Greetings, and welcome to Invitation Homes First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode at this time. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Vice President of Investor Relations. Please go ahead, sir.

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 first 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. 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 in our earnings release and supplemental information, which are available on the Investor Relations section of our website. With that let me turn the call over to Dallas.

Thanks everyone for joining us this morning. We hope you are well and have continued to stay safe. We're off to a great start in 2021 with strong fundamentals, steady progress on our growth objectives, and great positioning for the peak leasing season. We are seeing record demand for our homes and we're executing well to turn that into record high occupancy and capture market-driven rental rate growth. We are also driving growth through acquisitions as our tried and true multichannel platform and local investment professionals continue to successfully source accretive opportunities as home price appreciation accelerates. Before turning it over to Charles and Ernie, I'd like to elaborate on the macroeconomic opportunity we see and the strategy we've put in place to capitalize on it. To begin, we believe the tailwinds driving growth in our business and markets are stronger than they've ever been. The supply of single-family homes remains well short of growing demand, while the leading edge of the millennial generation is just starting to reach our average resident age of 39 years. As this large cohort of the population may increasingly seek out single-family homes, we anticipate that their preference for and participation in the subscription economy could continue to drive them toward home rental versus home ownership, further extending demand growth for our product in the years ahead. We also expect continued benefits from our homes' compatibility with the work-from-home lifestyle and the relative affordability of our square footage compared to other housing options. We believe these benefits are magnified in a world where people rethink the way they use space to work and play. In addition, we're seeing strong continued growth in household formation within our markets, which are benefiting from the southward migration of the U.S. population. Put simply, we believe the growth we've experienced to date is only the beginning. And we're as bullish as ever about the fundamental outlook for single-family rentals in our markets. These positive industry dynamics are not only a strong backdrop for organic growth, but also enhance the investment thesis for external growth as we look to grow in a very disciplined way. Of the 16 million single-family rental homes in the U.S. today, less than 2% are institutionally owned. We are hearing from our residents and seeing in our results that there is high demand for an increased number of professionally managed single-family rental homes. There is an opportunity and a need for the industry to grow. And with our best-in-class platform, people and scale, we believe we are the best prepared to invest and execute to capture these growth opportunities ahead. In this regard, our growth strategy is comprised of two parallel avenues. The first is through acquisitions. The second is through enhancing the resident experience. Let me walk you through both of these in a bit more detail. First, I'll cover growing our portfolio. As we've stated, we've projected acquisitions of at least $1 billion in homes this year and I'm pleased to report, we are off to a great start. During the first quarter, we added 696 homes to our portfolio, including 295 in our joint venture. Our proven multichannel approach to acquisitions driven by our proprietary AcquisitionIQ technology and in-house local investment experts enable us to remain nimble and source robust acquisition volume, while maintaining discipline around location, quality and risk-adjusted returns. Second, I'd like to talk about our plans to further enhance the resident experience. Our residents look to us not only for shelter, but also a worry-free leasing lifestyle. Our ProCare service offers proactive maintenance to keep our residents' homes in excellent condition. Our Smart Home technology makes it easy to manage the features and utilities in their homes. And our filter delivery service makes it more convenient for residents to maintain air quality and energy efficiency of their homes. We recently rolled out our pest control services and we'll launch a landscaping pilot program in select markets next month. All of these items are provided at an additional monthly cost. And both our resident survey data and the number of residents signing up for these services tell us that we're delivering these services that residents want in order to simplify their lives. We estimate we're over halfway to our expectation to reach approximately $15 million to $30 million in run rate annual ancillary income by the end of 2022. As we grow, we also remain focused on ESG including added attention to the environmental performance of our homes. For example, we recently piloted a program designed to help our residents optimize their energy usage while reducing peak energy demand. The software-based system is integrated into our Smart Home technology and allows our residents to save hundreds of dollars a year in utility costs, in addition to consuming less energy. We also recently launched our Green Spaces community program in which we select philanthropic and volunteer opportunities to improve outdoor spaces in our neighborhoods. We kicked off the program earlier this month with support for the Hawes Trail Alliance in Mesa, Arizona, where members of our executive team joined dozens of local associates and community partners to create new hiking and biking trails for our residents and for our neighbors to enjoy. I'd also like to take a minute and comment on our recent investment-grade ratings announcement. We are very pleased that the rating agencies recognize the strength of our platform and our team and the safety of our balance sheet. This represents the achievement of a long-stated goal since our IPO and Ernie will provide more commentary on what it means for our company going forward. In closing, we're proud of the accomplishments we've made this quarter and are excited by the opportunities we have to grow both internally and externally using our strengths, scale and operational excellence to continue leading the single-family sector. I'd like to thank all of our associates for their hard work in serving our residents with genuine care and getting us off to a strong start this year. With that I'll turn it over to Charles to talk further about our operational results.

