Earnings Call Transcript
Invitation Homes Inc. (INVH)
Earnings Call Transcript - INVH Q3 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. During today's call, we may reference our third 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 nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those identified. 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 this call. You could 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, and thanks for joining us. At Invitation Homes, we've worked hard to build and enhance our platform over the last dozen years, the foundation of which is our people, our systems and our unmatched scale. We believe our platform is industry-leading and difficult to replicate and, as a result, offers significant value for our stakeholders, residents and partners. It allows us to drive strong performance across diverse, geographically dispersed assets while delivering meaningful returns. We've invested heavily in our platform to provide the highest level of professional service, flexibility and convenience to our residents, helping them to live in the home, neighborhood and school system of their choice. We're proud of what we have achieved in this regard. And in addition to the power of our platform, favorable fundamentals have continued to drive strong tailwinds for our business. In particular, these include the continuing supply and demand imbalance we frequently mention. By most estimates, the United States continues to face a housing shortage of several million units. At the same time, the demand for single-family homes for lease continues to remain robust due to favorable demographics, a growing desire for flexibility and convenience and soaring mortgage rates that make leasing one of our homes much more attractive and affordable than owning a similar home. According to John Burns, it’s now over $1,100 a month cheaper to lease than to own on average in our markets. That’s over $13,000 a year in savings that our residents can use to help their families thrive while at the same time benefiting from the choice and flexibility of leasing a home. We believe we remain well positioned to meet this growing demand for single-family homes for lease. In addition, we remain committed to bringing new supply to the marketplace through our extensive homebuilding relationships. Our multichannel growth strategy allows us to nimbly deploy capital across a variety of acquisition channels, which allows us to be opportunistic, depending on the channel that's most attractive in the various real estate cycles. During the third quarter of 2023, we took advantage of several unique external growth opportunities. This included our previously announced portfolio acquisition of 1,870 wholly owned homes for a contract price of $650 million in July. As we disclosed, we acquired the portfolio at a year 1 yield in the mid-5s. And we anticipate this to grow into the 6s within the next year. Progress to date on marking the portfolio's rents to market, increasing occupancy and selling non-core homes has been right in line with our expectations. In addition to the large portfolio transaction, we also acquired another 387 wholly owned homes during the third quarter through those various channels at an average cap rate of 6%. We effectively funded these acquisitions through the sale of 397 wholly owned homes at an average disposition cap rate of approximately 4%. The 200 basis point spread between acquisitions and dispositions once again illustrates our unique ability to accretively recycle capital out of older, higher-dollar value homes and into newer, higher-quality product. We believe our portfolio makeup affords us this opportunity to accretively recycle capital in this way for some time to come. In closing, I'd like to express my thanks to our dedicated associates. Through their hard work, Invitation Homes has continued to achieve significant milestones and deliver strong financial performance. As we move forward, we remain confident in our ability to navigate these challenges, capitalize on opportunities and leverage our platform in order to drive sustainable growth and value for our stockholders. Thank you for your continued trust and support. With that, I'll pass the call on to Charles Young, our President and Chief Operating Officer.
Charles Young, President and COO
Thanks, Dallas. To start, I'd like to echo your comments and thank our associates for delivering another great quarter. This includes the hard work by our teams to smoothly onboard the nearly 1,900 homes we acquired in July. Our premier size and scale help make acquiring large portfolios like this one relatively programmatic while it is our amazing associates who ensure the transition is seamless and the ongoing resident experience is worry-free. I'll now walk you through our third quarter operating results. Favorable fundamentals and strong execution led to same-store NOI growth of 4% year-over-year in the third quarter of 2023, in line with expectations. Same-store core revenues in the third quarter grew 6% year-over-year. This increase was driven by average monthly rental rate growth of 6.2% as well as a 20 basis point improvement in bad debt. We're pleased to see progress here for the second consecutive quarter, including within Southern California, where court times have meaningfully improved since the first part of the year. In the meantime, we continue to attract high-quality residents with our great homes and professional service. For the trailing 12 months, our new residents earned a combined household income of over $142,000 a year, representing an average income-to-rent ratio of 5.2x. The financial strength of our customer is also evidenced by our industry-leading partnership with Esusu that we announced in July. In just a short time, we've helped enroll over 160,000 of our residents onto Esusu's free credit reporting program. About half of these residents have already seen an improvement in their credit score with