Greetings, and welcome to the Invitation Homes 4th quarter 2022 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 * key followed by 0. As a reminder, this call is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Vice President of Investor Relations. Please go ahead.
Good morning. Welcome. Today we'll hear remarks from Dallas Tanner, President and Chief Executive Officer, Charles Young, Chief Operating Officer, and Ernie Freedman, Chief Financial Officer. Following these remarks, we'll conduct a question-and-answer session with our covering sell-side analysts. In the interest of time, we ask that you limit yourself to 1 question and then re-queue if you'd like to ask a follow-up question. During today's call, we may reference our fourth quarter 2022 earnings release and supplemental information. This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com.
Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources, and other non-historical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2021 annual report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliation to the most comparable GAAP measures in yesterday's earnings release. I'll now turn the call over to Dallas.
Thanks for joining us this morning. I'd like to start by thanking all of our teams for their hard work last year. Yesterday, we posted 2022 year-over-year Core FFO growth of 11.6% and same-store NOI growth of 9.1%. Strong demand for our business continued throughout the year. Despite some headwinds from inflation and an evolving regulatory environment, we believe our business continues to stand on solid footing. As you all know, Ernie recently announced that he'll be stepping down as CFO in a few months. I'd like to thank him for his extraordinary vision and strategic insight over the past 7 years. I look forward to celebrating his achievements later this year. At the same time, I'm excited for Jon Olsen, who joins us here in the room this morning, to lead our finance team beginning in June.
Jon's been part of Invitation Homes from the beginning with deep involvement in all of our strategic and financial activities. We expect this to be a seamless transition. Before turning it over to Charles and Ernie to provide more details about our 2022 performance and our expectations for 2023, I wanted to take a few moments to discuss the current housing environment in the United States and how we believe Invitation Homes is well-positioned to help support the country's housing needs. It has been reported that the U.S. needs to add more than 13 million housing units over the next 7 years in order to accommodate new household formation and address the undersupply of the past decade. Today, however, it remains challenging to deliver new supply in desirable locations because of state and local restrictions, as well as labor and material shortages.
In addition, today's macroeconomic environment of higher inflation and higher interest rates may discourage investment in new supply. On top of these supply pressures, the largest demographic group, the millennial generation, is now aging to the life stage of needing more space to accommodate their families and their lifestyles. Add to all of that the increased flexibility of many to work part-time or full-time from home, and we believe demand for single-family housing should remain strong for many years to come. At the core of our business is a straightforward yet critical goal. We seek to be a meaningful part of the solution for high-quality and flexible housing options. We provide quality homes for lease in desirable locations with access to great schools and employment centers. We offer best-in-class service, allowing residents to focus on their lives.
We're proud that we partner with 150 public housing authorities in serving thousands of our residents who participate in a housing assistance program, including HUD's Housing Choice Voucher Program. We're delivering new homes to marketplace through our previously announced builder relationships. Today, that builder pipeline exceeds 2,300 homes that we expect to deliver over the next few years, and our plans are to continue investing in new construction in the future. As a reminder, our approach to bringing new housing to the marketplace keeps development risk off of our balance sheet and avoids any related G&A burden, while also allowing us to partner with some of the best home builders in the business to select and buy new homes in great locations.
We think this approach is a real differentiator. It allows us to maximize flexibility and optionality while remaining opportunistic and minimizing risk. All this is important because the lack of available supply of single-family housing and the strong demand from those who wish to live in a single-family home have made homeownership much more expensive today. This supply and demand imbalance is further aggravated by inflation and elevated interest rates, leading to the widest dislocation we've seen between the cost of homeownership and the cost of leasing since starting this business. We're therefore very proud to provide our residents the opportunity to live in neighborhoods and school districts that might not otherwise be accessible at a cost that is often significantly more affordable than any other housing option. Let me pull on that string a little bit further.
Based on the John Burns December data, leasing a home costs nearly $900 less each month than owning a home across our markets. This means that leasing a home can save a family nearly 30% a month on their housing costs on average. These savings are even more compelling on a per square foot basis, where single-family rental homes currently come out as the most cost-effective housing option compared to not only homeownership costs, but also apartment rent. That being the case, we believe today's macroeconomic environment and the current supply and demand fundamentals make the Invitation Homes value proposition compelling for both our residents and our shareholders. This is on top of several differentiators of our business that we have noticed in the past. For residents, these benefits include a recently renovated, refreshed, or newly built home in a desirable location.
ProCare, which is our resident service model that provides for consistent interactions with our residents throughout their time with us. Best-in-class technology tools of the most recent example being our mobile maintenance app, offering residents an even more efficient process to submit service requests. A growing list of resident services designed to elevate their living experience. For our shareholders, we believe there are numerous absolute and relative advantages to the single-family rental industry, including single-family homes are the most liquid real estate sector within the U.S. There's typically much lower turnover in single-family rental than in multifamily, with residents often staying much longer. There's a long track record of rent growth within SFR, even during recessionary periods. With a nod again to the Burns data, national average single-family rent growth has never had a meaningful decline in nearly 40 years of tracking that data.
Lastly, we believe there are numerous advantages to the Invitation Homes way, including our hallmark scale, location, and eyes in markets, overseen by the best operators in the space, as evidenced by our 46.6% cumulative same store NOI growth rate from 2017 to 2022. Nearly 2,500 basis points greater than the average of our residential peers. Our strong balance sheet with no debt coming due until 2026, and our builder partner growth pipeline that maximizes flexibility and contributes to new housing supply while also avoiding big investments in land and a large G&A load. In closing, we couldn't be more excited about our real estate, our teams, and the underlying fundamentals here in 2023.
A year with some uncertainty, and also a year we believe full of opportunity to continue delivering a premier resident experience to anyone who chooses to live a more flexible and worry-free lifestyle. With that, I'll pass it on to Charles, our Chief Operating Officer.
Good morning, everyone. As Dallas mentioned earlier, 2022 was a solid year for us. We believe our results are a reflection of the service we offer our residents and our performance in providing an exceptional leasing experience. This is an ongoing journey that we look forward to continuing in 2023. Thank you to all of our associates for your constant commitment to genuine care. I'll now walk you through our operating results in more detail. Same-store core revenues grew 7.6% year-over-year in the fourth quarter. This increase was driven by average monthly rental rate growth of 9.4% and a 16% increase in other property income, net of resident recoveries. Same-store average occupancy was 97.3% in the fourth quarter, down 80 basis points year-over-year as a result of higher vacancy due to increased turnover.