Thanks, Dallas. Let me start by recognizing our teams for another quarter of exceptional care to our residents. Our approach is straightforward: we offer quality homes, an easy process, and friendly service. And when we execute well, as we did this past quarter, it reflects in several ways. Let me tell you about four of these. First, our residents continue to stay with us longer. During the first quarter, trailing 12-month same-store turnover decreased another 100 basis points to 25.3%. The second point is our ability to lease faster. Our days to re-resident dropped to 29 days for the first quarter, down over 20 days from the prior year. Today over half of our new leases are being signed before a new resident has even seen their new home in person. This, along with lower turnover, helped drive our same-store average occupancy to 98.4% during the quarter, a 170 basis points improvement over prior year. The third point is our rental rate growth. New lease rate growth accelerated to 7.9% in the first quarter, up 610 basis points year-over-year, while the rate on renewals grew 4.4% in the first quarter. This brought same-store blended rental rate growth for the quarter to 5.4%, up 200 basis points year-over-year. The fourth and final point is resident satisfaction. As a reminder, we receive roughly 60,000 resident surveys each year and these continue to indicate record-high satisfaction rates. Our residents are particularly pleased with how we're using technology to add flexibility, convenience and time-saving benefits to their lives. For example, we recently rolled out an app to make service requests and appointments easier for our residents and more efficient for us. And we continue to install our Smart Home suite throughout our portfolio while also considering new ways we can continue to improve the resident experience. All of this leads to our same-store NOI growth in the first quarter of 4.4% year-over-year. This is comprised of same-store core revenue growth at 2.2% as well as a 2.2% reduction in same-store core expenses. On the revenue side, cash collections improved in the first quarter, accounting for 98% of our historical average, as we continue to work with residents to offer flexible solutions for those experiencing hardship. Lower expenses were mostly the result of double-digit percentage drops in nearly all of our controllable expenses. As Dallas mentioned, we are now in our peak leasing season and demand for single-family housing is as strong as we've ever seen. This reflects in the current dynamics in the marketplace and is certainly impacting how we think about renewals and new lease rates. In summary, we remain in a strong position to continue delivering on our resident service and operational excellence and to capture the robust demand we're seeing across our markets. Many thanks again to our team for the genuine care they provide to our residents each and every day. That concludes my remarks. I'll pass it along to Ernie.

Thank you, Charles. Today I'll cover the following topics: finally, our investment-grade ratings announcement; second, acquisition and disposition activity; and third, our financial results and the increase to guidance we announced last night. Last week we announced that both Fitch and Standard & Poor's have rated us investment grade. And this week, Moody's has as well. This recognition marks an important milestone for Invitation Homes. We believe it affirms our strong and flexible balance sheet and should also offer us improved access to additional forms of cost-effective capital when we look to refinance future debt maturities. In the meantime, we anticipate that the investment-grade ratings will reduce our annualized interest costs on our credit facility by approximately $0.03 per share. With this objective now complete, we remain committed to: one, proactively managing our maturity ladder, which today, other than our convertible notes, has no maturities prior to December 2024; two, continuing to focus on lowering our overall leverage to our long-term target of 5.5 to 6 times net debt-to-EBITDA; and three, over time transitioning more of our borrowings into unsecured financings. As for the current status of our balance sheet at March 31, our overall liquidity at quarter end was approximately $1.2 billion from unrestricted cash and revolver capacity. Net debt-to-EBITDA also declined from 7.3 times to 7.1 times during the quarter. Regarding our investment activity, we purchased 696 homes during the first quarter for $233 million. 401 of these homes were wholly owned acquisitions for $138 million, and 295 were bought by the JV for $95 million. Acquisition cap rates remain in the mid-5s. We also sold 248 wholly owned homes for $75 million. Last up our financial results. Core FFO per share increased 4.5%, year-over-year to $0.36, primarily due to higher occupancy, lower controllable expenses, and turnover. AFFO per share increased 6.8% year-over-year to $0.31. As a result of our execution to date, including the benefit of the earn-in of stronger leasing activity achieved during the first quarter and anticipated activity in April and May, we are raising our full year 2021 same-store NOI growth guidance by 75 basis points to a range of 3.75% to 4.75%. This increase includes a 25 basis point increase in same-store core revenue growth in a range from 3.75% to 4.75% along with a 75 basis point reduction in same-store core expense growth guidance in a range from 3.75% to 4.75%. In addition, we expect interest expense savings as a result of our investment-grade ratings. In consideration of all these items, we are raising our full year 2021 core FFO per share and AFFO per share expectations by $0.03 at the midpoint, in a range from $1.34 to $1.42 for core FFO and in a range of $1.13 to $1.21 for AFFO. So in summary, 2021 is off to a strong start. We are particularly excited about our internal and external growth prospects, which we believe can widen our lead not only in the single-family rental business but among all housing providers. We believe our best-in-class locations, scale, and local expertise differentiate us from our peers in our channel-agnostic location-specific external growth strategy, now even better supported by our investment-grade balance sheet, will propel us forward in helping us to deliver outsized returns. With that let's open up the line for Q&A.

