Greetings, and welcome to the Invitation Homes third quarter 2021 earnings conference call. All participants are in listen-only mode at this time. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Vice President of Investor Relations. Scott, please go ahead.
Good morning, and welcome. Joining me today from Invitation Homes are Dallas Tanner, President and Chief Executive Officer, Ernie Freedman, Chief Financial Officer, and Charles Young, Chief Operating Officer. During this call, we may reference our third quarter 2021 earnings press release and supplemental information. This document was issued yesterday after the market closed, and is available on the investor relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources, and other non-historical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated in any such statements. We describe some of these risks and uncertainties in our 2020 annual report on Form 10-K and other filings we make with the SEC from time to time.
Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures to the extent available without unreasonable effort in our earnings release and supplemental information, which are also available on the investor relations section of our website. With that, let me turn the call over to Dallas.
Good morning. I'm pleased you could join us as we share our thoughts on the past quarter and the prospects for our company as we look ahead. To start, we had another outstanding quarter of great results. We also continue to find ways to invest capital and generate accretive external growth. I'm particularly proud of our associates who once again delivered a resident experience with the genuine care that has become synonymous with our brand. Our ability to develop loyalty with our residents has helped drive strong outcomes for our stockholders. On top of all of this, we believe that the operating fundamentals for our business remain fantastic and that the environment for growth remains favorable with our opportunities to accretively deploy new capital among the best we've seen in recent years.
I'd like to discuss these points with you in a bit more detail, starting with the strength of the operating fundamentals. As we've reported, our average occupancy remains at historically high levels. Turnover continues to trend lower, and our rental rate growth continues to accelerate well past our traditional summer leasing window as the market continues to demand more single-family rental product. We believe a primary driver of the elevated demand is demographics. I've spoken previously about the population surge of millennials and how we expect many within this cohort to transition into single-family homes over time. They desire more space for raising a family and a room for a home office, and they want better access to good schools, jobs, and amenities. They also value the convenience of a worry-free, subscription-based lifestyle. We believe we're well positioned to continue capitalizing on these trends.
In contrast with this surge in demand is a shortage of housing supply, which we expect will continue in our markets given supply chain constraints, policy restrictions, and the time required to deliver new supply. We therefore believe single-family homes located in infill neighborhoods in high-growth markets where supply, and demand fundamentals are the most favorable will remain highly attractive investments throughout most real estate cycles. With this favorable backdrop in fundamentals, we believe the growth environment for us to invest meaningful capital remains very strong. We surpassed our original billion-dollar acquisition target for the full year back in August, and we had our strongest acquisition quarter in many years during the third quarter with nearly 1,700 new additions to the portfolio.
As a result of our improved pace of acquisitions, and a better home resale environment, we increased our acquisition guidance last month to between $1.7 billion and $1.8 billion for the full year. With our average acquisition cap rate of 5% this past quarter in excess of our implied cap rate, we believe we are deploying capital at yields greater than our cost of capital. This is because rents have kept pace in our markets as home prices have continued to appreciate, and our focus on infill locations is well-differentiated from most new entrants into the space. To pursue these opportunities, we have a multi-channel acquisition strategy. As a reminder, we are always channel-agnostic and location-specific, and most of our channels in the third quarter were open and active and remain so today.
The environment for one-off acquisitions is particularly strong right now, especially for the product we're targeting, which are well-located homes primarily in our West Coast and Sun Belt markets. In addition, we continue to lean in on our best-in-class home builder network to help bring additional new supply to the marketplace. We've bought several hundred new homes directly from builders so far this year, representing nearly 20% of our wholly owned acquisitions. These do not yet include any homes from our previously announced strategic relationship with Pulte Homes, for which now we're under contract or have agreed to terms on over 1,500 homes. The first of these Pulte Homes are expected to deliver towards the end of next year, with our target of over 7,500 new homes coming in over a five-year period.
We are excited to have such a strong pipeline of new homes across a diverse network of home builders without the higher risk burdens of being a developer ourselves. Before I close, I'd like to offer an update on our sustainability efforts. Earlier this month, we achieved an over 13% increase in our GRESB score from 2020 to 2021, which compares favorably to the average GRESB participant who saw no change in their score year over year. You'll recall last year that we were one of the first REITs to add an ESG component to our credit facility. As a result of our increased GRESB score, we'll realize a one basis point improvement on pricing on our revolving line of credit. These are pragmatic steps we are taking while leading.
Sustainability is an important part of our long-term success, and we're proud to be moving in the right direction while recognizing we can continue to do more. Lastly, I really want to say thank you to our team. Whether you're demonstrating our core values directly with our residents or sharing them from our corporate offices, you're the driving force behind the value we create for both residents and stockholders. I thank you sincerely for your dedication to our mission. With that, I'll turn it over to Charles, our Chief Operating Officer, to provide more detail on our operating results.
Thanks, Dallas. All of our efforts to create a seamless and easy leasing experience for our residents have resulted in another outstanding quarter operationally. My thanks to all of our associates for making us the premier choice in home leasing. For our same-store portfolio, NOI growth accelerated to 11.9% year-over-year. Same-store revenues grew 7.9%, driven by a strong rental rate and other income growth, while same-store expenses increased a modest 0.6%, mostly attributable to lower turnover and repair maintenance costs. The combination of lower turnover and lower days to re-resident continues to drive record high occupancy. Same-store average occupancy has remained above 98% every month so far in 2021 and came in at 98.1% for the third quarter.
Our new lease rent growth was 18.4% for the quarter, while our renewal rent growth was 7.8%. Together, this drove blended rent growth of 10.6%, up 660 basis points year-over-year. Reminder that last year our blended rent growth was 4% for the third quarter 2020, despite the challenges from the pandemic. Our comp to last year is a very healthy one. At the same time, our turnover rate declined 110 basis points year-over-year. This puts our trailing four-quarter turnover rate at only 23.8%, the lowest in our history, and another strong testament to our resident satisfaction.