For the full year of 2022, our same-store revenue grew by 9%. Same-store core expenses grew 16.3% year-over-year in the fourth quarter. The main driver of this growth was an 18.3% increase in property tax expense. As indicated a few months ago, this increase was anticipated to be outsized due to a catch-up to our property tax accrual in the fourth quarter, primarily related to higher property tax bills in our homes in Florida and Georgia. For full year 2022, including this fourth quarter catch-up, property tax expense grew by 7.8%, while core operating expense for the full year 2022 were up 8.6%. Outside of property taxes, the inflationary environment was the largest contributor to the higher growth in core operating expenses.
Following 2 years in a row of virtually no expense growth year-over-year, our expectation that we will see some of last year's inflationary pressure continue into 2023. Finishing up with our same-store operating results, we reported fourth quarter NOI growth of 3.7%, which brought our full year 2022 NOI growth to 9.1%. Next, I'll cover leasing trends in the fourth quarter of 2022 and January 2023. Same-store blended rent growth was 9.1% in the fourth quarter, which is comprised of renewal rent growth of 9.9% and new lease rent growth of 7.4%. In January 2023, same-store blended rent growth was 7.4%, with renewals coming in at 8.7% and new leases at 4.9%.
Same-store occupancy in January was 97.7%, an increase of 40 basis points from our fourth quarter result. As we anticipated, bad debt was a stronger headwind in the fourth quarter than in the third quarter, representing 2% of gross rental revenues. California, and more specifically Southern California, continued to experience outsized bad debt within our portfolio. Approximately 40% of our Southern California homes are located within Los Angeles County, where ordinances continue to restrict residential lease compliance options. For the remainder of our portfolio, we are seeing some markets return to more regular procedures for addressing delinquency, though it's a slower process now than it has been historically in some of our markets. Across all our markets, we're proud to offer a desirable housing option and worry-free lifestyle to our residents.
In our most recent resident surveys, we heard that the need for more space and desirable location of our homes were once again the top two reasons why new residents choose to lease from us in the fourth quarter. 80% of new resident surveys indicated it's important to have a home office or bonus room, with nearly half stating they work from home at least two days a week. In addition, our average household income for new residents during 2022 remained healthy at approximately $134,000, representing an income to rent ratio of 5.2 times. Finally, our residents continued to demonstrate high satisfaction with the service our teams are providing, as evidenced by our high occupancy, low turnover, average length of stay of nearly three years, and strong resident satisfaction scores.
I extend my thanks to our teams who have helped make this all possible. I challenge our associates to continue to raise the bar here in 2023. I'll now turn the call over to Ernie, our Chief Financial Officer.
Thank you, Charles. This morning, I will cover the following topics. One, balance sheet and capital markets activity. Two, financial results for the fourth quarter. Three, our 2023 guidance, which we introduced in yesterday's earnings release. Since our IPO in 2017, we have been focused on reducing our overall leverage, improving our maturity ladder, achieving an investment-grade rating, and transitioning to a balance sheet that is capitalized mostly with unsecured debt at fixed rates. We've made significant progress across all of these objectives. At year-end 2022, net debt to adjusted EBITDA stood at 5.7x. Our weighted average maturity was 5.6 years, and when considering available extension options, we have no debt coming due until 2026. Over 99% of our debt was fixed rate or swapped to fixed rate. We achieved our investment-grade rating in the spring of 2021.
At year-end 2022, over 83% of our homes were unencumbered, and 73.7% of our debt was unsecured, with secured debt representing less than 10% of gross book value of our real estate. As previously announced, during the fourth quarter, we prepaid the remaining portion of our IH 2018-1 securitization using the delayed draw feature of our 7-year unsecured term loan that closed in June 2022. We ended the year with $1.3 billion of liquidity from both our undrawn revolver and unrestricted cash. I'll now cover our fourth quarter and full year 2022 financial results. Core FFO for the fourth quarter increased 10.6% year-over-year to $0.43 per share, and AFFO increased 9.2% to $0.36 per share.
For the full year 2022, Core FFO and AFFO per share increased 11.6% and 10.2% to $1.67 and $1.41, respectively, each exceeding the midpoint of our guidance. Included in our earnings release, we provided a bridge from 2022 Core FFO per share to the midpoint of 2023 Core FFO per share guidance. With regards to our same-store operating metrics, we expect same-store core revenue growth in a range of 5.25%-6.25%. Embedded in our guidance are the following assumptions. First, slightly lower average occupancy versus 2022 due to anticipated higher turnover. Second, elevated bad debt of 25-75 basis points higher than 2022.
Next, same store core expense growth, which we expect in the range of 7.5%-9.5%. Included in this guidance is the assumption that real estate taxes will increase between 6.5%-7.5%, an improvement from 2022. We also expect to see pressure on turnover operating and capital expense, due mainly to our assumption of higher turnover in 2023, along with our assumption around ongoing inflationary pressures. As Charles mentioned, our real estate tax expense in 2022 was underaccrued for the first three quarters of 2022. We recorded an outsized catch-up in the fourth quarter of 2022.
As a result, we anticipate 2023 same-store core expense growth in the mid-teens for the first quarter of 2023, followed by sequential improvement during the remainder of the year, resulting in the expected range for the full year of 2023. Taken together, this brings our expectation for same-store NOI growth to 4.0%-5.5%. We also expect full year 2023 Core FFO per share to be in the range of $1.73-$1.81. AFFO per share in the range of $1.43-$1.51. As a result of this anticipated growth in AFFO per share in 2023, our board of directors has authorized an increase in our quarterly dividend by 18.2% to $0.26 per share.