an average increase of over 20 points. In addition to attracting high-quality residents, they continue to stay longer with us. Length of stay is an indicator of overall resident satisfaction, which we're pleased to see has increased again this past quarter to an average of 36 months. We believe our premier ProCare service, along with the many convenient and value-add services we offer, help contribute to this longevity. The newest offering that we have just started to roll out is bundled Internet. We're excited to partner with one of the nation’s largest providers to offer high-speed Internet and digital media to over 1/3 of our residents across the country. Once again, our scale allows us to provide this essential service at a substantial discount to what our residents might otherwise pay on their own. Turning back to our same-store results. Third quarter 2023 core expenses increased 10.2% year-over-year. This included year-over-year increases of 11.7% in fixed expenses and 8% in controllable expenses, the latter of which was primarily driven by an increase in turnover compared to the historic lows of last year, along with the cost related to the progress we're making on our lease compliance backlog. Next, I'll cover same-store leasing trends in the third quarter. Demand in our markets remained strong through the end of peak leasing season. As we've noted previously, we are seeing a return to more normal seasonality, which we believe represents a much healthier and sustainable footing following the extraordinary market rent growth we saw in the past 2 years. Nevertheless, our third quarter 2023 same-store leasing results are still well above pre-pandemic norms. This includes average occupancy in the third quarter of 96.9%, or 120 basis points higher than our 2018 and 2019 third quarter averages. In addition, blended rent growth in the third quarter of 2023 was 6.2%, or 170 basis points higher than our 2018/2019 third quarter averages. Third quarter 2023 blended rent growth of 6.2% was comprised of renewal rent growth of 6.6% and new lease rent growth of 5.2%. We're pleased to have seen an acceleration in renewal rent growth each month in the third quarter of 2023. Renewal rent growth is further accelerating with October's preliminary results. This represents a strong performance for the third quarter that is once again attributable to our outstanding associates. As we approach the end of the year, we remain focused on continuing this momentum and finish the year strong. I'm proud of our teams for their tremendous contributions this past quarter and the great effort I know they will deliver during the remainder of the year. I'll now turn the call over to Jon Olsen, our Chief Financial Officer.
Jon Olsen, CFO
Thanks, Charles. Today, I'll cover the following topics: first, an update on our investment-grade rated balance sheet; second, financial results for the third quarter; and finally, updated 2023 full-year guidance. I'll begin with our balance sheet. At the end of the third quarter, we had $1.8 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Our net debt-to-EBITDA ratio was 5.5x as of the end of the third quarter, at the low end of our targeted 5.5x to 6x range. Our outstanding borrowings carried a weighted average interest rate of 3.8%. And we have no debt reaching final maturity until 2026. Over 75% of our total debt is unsecured and over 99% of our debt is fixed rate or swapped to fixed rate. In August, we closed on an $800 million dual-tranche public bond offering comprised of $450 million of 7-year notes at a 5.45% coupon and $350 million of 10-year notes at a 5.5% coupon. We used a portion of the net proceeds to repay the $150 million we drew on our revolver in July with the remaining net proceeds serving as additional dry powder for growth or future debt repayment while earning an attractive deposit yield from our banks in the meantime. In August, as a result of our strong balance sheet and continued access to capital, we were pleased to see Fitch upgrade its ratings outlook for the company from stable to positive and affirm our BBB flat rating. Next, I'll briefly touch on our financial results. Third quarter core FFO per share increased 4.7% year-over-year to $0.44, primarily due to an increase in NOI. Third quarter AFFO per share increased 3.7% year-over-year to $0.36. The last thing I'll cover is our updated 2023 full-year guidance. Our third quarter year-to-date results have generally been in line with our expectations. With a little over 2 months remaining in the year, last night's release included a tightening of most of our guidance expectations. This includes a narrowed range for full year 2023 same-store NOI growth of 4.5% to 5%, which is based on a narrowed range for same-store core revenue growth of 6.25% to 6.75% and revised same-store core expense growth of 10.25% to 10.75%. The expected increase in same-store core expense growth guidance is based primarily on a higher same-store property tax expense expectations in Florida and Georgia. While the fundamentals that have favored housing are well known to us, we originally anticipated property tax millage rates in both Florida and Georgia would decline to at least partially offset some of the unprecedented home price appreciation that's occurred there. Based on the property tax bills we've received or expect to receive during the fourth quarter, that's not been the case and causes us to now expect full year same-store property tax expense growth of approximately 10% to 10.5%. Our updated guidance also tightens the ranges of expected core FFO per share and AFFO per share. We now expect full year 2023 core FFO per share in a range of $1.75 to $1.79, or 6% growth year-over-year at the midpoint, and full year 2023 AFFO per share in a range of $1.46 to $1.50. With that, we have now concluded our prepared remarks. Operator, please open the line for questions.
Operator, Operator
The first question comes from Michael Goldsmith with UBS.
