Earnings Call Transcript
Invitation Homes Inc. (INVH)
Earnings Call Transcript - INVH Q4 2023
Scott McLaughlin, Senior Vice President of Investor Relations
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 fourth quarter 2023 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 2022 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 yesterday's earnings release. I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.
Dallas Tanner, CEO
Good morning, everyone, and thanks for joining us. Our customers' needs are straightforward. They want to lease a great home in a safe neighborhood with great schools and easy access to jobs. They want professional services and genuine care, and they want flexibility and convenience that allows them to live more freely. Twelve years ago, a lot of these options either didn't exist or weren't readily available. Today, they all do, thanks to the hard work and the commitment of our associates, thanks to the mission of this company that together with you, we make a house a home, and thanks to the hundreds of thousands of residents who have put their trust in us to do exactly that. Last year marked many important milestones for Invitation Homes. We returned to a more sustainable growth profile, while continuing to expand and improve the overall resident experience. It was a year in which we helped our homebuilder partners start construction on thousands of much-needed new homes across the country. It was a year in which we recycled over $500 million of capital, selling nearly 1,500 homes on the MLS, predominantly to homeowners. And it was a year in which we executed one of the more significant portfolio acquisitions in our company's history. We are excited to continue this momentum into 2024, as we expand on what it means to live in an Invitation Home. By this, I'm referring to last month's announcement that our industry-leading operating platform is now available to not just our residents and joint venture partners, but also to large portfolio owners who are seeking the best in single-family property management for their residents and the best in single-family asset management for their investors. Let me be really clear here. We believe providing professional property and asset management services is both a logical next step for our business as well as a strategically significant leap forward. It empowers us to accretively leverage our platform in a capital-light manner, while helping us to achieve further scale, increased efficiency, and additional margin expansion for our company, and substantial savings and convenience for our residents. It all began with last month's inaugural agreement to become the property and asset manager on over 14,000 single-family homes. We expect this agreement to drive incremental AFFO of a couple of cents per share in 2024. This results from meaningful property management and asset management fees that we believe fairly compensate us for our unrivaled capability, scale, and expertise. In addition to this, we'll also earn an outsized share of value-add service revenues such as from smart home, bundled Internet, and other initiatives we may roll out in the future, along with potential future incentives, based on the operating and financial performance we're able to drive over time. We believe this inaugural agreement is the first of what could be many such arrangements. As we pursue additional opportunities, we expect professional management will help us build and grow strategic relationships, while we continue to become even more efficient through greater density, improved procurement, better resident engagement, and thoughtful use of data and technology. Most importantly, as in other REIT subsectors, we expect professional management can help us create a pipeline of potential future acquisition opportunities for homes about which we'll have an information advantage. In the meantime, we believe the fundamental tailwinds for our business will continue to drive outsized NOI and earnings growth relative to other REIT property types. This includes a well-documented lack of new housing supply across our markets, as well as the strong demand from a surge of young adults who are just starting to reach our average new resident age in their late 30s. These younger generations often favor experiences over possessions and prefer convenience and flexibility over financial anchors and 30-year contracts. It's also important that we underscore the massive savings from leasing a home today versus owning. Using John Burns' fourth quarter data as weighted by our markets, it is $1,200 per month less expensive to lease a home than to own it. That's an average savings for our residents of over $14,000 a year. We see this reflected in our latest surveys, in which a substantial majority of our new residents say that our rents and services are affordably priced. One of these services, which we just started to provide last year completely free of charge, is Esusu's positive credit reporting program. Already, over half of our residents have improved their credit score since enrolling, with the average credit score improvement of about 35 points. This could help our residents achieve thousands of dollars in lifetime savings on their borrowing costs, further enhancing the value proposition for leasing a home with us. In summary, we're very proud of the choices we offer individuals and families to live in a great home without the high costs and burdens of homeownership. We remain committed to investing in our technology, systems, value-add services, and other tools to help our residents thrive. And we're excited by how we can continue to grow our business, further enhance the resident experience, and meaningfully broaden the professional services we offer. In this regard, we truly believe we are just getting started. With that, I'll pass the call on to Charles Young, our President and Chief Operating Officer.