Our guidance assumes that our 2023 acquisitions will be modest. This includes our initial expectation for on-balance sheet acquisitions of $250 million-$300 million from our builder partners, which we plan to fund through free cash flow and disposition proceeds. It also includes our expectation for acquisitions in our joint ventures of $100 million-$300 million. Outside of this guidance assumption, our actual acquisition activity will be based on how attractive the buying opportunities are relative to our cost of capital as the year progresses. With our balance sheet in excellent shape, our ample liquidity providing us with plenty of dry powder, and our joint ventures offering us access to additional capital, we're well-positioned with the flexibility to maintain an opportunistic approach to external growth this year. I'll wrap up by echoing Dallas's and Charles' gratitude to our associates.
They continually work hard to deliver strong results and to respectfully care for our residents in our homes. As we look ahead, we are confident in our continued success based on favorable supply and demand fundamentals, our healthy balance sheet, our unwavering commitment to outstanding resident service, our strong team, and our desire to remain the premier choice in home leasing. With that, operator, please open the line for questions.
Thank you. We will now begin the question- and- answer session. To ask a question, please press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. If you are using a speakerphone, please pick up your handset before pressing the keys. In the interest of time, we ask that participants limit themselves to 1 question and then re-queue by pressing *1 to ask a follow-up question. 1 moment please while we poll for questions. We have the first question on the phone lines from Joshua Dennerlein of Bank of America. Please go ahead.
Yeah. Hey, guys. Thanks for the question. Just kinda thinking about your AFFO midpoint guide or the FFO midpoint guide. It looks like it's kinda 83% of FFO. I think it was 84% for 2022 actuals. It looks like before that it was kind of running at a smaller gap. What's driving that? Maybe it would have shrunk given lower turnover the last few years.
Yeah. Josh, this is Ernie. What we are seeing, and Charles talked about it and alluded to it with regards to inflationary pressures on turnover expenses, the difference between FFO and AFFO for us is gonna be our capital replacement spending. We are seeing a little more pressure on the capital side on both our repairs and maintenance expenses as well as on our turn expenses. We wanna make sure at the beginning of the year we had the right amount of caution built into our numbers, so we can hopefully, you know, set ourselves up for, you know, we'd hope to have a good performance later in the year off of that. That's why you've seen over the last couple years that that's changed a bit.
We were basically running closer to flattish net cost to maintain on the OpEx and CapEx combined for the last couple years. For 2022 and what we're projecting for 2023 is certainly a higher increase from an inflationary pressures. Specifically with turnover, we do expect to have a little bit higher turnover in 2023 versus 2022. Maybe as we get out into 2024 and 2025, you'll see numbers revert back to what you saw in the past for us in terms of the differences between Core FFO and AFFO.
Thanks, Ernie. Appreciate that.
Thanks, Josh.
We now have Nick Joseph of Citi. Your line is open.
Thank you. I was hoping you could elaborate a bit more on the trends you're seeing in the acquisition market in terms of cap rates and available properties. You know, what are you hearing from your JV partners on their appetite to deploy capital in this current acquisition environment?
Hi, Nick. Dallas. You know, let me answer your second question first, and then I'll talk a little bit about what we're seeing real time. I think there's plenty of appetite with our JV partners to continue to grow and find, you know, compelling ways to invest capital. I think, well, I know that to be the case. I think what I would add from a supply perspective is things are still relatively tight. You know, if you go back to a year ago, you know, we were kinda buying in the kinda low to mid-5s from a cap rate perspective. I think we've seen that move on the ground in the resale environment, maybe 20 or 30 basis points. It's kind of a mid-5s-ish kinda market, 5.5.6 for our kinda like kind product.
Now that being said, there's also, you know, the least amount of resale supply inventory in the market that we've seen in the last 3-4 years. It's a really interesting moment. The newer build stuff that seems to be coming online, both things that we're taking from a delivery perspective, conversations we're having with builders, you know, I think the return profile is a little bit better, but those are gonna be fewer. Not few and far between, but there's just gonna be, you know, I think more angst on the builder side to lean out in sort of an uncertain environment given where interest rates and things are. All things being equal, plenty of capital interested in investing, not a tremendous amount of opportunity real time, but we'd expect that to kind of, you know, moderate throughout the year.
I think we gotta see what happens with mortgage rates. I think, you know, as of yesterday, they were a 30-year was closer to, like a 6.75 number, and I think builders have been able to basically buy down mortgage rates to stay pretty competitive in the near term. Let's see what happens there. I think we may have more of an opportunity, hopefully over the year if mortgage rates creep up. Then we're definitely gonna watch resale supply and how that's impacted by the labor market.
Operator?
Thank you.
Operator, we're now ready for our next question, please.
We now have the next question from Austin Wurschmidt with KeyBank Capital Markets.
Hey, good morning, everybody. I was just curious if you could provide a little bit of an update of sort of what you're seeing on the ground and whether there's anything giving you pause in any of your markets that kinda has you taking a more conservative
You know, outlook, you know, through the balance of this year. Then just maybe a quick update on how market rents have trended from kind of late last year into the early part of this year.
This is Charles. Thanks for the question. We like what we're seeing on the ground right now. You know, our Q4 results showed a bit of the seasonality that we saw towards the middle of last year. As expected, we kinda got back to that normal curve. During COVID, it was kinda 98% across the board and really high rent growth. We're seeing more seasonality, but what's the reality of it is it's still really strong given the time of year. Looking at Q4 at 97.3% occupancy, that increased throughout the quarter. We ended December at 97.4% and came into January at 97.7%. Showing real strong demand that we're seeing on the ground.
As we look at rates in Q4, a blended 9.1% renewal at 9.9% and new at 7.4%. As you would expect with seasonality, January and December will be a little lower, given that a 4.9% new lease rent growth in January is really strong historically. Couple that with the 97.7% occupancy and 8.7% on the renewal side, we think the portfolio is really well-positioned going into peak season, which typically starts right here after the Super Bowl. We're seeing some acceleration in February on the new lease side. You know, across the board it's looking good. There's more seasonality in the colder markets, you know, the Denvers and Chicagos and the like, we're still seeing a lot of strength in our Florida markets.
Arizona had a bit of a slowdown with the seasonality. It's starting to show some real momentum. We're seeing some good stuff across the board and we're leaning in and feel good about where the portfolio is structured.
Thank you. We now have the next question from Brad Heffern with RBC Capital Markets. Your line is now open.
Hey, good morning, everyone. Ernie, could you walk through the buildup to the revenue guidance as far as earn-in, loss to lease, occupancy, all the sort of moving pieces that gets you there?