We will now begin the question-and-answer session. Today's first question comes from Nick Joseph with Citi. Please go ahead, sir.

Thanks. Just given the elevated home price appreciation that we're seeing nationally is that having any impact on underwriting or initial yields on acquisitions?

Hi, Nick, this is Dallas. We're definitely mindful of the fact that we're in a rising price environment and being pretty disciplined around where we're buying and why given that we are seeing so much growth. We've been able to sustain our cap rates, call our stabilized cap rates in the low to mid-5s. Large part of that obviously is we're seeing the acceleration in rate alongside home price appreciation. It's typically a pretty good proxy. But it's certainly something we're mindful of because, not all trees grow to the sky and so we want to make sure that we're measured, be smart about what we're buying, where we're allocating capital and sticking to really our core disciplines that Ernie talked about, being really kind of channel-agnostic but hyper-focused on making sure we're in the right locations.

Thanks. And then congratulations on the investment-grade rating. As you move more towards that 5.5 to 6 times target will further investment-grade credit increases impact your interest rate on the line?

Yes. We have – Nick, it's Ernie, and the answer is – I want to thank you for mentioning that and I appreciate your congratulations too. And yes, we have a grid that's consistent with most companies in terms of investment-grade grid. So if we were to be able to go to BBB+, there'd be further increases in terms of the savings we have as well as if we would ever someday get into the A ranges. So, yeah, there is an opportunity for us to have further savings going into the future.

Thanks.

The next question comes from Jeff Spector with Bank of America. Please proceed.

Great. Good morning. And congratulations on the investment-grade ratings, first question is on collection of late fees. It seems like it's still dragging on same stores, but if you could just comment on that please, when you expect to start collecting?

Yeah. Hi. Good morning. This is Charles Young. In terms of late fees, Q1 was more of a transition period for us, trying to get back to our normal course and communicating with our residents. And so, today, as we move into April, we're running more like our historical structure. However, keep in mind that we're still prohibited in a number of states from charging late fees. So while we're back to our normal structure, we're not going to be all the way back until some of those rules are pulled back. And then, at the same time, we still are working with residents who may have a hardship and are willing to go on some type of arrangement with us. And so if they reach out, we'll do that. But in the meantime, I think you'll start to see us move towards our typical late fee collection throughout the year. It should increase as the rules evolve.

Thanks, Charles. And then, second question is around some of the tailwinds mentioned. There still seems to be some investor concern that some of those could fade with re-openings. Can you provide any color on what you're seeing in April, as we've seen some of the coastal areas re-open? How are your retention rates in April? Anything you can discuss or share with us, please?

I believe we are in a very strong position. Our Q1 results show a favorable occupancy rate above 98% and accelerating rent growth for both new leases and renewals. Although we still have a few days left in April, the data indicates that new lease growth will exceed 10%, which is an improvement from Q1 renewals in the mid-5s with an overall blend near 7%. We will see where the numbers settle, but everything looks very healthy, along with solid retention and renewal figures. As we enter the peak season, there may be some seasonal fluctuations, and while we aim to increase rates and balance that effectively, it's possible that retention and renewal numbers might dip slightly. Overall, I feel more strongly about our position in the single-family market than I ever have in my career, and I'm very excited about the opportunities ahead.

Great. Thank you.

Thanks, Jeff.

The next question is from Rich Hill with Morgan Stanley. Please proceed.

Good morning, everyone. I wanted to address the topic of bad debt for a moment. It continued to be a challenge in the first quarter, which is understandable. I have a two-part question for you, Ernie. Can you discuss what your guidance for the rest of the year regarding bad debt includes? Additionally, when do you anticipate that bad debt might shift from being a concern to becoming a positive factor?

Yes, Rich, thank you for your question. The answer is yes, bad debt remains a challenge. The comparisons will become slightly easier as the year progresses. However, we are following the trajectory we outlined last quarter. On a quarter-over-quarter basis, we expect an improvement in bad debt each quarter. Nevertheless, for the second quarter, we anticipate it will be similar to the first quarter, around 200 to 250 basis points. We hope to see it move into the mid to high 100s in the latter half of the year. For the entire year, when comparing 2021 to 2020, we still expect it to be a challenge, although it will improve each quarter. However, we do not expect it to return to the historical levels seen in 2019, which were between 30 to 40 basis points, until well into 2022.

Okay. Helpful, Dallas, I want to start by mentioning that this may be an uncomfortable question for you. Can you explain why you’re hesitant to make extensive purchases at this time? Some of your competitors are clearly taking a more aggressive approach with various programs, and we’re seeing many new players enter the market. While I understand that HPA is costly and the need for caution, why not leverage your investment-grade bond rating to make significant purchases now?