Michael Goldsmith, Analyst
My question seeks to frame the factors that caused the deceleration in occupancy and the slowdown in lease rent. So how much is attributable to normal seasonality, a return to more long-term pre-COVID averages, lease compliance and moderating underlying demand? I guess, where is the business structurally better now? And where is it reverting back to pre-COVID averages?
Charles Young, President and COO
Yes, thanks for the question. This is Charles here. Now look, I think as you laid out, we're seeing seasonality that we expected. I think we've signaled this all year. Coming off of the pandemic times, which are kind of heady in terms of rent growth and occupancy, we expected that the end of the year, we'd see this more typical seasonality. And let's level set a little bit on what that means. What that means is new lease kind of goes a bell curve throughout the year with peak being around June or July. And so historically, we've always seen kind of going down that bell curve in August and September as the end of the move-in season happens. Because typically, your summer is when you're getting the turnover and people are moving in. And that's why you get the real pop in the new lease rent growth. And the peak may vary. But at the end of the day, that downturn, if you will, on the bell curve is August and September. So if you look back pre-COVID, and I went back to prior to the pandemic times, that new lease range was around 1.5% to 3.5%. And for our September, we're right around 3% or just below. So this is normal. What's not normal is renewals, on the other hand, historically stayed steady throughout the year. And so we've been there, but we're running a little warmer than we've seen historically. If you look back pre-COVID, renewal rate was around 3% to 5%. Now our September renewal rate is 6.9%. What that tells you is we still are in this really strong fundamentals of the business, where there's high demand, an undersupply of homes, we're leasing well. And I would add to it that we have, as we expected, a little higher turnover this year, given our lease compliance backlog work. You put all that together, we're in really normal seasonality that we would expect. And Q3 being at 96.9% occupancy, if you go back to those years I was talking about, we weren't this high. So we're combining really nice blended overall rent growth for this time of the year, really high occupancy and kind of a return to normal seasonality with strong fundamentals kind of driving the business. So I feel good where we are. And I understand how it may seem like it's different. But at the end of the day, we had 2 years that were just abnormal, and we're going back to more typical season.
Operator, Operator
The next question comes from Eric Wolfe with Citi.
Eric Wolfe, Analyst
So I appreciate that visibility on 2024 taxes is probably really low at this point. But just trying to understand whether you think it's going to be sort of another year of very aggressive tax increases or if the moderation that you've seen in home prices this year will result in a similar moderation of taxes. And just historically, if you look at in a given year, the degree of change in home prices, is that a good predictor of what next year should look like in terms of tax increases?
Jon Olsen, CFO
Thanks for the question. It's Jon. While we're not prepared to talk about 2024 at this time, I think you really hit the nail on the head when you tied together what's been happening with asset appreciation, what's been happening with home values and what the outsized year-over-year property tax expense growth has been for the last 2 years. I think it's interesting, if you look over a trailing 5-year period, our annual same-store property tax growth averaged around 5.5%. But within that time period, 2021 was sort of an outlier to the low side. So I think we've seen a bit of a catch-up factor. As we look and think about property tax, we've always been pretty good at predicting where values were going to come in. Values haven't been the problem for us. The challenge for us is that we have assumed that as values increase, and those increases have been substantial, that we would see some degree of relief on millage rates. That was our experience over much of our history. That is what we expected last year. Obviously, it didn't come to pass. This year, we did not expect that same pattern to unfold. So as it turned out, I think the revenue need in municipal budgets was greater than we anticipated, probably based on inflation. And we saw little to no relief on millage rates in Georgia and Florida. So as we look to 2024, we're going to be reassessing how we think about property tax. I think we'll be less reliant on what our historical experience has been, at least for the intervening period. But as I said, we're not prepared to give a sense for 2024. We'll talk about '24 in February.
Operator, Operator
The next question comes from Jeff Spector with Bank of America.
Jeffrey Spector, Analyst
I just want to, I guess, clarify the comments on seasonality and how we should think about that heading into the fourth quarter, what that may mean for new lease rate growth. And maybe you could talk about historically what you would normally now see, let's say, from September to October, from 3Q into 4Q. Like what should we be expecting?
Charles Young, President and COO
Yes. As I mentioned, the new lease trend tends to fluctuate throughout the year, peaking in Q4 and then hitting a low point before rising again in Q1. It's tough to pinpoint exactly where that low point will be, but we are experiencing strong demand and high occupancy. We're aiming to maintain a healthy occupancy rate given our current low turnover. I don’t anticipate it will drop significantly lower than where we are now. We're seeing positive momentum in renewals, with an uptick from September into October. It's important to note that due to our low turnover, renewals account for 75% of our leasing activity, which significantly impacts our overall results. Seasonality in new leases is part of our business model, and we embrace it as it leads us back to a normal cycle that we understand well. Throughout the year, our performance has been strong and our metrics are better than pre-COVID levels. I expect Q4 to be the low point for new leases, and then as we move into Q1, we should see a rebound while feeling optimistic about our renewals, considering our low loss to lease and turnover.