Yeah, sure. Brad, we talked about in our in the prepared remarks as well as in the earning release. A couple of the items. One, with I'll talk about kind of the midpoint of the guidance range, Brad. At the midpoint of guidance, we do expect occupancy down a little bit year-over-year. I think we're in 2022, we're at 97.7%, 97.8%. We think that's gonna come down a little bit. It has to do, you know, mostly with the fact we think turnover is gonna be a little bit higher. We talked about that as well in terms of as we're able to finally make some more progress on residents who haven't been keeping current with the rents.
We do expect turnover to, you know, tick up some, that's why you're gonna see occupancy come down. The other, you know, material mover on the negative side for us with regards to for growth on revenues is gonna be bad debt. We're certainly facing a lot of the challenges as other folks are out there who have exposure to Southern California. You know, we do expect that bad debt is gonna be up anywhere between 25 and 75 basis points from where it was in 2022. Roughly the midpoint, about 2%, where we came in at about 1.5% for the year for 2022. We do think that's gonna be elevated a little bit more in the first half of 2023.
We do, you know, we see a path that where it can start getting a little bit better for us in the second half of the year. You know, the last thing, you know, and I'd say the other two pieces that are important with our other income. You know, we think other income is gonna be up again, low double digits, similar to it was last year as we continue to make progress on our ancillary income items. Finally with rates, you know, our earn-in we talked about on our last call. Our earn-in as we got into the year, we expect it to be about 4% from the activity that was done in 2022, and that didn't change in the fourth quarter.
We did see the loss to lease, you know, shrink significantly from where it was at the end of the third quarter to where it was at the end of the fourth quarter. The loss to lease going into the year is about 1%-2%. We saw that decrease for a couple of reasons, Brad. One was just leasing activity. We started to catch up to that. Two, and Charles talked about it, typical seasonal patterns for folks in the residential business, and we're no different than single family, is that you actually, you know, in a typical seasonal year, you'll see some sequential declines month-over-month in rental rate. We didn't see that in 2021. We really didn't see much of that in 2020. In 2022, it did come back.
We did see some sequential declines as we went from September to October and November to December with regards to where overall rate was. That's why the combination of those two things have brought loss to lease down. If you take that all into consideration and our expectations around what leasing activity is gonna look like for renewal and new in this year, in 2023, you get to our guidance range that we had provided with regards to where we thought same-store core revenues will go out. You know, we feel optimistic that we, you know, we have an opportunity to maybe do a little bit better, and we're certainly gonna try hard to do that.
We wanna make sure we set the ground the right way at the beginning of the year, and hopefully, we have a year like we've had in the past where, you know, we've underpromised and overdelivered, but we'll just have to see how that plays out.
Thank you. We now have Sam Cho of Credit Suisse. Your line is open.
Hi, guys. Just was wondering if you could provide an update on your general thoughts on utilizing concessions and what that might look like during peak leasing season?
We have no concessions running at all. I think we talked about it on our last call. We had a short-term kind of small concessions going into the holiday to try to push up on the occupancy as we saw seasonality come back. That's typical that we run in, that time of year given the seasonal curve. As of December, we had no concessions, and we don't see any need to do it given our current occupancy and the demand that we're seeing right now.
Thank you. We now have Steve Sakwa with Evercore ISI.
Yeah, thanks. Good morning. Dallas, I was just wondering if you could comment a little bit more on some of the builder relationships and, you know, given the challenges that they're facing in actual, you know, home sales. I just didn't know if bulk sales and a, and a, you know, bigger commitment from you to them to take down homes was more in the offering here and how those discussions have maybe unfolded?
Yeah. Hi, Steve. You know, first of all, our pipeline today sits at about 2,300 homes that we have in contract with our different builder partners. We're working right now with, you know, 5 to 10 Pulte builders, kind of nationally and regionally across, you know, a variety of opportunities. Obviously, everybody's familiar with our strategic structure with PulteGroup. We'd like to build as many homes with them. They've been a terrific partner, and they have a great team. You know, it's interesting, Steve. We sort of, t here was a lot of unknowns going into summer last year around kind of volatility and what was gonna happen with rate.
I think what we've seen most builders, you know, as I mentioned before, do really well is kind of navigate the mortgage and the payment side of things without having to discount pricing too much. There's certainly kind of quarter end stuff where we've had some small opportunities, but I think time will tell, and it's largely dependent on what happens with the labor market. If things continue to slow down, I would view that as a very good opportunity for Invitation Homes, in terms of building out a much, wider and longer pipeline across, purpose-built construction that will come into our portfolio. We are now coming out of the ground with some of our first kind of full communities.
We were touring one last week in Atlanta, in fact, and very pleased with the not only quality of the product, but the return profile and the demand. As Charles mentioned, top of funnel is really healthy. Steve, our approach going into 23 would be that we're gonna look opportunistically to enhance and grow that pipeline and also those relationships, find ways to do things more programmatically with our preferred partners. Obviously, if things slow down, that would be, I think, viewed as a good thing for SFR. It'll depend on, you know, how we pay for those things going forward, but we've got plenty of, as I mentioned before, third-party capital that would like to look at these opportunities with us, and we'd also like to invest as accretively as we can on the balance sheet.
Thank you. We now have Juan Sanabria from BMO Capital Markets. Your line is open.
Hi. Thanks. Just, maybe a question, I guess, for Ernie, just on the rate side of the same-store revenue creation for 2023 guidance. Just curious if you can comment on assumed market rent growth across your portfolio in 2023 and maybe how we should expect renewals to trend, given the moderating loss to lease. Do you think they could stay pretty sticky around the high single digits for the course of 2023, or should we expect that to moderate as well?
Yeah. Implicit in our guidance, and I wanna walk through the pieces, Juan, is that, you know, we're looking at for growth on rates and blended rate to be kinda in the mid single digits. I think, honestly, that's probably where we have the best most upside opportunity for with regard to our revenue. We are gonna be a little cautious of is on the bad debt side. We got burned a little bit by that last year. I think we've built enough into our guidance that we're probably okay there, but, you know, wanna be cautious there and balance those two.