I'll try to keep my answer straightforward, Rich. First off, we're typically investors across all cycles, aiming to be strategic about our timing and choices. We acknowledge we have a favorable cost of capital, and if opportunities make sense, we would certainly seek ways to engage. However, we're observing that pricing for stabilized portfolios is currently exceeding what might be considered retail value. Cap rates are compressing, and the stability of cash flow is highly attractive to investors. We're carefully considering all these factors in our strategy. It's also important to note that supply is very limited at the moment, creating a tight market, but we remain active. At the start of the year, we felt a quarterly target of $200 million to $300 million was a reasonable baseline for generating strong risk-adjusted returns for our shareholders, and we feel good about that through the first quarter. So far this year, we haven't made any significant moves or large bulk purchases. We concur with your observation that we're in a favorable position, and if opportunities arise, we will aim to be proactive. At the same time, we are cautious not to be overly aggressive in a way that could compromise our exceptional portfolio with strong operating performance. I want to emphasize what Charles mentioned: in my decade of experience in this industry, I've never seen fundamentals like this, as you pointed out, Rich. Our goal is to maintain strong operational execution and to enhance our balance sheet through growth, while also highlighting the ancillary aspects of our business that our residents are increasingly embracing, as they will provide sustained income for the company over the long term.

Okay. Thank you, Dallas. Congrats on a good quarter.

Thanks, really appreciate it.

The next question comes from Dennis McGill with Zelman. Please proceed.

Hi. Good morning, guys. Thanks for the time. Charles, you made a comment. I think you said that the strength of the market is impacting how you are thinking about new and renewals. And I just wanted to see if you could elaborate on what you meant by that?

Oh, yeah. So as we look forward to peak season coming, we've been performing. The numbers we put up in Q1 are what we typically see in summer months when things are really strong. And so the position of our portfolio puts us in a really nice position. So when you think about our renewal ask out into the summer, we went out in May with an ask in the high six's. June we're asking around seven. In July, we're asking around eight. These are all on renewals, which is an indication of the healthy strength of our portfolio. And a lot of that is buoyed by our occupancy rate how we're executing the teams are doing a phenomenal job and the new lease rates that we're starting to see forward. And today as I mentioned, on the previous question that for April, we're north of 10% on new lease. So that gives us a lot of strength to think about how we want to go about positioning the portfolio and capturing the strong market that's out there.

So you just meant that you're willing to be a little bit more aggressive than you normally would seasonally because of how robust occupancy is?

That's right.

Okay. Got it. And then Dallas on the acquisition side with the competitiveness out there, are you either forced to or more willing to take on homes that might require more upfront CapEx and utilize your redevelopment expertise on that to still achieve the same level of cap rate, or is that unchanged?

No. I'd say, it's unchanged, Dennis. We're certainly not afraid of a project, if it's in a great location but no our view on that hasn't changed at all.

Okay. Great. Thank you, guys.

Thanks, Dennis.

The next question comes from Haendel St. Juste with Mizuho. Please proceed.

Thank you, operator. So, good morning.

Good morning.

I wanted to go back and ask the acquisition question. Good morning – a slightly different way. Clearly, there's an understanding that there's lots of competition tight supply you're being selective, but I guess I'm really wondering on getting at what's giving you the confidence to hit that $1 billion target for the year, right? We're off to a bit of a slower start in the first quarter than I would have thought. And given your comments about the market, I guess, I'm curious, is there anything special underway portfolios or anything meaningful under contract or LOI or something that's giving you a bit more confidence or something that could be helpful in us understanding the confidence that you're having in hitting that number?

Yeah. Haendel, just for fun. $233 million is pretty close to $0.25 billion –

Net is $150 million.

That's okay. Well we never – we didn't ever talk about gross to net. But I would say this, a couple of things. Like I said, it was a pretty base case quarter for us. Going back to Q4 and even kind of pre-pandemic our kind of normalized run rate has been right around I would say, $250 million a quarter. That has some ebb and flow. I think in Q3 or Q4 of last year, we had a bigger quarter because we had a few other little things kind of come into our opportunity set. We feel good about it. I mean, look we're in call it a less than five weeks of supply in all of our core markets right now just from an available inventory perspective. There's so much capital coming into the space that everything is pretty competitive. We've done a nice job of building up and starting to build a pipeline with a lot of our builder partners. So we'll continue to emphasize that as another channel for us as we continue to grow going forward. And we're likely to see some mini-bulk and call it other kind of consolidation opportunities over the next couple of years. Now, all that being aside, we still feel like we can grow to the tune of $1 billion a year. And remember, we report on closings. It doesn't necessarily talk about pipelines, but we're on a pace that we're really comfortable with right now.

Okay. Fair enough. And then on to the ancillary income, I appreciate some of the commentary there. I think you mentioned you're halfway to your run rate of ancillary income by year-end 2022. So pet care – I think you mentioned pest control. So what's next? And what – is that back half of this year more next year? So kind of curious on what you've accomplished on that checklist and what's remaining on the ancillary income front? Thanks.