Operator, Operator
The next question comes from James Feldman with Wells Fargo.
James Feldman, Analyst
So if I could just grab a quick rebound off of Jeff's question, which is can you talk about new lease rates in October? But my question is actually, you had talked about 4% yields on your cap rates on your asset sales versus 6% on acquisitions. I mean, how sustainable is it? We've got the 10-year treasury at 5%, mortgage rate is high. I mean, how sustainable is it to keep that 4% sales yield or cap rate or even your 200 basis point spread, given how much rates have moved and just where the market looks today?
Dallas Tanner, CEO
Yes, this is Dallas. Looking at the current marketplace, it's clear that the high mortgage rates are affecting home buying and selling behaviors. As Charles mentioned, this situation is likely to positively influence our renewals business due to fewer transactions available overall. The lock-in effect we’re hearing about from economists and homebuilders is quite significant, and I believe the resale market is reflecting this, with NAR predicting annualized sales at around 4 million, which is about a 30% decline from typical transaction volumes. For the rental sector, there are fewer single-family homes available today compared to two or three years ago, as many properties are being sold back into MLS inventory, but it’s still not sufficient. We are active buyers in the MLS looking for assets at what we consider the clearing price, but competition is strong, leading to fewer transactions. Demand for homes in the resale market remains high, as shown by our data on sales, and this trend has been consistent. We are confident because, as Jon previously noted, our property values have significantly increased over the years. We can sell homes without much difficulty for reasons related to asset management, achieving excellent sale prices. We reinvest that capital into homes with higher cap rates, which we see as a solid allocation strategy for our business moving forward. We are selling older homes, some with CapEx risk, and replacing them with newer homes that have less long-term risk at better yields. While I can't predict how long this market will persist, it appears there’s still a market for homebuyers even at the current mortgage rates, although it's more subdued. However, the genuine lack of supply in the market is a significant issue, and we don't foresee that changing in the near future.
Operator, Operator
The next question comes from Austin Wurschmidt with KeyBanc Capital Markets.
Austin Wurschmidt, Analyst
You guys have highlighted some of the unique challenges this year from kind of normalizing conditions. And you've had tough year-over-year comps in lease rate growth. You've had the lease compliance backlog to work through and just higher turnover. I guess, are those challenges behind us? And when you referenced occupancy and lease rate growth above the 2018 and 2019 period, do you expect you can sustain occupancy above those periods as well as lease rate growth, given some of the tailwinds to the business?
Jonathan Olsen, CFO
Yes, I'll let Charles discuss the occupancy aspect. To answer your question about whether we’ve moved past this transitional period, the short answer is not yet. Charles and his team are doing an excellent job on the ground. We are very pleased with the advancements made in addressing our delinquency backlog. Year-over-year, bad debt decreased by 20 basis points, although rental assistance fell by 80%. The financial health of our customers, as we release those homes, is quite solid when you consider our income-to-rent ratio. We still have some work to do. Some of our markets are recovering faster than others. However, we are encouraged that court systems are speeding up, particularly in California, which is becoming easier to manage. Nonetheless, it will take us some more time before we can confidently say we’ve returned to normal. The results we have shared and the current performance of our portfolio reflect this transitional experience we've had throughout the year, highlighting the strength of our business and our solid underlying fundamentals.
Charles Young, President and COO
Yes, this is Charles. I'll just add a couple of thoughts about the positive developments we're experiencing. We anticipated that this year would come with the least compliance backlog to manage, which would temporarily elevate turnover. Despite this, we've seen remarkable growth in new lease rents throughout the year. We're returning to our normal seasonal patterns, as I've mentioned. We've maintained occupancy above 97% all year, with Q3 reflecting normal seasonal trends at 96.9%. Looking ahead at the portfolio, Q4 typically experiences a dip in occupancy before it begins to rise again. We are experiencing higher turnover, which we believe is temporary and will normalize in the coming year. There are many positive indicators, and we continue to see strong demand. The balance between new leases and renewals remains crucial. Notably, for November, our renewal requests exceeded 9%. This bodes well for the stability of our business and reflects the demand we are observing. Moreover, it positions us more securely as we manage through the lease compliance backlog. As Jon mentioned, many of our markets are returning to normal, although we still face challenges in places like Atlanta and California, among others. Once we navigate these, the advantageous conditions will improve further with easier comparisons in the coming year.