We also continued to make progress with our bad debt, which at 1% of gross rental revenues, was half of what it was for the third quarter of 2020. An important part of this improvement is due to the outstanding efforts of our team, who work closely with our residents to find solutions to keep them in their homes. Since the pandemic began, we have helped thousands of residents apply for rental assistance programs, and as a result, we have received to date over $25 million in rental assistance payments for the benefit of our residents. Our teams continue to work with those who need help with their claims. By and large, our resident base is strong and stable. Our average new resident today is a family with at least one child and one pet.
The adults are on average 39 years old, both work, and together earn over $120,000 per year, which equates to an income-to-rent ratio of over 5x as strong as we've seen. We believe our markets, locations, and quality of homes are driving this higher end customer, along with the worry-free leasing lifestyle and best-in-class service that we provide and our residents expect. In summary, we believe we stand in a great position to finish the year strong and will remain focused on continuing to execute in the last couple of months. With that, I'll pass it along to Ernie, our Chief Financial Officer.
Thank you, Charles. Today, I will cover the following topics, balance sheet and capital markets activity, financial results for the third quarter, and updated 2021 guidance. We took a number of steps during the third quarter to support our external growth and further improve our balance sheet. To start, we closed our first public unsecured bond offering of $650 million in August. Bonds have a 2% coupon and mature in August 2031. We used the proceeds to voluntarily prepay our highest cost classes of securitization certificates that were due to reach final maturity over the next five years. During the quarter, we issued approximately 17.5 million shares, generating over $693 million of net proceeds through both our ATM program and a primary offering that was completed in late September.
In October, we sold another 1.875 million shares pursuant to the underwriter's option to purchase additional shares, generating additional net proceeds of $75 million. The proceeds from the issuance were and will be used primarily for general corporate purposes, including acquisitions. As previously announced in July, we gave notice of our intent to settle our 3.5% convertible notes due January 15, 2022, with common stock. As of September 30, 2021, $199 million of principal was converted into approximately 8.7 million shares of common stock at the election of the noteholders, leaving approximately 6.4 million shares to be distributed no later than January 2022. Including the impact of these third quarter activities, our net debt to EBITDA ratio declined to 6.2x.
Looking forward, we will continue to focus on balancing our growth objectives with our goal of reaching a 5.5-6x net debt to EBITDA ratio. Moving on to our third quarter financial results, core FFO was $0.38 per share, 27% higher than last year, and AFFO was $0.32 per share, 32.7% higher than last year. This was largely due to outsized NOI growth and interest savings. One point I want to underscore from Charles' remarks is the widening spread between our new lease and renewal rent rate growth. As you can see in our results, our new lease rates, which are predicated on current market conditions, are significantly higher than our renewal rates. This is leading to a loss to lease that is much higher than we have historically seen.
Renewals represent about three-fourths of our leasing activity, and the loss to lease on those renewals is much higher than the loss to lease associated with new leases. We believe this could position us favorably for rent growth in the next 12 months and beyond. The last thing I will cover in our update is 2021 guidance. Given our year-to-date results, we are increasing our full-year 2021 same-store NOI growth guidance to a range of 8.5%-9.5%. At the midpoint, this is a 200 basis point increase from our previous guidance. This increase is driven by same-store core revenue growth expectations of 6.25%-6.5%, which has improved from the previous guidance of 5.5% at the midpoint. Our new guidance is also favorable for same-store core expense growth.
We now anticipate growth from a range of 1%-2%, 150 basis points favorable from our previous guidance midpoint. We're also raising our full-year 2021 core FFO per share guidance up $0.05 at the midpoint to $1.49, and our 2021 AFFO per share guidance up $0.04 at the midpoint to $1.28. In closing, we're experiencing continued high demand for our product, proving that the desire for flexibility and choice in the housing market remains strong. We are proud of the work we do to help individuals and families who want to enjoy a leasing lifestyle. We will continue raising the bar as the best in the business for both our residents and our stockholders. With that, let's open up the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. I'd ask that you please limit your questions to two at a time in the queue. At this time, we will pause momentarily to assemble our roster. The first question we have on the phone lines comes from Richard Hill of Morgan Stanley. Richard, please go ahead when you're ready.
Hey, good morning, guys. Ernie, I wanted to maybe start with you. First of all, just a quick question on the 4Q implied guide. It looks like expenses are up fairly significantly. Recognized revenue and NOI are up as well. I know in the past you've talked about expenses being higher in the second half of the year. Maybe you can unpack that just a little bit more for us, so I can better understand it. I guess we were expecting expenses to be higher in 3Q than where they came in. I'm just wondering if there's actually upside in that implied expense guide.
Yeah, well, unfortunately, Richard, this is one area I've been wrong all year, so we'd love to be wrong also in the fourth quarter with regards to where our implied guidance is. Some areas we do think we'll have some pressure on relative to what we've seen in the first three quarters are, you know, potentially a little bit higher of a growth rate from property taxes we've seen so far this year as we had some really good results coming through on refunds in the first part of the year, including the third quarter. Baked into the guidance, although again, turnover keeps going in the opposite direction. We are assuming turnover, you know, kind of stabilizes or may be slightly higher in the fourth quarter, but we haven't seen that yet this year.
Certainly there's some opportunity for upside performance there. Personnel, you saw in the third quarter, Rich, the personnel costs did increase year-over-year. We expect that to also hold into the fourth quarter. You know, some of that is just due to the outperformance we've had this year, and we're making sure the bonus accruals are where they need to be from that perspective. We certainly hope that we can outperform what we've put out there. We've been able to do that each of the last three quarters. We do expect, you know, getting back to more inflationary type expense growth at some point. We'll do our best to see if we can make it four quarters in a row where we can do better than we've laid out.
Yeah. That's helpful. Ernie, I wanna talk about, you know, your new lease rate growth relative to your turnover. You sort of alluded to this in your prepared remarks, but your new lease rate growth is pretty attractive, very attractive. We don't really see any signs that it's abating. Your turnover's, you know, call it less than 25%. It suggests that you have, you know, an embedded mark-to-market that's gonna persist for two, three, maybe even a little bit longer than that. I'm not asking you to guide. I'm just asking you to walk through methodology with me because it seems like, you know, absent rents coming down, there's a sustainable runway for at least several years to have some pretty attractive same-store revenue.