I do think on the renewal side, we certainly have the opportunity to, you know, continue to stay at elevated levels, but it's hard to say that I would say at the high digits for the entire year. I'd be cautious to say we. You know, that would be more toward the high end of our guidance range or even a little bit higher. We feel very good about, you know, having, you know, some strong renewal growth throughout the rest of the year. We put up some strong numbers here in January, and I wouldn't extrapolate that for the rest of the year. It's certainly possible. If the market, you know, the signs that we're seeing in the market is pretty strong, there's a possibility that could happen.
I think if you do the math and how things would play out and take into consideration the number of 2-year leases that we have, you'd solve to a number that gets to kinda the mid single digits for blended growth rates for 2023.
Thank you. We now have Adam Kramer of Morgan Stanley. Please go ahead when you're ready, Adam.
Hey. I just wanted to follow up on an earlier question around JVs. Look, I think there's been some kind of news in the press the last kind of number of months about, you know, maybe JVs being more of an avenue that you guys would pursue. Certainly, you know, gonna be a challenging environment for acquisitions in 2023 overall. Wondering just kind of the willingness or desire to maybe go that route. Obviously, you could pick up a little bit of fee income. It changes the economics a little bit in the model. Yeah, I guess just kind of generally around willingness to kind of go further down the JV path.
Hi, it's Dallas. I mean, look, we've shown a willingness. We've, in the last couple of years, have raised a couple of ventures, both with Rockpoint as a strategic partner. You're exactly right that it does have a lot of value add to the REIT, in both terms of, call it, our returns on our cost of capital off balance sheet, and then also the fee generation and kind of additional service opportunities it creates as we build out a little bit more robust manager. I would expect that joint venture capital will always be something that we look at on a relative basis to where our current cost of capital is from a balance sheet perspective. Don't get me wrong. We would love to invest as much capital on balance sheet as we can.
Obviously, at today's prices and the way that, you know, the book's been discounted in the public markets, that cost of capital is not very attractive.
I think, you know, using third party avenues or having longer term partners that we can continually deploy capital with is a very good thing for our business and for our shareholders. We generate outsized returns. It also allows us to be a little bit more particular and niche-y across maybe a couple of different areas, and we think that that will also give the company in its strategic thinking a lot more flexibility over time. I would expect us to continue to explore and use, you know, venues like joint ventures over time, but never at a way that it would impact our ability to grow on balance sheet and always trying to find that right balance.
Thank you. Your next question comes from Chandni Luthra of Goldman Sachs. Please go ahead.
Hi. Good morning. Thank you for taking my question. I wanted to talk about property taxes a little bit. Your guidance assumes real estate taxes will increase 7% and that's an improvement from 2022. What's the driver behind this expectation of improvement in the growth rate? Are there certain markets, you know, that make you think that basically tax growth will moderate? You know, anything going on more specific or more idiosyncratic anywhere? Would love your thoughts there.
Yeah. Hey, Chandni. Very happy to talk about the real estate taxes. As a reminder to everyone on the call, for us, when you think about real estate taxes, you want us to think about our three largest markets where we pay the most taxes, which are Florida, California, and Georgia. We talked about that in the last quarter. California, we can kind of take off the table because of Proposition 13. That, that's always going to be at a, at a lower rate year-over-year. There'll be some noise around appeals and things like that, even within California. For Florida, we're not, You know, I know we're wrong last year, but we're not anticipating another year of tax bills being up 20%. You know, they are about 14% last year, with assessments being up almost 30% last year.
Similar story with Georgia. We're not expecting a second back-to-back year with it as high as it was before. In Florida, there is some relief for folks as to how much can get pushed through in one year. There are some caps on two-thirds of your tax bill. Said another way, because assessments were so high, we'll probably bump up against those caps again in Florida, for that two-thirds piece. When you kind of do the math on Florida, California, and Georgia, we think we'll be in a better position than we were in 2022, and those three combined are about 70% of our tax bill. We do have some other areas that we do think where we'll have some significant increases from prior year.
Again, because they're smaller tax bills for us, it's not as impactful. Mecklenburg County in Charlotte will be an example where we will see some pressure there, because revaluations happen not on an annual basis, but a multi-year basis. You say the same thing about Denver. We'll have that challenge as well. Again, the tax bills in Colorado as well as the tax bills in North Carolina aren't as material to us. Finally, we did see large tax bills in Texas as well. Again, for us, Texas is not a material player. You know, I wouldn't be surprised if Texas has another rough year in 2023, but again, for us, because our exposure is so small, it's not gonna have the impact on us that it might have on others.
Overall, that's why we basically come in with the year, Chandni, that we think it's going to be pretty similar to what last year. Last year was, as you pointed out, it was 7.8%. This year we're guiding 6.5%-7.5%. Those are still historically really high numbers for us. We do see a path that things might get a little bit better. Importantly, with taxes, in case people are thinking about it, we really have not baked in very much in terms of appeal wins. If we do see some material appeal wins, that could help us get us to the lower end of our range, but we'll just have to see how that plays out.
Those are certainly very hard to predict, but we don't need to have material appeal wins to get to the range that we've provided in our guidance.
Thank you. We now have Keegan Carl of Wolfe Research. Your line is open, Keegan.
Hey, thanks, guys. I know you gave the %, you know, breakout as far as, you know, shares go, but I'm just curious if you could give us a little bit more breakout on your growth expectations between both property management and G&A for 2023?
We noted on the if you look in our supplemental schedule, we gave a walk of FFO from 2022 to the midpoint of our guidance in 2023. We had pointed out that we thought the property management G&A expense combined would grow about $0.03. For us, that's about $17 million-$18 million. A lot of that is the continued investment in our technology platform. Part of that is the continued growth of our joint ventures. As we get more joint income from our joint ventures with regards to property management fees, we have property management expense offsetting that because the number of homes. On top of that, we just have some inflationary pressures.
We also ran a little bit understaffed in the first part of 2022. I think a lot of organizations were challenged with filling positions, and we're assuming a more full headcount in 2023. We'll see how that comes into play. Those are the main factors in terms of with regards to that. Then specifically on our P&L, we do break out property management separate from G&A. We'll see a little bit more of that growth on the property management side, but it's going to be more proportionate this year. If you look at '22 to '21, G&A was relatively flat, and most of the growth we had in those combined items came from property management.