Charles Young, President and Chief Operating Officer
Thanks, Dallas. Our fourth quarter operating results were a solid finish to close out the year. In particular, our teams worked hard to deliver strong same-store NOI growth, occupancy, and resident service. In 2023, we saw a return to more normal patterns of rent growth, seasonality, and lease compliance. As Dallas mentioned, it was a year of working towards several new milestones, including our large portfolio acquisition in July and getting prepared to provide professional third-party management services. Our local market teams continue to take all of this in stride. It's what we do, they often tell me, and I'm very grateful for their attitudes and achievements. Thanks to these strong efforts, I am pleased to see how efficiently and effectively we have onboarded these new homes, engaged with our new residents, and rolled out desirable new services. I'll now walk you through our operating results in more detail. Same-store NOI growth of 5.6% in the fourth quarter brought our full-year 2023 same-store NOI growth to 4.8%. Same-store core revenues in the fourth quarter grew 5.9% year-over-year. This increase was driven by average monthly rental rate growth of 5.3%, an 11.2% increase in other income, and a 50 basis point year-over-year improvement in bad debt. That marks three consecutive quarters of improvement in bad debt. I'm pleased to see lease compliance continuing to move in the right direction, while at the same time, also seeing our new residents' household income reach its highest level to date, just shy of $150,000 a year on average during 2023. This represents an income-to-rent ratio of 5.4 times that is indicative of the high quality, location, and desirability of our homes. Returning to same-store growth results, full-year 2023 same-store revenue growth was 6.5%, while full-year same-store core expense growth was 10.3%. The main drivers of this expense growth included the temporary cost of working through our lease compliance backlog, which drove higher property administrative and turnover costs, as well as higher property tax and insurance expense. By contrast, repairs and maintenance expense came in flat for the full-year 2023, a testament to moderating inflation pressures and our team's ability to effectively control costs. Next, I'll cover leasing trends in the fourth quarter 2023. As we typically do in the slower winter leasing season, we prioritized higher occupancy in the fourth quarter to better position our portfolio as we head into our upcoming peak leasing season. As a result, same-store average occupancy grew each month, averaging 97.1% in the fourth quarter. In addition, new lease rate growth was flat during the quarter, representing an expected return to more normal seasonal trends, while renewal lease growth of 6.8% was the highest we've seen in the fourth quarter other than during the pandemic. As renewals comprise a substantial majority of our leasing business, this strong result drove a fourth-quarter blended rent growth of 4.6%. I'll now also share our January 2024 same-store leasing results. We started the year off with an increase in average occupancy to 97.5%. In addition, January blended rent growth was 3.5%, comprised of renewal rent growth of 5.9% and a negative new lease growth of 1.5%. Early indications lead us to believe that new lease rates have already begun to turn positive again in February's activity to date. In combination with the favorable tailwinds that Dallas mentioned and the strong delivery by our teams, we believe we are well-positioned to capture strong demand for our homes as we enter the traditional peak leasing season later this month and to continue to provide the best resident experience in the industry.
Jonathan Olsen, CFO
Thanks, Charles. Today, I'll cover the following topics: first, an update on our investment-grade rated balance sheet and the capital markets; second, financial results for the fourth quarter and full-year 2023; and finally, 2024 full-year guidance. Leading off with the balance sheet, I'll start with several of our team's key accomplishments in 2023. These include $800 million of senior notes that we issued at approximately 5.5% in August, as well as outlook or ratings upgrades from all three of our corporate credit rating agencies during the year. We ended 2023 with $1.7 billion in available liquidity, which includes $700 million of unrestricted cash and $1 billion of capacity on our undrawn revolving credit facility. Our net debt to adjusted EBITDA ratio improved to 5.5 times as of December 31, 2023, down from 5.7 times as of the year prior. And 99.4% of our total debt was fixed rate or swapped to a fixed rate as of year-end 2023, with over 75% of our total debt unsecured and no debt reaching final maturity prior to 2026. I'm really pleased by the meaningful execution our teams delivered last year and believe our balance sheet continues to offer us strong positioning to achieve our goals in 2024 and beyond. I'll now cover our recent financial results and year-over-year growth. Core FFO for the fourth quarter 2023 was $0.45 per share, an increase of 4.6%, while core FFO for the full-year 2023 was $1.77 per share, an increase of 6%. AFFO for the fourth quarter 2023 was $0.38 per share, an increase of 5.8%, and AFFO for the full-year 2023 was $1.50 per share, an increase of 6.3%. These strong results were primarily driven by higher same-store NOI during the quarter and full year. The last thing I'll cover is 2024 guidance. This is led by our expectation for same-store NOI growth in a range of 3.5% to 5.5%, resulting from expected same-store core revenue growth in the range of 4.5% to 5.5% and same-store core expense growth in the range of 5.5% to 7%. Our same-store core revenue growth guidance assumes 2024 average occupancy will be similar to our full-year 2023 result. In addition, guidance assumes same-store blended rent growth in the high-4% to low-5% range and continued improvement in our bad debt as a percentage of rental revenue to an expected range of 65 basis points to 95 basis points. Our same-store core expense growth guidance assumes higher fixed expense growth to continue in 2024, with property tax expense growth in a range of 8% to 10% and insurance expense growth in the mid-to-high teens. We expect this to be partially offset by moderating growth in our controllable expenses. From a timing perspective, we anticipate same-store NOI growth will be higher in the second half of the year than in the first half. All of this brings our full-year 2024 core FFO guidance to a range of $1.82 to $1.90 per share. This guidance assumes as a base case that we will acquire between $600 million and $1 billion of homes on balance sheet in 2024, mostly from our homebuilder partners and via portfolio acquisitions. We expect to fund much of these home purchases by continuing to accretively recycle capital from wholly-owned dispositions in an expected range of between $400 million and $600 million. A detailed bridge of 2023 core FFO per share to the midpoint of our 2024 guidance is included within last night's earnings release. Lastly, we provided full-year 2024 AFFO guidance in a range of $1.54 to $1.62 per share. As a result of our anticipated growth in AFFO per share in 2024, last month, we increased our quarterly dividend by nearly 8% to $0.28 per share. In closing, we plan to keep a close eye on the capital markets throughout the year and continue our long track record of being disciplined and proactive. We'll prudently pursue opportunities for meaningful growth and accretive capital recycling, and we'll continue to lead the industry in our quest to provide the best choices, convenience, and overall resident experience for the millions of Americans who prefer to lease a single-family home. With that, we have now concluded our prepared remarks.