Yeah. Well, certainly you can look out over the next, say, 12-18 months and based on where rates are today. I think as you go out to two or three years, you have to take into consideration, Rich, what you think the overall market's gonna be. Your point is exactly right in that you know, we see a loss to lease in the portfolio that's larger than we've seen before. Then importantly, you know, we're not pushing renewals to where market rates are. We don't set market rates. The market sets market rates, but we're working with our residents, and you can see our renewal rates are less than half of what's happening in the new lease rates.
that does set us up for a pretty favorable backdrop over the next period of time in terms of a loss to lease that's, you know, in the low double digits right now with regards to how that could play out certainly over the next year and at least into the first part of 2023.
Got it. Just one more quick macro question, and I don't know if this is for Dallas or Charles. I'm curious, you know, home price appreciation has been really robust across the United States. Obviously, it's shown some signs of slowing in the recent print. Dallas or Charles, are you seeing any signs of weakness from supply, from build to rent, you know, beginning to emerge in some markets or micro-markets? What are you seeing on the ground?
No, we're not seeing any weakness in terms of like, you know, too much supply coming into the marketplace. In fact, it's probably the opposite still. The same thing that we're feeling in like the cost of gasoline or milk or some of these other things are impacting builders with respect to their supply chains. We obviously stay very close with some of our builder partners, and just door and window packages alone are next to impossible to forecast correctly in terms of when they'll have those things relative to bringing in the new supply. Rich, it's actually still a little bit of the opposite from our vantage point. Still feels like things are taking a while to get through entitlements. Things are taking a while to finish.
Ultimately, we have seen resale supply creep back up just a little bit, which we view as a net positive. If we get a little bit more interest rate creep, I think that will help things in terms of easing up supply. You know, Ernie's right in his comments around the loss to lease, but we also don't have, you know, the illusion that you can have 20% home price appreciation forever. I was looking at the Case-Shiller numbers from this point in time last year, and on a look back basis, it was like 6%. If you look at our markets, it's like 22% right now. It's just, it's a little bit crazy, and it's a moment in time where, you know, we're feeling this supply chain challenge, and there just isn't enough quality housing available right now.
Thanks, guys. Congrats on a really nice quarter.
Thank you, Rich.
Thank you. We now have the next question from Sam Cui of Credit Suisse. Sam, please go ahead when you're ready.
Hi, guys. Congrats on a great quarter. I guess first going back to guidance, I guess holding that level of conservatism in the numbers makes sense. I guess this year you guys have been performing very well with that occupancy at 98%, turnover really trending lower. I'm just curious, like, have you guys seen enough of your resident base and their behaviors to start thinking about if this is the new normal? If that's not the case, I'm just curious, like, what are some concerns you have going forward in this current dynamic?
Yeah. This is Charles here. Thanks for the question. You know, when we look at overall leasing fundamentals and you ask whether it's the new normal, you know, we're in a really healthy position. You called it. We're at 98% occupancy. We've been there all year. Demand is really high for our well-located homes. You know, how long will this last? We'll see. The last question and conversation was around our embedded loss to lease, and I think that gives us a good opportunity on the renewal side to keep that as high as it's been. We've been accelerating on the renewal side since last summer. Every quarter has been going up, which is really healthy, and we're seeing that actually go into Q4 as well.
The new lease side, we're still kind of in that mid to high teens. We're not seeing typical seasonality. It's hard to predict how long it's gonna last, but we're in a really healthy position and set up well to go into 2022.
Got it. That's helpful color. I guess it's been really good to see that the external growth story is really coming back for you guys. Now, when Ernie mentioned the loss to lease dynamic that's going on right now, I kind of looked at your markets in Seattle, Phoenix, and Las Vegas, where that discrepancy is pretty large. With that said, I saw that some of the acquisitions are more weighted to certain markets. Like, if I'm looking at Las Vegas, how is that local supply dynamic trending in that area?
Obviously, I'm thinking that maybe the disposition plan over time might allow you to kind of reallocate capital into these markets where you can kind of really take advantage of the situation. Am I kind of thinking about everything correctly?
Yeah. I think you're thinking about a lot in that question. There are, you know, a few things.
Right.
Let me just make sure that I try to touch on the major points. I think your last question around capital allocation is one that we've always taken really a very deliberate approach to in where we invest capital and why. As you called out in specific markets like Las Vegas and Phoenix, these Southwest Sun Belt type markets have seen an outperformance over really the last eight to ten years in terms of what we're seeing with net migration, household formation, and ultimately that's showing itself in home price appreciation, and in the rent growth that we're seeing with the corresponding growth in the home prices. We will continue to invest capital in the parts of the country where we believe we're gonna continue to see that outperformance.
You haven't seen us invest capital, for example, in the Midwest over the last five or six years because we wanna, you know, make sure that our shareholders are getting the appropriate exposure where the growth is gonna be the greatest.
Deliberately, a couple of years ago, we started selling out of some of our concentrations in Midwest, and we started reallocating capital into markets like Phoenix, where a couple of years ago, we were only at 7,000 units. I think today we're closer to, like, 8,700 units. We wanna continue to grow those types of markets because they are seeing this type of performance, as supply gets tight. So yes, that is, you know, our blended approach to how we think about risk-adjusted returns. We wanna always try to strike that right balance between appreciation of the asset, where we have the strongest conviction around what's gonna happen with our revenue streams and how rate growth could be impacted, and then make sure that we're investing our time and our capital accordingly.
Got it. Thanks so much, Dallas.
Thank you.
Thank you. We now have Jeff Spector of Bank of America. Jeff, please go ahead.
Good morning. Thank you, and congrats on the quarter. First question, I'd like to focus on demand. Everyone's trying to, of course, predict, forecast, you know, growth in demand. You commented on, you know, your resident satisfaction stats, and, again, turnover continues to trend lower. I know you do a lot of data analytics. I don't know if you can share anything on this call to discuss a little bit more, you know, where you see demand, how the trend in your renter staying, the length of the renter staying in your homes. You know, where do you see this going over the next couple of years?