Sure. It goes back to our Investor Day over a year and a half ago when we set a goal to achieve between $15 million and $30 million by the end of three years. At that time, our ancillary revenue was nearly non-existent. We believe we will likely fall somewhere in the mid to high end of that range over the next 18 months. We have revamped and enhanced our Smart Home technology platform and offerings significantly. Charles and the team have done an excellent job of continuously rolling out that product, which is now standard in our leases, with many customers using this service. We have made several enhancements to that offering, which we plan to adjust over the next 12 to 18 months, including introducing filters and filter delivery services as standard features in all new lease signings, as well as working on renewal structures for 2021. Our pet program is being updated by the end of 2021, which will include improvements in screening processes. We have also launched our pest control partnership with Terminix, and we will begin piloting several landscaping initiatives later this quarter. Most of these initiatives are foundational to our offerings. As part of our focus on enhancing the mobile experience for our residents, we see these as core offerings with additional ancillary products that will be both national and market-specific in the coming years. None of these initiatives have been factored into our forecast for the next 18 months, so we view them as additional opportunities to grow our business and strengthen our customer relationships moving forward.

That's helpful, thank you. I have one last question. We're seeing occupancy and turnover hitting all-time highs again, sitting at 98.5%. You mentioned a 20-day re-residency in the quarter, so I'm wondering how much better this can get. I'm curious about your thoughts on the levels you're achieving with occupancy and turnover. Did you ever expect to reach this point? Can it improve further? I'd like to know if you have any insights to share on this.

Yes. I'm glad to jump in. Look, our teams are doing an unbelievable job at all levels. And it's been a very dynamic landscape. If you think about where we were a year ago to what the teams have been able to do and adjust in, we are controlling what we can control. The market is in our favor, nice tailwinds. But in terms of our ability to control costs, move people in quickly, pre-lease homes by utilizing marketing and other tools as well as turning homes, rehabbing homes quickly, all those are just driving our numbers down. We were already moving down on days to re-resident prior to COVID and we continue to execute well. So look we're at heady numbers. But as I said before, we're going into the summer in really strong shape. And with the demand still there, we'll see where it ends and how long it goes for. But the teams are ready and they're doing everything they can to make sure that we capture what's out there. Proud of them.

Great. Great. Thanks Charles. Thanks everyone.

Our next question comes from Rich Hightower with Evercore. Please proceed.

Hey, good morning guys. I'll echo everyone else's congrats on a nice quarter in several respects. Ernie, just on the investment-grade rating, I think last quarter you talked about that being a distinct possibility later this year at the earliest. And so just maybe walk us through for a second, what specific factors changed in such a short period of time maybe versus the timing that was originally expected on that if you don't mind.

Yes. Happy to Rich. You never know. It's not in our control completely obviously. It's up to the rating agencies. We started to build more confidence after we were able in December to close on our new credit facility, which really upsized the amount of unsecured financing we had. And earlier than that, we weren't certain we'd be able to upsize it as much as we were able to. So we were able to add another $1 billion of unsecured financing to pay off secured financing. And a couple of the agencies are very focused on how much unsecured you have versus secured. And then the other real question was Rich how are the agencies going to take to the current operating environment. Certainly the sector held up well during the pandemic, but we weren't sure how they would view things from a going-forward perspective. And so certainly I always try to err on the side of under-promising and over-delivering. But we felt good in engaging with the agencies later in December a little more informally that there might be a window for us to go forward here in the first quarter of 2021. We had some very good help from some advisers in the process as well and we decided it was the right time to try. And fortunately, the agencies liked the path we're on. They certainly recognize, as you probably saw in the reports, the strength of the industry, the strength of our company in particular from a credit perspective. And we were fortunate to get there. It's the second time they've taken the company through. So you never know exactly how that's going to go. And so that's why I want to make sure we're being cautious, but at the same time, we had some optimism. And that's how we were able to get here maybe about a year earlier than we otherwise would have thought.

Okay, great. That's helpful color. For my second question, I know you've mentioned several times in the past, including on this call that work-from-home is increasingly probably a net benefit for your business and your tenant base. But I'm just wondering maybe the flip side of that coin, as more and more companies are announcing starting to announce a return to office plan at some point later this year, clearly some portion of the workforce is going to have to be commuting into the office a certain number of days a week. And how does that change or factor into your underwriting criteria, in terms of geography and the distance from sort of the urban CBDs respectively throughout the portfolio? And what's your comfort level or house view with the idea that more and more people might work from home permanently? And just how does that factor into the investment mix, if you don't mind?

Yes. Good questions. So a couple of things I just want to touch on, Rich. First and foremost, let's go back to pre-pandemic. We were 97%-plus going into the pandemic. So call it all, the macro tailwinds that center around millennials wanting a flexible lifestyle, boomers that are preferential that are making some of these choices. That demand profile was in the business pre-pandemic. Your point around the work-from-home component and the balance of people going back to the office or staying home, we've certainly seen that in our survey data that one of the bigger drivers over the last year on our new leases and move-in that was being influenced was by people's desire to maybe have a bit more square footage because of the work-from-home component. So we view that as purely just a net positive for our business call it, beyond the 97%-plus pre-pandemic. I think for us as a company, in terms of how we position into that narrative, it will be important that we stay current in terms of where those trends are going and other things that we can do that offer that flexibility. Charles and his team look at a number of these things, both from how we rehab a home, fit and finish standards. Certain offerings we can do with some of our partners in the marketplace whether it’s Home Depot or office furniture companies, et cetera, where we can drive additional synergies for the resident experience. I think that's the key thing here. The occupancy was there pre-pandemic. The demand was there pre-pandemic, but how do we continue to capitalize on that theme, if it stays relevant for our business going forward.