Operator, Operator
Our first question comes from Michael Goldsmith from UBS. Please go ahead. Your line is open.
Michael Goldsmith, Analyst
Good morning. Thanks a lot for taking my question. A question on the guidance, and what does the guidance assume in terms of new and renewal lease spreads as we move through 2024? And new lease spreads were flat in the fourth quarter. That's kind of below historical levels and was negative in January. What gives you confidence that you can kind of maintain your renewal spreads in this sort of environment?
Charles Young, President and Chief Operating Officer
Thank you for the question. This is Charles. I’d like to discuss our current status concerning our rate and occupancy. As we mentioned in the previous call, we actively aimed for higher occupancy in the fourth quarter to prepare for the peak leasing season. We analyzed the market back in September and October and decided to take an aggressive approach on occupancy, observing a return to normal seasonal patterns. Additionally, we experienced a rise in turnover in Q3 due to lease compliance adjustments, which is a positive development and contributes to our confidence regarding bad debt. We also encountered some local supply constraints. Historically, it’s best to be fully occupied going into the peak leasing season, and we are in that position now, with 97.5% occupancy as of January. We are ready to focus on increasing rates. Early indications from January to February show a positive trend leading into the spring leasing season. As we pursue higher rates, our renewals remain steady, constituting about 75% of our leases. Our rate blend in January is at 3.5%, which is robust and aligns well with pre-pandemic historical rates from 2018, 2019, or 2020. With the upward trend into February, we are optimistic. We will provide an update in February and again in March during the Citi conference. We are pleased with our current positioning and occupancy levels.
Operator, Operator
Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.
Jamie Feldman, Analyst
Great. Thanks for taking the question. So I guess just a follow-up on the new lease rates. If you look at the weakness you had in 4Q, clearly, those are some of the markets that have a lot more supply in the build-to-rent business. What are the odds here that maybe you get caught off guard, surprise at downside, just how much supply pressure there really is in those markets, and it's just more than seasonal? Kind of what gives you comfort that the supply story won't be too bad? Or maybe just give us your thoughts on supply in those major markets where you did see the weakest new rents.
Charles Young, President and Chief Operating Officer
Yes. It sounds like you're referring to Phoenix and to some extent, Vegas. I want to emphasize two points. First, our current occupancy levels contribute to our confidence. We are in a strong position, allowing us to maintain our occupancy without needing to lower it. Additionally, we are experiencing good occupancy rates in those particular areas, indicating strong ongoing demand. We would not have been able to improve our occupancy from a low of 96.8% to 97.5% without that demand being present. As we move into spring, when discussing build-to-rent in relation to our infill portfolio, we find ourselves in a solid position to maintain our same-store performance, especially since we are in a strong position overall. We are already noticing some growth from January into February.
Operator, Operator
Our next question comes from Eric Wolfe from Citigroup. Please go ahead. Your line is open.
Eric Wolfe, Analyst
Hi, thanks. For your bad debt guidance, can you talk about where you expect to start the year and how you get comfortable with that? So, do you start at over 100 basis points and then kind of end around 50 basis points? Or is there just some point in the year where the bad debt should step down?
Jonathan Olsen, CFO
We have made significant progress in reducing bad debt in 2023. In the fourth quarter of 2022, our same-store bad debt was 170 basis points, and we improved it by 50 basis points year-over-year to 120 basis points in Q4 of last year. This improvement occurred despite a decrease of $57 million in rental assistance year-over-year. Between the first and fourth quarters of 2023, we saw four markets improve bad debt by 100 to 265 basis points. We are also seeing a healthy number of residents moving out due to lease compliance, which helps us increase timely payments. Although Atlanta and Southern California had high levels of bad debt in Q4 2023, they also had significant lease compliance move-outs, contributing to our ongoing progress in this area. It's important to note that comparing our 2024 bad debt guidance with our 2023 results has some challenges. The first quarter of 2023 saw an increase in bad debt to 180 basis points, one of our worst results since the pandemic began, which had a significant impact on the overall results for 2023. Improvements in bad debt actually began in the second quarter of 2023 and have continued since then. Additionally, the factors that contributed to the high bad debt in Q1 2023 are no longer present. Early last year, Southern California faced restrictions that delayed our ability to address delinquency backlogs, which was not simply a clean start on January 1. As these moratoriums have eased, and with the significant court backlogs improving since the first half of last year, our bad debt in the second half of 2023 has been much better, even with rental assistance being less than half of what it was earlier in the year. We are not counting on any rental assistance in our 2024 guidance. Therefore, as we can uphold the terms of our leases starting in 2024, we anticipate continued steady improvements throughout the year. This will remain a key area of focus for us, and we are ready to execute our plans.
Operator, Operator
Our next question comes from Jeff Spector from Bank of America. Please go ahead. Your line is open.