Yeah, this is Charles. Great question. Bottom line, we're seeing really healthy demand. When you couple that with our low turnover and a high occupancy, we're in really great shape. I'll share a couple of stats from our recent marketing survey of our move-ins in Q3. You know, the majority, 80%, are still coming from single family, so they know the product. What they're attracted to is the single family home, obviously, but our infill locations. The two top reasons that they're moving to SFR and IH homes specifically are for more space, which obviously single family provides, and closer to work, which most of our infill homes do that. We also asked them, you know, "What's important to you?" They said 78% are looking to have that extra office or bonus room.
Those things, as you think about long-term demand and the trends of work from home and all that, put us in a really healthy position. Again, coupled with our markets, we're seeing demand in the West. We're seeing a lot of movement to the Southeast, Florida, specifically Atlanta, and it's showing up in our rent numbers. We're doing really well there. On top of that, you asked about Yeah, you asked about where we are in terms of length of stay, [it] continues to move up. You know, we're on with that lower turnover. People are staying longer. Then I mentioned this in our remarks, you know, our average household is over 120,000.
It puts us at a rent-to-income ratio of five times, which is as healthy as we've seen. All that really puts us in really great shape, what we think for years to come.
Thanks, Charles. I guess on that length of stay, is there anything more specific you can provide? I mean, again, I know everyone's trying to forecast, like, you know, where this business is heading over the next 5, 10, 20 years. Like, what's the longest length of stay you're seeing in the portfolio? You know, what % of the portfolio is that? Just trying to, again, see where that could head.
Yeah. You know, our portfolio, like I said, it's been our residents are staying longer and longer. What we're seeing is they're into their third year, and it's continuing to grow. With this low turnover, we expect that's just gonna get longer and longer, well into three years. We'll see how it plays out over time.
Yeah. I think, Jeff, you know, our average length of someone staying now is over 32 months, and our average lease term is 15 months. That means someone's renewing on average twice from their initial lease term with us, and that just continues to increase by about a month to a month and a half each quarter. That's the trend we've seen for the last many quarters.
Great. Thank you.
Thank you. We now have another question on the line. We now have a question from Nick Joseph of Citi. Your line is now open.
Thank you. It seems like the political and regulatory environment around the broader single-family rental sector is becoming more of a topic and potentially a risk. How are you dealing with it from an organizational and operational standpoint?
Yeah. Hi, Nick. Dallas here. Great question. We've really dealt with this for almost 10 years since we started the business in terms of you know being active in both purchasing homes and standardizing the single-family rent environment. We obviously have a team of people here both from a PR front and also from a legal perspective and we've dealt with a variety of challenges over the years. You know going back you know two and four years ago we dealt with some of the rent control challenges and some of the ballots that were within different markets and we're very active in that space.
We've also, you know, have had a range of inquiries over time with legislative bodies or groups wanting to understand more about what it is that we do. Now, the story is a really easy one because single-family for rent's gone on in this country for over 200 years. It's organizing yourself and making sure that you have the data in front of you that you can share with whomever, you know, the inquiry is coming from to help, you know, them understand really what's going on with the space.
Thanks. Is there any update or details that you can give on the FTC letter that you received? I think that was disclosed in early September.
No, not really. You know, we've gotten inquiries from time to time from different legislative bodies. You know, pre-pandemic, we were working with the House Financial Services Committee as an industry and getting information out there. From time to time, we do get these inquiries. We wanted to make sure that we disclosed on the letter that we got from the FTC, but no update as of right now.
Thank you.
Thanks, Nick.
We now have Dennis McGill from Zelman. Dennis, please go ahead when you're ready.
Hi, thank you. Dallas, first question just goes to you mentioned the ability to still buy an attractive 5% cap rate. Just wondering if you could maybe explain a little bit why you think you haven't seen more compression in that cap rate over the last 12 or 18 months, given how much capital has been focused on the sector institutional capital, that is, and how much yield compression there's been in sister industries, especially multifamily, and the chase for yield in general around assets.
Yeah. Good. Great questions. Let me answer the second part first. I think we get a little myopic at times when we think about SFR in terms of the volume, and there certainly is a lot of capital coming into the space. It's validation of the fact that, you know, the business can exist in a very favorable or even unfavorable environment like what we had with the pandemic. With that being said, you got to take a step back. There's 6.5 million resale transactions every year in the U.S. as you start to think about SFR operators or investors wanting to be active in that, you know, cohort every year, we are a very small percentage of the overall buying and selling that goes on in the marketplace.
By the way, it's one of the reasons why this is a great business. It's just a very liquid marketplace for both end users and for investors. Now, the reason I don't think we've seen the compression, Dennis, is a couple of things. One is you have to remember, and I talked about this in an earlier comment around Case-Shiller, but the home price appreciation has been fairly dramatic in, say, the last 12-18 months. It's been very steady for the last 10 years. We've seen, you know, in kind of a similar fashion, really over the last year and a half, we've seen rate really keep up with what we're seeing with pricing. Now, that won't grow to the sky. We don't have illusions of the fact that that's normal.
We would typically expect a mid- to high-single digits for the way that we would think about rate growth in a normal year. We've just been lucky as operators that the environment or the marketplace doesn't have enough supply, so it's supporting the rate growth in a similar fashion. Now that will come down over time and distance. Again, going back to the first point, there's a lot of transactions happening in the space that are happening in and around SFR operators, in fact, with much more scale. I think what we've been really good at is picking our spots. We've been active in parts of the country that lend themselves to that better performance like I talked about before. We're also very deliberate about where we invest capital and why.
If you look at what we've done to date, I think we're close to 2,000 homes acquired on the balance sheet through the third quarter. That's really de minimis in that world of 6.5 million resales. As long as you know where you're investing capital and why, I think you can find that outperformance, and you stick to, you know, your investment thesis. As Ernie mentioned, and I mentioned in our earlier comments, we just have a good cost of capital or generally good cost of capital right now, so we're taking advantage of it.
Does that imply to some degree that a lot of the institutions that we all read about and the scale that we see others trying to gain, that they're targeting different markets, submarkets or price points than you are?