Operator, Operator
The next question comes from Steve Sakwa with Evercore.
Stephen Sakwa, Analyst
I have a follow-up question because I've been asked about this number, and I want to clarify. You have clearly indicated where renewals are happening and where they are not. However, there seems to be some ambiguity regarding new leasing. Charles, you mentioned that historically, this time of year, the typical range is around 1.5% to 3%. Are we currently in that range for October? Are we closer to the higher or lower end of this range? People are just trying to understand the current status of new leasing.
Charles Young, President and COO
This is Charles. The month of October is still ongoing, so these numbers are preliminary. We are comfortably within the expected range and anticipate being above 2% for October. We'll see where it ultimately settles. This is typical considering the seasonality and the slightly increased turnover, particularly with respect to the lease compliance backlog. I'm pleased with our position. Looking ahead, the renewals should bring much more optimism, as new leases account for only 25% of our total leasing activities. Renewals will be the key driver as we progress and maintain a steady and high occupancy rate.
Operator, Operator
The next question comes from Juan Sanabria with BMO Capital Markets.
Juan Sanabria, Analyst
Regarding lease compliance and COVID-related issues, when do you expect we will resolve those? Also, do you have an idea of what the expense profile would look like if we exclude the homes that are turning over, to understand how cost growth might normalize once that debt is settled?
Jonathan Olsen, CFO
That's a good question, Juan. Historically, our bad debt has been around 50 basis points before COVID. In the third quarter, it went down to 133 basis points, which is a significant improvement from what we've seen in recent quarters. We believe that over time, we can return to those pre-pandemic levels, although predicting the timing is challenging due to various factors, some of which are beyond our control, like the speed at which courts can manage their backlogs. Resolving delinquency issues may take longer than we expect. However, we do see a pathway to returning to normalcy. Additionally, turnover has been higher for several reasons. Approximately 19% of our move-outs in the third quarter were due to skips or evictions, which is an increase of about 400 basis points year-over-year. These skip and evict turns can cost 50% more than standard turns. When you factor in the elevated turnover, the higher costs of those turns, and the fact that they typically take a few extra days to process, which further impacts occupancy, we feel optimistic. As we continue moving towards normalcy, we believe we can get back to operating our portfolio similarly to how we did before the unusual circumstances of the last few years due to COVID.
Operator, Operator
The next question comes from Adam Kramer with Morgan Stanley.
Adam Kramer, Analyst
I wanted to discuss the cash on the balance sheet. I know you completed a debt offering during the quarter, and it seems that cash levels are higher than usual as a result. You slightly increased the acquisition guidance, which suggests approximately $100 million in acquisitions moving forward for the wholly owned side. Could you walk us through the current acquisition opportunities? Also, in terms of capital deployment, are there other potential uses for that cash that we might not be considering?
Dallas Tanner, CEO
This is Dallas. Great question on the environment. I think we want to stay in a position of strength. The goal would be to ensure we have flexibility between cash, our joint venture businesses, and our pipeline of new construction, which continues to be an area of interest as we evaluate better opportunities. We also want to be prepared for potential mergers and acquisitions in the next couple of years as smaller portfolios face critical decisions influenced by current capital market conditions. While we don’t have any immediate plans and have just processed 1,800 homes in the last quarter, we aim to be ready for opportunities when they arise. We are still identifying chances with significant embedded loss in lease from smaller portfolios and are receiving inquiries I previously mentioned at Nareit in June. There are still moments of exploration regarding seller opportunities. As I indicated earlier, we do not view the MLS as a major source of external growth for our business. We prefer to focus on accumulating new products at meaningful discounts compared to current sales in those neighborhoods, which helps to protect our balance sheet with less capital expenditure risk while we sell older assets at updated valuations. From an external growth perspective, we will keep our options open, ensure we have ample cash available, and Jon can provide more details on how we are utilizing that cash, while also staying vigilant for any balance sheet activities that might be available to us.
Jonathan Olsen, CFO
Yes, Adam. With respect to cash, I mean, the thing that feels really good at the moment is the fact that we can sell assets at a 4% cap, put the cash in the bank and earn 5.35%, right? So we don't need to have an immediate sort of capital redeployment opportunity. We can basically park the cash, and it is still accretive, up until such a point that we find something that is interesting to go after on the acquisition side. So in this moment in time, being liquid, having a lot of capital just makes sense to us, right? So a portion of that cash on the balance sheet is, if not directly earmarked, it's certainly, in our minds, circled to take care of one of our 2026 maturities, which is the $615 million 2018 for securitization. But I think all things considered, right now, we want to maximize flexibility. We want to maximize optionality. And that means sort of having as much dry powder on hand, particularly if holding that cash is accretive. It just makes sense.