This year in 2023 compared to 2022, it's going to be closer to, you know, being even growth, but a little bit more on the property management side versus the G&A line.
Thank you. We now have Tyler Batory of Oppenheimer. Your line is now open.
Good morning. Thank you. Just on the operating cost side of things, I really just want to tie the loop on this topic. I mean ex property taxes, when we look at same store, OpEx, you know, I just want to be clear on the drivers of that quite a bit of growth there. How much of that is due to higher turnover? How much of that is due to just general cost inflation? Really what I'm trying to get at.
Has there been a, you know, a structural change in terms of the cost structure? I think there was always a concern with your business model that it would be difficult to scale. I'm not sure if perhaps, this outlook here, you know, indication that maybe some, you know, just economies of scale creeping into your business model, just given your size and the age of some of your homes.
Yeah. Tyler, I appreciate you asking, because if you have that concern, other people might have that concern as well. The answer is no, we're not seeing any concerns with the terms of, you know, having dis-synergies or from this, the size of the organization. I think that that's helping us. I can certainly walk through some of the details, but you're right to point out that, you know, we're guiding real estate taxes to be up about 7% at the midpoint. We're guiding overall, which is a little bit more than half of our overall expenses. Overall, we're guiding to a number that's about 8.5% at the midpoint, so that means everything else is going up a little bit more.
I think most of that, and I'll walk you through the details, we believe are more transitory, you know, items based on the circumstances we're at right now in the marketplace. You know, I'll just go through as some of the more material items in there. One was insurance costs. I don't think anyone's surprised, and you probably been hearing it about others, but property insurance rates are certainly going to go up. We'll finish our renewal here in about three weeks, so we don't have the final numbers on that. But in the last two years, our property insurance only went up combined about 3% or 4%. It was 0% one year, about 7% or 8% the next year. We did much better than the broader residential space.
With the cost of reinsurance treaties going way up this year, and certain, of course, the events that happened in 2022, you know, insurance costs are going to go up. We don't think that's a permanent issue. We think that's a one-time issue and wouldn't be surprised if property insurance rates go up as much as 20%-25%, which would bring our overall insurance costs up somewhere into the low double digits. 'Cause the good news on other insurance lines, we're not seeing those kind of increases. The ones that are more material for us, Tyler Batory, are really move around turnover. A couple of things with turnover. One, there are inflationary pressures. We do think those will subside as you get later into 2023 and 2024, but we're still in an inflationary environment there.
The other items that really point out with turnover are two important things. You know, when we do think turnover is gonna go up, we think that's a good thing. Because we think we're, you know, we're gonna have a better opportunity in 2023 than we had in 2022. For residents who have been delinquent in making rental payments, not paying their rent, we expect to see more activity there and people moving out of homes. We do think turnover is gonna go up for that reason. We think that's more of a transitory item. It'll work itself out as we get later into 2023 and maybe a little bit of hangover in 2024 because of Southern California.
The other item, though, is those residents I just alluded to, they've typically been in our houses longer. Often, they don't allow us to come in to do repair and maintenance work. They don't call in service requests as often as our residents who are keeping current in their rent. When we go in to do the turns on those homes, those turns are materially more expensive than a regular way turn, sometimes as much as 40%-50% more on average than our regular way turns. As we're dealing with those residents, Tyler, that are, you know, have been treating the houses the way they have and have not been paying the rents, we again think that it's more of a 2023 event.
It goes away in 2024 in terms of our cost per turn, having a much more, you know, higher growth rate than we've seen in the past. We don't think that's an issue with, if you think about the long-term thoughts about what expense growth is gonna be. You know, summarizing real quickly, we think it's more of a specific 23 issue. We think property taxes will revert back to more normalized growth rates as we get into 24 and going forward. We think turnover will, you know, certainly go up over the next period of time. We get to a more normalized rate for us going forward. The cost per turn, which I just alluded to, should actually see some deflationary pressures over time because of the type of turns that we're gonna be doing.
That should all put us back on a path that you saw from us for a very long time, where we had expense growth that was within inflation or a little bit less than inflation.
Thank you. We now have John Pawlowski of Green Street.
Thanks. Maybe just continuing that line of thought. It just feels like you're baking in a lot of inflation on the expense line items and not a lot of inflation on rents because some of these costs are gonna push up the cost of ownership. I guess, Charles, what markets on the ground are you seeing as potential canary in the coal mine for, you know, new lease growth going to whatever, 3%, which seems to be implied in the guidance? Where are you seeing cracks in demand?
Yeah. As we talked about earlier, you know, occupancy is real strong. Historically, looking at last year, Florida's been really strong for us. Where we started to see when the seasonality came back was a bit of a slowdown in our traditional colder markets like the Denvers, the Chicagos, and Minnesota's. Again, they're not material to us. Generally, we're still seeing good demand. To Ernie's point, you know, there's an opportunity on upside here on the newly side, given kind of the structure of the portfolio today. Our occupancy is running really high for January historically, and we like the acceleration that we're seeing. You know, I don't see any markets that have concern. I see markets that have been really performing well. Phoenix slowed down.
There was a lot of supply there for a short period, we're seeing that bounce back quickly. I'm not seeing anything that has us concerned. I think we're getting back to our historical rates. If you go back to pre-COVID, you're gonna see seasonally the summer where there's turnover and high demand. We're gonna see that's where new lease is gonna push up, and I think it'll be across the board. Some markets will perform a little better than others. Then you get into Q1 and Q4, and you get that seasonal slowdown, where on the renewal side, we think it's gonna be pretty steady. You know, we're at a in the eighths in Q4, and we're holding steady here in January.
We do think, it's gonna moderate a little bit as you get further out, given the loss to lease.
Scenario laid out by Ernie. I think the renewal side will be more steady, and we'll get to tip a little seasonality on the, on the newly side. That's, that's great for us given our historical kind of footprint in our 16 markets. It's a nice balance.
Thank you. We now have Dennis McGill of Zelman. Your line is now open.
Thank you. Ernie, I was just hoping you can go back to that loss at lease comment. I think you said it was 1% to 2% in last quarter. I think it was maybe 10%. There's a couple factors there. You mentioned, you're realizing some of it, and then some of it's just what's going on with seasonality or market rents. Just given that there's not as much turnover in the fourth quarter, I was wondering if you could maybe split out how much do you think of that is market versus what you've realized.