It could. I mean, a lot of the build to rent story you hear about right now is happening a little further out and in other parts of the country, quite frankly, we just don't operate. I think we do have some parallels with other platforms where we may bump up against each other in a couple of markets. Generally speaking, I think you know this, Dennis, we buy a more expensive product that's much more infill. It's differentiated from the large majority of our peers. I think, you know, our average price point in Q3 was close to $440,000 on balance sheet. That's a much more expensive home than a majority, I would say, of a lot of the new capital coming into the marketplace is targeting.
Got it. Maybe just one more just to change gears a bit. We've seen a lot from the home builders as well as iBuyers, struggles with getting homes either built or acquired, and renovated and back to market. Are you running into any similar challenges on your acquisitions, or can you elaborate a bit on, as you acquire homes today, whether the pace of getting them back to market and leased has changed at all?
Yeah, no, it's great that we have the buying volume that we have and, you know, we're focusing in a few markets. These are markets for the majority that we have great teams on the ground who are ready to take on the challenge. The volume is real and we're paying attention to it, but we're able to keep up and we're pushing them through. A lot of these homes are, as Dallas said, really in good shape and we know what we need to do on the rehab side and it sets us up nicely. A lot of these homes will be ready early next year, and we'll.
What we've seen and what we've been able to bring through have been really healthy in terms of what we've been able to gain on rent. We feel like we're in good shape to be able to manage it.
Thank you, guys. Good luck.
Thanks, Dennis.
Thank you. We now have Brad Heffern from RBC. Brad, please go ahead.
Thanks. Good morning, everybody. A couple more on acquisitions. Obviously the guidance went up a lot to 1.7-1.8. I'm curious if that was just the large number of opportunities that you're sort of unexpectedly seeing this year, or if you think that that's something that's sustainable, and how should we think about You know, the Pulte Homes next year being, you know, complementary to that.
Yeah, no, great question. You know, we started to signal a few quarters ago that we are seeing a few more opportunities in the marketplace. To be clear, you know, on the 1,700 homes that we bought in Q3, the vast majorities are just one-off buying. Charles talked a little bit about this, but the power of our platform is really unique in terms of our ability to identify one-off acquisitions and to be able to then process those, put our own fit and finish standards on those homes, and have them ready for lease in a real, you know, high velocity way of doing things. Hard to say what the marketplace could look and feel like a couple of quarters from now.
So long as we have a decent cost of capital and we can buy at these kind of prices, we'd like to stay opportunistic. We certainly would love to look for opportunities to buy scale. One of the ways with which we know we can bring dedicated scale into the platform is partnerships with builders like the one we have with Pulte. Now, we also started talking about that a few quarters ago. We're active with a lot of different builders. Pulte is just one of our preferred partners, who we're gonna try to have, you know, programmatic, buying opportunities with. They've been a terrific partner. They do a fantastic job as the nation's second-largest home builder. We'll start to see those come into our normal distribution towards kind of the end of the third quarter of next year.
John and Peter have done a nice job on the team of working with the PulteGroup to start to look at parts of the country that we can start to forecast out a year or two in advance, and that gives us a real strategic advantage. By the way, we're not incurring any cost for that. Like, we haven't had to upsize our team or bring on a ton of additional G&A to be able to run that program. We feel like we're in a really good spot, and that will complement what we're already doing pretty well in the one-off space.
Okay. Got it. Thanks for that. I was wondering if you could talk about the iBuyer channel a little bit. Obviously, we saw the news about Zillow pausing. Is that news meaningful for you guys in any way? Can you talk about, you know, maybe more recently how much that channel is representative of the acquisition volumes?
iBuying has always been a pretty small percentage of what we buy. It's one of our many channels that I talked about in my opening remarks. We wanna have all the channels open and available to us. You know, I don't wanna comment specifically on any one company's, you know, strengths or weaknesses in a particular quarter, but these things tend to ebb and flow, and I'm sure they'll work through it. I think it probably speaks more to some of the labor challenges that are in the marketplace, which Charles just discussed. It's not an easy environment to operate in if you don't have your infrastructure set up for the long haul. Even then, you've got to manage those pressures as they kind of flex, you know, different ways.
Certainly, you know, it could present more opportunities for platform buying with companies like ours. We are a friendly partner to all the iBuyers. We love the fact that the transactions in the residential space are starting to digitize and get more efficient. That makes a lot of sense for the end user, for investors, for anyone that's really active in single family.
Okay. Thank you.
Thanks.
We now have another question on the line from Alan Peterson from Green Street. Alan, please go ahead when you're ready.
Thanks, guys. Just focusing still on external growth. Dallas, you touched on some of the supply chain bottlenecks that are affecting your builder partners. Is this affecting pricing with, you know, your partners like Pulte? Are you seeing any compression in those stabilized yields that you had previously quoted on those next swath of acquisitions there?
I would say, you know, generally, we feel pretty good about what we've talked about in the past, with those on the call and in our, you know, the way we're viewing the world. We built a structure with them specifically that protects both companies in the event that we have, you know, expense creep, but it allows us to kind of rethink and reset together, if there's market volatility. We saw that with lumber, by the way. Price of lumber is coming back to earth, and we think we'll see that in some of these other categories. It's just difficult, and it's not just, it doesn't just lend itself to the cost of goods sold, to be really clear.
You know, if you think about what happened with the pandemic in terms of new supply coming in, it slowed down the entitlement processes with municipalities and cities. It does a lot of things. It disrupted. In the same way it's hard to find a car right now or a used car, it's very similar in terms of bringing new supply into the marketplace. It just created a little bit of a logjam from a supply chain efficiency perspective. We forecast and would believe that this will all start to regulate and get back to normal, and start to bring some of that, you know, expedited supply back into the marketplace over time.
Gotcha. The stabilized 5.5% yields are still kind of intact for your partnership with Pulte then?
Yeah.
Yeah. No, actually, you know, it's no different than we've quoted before that it's actually we're getting those at a better cap rate. That hasn't changed. We've been typically 25-50 basis points wide of what we're doing in the market with that relationship, and we haven't seen any change in that dynamic.
Perfect. Last one for me. Charles, can you provide some context on what's driving some of the sequential revenue declines in Dallas, and then just a little bit of the softness in Denver? Just trying to dig in on market fundamentals there.