Jeffrey Spector, Analyst
Great. Thank you. Can you talk more about the new customer demand? I believe you mentioned in January, new rate was minus 1.5%. I guess, can you talk about that strength in demand and then put into context how that number compares to prior years when you talk about normal seasonality, and then, maybe what you would expect as we move into peak leasing, which I believe you said should start at the end of this month? Thank you.
Charles Young, President and Chief Operating Officer
Yes. No, great question. This is Charles. As we mentioned, seasonality has returned. During the pandemic, it was really high occupancy, high demand. It was abnormal. And if you go back and think about our pre-pandemic years, 2018, 2019, 2020, when we were full like we are now, we're really seeing that similar type of demand. That's seasonal. That slows down typically in and into Q1 and picks up right after the Super Bowl, which just happened. So we're in a place now where we're looking across the portfolio. We're seeing that we're occupied. We did what we wanted to there. And we see the demand. It's not the same exact levels that we saw during the pandemic, but those are artificially high. When you go back and you compare it to our 2018, 2019, early 2020, we're right in line with what we've seen historically, and we're in really good shape in terms of our occupancy and our blended rent growth going into now accelerating spring leasing season.
Operator, Operator
Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead. Your line is open.
Austin Wurschmidt, Analyst
Great. Thanks. Good morning, everybody. Charles, have you been offering any concessions to drive some of the traffic and build occupancy here during the softer part of the season? And maybe just to push back a little bit on your comment on renewal rates remaining steady, if I recall, you were sending out renewal notices in the 9%+ arena and ended up kind of below 7% for the quarter. So how is that dynamic also playing out early in the year as to where you're sending out increases and what you're achieving? Thanks.
Charles Young, President and Chief Operating Officer
Yes, a couple of thoughts there. One, as we said, we pivoted to occupancy. That's on new leases and on renewals. And so, while we went out in the 8s and low-9s in Q4, we told the teams to negotiate. We wanted to try to make sure that we're keeping occupancy high. So we've done that. As you look forward now, we went out in February in the low-8s and April and May in the high-7s. Again, if you look back historically, these are really great rates. And we'll see where that all kind of settles out. But when you think about we're looking at the combination of accelerating new lease and holding steady on renewals, we look at that blend and say, we're in really healthy shape relative to any historical period outside of the pandemic. Going back to your original question around concessions, we are running no concessions on any of the same-store portfolio right now. We talked about this on the last call. We pushed hard prior to the holidays. So we ran some concessions in November prior to Thanksgiving, and then we took them off. And that was all around just trying to accelerate demand while it was still there, knowing that things slow down come December, January. And today, if there's any concessions out there, it might be one-off on some of our smaller build-to-rent areas where we talked about where there may be some more competition in Phoenix or Vegas, but outside of that, minimal concessions and not in the same-store portfolio at all.
Operator, Operator
Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead. Your line is open.
Stephen Sakwa, Analyst
Yes, thanks. Good morning. I guess I wanted to pivot a little bit to expenses and just get your thoughts around the real estate taxes and insurance commentary that you put in the release. And if you do the math, I guess, on those numbers against your overall expense growth, it sort of implies something in the 1% to 2% range for the rest of the expense line items. So, just some comments around kind of that low growth rate on the other items would be great. Thanks.
Jonathan Olsen, CFO
Yes, thanks, Steve. It's Jon. Good question. I think you're right. If you look at it, our expectation is that we will see some moderation in controllable expense growth. Last year was a very heavy year in terms of turnover, in terms of all the things that we're doing in the background to work through our lease compliance backlog. And so, from a comparability standpoint, year-over-year, we don't anticipate seeing sizable increases in those line items. I would also note that the operations team has done a fantastic job over time of continuing to make the repairs and maintenance portion of our business more and more efficient. And I think as we look at the controllable side of the house, we feel really good about where we are. I think a big part of what makes our platform so powerful is the ability to continue to drive more efficiency. And I would also note that our entry into third-party management will, over time and distance, have benefits for the operating efficiency of our owned portfolio. But I would also point out that that is not factored into our guidance for 2024.
Operator, Operator
Our next question comes from John Pawlowski from Green Street. Please go ahead. Your line is open.
John Pawlowski, Analyst
Hi. Thanks for the time. I want to talk through the guidance for it sounded like blended rent spreads of high-4% to low-5% expected for this year. But then, you marry that with, Dallas, your opening remarks, and the massive affordability gap between the cost to own versus the cost of rent, so I guess, why aren't we seeing larger rent spikes or the ability to push rents at a much higher clip? Is there true price sensitivity among tenants? Or is there any self-governing of rent increases going on in the platform?