Okay. Thanks, Dallas. Maybe just to drill down on one aspect of the question here. I mean, if increasing work-from-home is part of the house view of the business' strategy going forward, I mean are you increasingly comfortable acquiring homes farther outside the urban CBD? And does that open up investment opportunities that maybe you wouldn't have thought about if we were having this conversation two years ago? Can you go further and further out?

From our current perspective, we focus on total returns. If the work-from-home trend adds value in more remote neighborhoods, companies might consider that, but history shows these trends shift. We have always prioritized investing in infill properties that have high demand, which is influenced by factors such as school districts and transportation options, beyond just work-from-home considerations. Currently, the demand factors we observe haven't changed. Our strategy for capital allocation remains careful and deliberate. So far, there hasn't been any indication that we should expand our investments further out.

Got it. Thank you.

Thanks.

Our next question is from John Pawlowski with Green Street. Please proceed.

Hey, thanks for the time. Charles or Ernie, hoping you can provide some kind of details on the path for two drivers of the business as COVID impacts normalize. How does occupancy trend once you're able to move through evictions? And what's a reasonable trajectory of cost to maintain once turnover starts to pick up a little bit?

As we enter peak season, we typically see fluctuations in demand, turnover, and occupancy. Currently, we're at a high of 98%. I don't expect this to last indefinitely. Our turnover rates were in the high 20s before the pandemic, and we anticipate that in the second half of the year, turnover may increase slightly. However, our efficiency in re-resident processes should help manage that. I believe we will stabilize around the mid to high 97% occupancy. We are also seeing strong demand for our homes, particularly in areas highlighted by Dallas, and we're effectively capturing that through rent growth. Our investment management and operations teams are continuously working to optimize our strategies, and we'll adapt as circumstances change. Notably, our average time to re-resident in the first quarter was an impressive 29 days, a reduction of 20 days from previous periods, and we aim to maintain this momentum. Overall, I expect us to finish in a strong position that reflects the market conditions.

John, in response to your question about maintenance costs, we are experiencing some positive effects from low turnover in our overall maintenance expenses. To clarify, repairs and maintenance of our homes account for about two-thirds of these costs, while turnover makes up approximately one-third. This proportion has changed slightly due to the current low turnover rates. Our guidance indicates that we expect turnover to rise in the second half of the year as we address some portfolio challenges. In the long term, we anticipate returning to the levels we saw in 2019, which were around $3,000 to $3,100 per door, adjusted for inflation over the past two to three years. While we are not facing additional pressures at the moment, we may experience short-term challenges if turnover increases in the latter half of this year or early next year as we move towards a more typical operating environment.

Okay. Understood. And then just last one for me. Understood, bad debt is fairly stable across the portfolio. Charles, have you seen any kind of sequential deterioration in payment trends across markets?

You broke up a little bit. But, no, you're asking about bad debt or collections specifically within the markets?

Yes. Are there any markets that are showing signs of sequential deterioration?

No. We really haven't seen any of that. There's more challenging markets that we've talked about in the past with California, a little bit of Chicago. But I can’t say that some of these third-party rental assistance programs are helping in those markets. And our teams are doing a great job of really advocating on behalf of our residents to try to get some of those rental assistance. And so some of that is starting to show up, but to your base question, no, we're not seeing any real sequential demand market by region. And as we have looked at, in general, March was a good performance on collection. In April, we have a couple of days left, but we're coming in fairly strong as well.

All right. Great. Thanks for the time.

Thanks, John.

The next question comes from Jade Rahmani with KBW. Please proceed.

Hi. This is Sarah on for Jade. My first question is, with the surge in home price appreciation are you pursuing rent-to-own strategies with customers in any market?

Not officially, no. What we've been doing is fee-simple buying with anywhere from a one to two-year lease.

Thank you. And my second question is, what are the most promising offerings within ancillary revenues?

Well, we think there's a few things that we do really well, including smart home technology that allows people to manage their home mobilely, both from ingress/egress issues, as well as managing their thermostat. We certainly are excited about some of these pilots I talked about earlier, that we think deliver in a better way on a worry-free leasing lifestyle. And things like landscaping and being able to offload or ancillary product offerings, discounts with some of our biggest vendors are all going to add to that value experience for the customer. So I think, as we continue to find things that are sticky and maybe more importantly things that our customers can take with them. Our pest control partnership, for example, is a great avenue for that, where somebody comes into the portfolio, maybe stays with us for a couple of years, has a subscription-based service. As I mentioned before, the subscription economy that we're all part of. And then they take it with them, in their walk of life beyond maybe their stay with Invitation Homes. That continues to be an ancillary income generator for our business. So we're really excited about, not only piloting, but figuring out how to enhance some of those offerings, so that they can be perpetual income for the business going forward.

