really that possibility. As we've certainly said over the last We're still in the middle of peak season and so we just want to try to avoid surprises and we just want to be as we've been all year and I know some analysts have appropriately called out earlier in the Maybe we do better than our numbers. And so far we've been happy to prove those folks right and we'll just have to see how the rest of the year plays out. We just want to have Right level of where we see things moving and have definitive answers to it and where things are can sometimes be a touch out of your control. Make sure we have right level of caution in there as to how we see the second half of the year.
Okay. But is any one line item surprising you guys meaningfully to the upside right now?
Well, we certainly wouldn't expect guidance as we're now looks as conservative as it was around R and M return. We did not anticipate churn to be down You know hundreds of basis points, couple of hundred basis points from where it was last year, so that certainly helped us out. And on the ARM side we had expectations that we could do better that we had laid out and we certainly were Driving for that, but the teams just executed really, really well and don't want to take that for granted too early. So I would say we're Please and we thought we had the opportunity to better in R and M, but not necessarily we're thrilled to see that even a little more than even in our best cases we might have thought.
Okay. And back to the portfolio management side and pruning out of Chicago, one of the markets that has been a big source of Has the full exit from Chicago been debated and could that be in the cards in the coming years?
No, we've been pretty consistent that we wanted Right Size Chicago and post merger we actually grew. I think the team has done a really nice job of putting that portfolio in much better shape. I mean look at, we're starting to see a little bit better renewal growth, a little bit better new lease growth, teams executing at a much better rate. We're seeing Cost to maintain get a bit better in that market and I think we've gotten out of assets that have been a bit more troublesome. In terms of total revenue, the Midwest is still Right around 5% of our overall revenue and it's not part of our growth story.
And to be totally clear, we do want to invest capital in the West Coast and in parts of We'll look at anything that makes sense for shareholders at the end of the day. If there were an opportunity that we thought was accretive Shareholder value, we'd look at it, just like we would in terms of where we wanted to play dollars. So I wouldn't say, John, that it's Completely top of mind, but we'd certainly look at anything that was ever opportunistic for our shareholders.
Okay. Thank you.
The next question comes from Ryan Gilbert of BTIG. Please go ahead.
Hey, thanks guys. Just a A couple of regional questions. First in Texas, nice improvement in blended rent growth. Can you talk about how much of that is just demand improvement in those markets versus any initiatives you're taking to improve performance?
Yes. We've Thank you, Ryan. This is Charles. Both Dallas and Houston have really had a really healthy growth over the last quarter over Dallas specifically where we see this as a growth market for ourselves. We are a fan.
Occupancy has really moved towards where we want it to be In the mid-95s, you want to keep moving up from there. We were at 94.5 last year. When the rent broke because of that occupancy, we're starting to see some So it's a little bit of a combination of the market is solid, but as we mentioned on previous calls, We have a new leader in the market who is executing well, building a great team around her and doing a wonderful job. Houston, we've been solid over the last little while. Occupancy in Q2 is 97.3%.
That's up over 200 basis points. We've done a lot to try to right size that portfolio as I talk Looking at submarkets pruning out of there a little bit and getting it to the right size. And because we're starting we have that occupancy, we're getting a little bit of rent growth Out of that, which we haven't had in a while. So we were over 3% blended rent growth in Q2. So we'll see how that goes through peak season.
You do get some seasonality in these markets, depending when school starts. But right now, we're happy with where our Texas portfolio sits.
Okay, thanks. And then I guess you've talked broadly about rent growth tracking, home price And in Seattle, Kay Schiller is showing a year over year decline in home price appreciation, but the blended rent growth is still strong there. So I'm wondering if you can talk about your expectations for Seattle in the kind of near medium term and then also how declining home price appreciation influences your investment decisions in that market? Thanks.
Great question and let me be really clear, we love Seattle. Love the market. We love the fundamentals around it. We love the job growth, all the positive demographics, people are moving there. There's really good activity in that market.
We have seen a little dip in home prices, which to Ernie's point earlier, has a lot a little bit of a more of a buying window for us, which we see as In the long term being very accretive. I think in Seattle today we're over 3,000 homes. We'd love to see that market get bigger over time and we just think and we've seen this as we've built out our portfolios. All of our Western markets quite frankly are great examples for this. As we grow 2000 to 5000 to 7000 units, our margin enhancement gets much more robust and our ability to optimize the operating piece of our business It gets much more efficient.
And so, we're definitely going to monitor it. And if you saw negative growth or something like that, maybe you'd pause and watch and see what's going on. But we don't see that happening. We are getting now towards the kind of the you had quite a bit of appreciation over the last couple of years and you expect it to Probably cool a little bit, but in terms of the demand that we're seeing, I mean, on a blended basis, we're still 8% to 9% in the quarter on rate, talks a lot about what's happening in terms of ability Fine quality housing, so we don't see that as an issue.
The next question comes from Derek Johnston of Deutsche. Please go ahead.
Hi, everyone. How are you doing? Just quickly on the real estate taxes and I just wanted to make sure I clarify this. I'm assuming that You look at every single assessment and work with a third party to basically fight it. Is that correct?
We do look at every assessment. We do with 3rd party, Derek, who helps us out. But we don't necessarily fight every single one that comes through. In some jurisdictions, you have to pay a fee to fight on a home by home And so we don't want to take on that expense. We don't think we have a legitimate opportunity to win.
And then in California, which is 20 percent of our portfolio, there's less that we have a home falling home prices, there's really not much to do there.
Okay, got it. And just with the dispo mix, what percent is represented by sales to residents right now? And is this Quickly growing sub segment and how does the process typically work with tenants?