Dallas Tanner, CEO
Hi, John, Dallas. Really good question. I think by and large, and I believe Charles would echo the same here, we're not seeing any degradation necessarily in demand. When you have vacant product on the market, especially at year-end, Charles, I think, summed it up really well, where you do have to compete a little bit more like we did traditionally in 2017, 2018, and 2019. It feels to us, based on what we're seeing with the customer, our average rent-to-income ratios right now are 5.4 times, so we're qualifying a much more qualified customer at about an average household income of $150,000. We don't necessarily disagree, John, that there could be some upside to those numbers throughout the year. We're certainly not baking that into our guidance. I think we've had the luxury in the last few years of thinking about massive tailwinds, putting pressure on rates. We are going to view 2024, at least sitting here in early February, to be more in line with traditional years pre-pandemic. We're going to see seasonality in the curve. I think the positives, though, to necessarily call out your question, are we have a more full portfolio as we go into 2024. We have a customer that's more qualified, and we're far more sophisticated in the way that we capture that demand. So I like our chances as we head into the year. All things being equal, we do also want to be sensitive to the fact that we are in sort of a slowing growth environment macro-wise for the country and just be sort of modestly aggressive in our approach. And so, I like where we're sitting with the year. I think Charles summed it up well from an occupancy perspective. Our goal is to go out and execute, manage cost controls, and make sure that we deliver. And I think you're right to sort of point out that there could be more demand in the market throughout the year. It's just too early to tell. We'll have a better sense as we get through peak and into the summer.
Operator, Operator
Our next question comes from Haendel St. Juste from Mizuho Securities. Please go ahead. Your line is open.
Haendel St. Juste, Analyst
Hi, good morning. Thank you for the question. Dallas, my inquiry is regarding the property management platform. The guidance for this year includes $0.02 from Starwood, which took many of us by surprise. I am particularly interested in the fees you are able to charge this business. How should we evaluate the potential size of this opportunity and its ability to scale in the near term? Additionally, how are you considering the risks, especially given the sensitive political landscape? The apartment REITs are currently facing a class action lawsuit related to revenue management sharing and allegedly sharing information. With the political season approaching, it seems likely that this sector will encounter increased scrutiny. So, I would appreciate your insights on the high-level opportunity, pricing, scalability, and your thoughts on the associated risks. Thank you.
Dallas Tanner, CEO
Thank you, Haendel. To begin, when we look at multi-family management, it's clear that professional management has existed for many years, with numerous companies excelling in managing scale and providing reliable services. This level of performance has yet to be fully realized in the single-family rental market, with only a few large operators achieving significant results. Our objective has been to be thoughtful in our decision-making regarding this area. You rightly pointed out that there is potential for other professional owners of single-family rentals to enhance efficiencies, and we aim to do so in a careful and intentional manner. We have been consistent in our discussions over the past few quarters, asserting that the size and scale of our platform is significant. As the sector evolves to incorporate professional services and ancillary offerings for our customers, we can deliver these at a better cost, ultimately reducing living expenses for people, but we need to achieve scale. Therefore, we aim to collaborate with substantial professional capital to replicate the efficiency we already have in our portfolio for our customers. Over time, this will likely yield compounded benefits, enabling us to seek out pricing and procurement opportunities that will also benefit our residents. Regarding the potential scale and its implications, we wouldn't pursue this if it didn't effectively boost shareholder earnings. We're not interested in operating on a small scale; we want to engage with large-scale professional capital. This ultimately positions us to gain valuable insights into market trends, which can guide us toward opportunities that enhance our operations. We can also create efficiencies in our growth pipelines. Additionally, as of today, our platform includes two markets with tens of thousands of units. This scale will allow us to innovate in the services we offer to residents, optimizing efficiencies and economies of scale in service delivery. We anticipate that our platform will become increasingly efficient over time, leading to greater margin expansion.
Operator, Operator
Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead. Your line is open.
Juan Sanabria, Analyst
Hi, good morning. Just a question on the acquisitions. You previously talked about maybe some freeing up of portfolios with some of the debt maturity issues, so for caps kind of wearing down or running out. Just curious on what you're seeing on the portfolio acquisition opportunity set to start the year. Thanks.
Scott Eisen, Chief Investment Officer
Hi. It's Scott Eisen. Thanks for the question. Look, we are in the market right now, obviously, in dialogue with various people about opportunities. I think clearly, we are seeing some owners of portfolios where what was very cheap debt a few years ago is now breakeven to negative on cash flow. And I think there are people out there that are looking to explore their opportunities, and we're looking at options on acquisitions that are accretive to us, we think could be interesting growth opportunities for us. It is clear that there are some people out there that never fixed and were floating on it, and those opportunities, I think, could potentially come our way.
Operator, Operator
Our next question comes from Adam Kramer from Morgan Stanley. Please go ahead. Your line is open.
Adam Kramer, Analyst
Hi, everyone. Thank you for your time. I wanted to ask about the $0.02 benefit included in the midpoint of your guidance related to third-party management. It appears that this comes solely from managing the 14,000 homes and any expense savings or synergies related to the owned portfolio. Could you clarify what exactly contributes to that $0.02? Also, taking a broader view, what opportunities do you see for adding more homes to the managed portfolio for the rest of this year?