In rough, I think about, when we looked at it is, I'd say probably about a third of it, Dennis McGill, was we were able to, you know, continue to earn into what was happening with leasing activity. We did see a drop off in where market rate was in, you know, August, September of 2022 to where it ended up in December. You know, we've certainly seen that already starting to work its way back up as you typically do in season. You know, Charles Young talked about our season starts a little bit sooner.
It was, you know, rough was probably one third, two thirds, Dennis, in terms of what we were able to earn into versus, where we saw some market declines, from where they were at the, you know, in the stronger numbers in the third quarter.
Is that 1%-2% numbers at end of year, or is that end of January?
That would be December thirty-first.
Okay. Thank you.
Yep.
Thank you. We now have Anthony Powell of Barclays. Your line is open. Please go ahead when you're ready. Hello, Anthony, could you please check your line is not muted locally? We're not getting any audio from the line. We move on to the next questioner. We now have Jade Rahmani of KBW.
Thank you very much. Can you comment on what you're seeing in terms of new supply? Generally speaking, I think you made some comments about Phoenix having bounced back, but there's still pretty record levels of both multifamily supply expected as well as build to rent, you know, with nearly every home builder allocating maybe 5%-10% of their production toward single-family for rents. What are you expecting from new supply? I know you're generally concentrated in infill locations, mainly, I mean, sourced properties from the existing home market, but your thoughts there would be helpful. Thank you.
Yeah. Thanks, Jade. You know, Charles can feel free to add anything to this. I think on the multifamily side, you're right. I think there's gonna be some multifamily pressure in kind of a few different markets. I think you've seen, you know, even in our release, we talked about the differential on a per square foot basis in terms of how much more attractive SFR rents are likely than multifamily. The other thing I would just add is in just some of the data that we follow, we've actually seen kind of a pickup in new lease growth across called the 99 SFR markets. It grew about, according to Burns, it was like 6.5% in 2022. They're seeing a little bit.
Yeah , most people are forecasting a little bit of a deceleration to Charles' point on the seasonality side. Look, I hope the takeaway here from the conversation and what Charles and Ernie have shared is, you know, we've been pleasantly surprised so far with the January numbers and where demand seems to be picking up. There were markets that had a little bit of pressure going into summer last year, but we are not seeing anything in our markets that's suggesting that a multifamily proposition is outweighing somebody's decision than to go with SFR. On the build to rent side of it, you know, it's been really interesting to watch that market evolve, Jade.
I toured a bunch of this last week in Phoenix, and some of this stuff is a little bit further out than what you would think of our portfolio if you spent some time in the car with us. It's different. It comes in all shapes and sizes. Some of it is more of your kind of stacked product or, you know, kind of share a common wall Gemini type of kind of split floor plans where you have townhomes and a few other things. Then some of it is also, you know, the SFR detached piece. I think, you know, the SFR detached piece I worry less about from a value proposition perspective with townhome and amenities. We are paying attention to see if there's, you know, a value additive or a premium that is expected with those types of deliveries.
Far, we're not seeing anything that is directly impacting our business. Lastly, just as a reminder, we've built the portfolio from a purpose-built perspective, you know, going back 11 years ago to make sure that we made a much bigger focus on being infill and living amongst our neighbors and a lot of fee simple homeownership. That has carried the day for us, I think both in a perspective of how we've been able to make sure that we are, you know, attracting some of the best rental rate in the marketplace, but also the duration length of stay. I've been most impressed lately with our. You know, some of this probably gets a little bit of a COVID tailwind to it, but our length of stay is now over almost 3 years in all our markets.
California, we're seeing it push close to four years. People are just staying a lot longer, and I think it speaks to both the product location and I think the value proposition of a for lease experience with a good business.
We now have the next question from Haendel St. Juste of Mizuho. Please go ahead when you're ready.
Hey, guys. It's Barry Lu on for Haendel St. Juste. Thanks for taking my question. I just had a quick question on the appeal process for Georgia and Florida. Are you seeing any likelihood of success or material recoveries in those markets?
Oh, there's definitely is, Ernie. There's definitely likelihood of having some success. We'll just have to see whether it will be material or not. You know, the Georgia vote process can actually take a little bit of a while. As a reminder, we appealed more than we ever have in Georgia. Florida, we appealed, you know, similar to what we've done in past years and maybe a little bit more. Florida has a relatively fair regime when it comes to doing assessments. We didn't put in a material number of appeals, but may have a material success rate in terms of what happens in Florida.
I think the bigger opportunity for us, and certainly where we've appealed more, especially based on where we saw assessments came out, are gonna be in Georgia, which is our third-largest state. We'll just have to wait and see in terms of how that plays out.
Thank you. We now have the next question from Michael Gorman of BTIG. Please go ahead when you're ready, Michael.
Yeah, thanks. Good morning. Ernie, could I just spend another minute on the bad debt side of the equation? I think you mentioned exposure to Southern California. Is that the only market that's driving the 25 to 75 basis points, or are there other geographies? How much of that is related to potential softening on the economic side versus regulatory pressures that's making it harder to deal with those tenants who do get behind on their rent?
Yeah, good question. The majority, the vast majority of the increase is because of Southern California. We certainly have other markets that aren't performing where we want them to be and are higher where they've been historically. We expect those markets to actually, you know, do about the same or improve from where they were in 2022 'cause in most of the other markets, we're a little bit further along and be able to deal with things. The majority of the concern is coming from Southern California, but it is sprinkled in some other places as well. I'd say it's almost all, if not entirely due to the regulatory environment in working with the local courts, working with, you know, in some markets where, you know, pools have showed a propensity to change.
We're not seeing anything in today's numbers, anything in the last 12 months, not projecting anything forward that would tell us we need to do something different or more from a bad debt perspective with regards to just the overall environment and where things are at.
Thank you. We now have Linda Tsai of Jefferies. Your line is now open.
Hi. What kind of unemployment expectation do you assume for the base case of 2023 guidance? Is it flat with today, or are you forecasting deterioration?