Yeah. I mean, I guess if I look at both those markets, in terms of rent growth, we're accelerating in both, especially in Dallas. We've had really good kind of increases on the new lease side of Q3 of 15.5%. Renewals have been healthy at close to 6% for a nice blend. You know, I think as you think about revenue in Dallas, we love that market. We're buying in the market. You know, we're gonna continue to grow there. Denver is similar. It's been a healthy market. New leases are almost 12%.
7.5 or so. You know, both markets are really, in our perspective, we have good leadership on the ground, and they're moving in the right direction. We are buying a lot in Denver, and we're paying attention to that, which is great. I think that's one of those markets like Dallas that we wanna grow both of them, and we think they're gonna be good markets for us long term.
Gotcha. Thanks, guys. I appreciate the time.
The next question is from Keegan Carl of Berenberg. Keegan, I've opened your line.
Hey, thanks. Thanks for the questions, guys. Just one for me. Given the current housing shortage, has your intention to implement the sale-leaseback platform changed at all? It's just my view, but I think now would be an opportune time when you look at a number of people who might want to take advantage of the hot housing market, yet not relocate or buy at current price levels.
Yeah, well, we like your thinking. I mean, it certainly feels like there's gonna be some opportunities, and it's things that we've looked at in how to bring, you know, a little more social housing product into the single-family space. While we're not, you know, necessarily ready today to talk about, you know, any pivot or change, there's certainly categories that we're looking at and spending more time on.
We do think that a sale-leaseback product over time is a great way for people who wanna think about retirement that wanna spend, you know, part of the year in different markets, and we've seen that even in our own portfolio, where we'll have, you know, a couple pick up a lease in Florida because they're gonna spend half the year there, but they spend, you know, the other half of the year up north somewhere in the warmer months. Yes, the short answer is in the evolution of our company and the things that we're focused on, I think you'll start to see us over time explore more of these types of product and weave them into our business model. But not necessarily tomorrow, but over time. Absolutely.
Got it. What would a pilot program look like on that? Would you just focus on one of your smaller markets and test it out, or do you think you'd be pretty aggressive from the jump?
I'd hate to speculate. I'll give you a little bit of some kind of, you know, real world. We did do a lot of sale-leaseback ten years ago, when we had homes where, you know, you're buying something through distressed channels and someone was leasing back. We're very familiar with the process side of it. You could always, to your point, you could pilot it in a more robust form in a market. You could partner with other ventures that are currently doing it and bring, you know, back office expertise. I think there's a lot of ways you could think about it.
We're not in a place where we know exactly yet how we wanna approach this, but we certainly see these social housing opportunities as a way for that subscription economy to craft choice. That's something that we believe in, you know, in a big way at Invitation Homes, is that there's not a one-size-fits-all approach to how you wanna live. For some people, it's ownership. For some people, it's leasing. For some people, you know, it's an option to buy. I think as those markets continue to develop, we're gonna pay close attention and pick our spots, you know, if, when, and where we wanna participate.
Got it. That's it for me. Thanks, guys.
Thanks.
We have another question on the line from Rich Hightower of Evercore. Rich, please go ahead when you're ready.
Hey, good morning, everybody. Lot of good questions so far. I wanna go back to the 120,000 median household income, I think you said on new leases recently. I just wanna get a sense of the growth rate, you know, year-over-year in that statistic, and how do we correlate that to rent, to home price appreciation, and how do you expect that to evolve over the next year or two?
Well, you know, we've seen, I guess, the easiest way to talk about it is we've seen our income to rent ratio increase from about 4.6 to 4.7 to now it's over 5x with the numbers that Charles talked about. We're about 123,000. And over that period of time, you've seen rent growth be pretty significant. We're seeing that for the resident who's moving in, so it's not, you know, that's how we track this. It's our new residents that they're keeping up with rent growth in terms of where their income is. It's very correlated, almost identically or actually slightly better 'cause we've gone from about 4.6, 4.7 to 5.2, 5.3 with regards to what our average income to rent ratio is.
To predict what that's gonna be into the future would be challenging. We've certainly seen a good trend over the last many years of our average income going from, I think around $100,000, maybe even a little bit less than that at IPO five years ago to where we are today.
Okay. Well, if that's true, Ernie, then you know, 100 to 120 is I guess that would approximate over, since the IPO, you know, let's call it 20%. So that's matching what you know, new leases are growing in a year almost. I mean, that's just a pretty remarkable statistic, don't you think? I'm just trying to think about how to you know, how to square that with with everything that we're seeing right now. Everything just seems off the charts, and I'm trying to figure out you know, whether it all makes sense or not. I guess it's all good from Invitation's perspective.
Well, remember, we're in very infill locations, people who wanna live close to good schools, close to their jobs. So, you know, we're not necessarily marketing to, you know, the broad in terms of the averages. Again, think about the markets we're in too. We're specifically in the Sun Belt, in the Southeast and the West, where people are migrating to. There's a big cohort of people out there who like the subscription economy who want to rent, and they certainly have the economics and the capability to buy, but they're choosing not to for a lot of reasons. We're trying to provide them that product and that service, and Charles and team are delivering on that.
I think it continues to work for us, and we hope to continue to make that available for folks going forward.
All right. I appreciate the color. Maybe one follow-up question just on obviously Invitation's got a very deliberate infill strategy, as you guys have mentioned many times on this call, and also in the past. I mean, how would you contrast that with the strategies of several sort of new entrants or even kind of long-standing competitors in the market and even within the build to rent space? I mean, how far out of the city center are you seeing quote-unquote "competitive" SFR product being bought or added when in reality it's probably not that competitive? I mean, how would you characterize the landscape there?
Well, we'd agree with that, Rich. Yeah, I think the way we differentiate ourselves from others in the space are location, scale, size, and market. We're very focused on infill locations. And we do, you know, think that many of the new single-family projects that are coming up are more further out, or they're in more tertiary markets. We're very focused on location in terms of where we wanna be on a market, as well as what markets we've chosen to be in. We believe scale is a differentiator in terms of being able to run more efficiently, and I think it helps solve a lot of the issues that others may be having around supply chain because we've been in these markets for a long time, and so we have long-standing labor relationships and supply relationships.