Jonathan Olsen, CFO
Thanks, Adam. It's Jon. That's a great question. I think firstly, the $0.02 that we outlined in the bridge, just to be clear, that is the net contribution based on the property management and asset management fees that we will earn net of the incremental cost that we expect to incur to manage those additional 14,000 homes. As far as what the opportunity could be over time and distance, yes, as we talked about, we believe that this will allow us to enhance the efficiency with which we manage our owned portfolio. I would say that those efficiency gains are not factored into our guidance. I think the reality is that we are going to, over time and distance, figure out how do we adjust our gearing model, how do we take advantage of the opportunities to scale, which are going to vary by market, and how do we think about ways to drive incremental opportunity both for us and for those third-party portfolio owners. As far as what it could be down the line, I think time will tell. I would say since we announced this transaction, there have been a number of inbounds from sizable owners of portfolios interested in exploring ways to achieve better operational and financial performance. And that's what we're here for. We're here to drive value for our stakeholders and for our customers by doing what we do, which is leverage the best platform in the business.
Operator, Operator
Our next question comes from Daniel Tricarico from Scotiabank. Please go ahead. Your line is open.
Daniel Tricarico, Analyst
Hi, good morning. Another guidance question, a few quick related ones. I don't believe you've given this detail so far, but what was the revenue earn-in at the beginning of the year? Where is the loss to lease in the portfolio today? And if you have it, what is the embedded market rent growth for the year?
Jonathan Olsen, CFO
Yes. So the earn-in is about 2.5%, 3%. And then, loss to lease, I would say, is high-single digits.
Operator, Operator
Our next question comes from Brad Heffern from RBC Capital Markets. Please go ahead. Your line is open.
Bradley Heffern, Analyst
Yes, thank you. Can you talk about how you approach the property tax guide for the year? Obviously, in the past few years, you've been surprised on the millage rate. So does this guide reflect any offset there? Is this purely where you would expect valuations to go?
Jonathan Olsen, CFO
Yes, great question. I would say that, as we talked about on past calls, we have made some adjustments in terms of how we think about property tax. And I think ultimately, as we've talked about, we are not assuming any improvement in millage rates. I think we are taking a somewhat more conservative approach as I think our experience over the last couple of years warrants. And as we sort of work our way through the year, we'll be able to report back on what we're seeing in a variety of markets. I do think it's important to remember that two of our three biggest markets, we don't actually learn the final answer until fairly late in the year. So I think we want to be mindful of what our experience has been in the last couple of years. And I think that's reflected in our current guide, and that's going to be reflected in how we may or may not adjust that over time.
Operator, Operator
Our next question comes from Keegan Carl from Wolfe Research. Please go ahead. Your line is open.
Keegan Carl, Analyst
Yes, guys, thanks for the time. So I noticed Pathway sold a home in the quarter, which I believe gives you three total homes sold in the program. Just curious if you could give an update on progress in general, how you see it scaling over time, and what sort of expectations are baked in for more residents potentially buying that home.
Dallas Tanner, CEO
It's a great question. Pathway, and as a minority partner in the platform, I want to be cautious about speaking for them. They're taking a careful approach in the current interest rate mortgage cycle, selectively deploying capital and refining their business model where necessary. They have continued to add homes, particularly in new construction. This is a program that we expect to develop and enhance over time. I know they're looking into opportunities in shared ownership programs and similar initiatives. We see them as an excellent partner in exploring the market and understanding future trends. As they report more on early successes in terms of categories and products that show the most potential, we are eager to get more insights and determine when and how we might want to engage further.
Operator, Operator
Our next question comes from Anthony Paolone from J.P. Morgan. Please go ahead. Your line is open.
Anthony Paolone, Analyst
Yes, thanks. I guess, just wanted to understand, you mentioned a high-single-digit loss to lease, but your new lease spreads are kind of flat to down a bit, it seems. So I'm just wondering like how that works. And also, just your thought as the year progresses, like this new renewal spread, the spread between those two numbers, just kind of abnormally wide for, I guess, you guys and multi-family. I'm just trying to think like is there a rent fatigue, like which side kind of goes either up or down, or does that converge?
Charles Young, President and Chief Operating Officer
So, this is Charles. As we talked about, we set ourselves up here at the start of the year with occupancy at 97.5% that we can start to capture that new lease demand that shows up here in February. And so, when you go back, yes, this is in January, a little lower than we've been, but we explained why we did that. That was a conscious effort. But we're set now to start to capture the demand that we expect will historically always shows up in the summer. We'll see where that goes to. But right now, we're already seeing the acceleration. And I think we're in good shape, given our occupancy now, to capture that. That being said, we've also been really holding steady on the renewal side at pretty healthy rates. Again, came down slightly as we were following for occupancy, but we're still seeing steady renewal rates when you go back to anything that's pre-pandemic. And with that loss to lease, that's what gives us the confidence with our current occupancy to try to capture what's in the market. We'll see where it ends up, but we're seeing acceleration from January to February, and we expect that will continue into spring and summer demand.
Operator, Operator
Our next question comes from Linda Tsai from Jefferies. Please go ahead. Your line is open.
Linda Tsai, Analyst
Yes, hi. What is the breakdown in the guide between new and renewal?
Jonathan Olsen, CFO
Hi, Linda. It's Jon. We actually haven't talked about that, and I think we're going to stick with what we did include in the guide, which is a blend for the year, high-4s, low-5s.
Operator, Operator
Our next question comes from Anthony Powell from Barclays. Please go ahead. Your line is open.
Anthony Powell, Analyst
A question on, I guess, the cap rates in the MLS market. Are you seeing any change there? And also, your disposition cap rates still remain pretty low at 1.9%. What's the outlook for that this year?
