Yahoo Finance Invitation Homes Inc. (NYSE:INVH) Q1 2024 Earnings Call Transcript
Invitation Homes Inc. (NYSE:INVH) Q1 2024 Earnings Call Transcript May 1, 2024
Invitation Homes Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Invitation Homes First Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode at this time. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.
Scott McLaughlin: Good morning and welcome I'm here today from Invitation Homes with Dallas Tanner, Chief Executive Officer; Charles Young, President and Chief Operating Officer; Jon Olsen, Chief Financial Officer; and Scott Eisen, Chief Investment Officer. Following our prepared 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 yourselves to one question and then re-queue if you'd like to ask a follow-up question. During today's call we may reference our first quarter 2024 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 2023 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, 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 in yesterday's earnings release.
I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.
Dallas Tanner: Good morning, everyone and thank you for joining us. Our teams kicked off 2024 with a great start to the year. In particular, our first quarter results reflect high same-store average occupancy, accelerating same-store rent growth and strong same-store core revenue and NOI growth. We believe this puts us in a great position as we begin our peak leasing season. That being said, operating and leasing success is only one aspect of our anticipated growth this year. When we spoke to you in February we told you that our 14,000-home property and asset management agreement with Starwood was just the beginning. Less than three months later we've added over 7000 more homes onto our management platform, including through last night's announcement of our joint venture with Quarterra, Centerbridge and other high-quality investors as well as our agreement with Nuveen that we signed in March.
We are honored to work with each of these respective partners who highly value our coast-to-coast SFR management expertise and best-in-class operating and management capabilities. We believe this is just the beginning of the journey to grow our professional management and services business which as a reminder offers many benefits to Invitation Homes. First, we are an attractive property and asset management fees that are commensurate with our unmatched expertise and scale. Second, we're able to grow earnings in a capital-light manner including through the opportunity to potentially acquire these homes at a later date. Third, we developed deeper insight via the operational data we collect which help us to better operate our own homes and markets.
And fourth, we can further leverage the combined power of scale and density by spreading our costs across a larger number of homes thereby, improving our margins. We believe our partners and residents also benefit from choosing Invitation Homes as their manager. In addition, to getting direct access to our operating, leasing and asset management expertise, our partners can realize potential savings from utilizing our vast vendor network, our staffing optimization and our advantageous pricing agreements. Residents in turn, receive our signature Genuine Care and ProCare services, along with the value-add amenities we offer including for example, our Internet bundle that we buy in bulk in several of our markets and provide the residents at a discount to retail pricing.
Another area of growth for us remains, our new product pipeline. We announced last month, that we added several large homebuilders to our growing list of relationships including, D.R. Horton, Meritage Homes and Dream Finder Homes. We're under contract with them to build approximately 500 new homes, primarily in Charlotte, Jacksonville and Nashville, with deliveries expected to start later this year. Underwritten cap rates on these acquisitions are in line with our previously stated targets of roughly a 6% yield on cost, which I will remind you is a return that's effectively free of any development risk to us today. Given the dynamic environment we've seen in the last couple of years and the volatility in land pricing, cost of materials and interest in cap rates, our contracts are designed to protect us from the risks inherent, with on-balance sheet development while achieving what we believe are a far superior risk-adjusted total return.
We're proud of the growth we delivered through partnering, with the best and largest homebuilders in the country, while also helping to create much needed new housing supply in the communities we serve. To wrap up, we're pleased with how our teams have started off this year. I extend my thanks to all of our associates for their hard work, and seamlessly bringing thousands of new homes onto our platform, while at the same time continuing to deliver outstanding operating and leasing results. As we look ahead, we're excited by our ability to sustain this momentum as we leverage our strategic approach and operational excellence to drive continued growth for our stakeholders through the remainder of the year. With that, I'll pass the call to Charles Young, our President and Chief Operating Officer.
Charles Young: Thank you, Dallas. Our associates really shined during the first quarter, delivering great results and preparing the business for our peak leasing and maintenance season, all while bringing 14,000 third-party managed homes into our operations. During the first quarter, we maintained high occupancy, accelerated lease rent growth and continue to see our customers stay longer with us. We believe this is all part of a simple formula to sustainable NOI growth throughout the year. Now, let's cover our first quarter same-store operating results, in more detail. Fundamentals remain strong and thanks to the great performance of our teams, we grew same-store NOI by 4.7% in the first quarter. Same-store core revenues grew 5.6% year-over-year driven by average monthly rental rate growth of 4.6%, an 80 basis point year-over-year improvement in bad debt and a 15.9% increase in other income, primarily related to our value-add offerings.