Yes, it's a great question. And We started what we call our resident first look program almost 2 years ago, really in pilot to try to figure out the demand that was there. And we have A little bit of data on our move outs and why people are moving and for what reasons and typically that number has been really small in terms of reason for home to move to homeownership. But we know that there as I mentioned earlier, there's an emotional connection to a lot of these properties for our residents. And so when we make a decision from an asset management perspective to sell a home, Majority of the time we will approach the resident first in those one off scenarios.
And we probably have done about 150 today through that pilot. And it's something that we look at from a perspective of not only building goodwill with our customer base, but just making sure That we're sensitive to the needs that families may or may not have. And a lot of these families do want to purchase the Invitation home that they've been in. So for us, it's been a great program. There's a process where we have a dedicated team that reaches out, walks through the process that we are working through some asset management We think the potential this home could be sold.
And if you have any interest, we'd love to figure out how you can make this house your home. We don't offer any financing or anything like that. We truly are just a seller. But we can typically have pretty good title relationships and things where we can help them find opportunities in market if they're looking for those types of things.
The next question comes from Buck Home of Raymond James. Please go ahead.
Hey, guys. Ernie, I was just wondering if you could provide a little bit of extra guidance around your expectations on G and A trends for the rest of the year. It Looks like you've had some strong benefits year to date. Just wondering, when we should expect on the G and A line?
Yes. Usually, Teams will kind of save up a little extra for the end of the year just in case, but we actually got a little ahead in some of our G and A spend in some areas. So I think it's pretty ratable for the rest So we've seen in the first half of the year around G and A, Buck spending kind of expecting kind of a similar run rate. It may have a little noise quarter to quarter, but not materially different as And then on the property management side, there, I think it's kind of a similar story. You won't see a materially different change in the second half of the year
And just going to like resident turnover trends and just How low it seems to be trending. I'm just wondering if you've been able to discern any significant shifts in the reasons that people are moving out And or where you're getting or where people are coming in from in terms of what their prior living situation used to be. Just wondering if there's Any trends in that you're determining on these move out or move in reasons?
Yes, so for the move in reasons, we don't track that So we can we do know in the field people ask that question from time to time, but we have a formal mechanism to capture where someone's coming from and as they're moving into an Invitation Homes House. But on the move outs, again consistently that the two reasons are to purchase a home in some of the life transition. Interestingly enough, this is the first We've seen life transition was just a little bit more than purchasing a home for the reason for move out. And we did see this quarter again that the reason to move out for being a purchase of home is down year over year. So every quarter but one in the last 10, that's been the case in the 1 quarter it wasn't, it was basically flat.
So we continue to see reason to buy a home to trend down. And then this is the first time just barely we saw the life transition be the number one reason why someone's moved out versus buying
Very helpful. Thank you, guys.
And the last question will come from Wes Golladay of RBC Capital Markets. Please go ahead.
Hey, good morning, everyone. Are you finding more success in looking at top tier assets and top submarkets now that international Money has pulled back and your cost of capital has improved?
I want to quantify what you mean by top tier, Wes. I think What you know and I'll take a stab at it, but I would say for us we've always had a little bit higher price point asset than most of our peers And that's been delivered by design. Very early in this business we figured out that the cost to replace the HVAC unit is For the most part the same on $1200 or $1300 rental as it is on $1800 or $1900 rental. And so there is some longevity in terms of that approach as you think about Total risk adjusted return and weighing out that expense factor in your numbers. I think you're right in that As the market softens, as maybe there's less international buyers coming into places like Southern California, Seattle, parts of the West Coast that Specifically have had a lot of pressure from foreign buyers.
That could be helpful to us in terms of an opportunity. So I would agree with you there. And I think we are seeing some of that in some of those markets where We're seeing a bit more supply. But let's be clear, we're not seeing 6 to 8 or 9 months of supply in still a lot of these markets. We're seeing healthier numbers like 3, 4, 5 months of supply.
And so for us, we hope that that will lend itself to some additional opportunity.
Yes. That was what I was looking for, good school Well located at the freeway, near job growth. And along that line of thought, do you see much dispersion In your rent growth and markets, we just see that they rolled up number, but just looking at maybe some of your best located assets, are they outpacing meaningfully the Maybe your secondary assets in the submarket or in a market such as Seattle, Southern California, Northern California?
Yes, I mean let me
answer that 2 ways. I want to make sure I answer your question. Generally across markets, our West Coast markets are through call it year to date Are performing at much greater levels in turn of rate growth. I would agree with you there. We're seeing north of 7% year to date, almost 8% quarter to date in our West Coast markets.
The rest of our markets are generally pretty healthy between anywhere from 3% to 4.5%. At the submarket level, Absolutely. And these are the things that Charles and I talk about all the time across our asset management process is we have broken our folio into a couple of 100 different submarkets. And we look at that on a week to week, month to month, quarter to quarter, year over year basis. And more importantly, all of that data feeds into our revenue management model and our growth models.
And so as we're making decisions around culling Our selling assets like Charles mentioned earlier in South Florida, we're making very deliberate decisions based on where we think our portfolio will lend itself to the greatest performance and are there any issues or preventative decisions we can make now around risk around asset type or Costs in the future, preventative cost decisions. That all weaves into both what we would like to sell and where we would like to allocate capital going forward. Did that answer your question?
Yes. No, that's exactly yes. Yes, definitely, I was looking more towards the granular look into the submarkets much like multifamily does.
This concludes our question and answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
We just want to thank everyone for joining us again today. We appreciate everyone's interest in Invitation Homes. We look forward to seeing many of you at our upcoming conferences and our Investor Day in October. Operator, this concludes our call.
The conference has now concluded. You may now disconnect.