Yeah. You know, I'll tell you with that, Linda, is we're assuming it's gonna be an environment that's kind of similar to what we've seen for the last 12 months. We're not expecting a significant improvement. It'd be hard to improve where the unemployment numbers are for where they are today, that they're so low. We're also not forecasting at the midpoint of our guidance a degradation or a material degradation from where they are. Of course, then our guidance ranges do capture the fact that if, you know, if we aren't able to push rate as much as we want or we have some occupancy challenges because of the labor market, you know, that would, you know, that would get captured somewhat in our numbers with regards to the lower end of our range.
You know, as Charles talked about, we're, you know, early days, but we're feeling pretty good with where occupancy is, and we're certainly seeing opportunity to, you know, do well on rates and maybe a little better than our guidance implies. Overall, we're kind of assuming it's gonna be just kind of an overall similar type market, whether it's unemployment, whether, you know, in all the other macros that we're looking at right now.
Thank you. We now have Anthony Paolone of JPMorgan. Please go ahead when you're ready.
Thank you. You've talked in the past that you've built Invitation Homes to run materially more than the 83,000 homes you currently own. I'm just wondering, you know, what's the biggest gating factor to turn external growth back on in a more meaningful way? Like, is it really your capital cost? Is it the selectivity of what you wanna buy? Or do you just think prices are gonna come down, and you don't wanna be in front of that?
It's not the latter. I mean, I think last year was more the latter, Tony, in terms of, you know, we started to slow down our buying in April or May significantly because we were worried. You know, there was a lot of unknowns when the Fed started moving rate as fast as it did. Now, you know, I think we're all happy to say nine months later, we haven't seen a degradation in home prices that would suggest that there is, you know, huge doom and gloom on the horizon. It's really the opportunity set. Remember, we were able to build really significant scale over time in an environment where you had years of resale supply on the market, and a cost of capital that was, you know, pretty attractive. In today's environment, we have less supply.
We see an uncertainty in how we even view our own balance sheet capital right now. We're not pleased with where, you know, the stock's currently trading. Lastly, we see builders being a little more cautious, and there's local regulatory restriction. All that sounds negative. It's actually a really good thing for the demand side of our business, as you guys know. We are not seeing any degradation in top of funnel. In fact, to Ernie's point, to what Charles said earlier, we're really bullish on the prospects of both the quality of the resident. We've seen a tremendous increase in, call it, the underwriting standards of our resident over the last couple of years and the amount of demand we have for the product. We obviously want to grow. We would love to grow.
I think we've gotten pretty good marks of being a prudent capital allocator over time, and I think we got it right in large part by being in the markets that we are with the type of scale that we have. Tony, we're gonna continue to find ways to build new product and to bring more product into the marketplace. We made that commitment about 18-24 months ago. We've got over $1 billion, call it $1.5 billion in our current pipeline, and we're gonna find ways to continue to build and create, you know, strategic ventures with partners that are on the home building side so that we can start to ramp that up over the coming years. We also wanna continue to be opportunistic and buy in a one-off nature.
The one thing that I think will be interesting and we're keeping an eye on it, is over the next 2 years, with interest rate costs being where they are, I think there are going to be some opportunities for additional M&A with small-to-mid-size portfolios as operators, you know, consider their options around recapping or not. I hope that we'll get an opportunity to look at some of those types of opportunities. I would expect that in the sector, we'll still see opportunities for consolidation. Invitation Homes today is the combination of 4 or 5 different companies as it currently sits. I would expect that there'll be opportunities to buy additional businesses or portfolios in the coming years.
Expect us to kinda continue to keep an eye towards growth as we always have, but it's been a little bit of a weird year in terms of uncertainty, and candidly, just the limited amount of supply in the marketplace.
Thank you. We now have Austin Wurschmidt of KeyBanc Capital Markets. Please go ahead when you're ready, Austin.
Thanks for taking the follow-up here. I don't believe this has been hit on, but just wanted to ask about the Qui Tam and sort of the latest update, how you guys are thinking about, you know, potential length, you know, lengthy court proceedings, what the potential costs of that could be and whether or not you're considering or evaluating, you know, a potential settlement in order to, you know, be mindful, I guess, of the overall cost. Just any update there you can provide. Thanks.
Thanks, Austin. This is Dallas. You know, first, like, obviously, as we've said before, we don't, we don't comment really in great detail on ongoing legal matters. In relationship to the qui tam, this will be likely a long process. We're not even to a discovery phase. It's still kind of at the front end of the administrative side. I'll say what we've said before. We feel like we have really good facts on our side. We will and reserve the right to defend ourselves appropriately, and we'll obviously update the Street and you guys as or if we had new information when it come to us, but no update there at this point in time.
Thank you. We have the final question on the line from Anthony Powell of Barclays. Your line is now open.
Hi. Hello. Can you hear me?
Can hear you.
We can.
Yeah, thanks. Sorry for the earlier, little confusion. I guess on turnover, mentioned a lot of times that turnover is increasing. I wanted to confirm that that's really isolated to Southern California, another bad debt situation. This is not really a general increase of turnover in your portfolio.
It's across the board because we're still working through in all our markets, residents that haven't, you know, been paying rent. The issue in Southern Cali, there's certainly more there. Across the board, we're gonna see an increase in turnover. In fact, honestly, in California, it may take a little longer for us to get there because of the situation in the regulatory environment. The bad debt number, and it's being elevated is gonna be because of Southern California and because it's more difficult to move forward with residents who aren't paying there. Eventually it's gonna turn here with list, which hopefully continues to be with where the rules are.
It's, it's gonna be more across the board as we, you know, kind of just clean up from the remainder of what was going on during the pandemic environment in most of our markets.
Got it. It's not like due to tenants just, you know, not accepting rent increases and moving out. It's more of a bad debt tenants can clean up. Is that fair?
That is. Yeah, absolutely. We're seeing our retention levels for people accepting, re-renewal increases, being where they've always been. It's just, it's taking care of what you described.
Thank you. I would like to hand it back to Dallas Tanner for any closing remarks.
We thank everyone for joining us on the call today, and we look forward to seeing everybody at the Citi conference in a couple of weeks. Take care.
Thank you all for joining. That does conclude today's call. Please have a lovely day. You may now disconnect your lines.