Operator, Operator
The next question comes from Keegan Carl with Wolfe Research.
Keegan Carl, Analyst
Just wondering if you could provide any color on recent news that you're entering property management, given the articles that came out.
Dallas Tanner, CEO
We appreciate the question. We have nothing to report. By nature, we don't comment on speculation. We've said in the past that with the strength of our platform, we're going to continue to look for opportunities, find ways to grow that can both be capital-light and accretive and also look for areas where we can actually leverage the platform to enhance our own operating margins. But as of today, we have nothing to report.
Operator, Operator
The next question comes from Buck Horne with Raymond James.
Buck Horne, Analyst
Following up on that, I was just wondering if you could maybe comment on your thoughts on expanding joint venture relationships or any partnerships there. And also, your thoughts on working with homebuilders, if there's any interest or you're finding any availability with builders to do more build-for-rent communities.
Dallas Tanner, CEO
Thank you for the question, Buck. Regarding builders, we currently have strong relationships with some of the largest builders in the country, which have proven beneficial for both parties. We aim to expand these partnerships and enhance our deal flow with our homebuilder associates. One of the advantages of these relationships is that we receive significant discounts, can make limited deposits, and effectively manage our pipeline, which is currently valued at around $1 billion or more. We’re focused on seeking new opportunities, particularly given the current capital market conditions affecting REIT equity prices. We're looking to engage in more ventures with experienced partners who share our ambitions in the single-family sector. Although we don't have any new developments to announce at this time, we are actively in discussions with potential collaborators. One promising area is our new construction business, which aligns well with our strategy as we grow our joint venture initiatives. We plan to attract strategic capital while remaining partners through our balance sheet. This business is likely to evolve further, and we will keep everyone informed if there are any updates to share.
Operator, Operator
The next question comes from Daniel Tricarico with Scotiabank.
Daniel Tricarico, Analyst
Question on the JV acquisition guidance coming down, Dallas, can you talk to what you're hearing from your partners and how their outlooks or expectations have changed over the last 90 days?
Dallas Tanner, CEO
I just think there’s been honest conversations around where the clearing price of capital is. And I think that has more to do with where the debt capital markets are or aren't as they've shifted. It feels like it's sort of a new conversation every 30 or 40 days in terms around where debt facilities are. I mean, if you look at the deal Jon and the team did in August in the bond market, we had basically a blended cost on that $800 million of around 5.5%. And I think that market is far different today, being 60 days later. And so as we think about where we would need to be as a partnership either with our own capital being partnered with theirs or if we were to just do things on-balance sheet, like where is sort of our strike price? And it definitely feels like it's in today's world in the 6s. We've talked about that in the last earnings calls. We're looking for accretive opportunities that are sort of in the 6s on a yield on cost for us today. And being outside of that, I think capital is willing and able. I think capital market is less so willing at times. And that's what we're trying to sort of navigate through right now.
Operator, Operator
The next question comes from Alan Peterson with Green Street.
Alan Peterson, Analyst
Charles, I was just wondering, what markets are you seeing the most concession usage across the portfolio today? And what's the average concession being offered? As you kind of stare out to the end of the year, are you anticipating needing to dial up concessions to build back occupancy into year-end?
Charles Young, President and COO
Yes. So we ran no concessions through Q3. But as we're looking at the landscape now, and to your point, thinking about occupancy and trying to go into 2024 on a solid footing, we're looking to go selectively while the market is still kind of pumping. We feel the demand is here. But things slow down typically on the holidays. And so I would expect that we'll run some select concessions in markets that have been a little softer. As I look around Vegas, I've talked about this before, it softened a little bit. We're seeing a little bit of softness in Phoenix lately. Those two markets sometimes run similarly. But a lot of it will be around thinking about homes that may be on the market a little longer. And so we'll try to move that product. So it's a balance. And it's really, just to your point, around trying to make sure that we are in good footing going into the start of the year. At 96.9% occupancy, I expect October to kind of be at that same level, plus/minus, and then will rise from here. That's what typically happens in the seasonality. And we want to push to get that back over 97% as fast as we can. And that's how we'll use concessions as need be.
Operator, Operator
The next question comes from Tyler Batory with Oppenheimer.
Tyler Batory, Analyst
A follow-up question on your builder relationships. Can you remind us what your underwriting for cap rates in that channel? And then when you look at some of the homes that you've taken down already, especially from Pulte, with that relationship, can you talk a little bit about lease-up trends, maybe you're getting better unit economics on those assets and comparable homes?