Doesn't mean that we're immune to it, but I mean, I think we're dealing maybe better with it than what others have been reporting. Finally, eyes on the market. It helps us, from our being smart about how we acquire and how we operate.
Yeah. I wanna add one thing here, Rich. Dallas, you know, Ernie hit scale, and I just cannot stress enough based on, you know, the 10 or 11 years we've all been doing this, scale is your friend. It allows us to invest in technology, it allows us to update systems, allows us to hire better people. Like, to replicate the type of platform that Invitation Homes has today is very difficult, even in this environment. Now, there's a lot of hot money coming into the space, which, you know, in large part will probably do fine, and that'll be treated more like a trade. It'll be interesting to see how that works itself out over time. The power of our platform is really showing itself right now, I would say through the pandemic and as we start to recover.
The consistency, the ability to be able to operate, to communicate with the residents in a way that allows you to have, you know, turn times like we've had over the last 18 months is just remarkable. That in itself is I think something that is very hard for new money to come in and try to replicate.
Okay. Great. Thank you, guys.
Thanks.
Thank you. We have another question from Haendel St. Juste of Mizuho. Sir, please go ahead, I've opened your line.
Thank you. Good morning. Had a couple follow-up questions here on my list. I guess starting first with the robust rent growth you're seeing, the acceleration here in the third quarter. I guess I'm curious if the FTC inquiry is having any impact on your rental pricing strategies? Also as part of that, can you give us some color on the new and renewal rates from October and what you're sending out for November and December? Thanks.
Sure. Hey, Haendel. It's Charles here. To your first question, no impact from the FTC in terms of leasing perspective. You know, as you just step back and think about the overall performance of our leasing, you know, a lot of it is, as I spoke to, low turnover, high occupancy, great locations puts us in a really healthy position. On the new lease side, you know, the West continues to lead, which is great. You look at Phoenix and you look at Vegas at almost 30%, 29% respectively. It's not just those markets, it's all markets. You know, what's really exciting to see what's happening in Florida in the Southeast as you think and Atlanta.
Atlanta new lease at 20%, Tampa at 21%, Jacksonville at 19%. These are really strong numbers for our portfolio. We're seeing that kind of maintain itself going into October, to your question here. Then on the renewal side, I talked about this a little earlier. We've seen just really acceleration. Again, they kind of lag the new lease side, and new lease has risen so quickly, but we've been increasing almost every month since last summer. In Q3, you saw that. We came in at renewals that were really healthy at 7.8% versus where we were last year at just over 3%, with September ending at 8.4%. That kind of growing trend is continuing into October, to your question.
You know, as we went out in terms of what we're asking going forward, we're in the high 8%-9% as you think through to January. We're set up well to continue that renewal side, and that's where I think it's a real change from the typical seasonality that we might see this time of year is really just not showing up.
Got it. Appreciate the color, Charles. I think you also mentioned you received $25 million of rental assistance year to date. I guess I'm curious what your expectation is for the full year, I guess the rest of the calendar year here, and what that implies for the opportunity next year. Then maybe also some color on bad debt. You've made some progress there on getting it down obviously year-over-year, still above the long-term run rate. How are you thinking about that opportunity near-term? Thanks.
Yeah. Haendel. On rental assistance, it's actually about $22 million this year. It was about $3 million last year. Year to date, or sorry, lifetime to date, it's the $25 million that you referenced. We've seen that, you know, progressively get stronger and stronger as we got to, let's say the May-June timeframe into August and September, where each month in August to September we're collecting about $5 million-$6 million of rental assistance. You know, hard to predict how that's gonna continue to play out. There are tens of millions of dollars of applications still outstanding for our residents in the local jurisdictions. The state jurisdictions are doing a better job of trying to work those through, and importantly our operating teams are helping those folks.
Through that process where we can. Just hard to say how long that run rate will continue or whether it will continue to accelerate as we've gone into the fourth quarter here and as we get into early next year. With that said, you know, we still have a large accounts receivable balance that has a lot of historically overdue balances. So if rental assistance programs stay open, if they continue to stay funded, there's certainly an opportunity for us to have some greater collections and hopefully continue to see our sequential decrease in bad debt that you've seen over the last couple quarters. Here in the third quarter, bad debt was 1% of gross rental revenues, which is better than what we had in the second quarter, which was better than we had in the first.
It does feel like we're, you know, we continue on that glide path to get hopefully back to our historical numbers, sometime, you know, toward the end of next year in terms of being at closer to 40 basis points of bad debt. Then maybe we do a little bit better for a period of time with catch-up from the rental assistance and you see a period of time where, you know, bad debt could go, maybe even be negative, as things are caught up from the delinquency side. We'll just have to see if that happens.
Got it. What's that, receivables balance? Probably should know this, but, do you have that number handy?
Yeah. Today it's on a gross basis over $50 million. It's about $55 million of rent receivables that are due to us. Of course we have a big reserve against that. The net number on our financial statements is much lower. It's about $13 million or $14 million on a net basis. You know, we'll see what we can do to try to get rent assistance in for, you know, help our residents to help bring that number down over a period of time.
Got it. Helpful. Thank you.
Thanks, Haendel St. Juste.
Thank you. We have a question on the line from Chandni Luthra of Goldman Sachs. Chandni, please go ahead.
Hi. Thank you for taking my question. Team, I was wondering, given demand supply metrics are hugely tilted in your favor, how are you thinking about ancillary opportunities at the moment? Is there more upside there? Are there areas, you know, that perhaps you hadn't contemplated earlier that you think are now on the table? Just trying to assess how that could look in 2022 as you continue to get scale.
Hi, this is Charles. Great question. You know, even through the pandemic, ancillary has been a big focus for us. About two years ago, we did our investor meeting, and we put out a target that we'd get $15 million-$30 million run rate on our ancillary services by the end of three years, which would be the end of 2022. We're on track to be at the high end of that, and we're gonna do everything we can to overachieve. That's just the beginning as we think about it. This has been a major kind of focus of building the pipeline and the infrastructure of projects to get us there. The main focus has really been centered around expanding and lowering the cost of our smart home technology in 2022.