Dallas Tanner, CEO
It certainly feels like we can continue to sell our dispositions back into the MLS in the mid-to-high 3s and low 4s, depending on the marketplace. We typically have a more expensive home than most of our peers, so there is significant demand from home buyers when we market that product. This is somewhat influenced by the current mortgage rates. Overall, it seems like a very beneficial way for us to recycle capital. Scott, do you have anything to add?
Scott Eisen, Chief Investment Officer
I would just like to mention that we are maintaining our discussions with national and regional builders, and we are seeing an increasing backlog of opportunities to collaborate with them on purchasing both partial and full community deals. We are optimistic about the potential cap rates available to us, which we believe are consistently in the high-5s to low-6s range.
Operator, Operator
Our next question comes from Jesse Lederman from Zelman. Please go ahead. Your line is open.
Jesse Lederman, Analyst
Hi, thanks for taking my questions, and congrats on the strong results. Just looking at your estimate for new home deliveries, it looks like 760, 150 more than in 2023, but this becoming more of a focus for you. What's preventing this from being even higher? Is it interest rates? Or are you finding it more challenging to compete with primary home buyers, given the for-sale market is heating back up? In other words, are homebuilders kind of shifting away from selling to rental operators at all because of how strong the for-sale market has been? Thanks.
Dallas Tanner, CEO
Good question. I think Scott and I can provide some additional insights on what we're observing. Scott summarized it well: our homebuilder pipeline is continuing to grow. We've discussed this over the past couple of years. About a year ago, our deliveries were around 350 to 400. This past year, though, we exceeded 700. The number you've mentioned in the mid-700s is what we currently have scheduled for delivery. We expect to see more opportunities in closeouts with both our current and new partners throughout the year that are not on schedule, which is our best estimate. Currently, those cap rates are generally above 6 in today’s market. Scott can elaborate further, but strategically, we maintain a strong partnership with Pulte Homes. We are constantly assessing opportunities, and Scott is in discussions with several other builders about potential pipeline additions. Additionally, as I noted earlier, we have about 1,800 homes under contract, plus or minus another 1,000 that we are close to incorporating into our pipeline.
Scott Eisen, Chief Investment Officer
Yes. This is Scott. I just want to emphasize that in our discussions with the builders, it's evident they see this as a significant business avenue for them. They have their usual sales process for individual consumers, but having an institutional partner like us allows them to keep expanding. It’s similar to fleet sales in the auto industry. We represent an additional opportunity for them to provide housing in America, and we act as an incremental buyer to create demand, enabling them to boost their deliveries and giving us chances to grow our platform as well.
Operator, Operator
Our next question comes from Steve Sakwa from Evercore ISI. Please go ahead. Your line is open.
Stephen Sakwa, Analyst
Yes, excuse me, thanks. Jon, I just wanted to maybe circle back on some of those controllable expenses and just see if you could provide a little bit more color. Maybe within the 2023 results, what sort of elevated costs did you incur for all this extra move-out and the delinquencies? And trying to just get a feel for the quantification of that savings maybe moving into and how that might keep those controllable expenses down at that low single-digit growth rate.
Jonathan Olsen, CFO
Yes, Steve, the main factors affecting how the delinquency backlog impacts the profit and loss statement include a noticeable effect on the occupancy line, which we discussed last year. Additionally, property administration expenses, particularly legal costs associated with enforcing lease terms, have seen significant growth in 2023 compared to 2022. Another factor is the operational expenses related to property turnarounds. As we noted, when we handle turnarounds from homes with delinquency move-outs, these can be 50% more costly and may take longer to complete. When comparing 2024 to 2023, it’s important to note that while we don’t expect these costs to decrease, we do not anticipate substantial year-over-year increases. In fact, the costs are stabilizing, and we will aim to improve on last year’s experience, even though we still have challenges ahead.
Operator, Operator
Our next question comes from Eric Wolfe from Citigroup. Please go ahead. Your line is open.
Unidentified Analyst, Analyst
Thanks. It's Nick here with Eric. I have a quick question about the balance sheet. Can you share your initial thoughts on the plans for the $2.5 billion term loan that matures early next year? Will you be extending it for another year into 2026, or are you considering new swaps to refinance with longer-term debt?
Jonathan Olsen, CFO
Yes, great question. I would start off by pointing out that that term loan final maturity is in January of 2026. So it's not a next year event. We don't have any debt reaching final maturity prior to 2026. With respect to the term loan, we are going to be having dialogue. We're already in dialogue with our bank group. And our goal is going to be to recast that facility sometime between now and summer 2025. We'll continue to monitor the rates market as we contemplate the timing of that recast. And at the appropriate time, we'll also look at our swap book to adjust it based on what our pro forma debt maturity schedule might look like. But I will say that in the grand scheme, we feel very comfortable with both our relationship with our bank group. We feel very comfortable with our access to capital. We may not love our current cost of capital on new debt today. But we're going to do what we've always done, which is to be patient, be opportunistic, watch the market, stay in constant dialogue, and when the appropriate time comes, we'll work our way through that term loan, and we'll move on from there.