Same-store core operating expenses in the first quarter increased 7.4%, year-over-year. This was a result of an 11.8% increase in fixed expenses and a 0.5% decrease in controllable costs. For fixed expenses, the largest driver of the increase was property taxes. As we anticipated and previously discussed, due to the under-accrual of property taxes in the first three quarters of last year, we expect property tax expense growth to be higher during the first three quarters of this year, before normalizing in the fourth quarter. Meanwhile, on the controllable side of expenses, we're pleased to see cost of goods continue to moderate as well as a strong effort by our teams to control costs. This is reflected in our 0.5% reduction in controllable expenses year-over-year as well as our 4.6% reduction in controllable costs from the fourth quarter of 2023 to first quarter 2024.
Of particular note, the first quarter same store turnover rate of 5.2% was flat with last year's first quarter results. Yet, turnover expense was down 2.4% year-over-year. This is due in part to the progress we've made in working through our lease compliance backlog. In that regard, it's great to see more of our markets returning to pre-pandemic normal levels of bad debt. As a reminder, normal for us is approximately 40 to 60 basis points of bad debt as a percentage of gross rental revenues, which has historically been industry-leading among our SFR peers. Looking ahead, while we still have some work to do in a few of our markets, we remain encouraged by the continued high quality of our new residents, whose average household income over the last 12 months is now approximately $158,000 a year, bringing our average income to rent ratio to 5.6 times.
Now let's cover our same store leasing trends in the first quarter. Renewals grew 5.8% and new leases increased 0.8% year-over-year. This drove blended rent growth to 4.4%. Average occupancy in the first quarter remained strong at 97.6%. Our preliminary April 2024 results show our peak leasing season has started off well. Renewal rent growth accelerated to 6% while new lease rate growth accelerated to 3.1% delivering blended rent growth of 5.2% in April. Average occupancy generally held steady at 97.5%. With occupancy in a strong position and fundamentals remaining in our favor, we believe we're in great shape to capture the demand we're seeing in our markets and continue the great momentum our teams have built. I'd like to thank them again for their focus on resident service and operational excellence along with their diligent efforts as we plan and prepare for future growth.
With that, I'll now turn the call over to Jon Olsen, our Chief Financial Officer.
Jon Olsen: Thanks, Charles, and good morning, everyone. Today, I'll cover our financial results for the first quarter 2024, followed by an update on our investment-grade rated balance sheet before opening the line for questions. I'll start with our first quarter 2024 financial results. Core FFO increased 5.7% year-over-year to $0.47 per share, primarily due to an increase in NOI. These results also reflect the first quarter of contribution from the 14,000 home portfolio, we started managing in mid-January. The fees we earned were partially offset by investments we made in resources and support to help prepare for anticipated future growth. These items are included on our income statement under management fee revenues and property management expense respectively.
Meanwhile, higher core FFO drove our 6.8% year-over-year increase in AFFO to $0.41 per share. We're pleased with these results and appreciate the considerable efforts of our associates to help us begin the year strong. Turning now to our investment-grade rated balance sheet. We had over $1.7 billion in available liquidity at the end of the first quarter through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Our net debt to trailing 12-month adjusted EBITDA ratio was 5.4x at March 31, 2024, down slightly from 5.5x as of December 31 and just below our 5.5x to 6x targeted range. We have no debt reaching final maturity until 2026. In addition, 99.5% of our total debt is fixed rate or swapped to fixed rate and over 76% of our total debt is unsecured.
This week we received further validation of the strength of our balance sheet. Specifically I'm referring to our announcement that Moody's recently upgraded the company to Baa2 from Baa3 joining both S&P and Fitch with BBB flat investment-grade ratings. Looking forward, we believe this ratings upgrade further enhances our positioning for when compelling opportunities arise. In summary, we believe Invitation Homes is at the beginning of a new phase of our business and which exciting opportunities could become more actionable and the quality of our balance sheet systems and talent are the best they've ever been. All of this puts us on a path from which we believe we can continue to deliver outsized results for our stockholders and the best possible experience for our residents.
That concludes our prepared remarks. Operator, please open the line for questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Michael Goldsmith from UBS. Please go ahead. Your line is open.
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