Dallas Tanner, CEO
Yes. Regarding your latter point, while we don’t have specific details to share, I can say that we have generally outperformed the underwritten rents for the communities we have acquired. Scott has shared insights during some of our Investor Days about the various communities as they have come on board. I previously mentioned that the current market seems to require a return in the 6s to effectively assess absorption risks and new construction pricing. However, this shift can differ from market to market. Ultimately, we are focused on total returns. We seek asset appreciation based on our initial costs and how we evaluate replacement costs while minimizing risk. We also need to have strong convictions about demographic trends since we believe these trends are indicators of where rents are headed. Notably, our average customer is now staying with us for nearly 36 months across our portfolio, which is a significant improvement. As Jon mentioned, turnover and its associated costs are important factors. Currently, the average customer is between 38 and 39 years old, indicating a substantial pipeline of potential customers for our business. Many of these individuals are seeking to live in new communities equipped with modern schools, which presents a favorable opportunity for our business.
Operator, Operator
The next question comes from Jesse Lederman with Zelman & Associates.
Jesse Lederman, Analyst
Are you hearing or seeing any impacts from rising apartment availability across any of your markets that might be keeping renters in the multifamily asset class for longer than they otherwise would be, recognizing that the new multifamily supply is largely catered toward luxury products and any concessions offered by apartment operators might make the value proposition for apartments versus single-family rentals more attractive?
Charles Young, President and COO
Yes, that's a good question. Most of our renters come from single-family homes, so there's not much overlap. Historically, around 10% or less of our renters have come from multifamily housing. This can vary by market, but generally, it doesn't have a direct impact on us, although we do keep an eye on it. A couple of years ago, we felt some effects in South Florida when there was a lot of condo product available. Each market has its own characteristics. However, since most of our customers are families looking for features like good school districts, backyards, and extra space for activities like Zoom calls, they typically prefer single-family homes. As mentioned, families often move to cities for the quality of the schools. Multifamily properties aren't usually direct competitors, although there are exceptions. Our main competitors are the smaller operators offering homes, and we perform well against them thanks to our marketing platform and ProCare services.
Operator, Operator
The next question comes from Brad Heffern with RBC Capital Markets.
Bradley Heffern, Analyst
Jon, I was wondering if you could give the size of the true-up for the under-accrued property taxes that fell into the fourth quarter. I think the implied growth guidance for the fourth quarter is roughly 6.5% for OpEx. Just wondering what that figure would have been without the out-of-period taxes.
Jonathan Olsen, CFO
For the fourth quarter, a reasonable expectation is that year-over-year Q4 property taxes will increase between 6.5% and 7.25%. That is the correct way to view it.
Operator, Operator
The next question comes from Anthony Paolone with JPMorgan.
Anthony Paolone, Analyst
I’m curious about the implications of the property tax and insurance changes this year as we consider the full-year impact and look ahead to 2024. Can you clarify whether there are enough strategies available to reduce expenses to a more normal growth rate next year, or will the full-year effects keep operating expenses elevated for another year?
Jonathan Olsen, CFO
Thanks for the question, Tony. As I said, we're not in a position where we're going to start talking about '24 yet. I think we are going to evaluate everything in totality. I think when we are prepared to talk about 2024 in February, we will give you a sense for what our expectations are around both of those line items. Because look, we certainly understand that we have seen outsized growth in both of those over the last few years. And I think as we take a step back and think about where we are, we are in the midst of a return to "normalcy." I think there have been a lot of factors in our business and other businesses that have had some temporary structural impacts that are going to take some time to resolve. How long that is, I think, remains to be seen. And we'll be happy to chat about that a little bit more when we release our '24 guidance.
Operator, Operator
The next question comes from Jade Rahmani with KBW.
Jason Sabshon, Analyst
This is actually Jason Sabshon on for Jade. So at current cap rates, what do you think the IRR is on single-family rental acquisitions over a 5- to 7-year hold? And do you view that as attractive? And separately, what's your outlook for home prices over the next year?
Dallas Tanner, CEO
I think as you look at going-in cap rates, reasonable assumptions around home price appreciation, in our markets, it feels like on an unlevered basis, you could certainly be in the high single digits, low double digits based on sort of the returns that we're seeing out there. I think that, obviously, that equation sort of depends on your inputs around leverage over time.
Operator, Operator
The next question comes from Haendel St. Juste with Mizuho.
Haendel St. Juste, Analyst
Dallas, you mentioned earlier the portfolio still has, I guess, more of an opportunity to generate accretion from asset recycling, selling older assets to buy new ones. Could you maybe put some broad brackets around that opportunity? Do you see that as perhaps 10%, 20%, 30% of the portfolio? And how much large of a role should we expect for disposition to play in funding your business near term?