Got it. Thanks for taking my question.

Thank you.

Thank you.

The next question comes from Brad Heffern with RBC. Please proceed.

Hey. Good morning, everyone. Another question on the, sort of, acquisition angle. Has the sort of amount of work that you've had to put in to get a similar acquisition number changed over time? Like does the hit rate on the $233 million that you acquired this quarter, is that significantly lower than it has been in the past?

It has been relatively consistent over the past few years. With less supply, there is not as much to analyze, though we still review everything in the markets. Overall, from a broader viewpoint on supply, the numbers have remained the same for the last few years. Currently, our data and what we refer to as our AcquisitionIQ technology have become significantly more advanced and reliable, improving year after year. We've underwritten over a million homes in the last decade. Our perspective on everything from specific ZIP codes to submarkets continues to improve with time and new developments in both the market and our portfolio. This enhances our ability to make faster decisions, as the quality of data keeps improving the experience for our underwriting team.

Yes. Okay. Got it. And then just thinking about the guide, some of the commentary earlier about the renewal rates that you're asking in the coming months, I mean, it sounds really robust. So I'm curious how much of the April new lease growth of 10-plus or the July renewal of 8-plus, like, how much of that is actually in the guidance and how much of it's upside?

Yes. I would say, Brad, if we're able to achieve close to those numbers that Charles said, there's always a little bit of a give and take on the renewal asks, so we don't get all the way to our number. But if we're able to continue with the numbers that we had in April, in those numbers that Charles laid out, there we'll certainly have an opportunity in toward the high end of our guidance range or maybe even a little bit better. But we'll just have to see how that plays out.

Okay. Thank you.

The next question comes from Keegan Carl with Berenberg. Please proceed.

Hi, guys. Thanks for taking my questions. I guess to kind of take a different point of view from earlier questions, what's stopping you guys from kind of clearing out the bottom 2% to 5% of your portfolio that's performing maybe below average and then taking advantage of the current housing level and then kind of recycling that into markets you think you're going to perform better over time?

That's a good question. We have a strong history of consistently removing the bottom 1% to 2% of our portfolio each year. This year, we're on a similar path. I believe we had around 200 in dispositions.

75 million.

Yes, it was about $75 million about 250 homes in the first quarter. So at that run rate we would call it cull through 1% to 1.5% of our portfolio this year if my math is right in terms of say 1,000 sales or so on the current portfolio base. So you're right in that pricing is really good. Now taking a step back when you're in these types of moments you definitely can see a value proposition on maybe what your sale prices are, but you've got to weigh that out with some of the growth that we're seeing as well. So in our West Coast markets where in just the first quarter we're seeing new lease rate growth between 15% in Phoenix, 12% in Vegas and another 11% in Seattle it makes it hard to want to sell much of anything with this kind of momentum. And the portfolio as Ernie mentioned before has been pretty consistent in terms of operating expenses and our expectations around retention. So we're weighing that all out and we certainly would start to cull if we saw an area or a part of the market that we thought we could maximize pricing. But we've done quite a bit of selling in the last three years to five years as well to be prepared for this moment. We're really excited about how the portfolio is behaving and we'll look to maximize those returns going forward.

Got it. Thanks. And then specifically when looking at Florida have you guys experienced any significant insurance premium increases? And do you think this will kind of influence your decisions on transacting in the state going forward?

Keegan, that's a great question. We closely monitor the property insurance market, which has been quite challenging in the residential sector over the past few years. I've heard that multifamily properties have faced insurance increases ranging from 20% to 40% each year for the last two years. Fortunately, we've had some good outcomes because the risk associated with our assets is significantly different. Our individual assets have relatively small insurable values and are spread out. Two years ago, we had our insurance renewal in March 2020, and at that time, our rates were flat across the portfolio. This year, they only increased by about 7% or 8%, so over the two-year span, we've seen an increase of roughly 7% or 8% combined, in contrast to the potential 30% to 40% increase for multifamily properties during the same period. We keep a close eye on this issue and are aware of its implications. Thankfully, the property insurance market recognizes that our portfolio's risk profile differs significantly from other commercial properties, which has worked in our favor.

Great. Thanks for your time, guys.

Welcome.

Our next question is from Ryan Gilbert with BTIG. Please proceed.

Hi. Thanks, everyone. First question, Dallas I was hoping you could add some detail around just your acquisition channels in the quarter. Did the mix between channels change at all from prior quarters? And how are you thinking about the opportunity I guess between sourcing acquisition volume between the MLS channel, iBuyers, homebuilders or anywhere else you can buy homes?