Operator, Operator
Our next question comes from Jamie Feldman from Wells Fargo. Please go ahead. Your line is open.
Jamie Feldman, Analyst
Great, thanks. Sticking with the balance sheet and a debt question, what are you assuming in guidance in terms of debt paydown this year? I know you can pay down the secured loan early. And I think you have some swaps expiring at the end of this year as well. Can you just talk about exactly what's in guidance?
Jonathan Olsen, CFO
Sure. So in guidance, you have $800 million of bonds outstanding for seven months of 2024 that weren't in place in 2023. So we did that deal in August of last year. That would, on its own, represent about $0.04. And then you're absolutely right, the $640 million 2018-4 securitization is freely pre-payable at any time. We have held off on paying off that debt even following that bond deal because we like having excess cash on hand. It gives us flexibility to use that cash either to retire debt or for growth opportunities. In the current market, I think it's important to point out that we're earning on average about 5.3% on those excess cash balances. And you can compare that to the rate at which we've swapped that 2018-4 securitization, which is around 4.20%. So in our guidance is the assumption based on the forward curve and sort of extrapolating what we think our money market yields could be for timing of when we would pivot to potentially paying off that debt. Now, I think the reality is, we're going to do exactly what I just said in response to the prior question, which is we're going to watch the market and we're going to take what the market gives. So I don't want to give a sense that a specific path forward is prescriptive, but that's how we got to the $0.03 in the bridge.
Operator, Operator
Our next question comes from John Pawlowski from Green Street. Please go ahead. Your line is open.
John Pawlowski, Analyst
Thanks. I'm sorry to belabor this rent growth question, revenue growth guidance, but I'm still confused. Jon, I want to make sure I understand you guys' math on loss to lease and earn-in. So if you just take the midpoint of revenue guidance, 5%, you strip out the benefit of bad debt, you get to low-4%. Then you say lost to lease is high-single digits. I know you only capture a portion of that. And the earn-in is 2.5% to 3%. So how do you not get well above 4% kind of organic revenue growth for this year? Am I misunderstanding you guys' lost to lease and earn-in definition?
Jonathan Olsen, CFO
No, I don't think you're misunderstanding, John. I think what it reflects is the fact that we're here in early February. It's early in the year. There's a reason that we present guidance in a range because there are a variety of potential outcomes, both positive and negative, right? And so, I think we are cognizant of the fact that we are entering into what feels like a more normal kind of market rent growth environment between new and renewal rent. We are looking at the pre-pandemic experience as sort of our model for how we think the curve is going to develop over time. But I think, as Dallas said earlier, there is certainly the potential for a little bit of upside there, but we're going to wait and see how the year develops.
Operator, Operator
Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead. Your line is open.
Juan Sanabria, Analyst
All right. Thanks for the time. Just a couple of follow-up questions on guidance. One would be, how do you expect churn or turnover to trend this year relative to last year maybe relative to pre-pandemic? And then, secondly would be just CapEx guidance, what are you assuming in terms of growth rate on a per home basis? Thank you.
Jonathan Olsen, CFO
Thanks, Juan. It's Jon. I think from a turnover perspective, similar to our occupancy guide, when we articulated that we expect it to be generally similar to what we saw in 2023, I think the same holds true for turnover in 2024. The reality is, we've still got sort of the tail of the lease compliance backlog to work through. But I think in the grand scheme, we feel very comfortable with the fact that turnover is trending much lower than it was pre-pandemic, and we think that's emblematic of a really strong demand backdrop, a favorable sort of affordability picture relative to homeownership. That should benefit propensity to rent, duration of stay, and likelihood of renewal. With respect to CapEx, I think that that is going to continue to grow at sort of an inflationary rate. I think we have done a particularly good job in making smart asset management decisions about where and when it does make sense to reinvest capital into our portfolio and in places where it does not pencil. What we found is, we can sell those homes into an incredibly liquid end-user market at cap rates inside 4% and then recycle that capital into newer assets that are going to have less of a CapEx demand over time.
Operator, Operator
Our next question comes from Keegan Carl from Wolfe Research. Please go ahead. Your line is open.
Keegan Carl, Analyst
Yes, guys, thanks for the time. So I noticed Pathway sold a home in the quarter, which I believe gives you three total homes sold in the program. Just curious if you could give an update on progress in general, how you see it scaling over time, and what sort of expectations are baked in for more residents potentially buying that home.
Dallas Tanner, CEO
It's a great question. Pathway operates with a cautious approach given the current interest rate mortgage cycle and has been selectively deploying capital while fine-tuning their business model where it matters. They continue to add homes, particularly in new construction. We believe this program will evolve and improve over time as they explore opportunities in shared ownership and similar initiatives. We see them as a valuable partner in understanding market trends. As they achieve early successes in various categories and identify products with the most potential, we look forward to getting smarter about when to engage more actively.
Operator, Operator
This completes our question-and-answer session. I would now like to turn the conference back to Dallas Tanner for any closing remarks.
Dallas Tanner, CEO
Thank you. We look forward to seeing many of you in South Florida in a couple of weeks. Please reach out to Scott or Jon with any questions if we can help. Thank you very much. We hope everyone has a great day.
Operator, Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.