We expect we're gonna roll out video doorbells, which will help to grow that. It's something as we survey our residents that they're asking for. In today's world, that's really valuable. We've done the filter program that helps us on the reduction of cost on our filters, but also provides a little revenue. We're working in things around pets and pests in terms of a deal, national deal with Terminix. We see many programs like that that will continue to roll out in 2022 and beyond. Services around energy and landscaping, handyman services, broadband services. There's a lot that we're working on, and we're being thoughtful around when and how we roll them out.
when you put this on top of what our residents are looking for and asking for, and we talked about this a little earlier in the call, we think this is gonna extend the stay that our residents are gonna stay with us because we're giving what they're asking for. We're making it really convenient and easy for them to lease with us. This is a big part of our kinda long-term plan, and we're on track for what we set out a couple years ago.
Got it. For my follow-up, I'd like to talk about, you know, home price appreciation that we've seen so far. Could you perhaps give us any early reads on how we should be thinking about real estate taxes next year, you know, in light of the level of home prices that we've seen?
Yeah. It's always a challenge to try to predict where that's going to be. What I'd say is that there's certainly a risk the assessments are gonna be materially higher than where they're at today. We've typically seen in the past and in cycles like this, Chandi, is that millage rates come down because, you know, just because home price appreciation is up 10%, 15%, 20%, your real estate tax bill doesn't go up 10%, 15%, or 20%. You know, the people who live in those jurisdictions, the people who vote for the various folks who make those decisions, you know, overall on average, those people's incomes are not up 10%, 15%, 20%.
You know, I think overall you'll see for the next few years real estate taxes continue to be a risk item in terms of having greater than inflationary growth rate. It would be surprising and would not really match up what we've seen in prior cycles to see that it would be as much as you've seen, an increase as you've seen where home price appreciation has gone.
Gotcha. Congratulations once again on a strong quarter.
Thank you.
We now have Jade Rahmani from KBW. Jade, please go ahead.
Thank you very much. Wondering if you could comment on recent customer satisfaction scores. How have they been trending? Also, has there been any negative pushback on the dramatic levels of rent growth that we're seeing?
Yeah. This is Charles. Resident satisfaction continues to be a bright spot for us. Our teams are doing an amazing job in the field. As you may know, we still monitor our work orders, and our teams do a great job. It helps to inform what our residents are experiencing and how it's going. You know, I will note that we've continued to see a rise, and you know, if you take our social scores of Google and Yelp, and we were over four on average across all of our markets. All that is really healthy. Are there areas where we wanna continue to improve? Yeah, that's why we do the surveys, and we're learning.
We like what our teams have been doing and we're continuing to focus on it.
What about on rate?
Yeah, you know, we've been thoughtful on rate. On the new lease side, you have to remember, this is a vacant house. We mark to the market. You know, we're just kinda setting rents at what the market is. You don't really get any pushback there. On the renewal side, we try to be really thoughtful. We're actually, based on what's happening with new leases, pricing below what's market, typically. We wanna be thoughtful about that, and we work closely with the national team that sets rents and our local team to make sure that we're being as thoughtful as we can for residents.
Yeah. Jade, specifically just for the last 90 days, we had a record high retention rate from residents. You saw that we had the lowest turnover rate we've ever had in the third quarter. I mean, third quarter doesn't have numbers this low typically. I think the consumer understands what's going on and actually feels like they're getting a pretty good deal in terms of where we're putting our renewal rates at compared to where the market is at, which is, you know, less than half the increase you're seeing in market rates is where our renewals are today.
Thank you very much. Appreciate the conservative approach you guys have. Also wanted to ask about supply chain. I guess, could you remind me what percentage of the work on a house is done with in-house teams? And in your view, do you feel that you've experienced the brunt of the ongoing supply chain disruptions, or is this potentially a coming headwind?
Yeah. To your first question, our maintenance staff, on average, does about half of the work orders that come through, and that's usually the handyman work that they're doing. The larger roof and concrete and stuff like that, if there is that, we'll outsource to other vendors, maybe HVAC and the like. That's a seasonal metric, so it goes down a little bit in the summer. But this time of year, we're actually trending at about 50%. You know, right now we're not seeing a lot of that kinda supply chain stuff hit that work order maintenance work directly. We did see some early noise in the pandemic around appliances and other items. There's a little bit of cost pressure that we're looking at.
We have a couple of advantages when it comes to that, and that's our. Dallas talked about it. Our scale and size really helps. Our centralized procurement teams do a great job of being able to kinda mitigate that. We're not gonna keep it at zero, but it allows us to kind of fare better than others. On the labor side, you can see in our numbers it's not showing up, but there's some pressure out there, and we're paying attention to it. What's great is our. That's another thing that our local scale, local density allows us if we do have somebody turn over, the next person, next teammate can step up. We're attractive platform.
Being a leader in the industry, we're able to recruit, and our team does a great job of recruiting from an HR perspective.
Thanks. Just to sum up the topic, you know, considering the inflation pressures out there, supply chain, which we hear about every day, you know, what is the main driver for the lower same-store expense guide?
Yeah. It's really just the earnings from what's happened in the first part of the year. You know, you can certainly see the implied guidance for the fourth quarter, Jay. It's higher than we've run this year, significantly higher. We, you know, we do expect to have some pressures, as we talked about, in terms of real estate taxes a little bit, higher than we expected, you know, than we saw in the first three quarters, personnel costs, because of, you know, the outperformance we've had this year and things like that. The reason you saw the drop was the fact that we had an extraordinary expense quarter here in the third quarter that 90 days ago we didn't think would be that strong.
Thank you.
Thanks, Jade.
Thank you. We have the final question on the phone line from Andrew Rosivach from Wolfe Research. Andrew, I've opened your line. Please go ahead.
Oh, guys, you've answered all my questions. Thanks a lot, and congrats on a good quarter.
Thanks.
Thanks, Andrew.
This ends our question and answer session and marks the conclusion of our conference. Thank you again for joining. You may now disconnect your lines.