Yes, good question. It always varies from quarter to quarter. I can share what we experienced in the first quarter. As previously mentioned, we had very little bulk activity in Q1. Approximately 80% of our homes came through traditional one-off channels, about 10% to 12% through our builder partners, and another 5% to 6% from iBuyer channels. This mix can change each quarter based on various factors. For comparison, in Q4, around 30% to 40% came through what we refer to as mini-bulk. I would describe this quarter as fairly typical, without any particularly notable events, as we focused on consistently buying one-off properties at the local level.

Okay. Got it. And looking ahead has there been any change in deal flow, or how does the pipeline look by channel? Any changes?

Without providing too much forward guidance, I can say that we are very optimistic about our pipeline, particularly regarding the partnerships I mentioned earlier with our builder partners as we aim to expand those channels. We have been discussing this for over a year, and these opportunities take time to develop. Additionally, we are enthusiastic about the team's efforts on smaller consolidation opportunities that exist. However, the current environment is more favorable for aggregators due to low interest rates and the influx of capital in the industry. I believe we will be well-positioned over the next two to five years for promising consolidation opportunities.

Okay. Got it. Second question is on build-to-rent. We've heard a lot about it. I'm wondering if you're noticing an increase in competition from build-to-rent operators and if there's any markets you could where you're seeing maybe a bit of pressure on either turnover occupancy blended rent. I mean it doesn't seem like it's showing up in your quarterly numbers, but maybe any color you could provide would be helpful?

We don't typically feel pressure from build-to-rent operators as their developments are usually located further away from our portfolio. However, we are frequently approached by build-to-rent developers and landowners to discuss potential interest in portions or entire sections of communities. Our decision-making process for these opportunities is similar to how we evaluate purchasing an individual home. We assess whether we like the location and have confidence in the long-term fundamentals of the neighborhood. We do own sections or entire neighborhoods in various markets across the country, but these are generally located in more infill areas.

Okay, great. Thanks so much.

Thanks, Ryan.

Our next question comes from Rich Skidmore with Goldman Sachs. Please proceed.

Ernie, I just wanted to follow up on guidance to ensure I understood it correctly. You raised guidance by $0.03 and gained another $0.03 from the IG rating, but you also increased same-store NOI which should add a couple more pennies. I'm trying to clarify what might be the offset. Is the $0.03 on interest expense an annualized figure? Can you please clarify that?

Yes that's exactly right. The $0.03 is an annualized numbers for the rest of the year. It's about $0.015 maybe a little bit better of benefit and the rest of the benefit comes from the increase in the same-store NOI that you called out you got it exactly right.

Got it. Thanks guys. Appreciate it.

The next question comes from Sam Choe with Credit Suisse. Please proceed.

Hi everyone. Congratulations on a successful quarter. My question is similar to the previous portfolio turnover question. I'm examining the blended rent spreads, and I've noticed that the Midwest is underperforming compared to the rest of the portfolio. I understand you've focused primarily on the Sunbelt region, but I'm curious about your thoughts on the Midwest and how it fits into your local commuter strategy.

Yes, it's Ernie. We have a portfolio of 16 markets, and you'll notice some perform better than others. We've seen strong sales even from some of our weaker markets, which are still doing quite well overall. We're experiencing record high numbers across the portfolio, and even the markets that are lagging are achieving solid results. We are open to considering the opportunity to sell more homes since the current market is unique. However, we have to consider the potential home price appreciation or rental growth we might miss out on if we sell now instead of later. We recognize there's a good opportunity and a strong market available. As you know, we've sold over 10,000 homes since we started, with more than half going to other institutions. There's definitely capital available if we choose to pursue that, while the other half of our sales have been to end-users on a one-off basis. Your observation is appreciated, and it's something we will think carefully about.

Got it. And then I want to touch again on the ancillary revenues. I mean the $15 million to $30 million, I mean that's helpful. Just wondering how much of the resident population do you think will pick that up? I know you guys probably did a lot of studies around this. So just curious as to what you're expecting when you're kind of factoring that into guidance?

Let me address that and let Charles add his thoughts. I believe each situation will vary. As Dallas pointed out, the Smart Home device will become mandatory moving forward. Eventually, we expect compliance to be very high, possibly reaching 100% as leases change hands and renewals include this feature. Other services like pest control will likely have varying popularity across different regions, based on local conditions. We anticipate that pet services will be widely accepted since pets are fairly evenly distributed across our entire portfolio. Regarding landscaping, its prevalence will also vary by market. In some areas, we are mindful of drought conditions and tend to focus on hardscapes, making landscaping less relevant in those locations compared to others. Overall, we have a solid understanding of potential adoption rates on a product-by-product basis and expect the range to be anywhere from a third of the portfolio to potentially all the way to full compliance, depending on the product.

Okay. That’s helpful color. Thank you so much.

Got it.

At this time I'm showing no further questioners in the queue and this concludes our question-and-answer session. I would now like to turn the call back over to Dallas Tanner for any closing remarks.

Thank you. We appreciate everybody joining us today. We have a great business with excellent fundamentals. We wish you all the best. We look forward to seeing many of you soon. Thanks.

Thank you again for joining us today and we wish you all the best. We look forward to seeing you again soon.