Earnings Call Transcript - INVH Q2 2025

Operator, Operator

Welcome to the Invitation Homes Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations.

Scott McLaughlin, Senior Vice President of Investor Relations

Thank you, operator, and good morning. I'm joined today from Invitation Homes with Dallas Tanner, our Chief Executive Officer; Charles Young, our President; Jon Olsen, our Chief Financial Officer; Scott Eisen, our Chief Investment Officer; and Tim Lobner, our Chief Operating Officer. Following our prepared remarks, we'll open the line for questions from our covering sell-side analysts. During today's call, we may reference our second quarter 2025 earnings release and supplemental information. We issued this document yesterday afternoon after the market closed, and it 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 indicated. We describe some of these risks and uncertainties in our 2024 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, we do not update forward-looking statements and expressly disclaim 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. With that, I'll now turn the call over to Dallas Tanner. Please begin, Dallas.

Dallas B. Tanner, CEO

Thank you, Scott, and good morning, everyone. We appreciate you joining us today. I'm pleased to share our second quarter results that once again reflect the outstanding work of our associates, the disciplined execution of our long-term strategy and the strength of our resident-focused experience. Before we dive in, I want to take a moment to acknowledge the devastating flash floods that struck the Texas Hill Country earlier this month. The images and the stories have been heartbreaking with some of our own friends and family having been impacted. In response, we've made a donation to support the Red Cross' local aid work in addition to our annual support of their national relief efforts, and we're matching associate donations dollar for dollar. As a Texas-based company, it's our responsibility and privilege to support our neighbors in their times of need and by investing in communities during both good and difficult times. That's who we are, and it's what Genuine Care is all about. Speaking of Genuine Care, there's been no greater ambassador of that mindset than my friend and colleague, Charles Young. As many of you know, Charles has accepted an exciting opportunity to lead another public REIT. While we're excited for what lies ahead for him, we're also mindful that today marks his final earnings call with us. Charles, it's been an incredible 8.5-year journey. Your leadership, integrity and heart have left a lasting mark on our company, and we're all better for having worked alongside you. We wish you nothing but continued success in your next chapter. As you heard Scott say earlier, Tim Lobner is with us in the room today. Tim has been with Invitation Homes since 2012 and is an exceptional and experienced leader, having overseen our repairs, turns and maintenance teams since 2014 and in more recent years also led our field and leasing teams. He'll continue in his role as our Chief Operating Officer, and I'll reassume the title of President in what we expect to be a seamless transition. Let's turn now to our second quarter performance and highlight the key drivers behind our results. What really stands out is the continued validation of our approach. During the second quarter, our average resident tenure was 40 months, and our renewal rate approached 80%, a continued testament to the quality of our homes, the strength of our service platform and the trust we've built with our residents. Zooming out to the broader housing landscape, the macro environment continues to reinforce the value of our offering. According to recent research from John Burns, the U.S. needs an average of nearly 1.5 million new homes each year through 2034. That includes 600,000 rental units per year just to restore balance within the market. And given that our average new resident age is in the late 30s and John Burns estimates that there are 13,000 people turning 35 every day for the next 10 years, we believe there should be long-lasting demand tailwinds for our business over the next decade and well beyond. And this is where Invitation Homes is uniquely positioned to unlock the power of home for the millions of Americans who choose to lease a home. In the second quarter, we acquired just under 1,000 wholly owned homes, most of which were newly built and often in communities offering a mix of both for sale and for lease options. This approach brings high-quality homes into our portfolio, while helping builders to add and accelerate needed housing delivery in markets where we have high conviction and long-term performance. Our builder partnerships remain a key growth engine for us, giving us access to thoughtfully designed homes and master-planned communities while allowing us to maintain high standards for quality. We're also expanding our toolkit with the recent launch of our developer lending program, which positioned us to participate earlier in the value chain, typically with the goal of purchasing the communities upon stabilization. We're just getting started and are excited about the possibilities. Combined with our homebuilder partnerships and third-party property management relationships, these initiatives enhance our acquisition strategies and boost our trust in the opportunities ahead. On that front, we're confident that we will meet or exceed our acquisition guidance of $500 million to $700 million this year. Our pipeline is robust, and we continue to target attractive yields with upside through operational efficiencies and improved scale. In closing, our strategy remains clear: to consistently deliver high-quality housing in desirable neighborhoods backed by a service platform that puts the resident first. With strong demographic tailwinds, a disciplined investment approach and our best-in-class team, we are well positioned to drive long-term value for our shareholders and meet the evolving needs of American families. With that, I'll turn it over to Charles Young to walk through our operating results in more detail.