Dallas Tanner, CEO
Haendel, that's a great question. As Jon mentioned, we're currently facing a high-class challenge. We possess assets with strong valuations in a market that is very eager for homes. Additionally, our business has remarkable growth fundamentals. Whenever a home comes up for renewal and we conduct our rebuy analysis on the whole portfolio, we consider numerous reasons for holding an asset, as well as various factors that might lead to selling one. Given the current market where equity is highly valuable, we are likely to be more proactive in recycling capital when opportunities arise, which we've demonstrated over the past couple of years. The company has received high praise for our capital allocation skills. Over the last decade, we've sold around 13,000 to 14,000 homes back into the market. We view the U.S. single-family housing market as the most liquid asset class globally, and our homes are typically situated in areas where demand from both buyers and renters is robust. This presents a high-class challenge. We will continuously assess our capital opportunities. If we find it advantageous to continue recycling due to the difference between value and potential reinvestment, we will be more assertive. However, we will revisit and provide updates on our strategy in February, as we did earlier this year. We've been somewhat more active in selling compared to what we initially projected, driven by market conditions.
Operator, Operator
The next question comes from Anthony Powell with Barclays.
Anthony Powell, Analyst
Could you update us on your views on the risk of shadow supply and mortgage rate lock-in? I think this comes up from time-to-time, question to us. With mortgage rate at 8%, people may want to hold on to their current mortgage for longer. Do you expect to see more supply from, I guess, accidental landlords going forward? And is that something that you underwrite when you buy properties or when you look for developments?
Dallas Tanner, CEO
My own view is that, just based on conversations we're having with both economists and homebuilders, it certainly feels like mortgage rate sensitivity has been more of a factor for people. Builders have had, obviously, tremendous success in buying down mortgage rate. And they've been able to do that for the better part of the last year, 1.5 years. As these rates get more and more elevated based on where the 10-year and sort of treasuries are, I would expect that, that probably increases people's willingness to stay locked in, in a home that they currently own. I was looking at this the other day, and I think it’s still somewhere around 80% of the country is still at a sub-5% mortgage rate. And we talk about this in our earnings release. It's about $13,000 a year cheaper to rent a home right now, an Invitation home, than it is to go out and buy. And I don't see that changing in the near term. If anything, I think, with this higher-for-longer period that people keep referring to, it sort of seems like the new reality right now. And I think it's probably a really good thing for those in our business in terms of the inherent demand that Charles talked about. And I think we're probably seeing some of that in the elevated renewal rates that are still sticking around through Q3 and likely into Q4.
Operator, Operator
Our final question comes from James Feldman with Wells Fargo.
James Feldman, Analyst
I wanted to revisit your comments regarding joint venture opportunities and fee prospects. If you were to significantly expand the joint venture platform, would you consider entering new markets or exploring different home types? Or do you prefer to maintain your current strategy and stick to the same types of markets? Additionally, if you increase your focus on fee management, is that strictly about fee collection, or do you also invest in equity stakes in those portfolios?
Dallas Tanner, CEO
To your question about the markets, we are very pleased with the markets we operate in. One key reason for our strong historical performance, having been one of the top five in the residential sector over the last five years, is our careful investment strategy. We focus on high-growth areas in the country and plan to maintain this approach. Our impressive operating margins, currently in the high 60s and exceeding 70s in some markets, stem from our emphasis on scale, density, and providing desirable services. We are committed to operating in the right states and markets, while building scale and product density that enhances our service model, which we believe is a sustainable strategy for Invitation Homes. Regarding product type, we have tested some townhome-style products and denser options. A recent acquisition in Q3 was a community in Arizona with higher density, in an excellent location near a key transportation corridor. We are open to exploring townhome-type products further, but we prioritize square footage and amenities. We are not focused on apartment investments for smaller units; instead, we aim for larger spaces, typically around 1,500 square feet or more, which aligns with our target demographic. As for fee management, we have demonstrated our ability to scale effectively and integrate that growth into our operations, resulting in margin improvements. The addition of 2,000 units last quarter exemplifies this. We will consider property management options that enhance our scale while maintaining our disciplined approach. We are only interested in pursuits that can positively impact our operating margins in a capital-light manner. For now, we are concentrating on what we can control within our business. Our operations are running smoothly, and despite some short-term challenges related to property tax and bad debt, we are optimistic about our future prospects and confident in our current position.
Operator, Operator
This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Dallas Tanner, CEO
We want to thank everyone again for joining us today. And we're going to look forward to seeing many of you again in a couple of weeks at Nareit. Thanks again.
Operator, Operator
The conference has now concluded. You may now disconnect.