Charles D. Young, President

Thank you, Dallas, and I truly appreciate your kind words earlier. It's been a privilege to work with you and this great team. To all of our associates, the success of our company starts with you. What I'll miss most are the relationships and camaraderie we've built together over the years. I'm deeply grateful for the pride, dedication and commitment you bring to work every single day. It's been an honor to be a part of this journey with you. Following my last day on September 1, I will leave confident that you're in great hands with Dallas, Tim and the entire team. The future of Invitation Homes is bright, and I look forward to watching what you accomplish together. Now on to our second quarter operational results. On the revenue side, we've delivered solid growth through a combination of strategic rate optimization and healthy occupancy. Bad debt continued to improve, returning to the high end of our historical range, a reflection of both the stability of our resident base and the strength of our screening processes. We also maintained effective cost controls while continuing to invest in our homes. Maintenance and repair costs remained well managed through ProCare and our in-house maintenance teams. Preventative maintenance programs and prompt response times helped contain costs while supporting high-resident satisfaction. At the same time, our investments in technology and process improvements continue to drive operational efficiencies across the portfolio. We're especially proud of our team's ability to balance cost discipline with high-quality service. As Dallas mentioned, our average resident stay is now 40 months, a strong indicator of this success. Longer stays not only reflect resident satisfaction, but also contribute to lower turnover costs and better condition of our homes. Satisfied residents tend to stay longer and take better care of their homes, supporting long-term asset performance. Altogether, we achieved second quarter same-store core revenue growth of 2.4% year-over-year, while core operating expenses rose 2.2%, resulting in a 2.5% NOI growth. Turning now to leasing performance. We saw strong results across key metrics. During the second quarter, blended rent growth was 4%, driven by 4.7% renewal rent growth and 2.2% growth in new leases. This demonstrates our ability to capture market opportunities during the peak leasing season and underscores the importance of renewal rate growth, given that over 3/4 of our business is renewals. The year continues to unfold in line with our expectations, including with our preliminary July results. Same-store average occupancy is coming in at 96.6% for the month of July while renewal lease rate growth remained strong at 5%, combined with new lease rate growth of 1.3%. This brings our blended lease rate growth for July to 3.8%. To wrap up, our second quarter operating results reflect the strength of our platform, the quality of our portfolio and the dedication of our best-in-class associates. As we look ahead to the second half of the year, the teams remain well-positioned to build on this momentum. I have strong confidence in their ability to deliver and to continue setting a higher standard with each step forward. With that, I'll turn the call over to Jon Olsen to walk through our financial results and capital position.

Jonathan S. Olsen, CFO

Thanks, Charles. Today, I'll provide an update on our financial position and capital markets activities and then wrap up by discussing our second quarter financial results. Before I do, I'd like to take a moment to echo Dallas' earlier comments. It has been my great pleasure to work with Charles over the last 8 years. As a leader, Charles is both calm and inspirational. And as a colleague and friend, he sets a standard to which others can aspire. I wish Charles great success in his next endeavor, and I look forward to watching what he achieves. Turning now to the second quarter. As of quarter end, our investment-grade rated balance sheet offered robust liquidity of approximately $1.3 billion in unrestricted cash and undrawn capacity on our revolving credit facility. This provides us with substantial dry powder and the flexibility to pursue compelling growth initiatives and capitalize on strategic opportunities. Our capital structure remains strong with our net debt to trailing 12-month adjusted EBITDA ratio at 5.3x as of quarter end. This remains slightly below our target range of 5.5 to 6x underscoring our disciplined approach to leverage and balance sheet management. In addition, over 83% of our debt is unsecured and nearly 88% of our debt is fixed-rate or swapped to fixed rate. This includes the benefit of $400 million of new interest rate swaps we executed during the second quarter, which brings our total swap book to over $2 billion with a weighted average strike rate of just over 3%. The quality of our balance sheet is further enhanced by our substantial pool of unencumbered assets that provide additional financial flexibility. We have well-laddered debt maturities with no debt reaching final maturity until mid-2027 and we continue to evaluate opportunities in the capital markets to optimize our maturity schedule and cost of capital. Let me now turn to our financial results and outlook for the remainder of the year. In the second quarter, we reported core FFO of $0.48 per share and year-to-date core FFO of $0.97 per share, positioning us well relative to our full year guidance range of $1.88 to $1.94 per share. AFFO, which reflects the impact of recurring capital expenditures, was $0.41 per share for the quarter, bringing our year-to-date total to $0.84 per share, which is also tracking well relative to our full year guidance range of $1.58 to $1.64 per share. We're pleased with our strong first half performance and the momentum we've built, which gives us high conviction in our original outlook. We remain focused on execution and on carrying our momentum into the back half of the year. With that, operator, we're ready to open the line for questions.

Operator, Operator

The first question comes from Eric Wolfe with Citi.

Eric Jon Wolfe, Analyst

Your occupancy guidance implies a pretty large deceleration in the back half of the year to, I think, around 96%, maybe even a little bit lower. I think you said July was around 96.6%. So I was just curious whether that's sort of a conservative projection for the rest of the year if you're actually seeing something in your future expirations that would cause that occupancy to keep coming down.

Charles D. Young, President

Yes. So the years are unfolding as we expected. And the first half of the year, turnover is a little lower. So occupancy stayed a bit higher. But we expected that come Q3 seasonal turnover would show up, and that's what you're seeing in the July occupancy numbers. And that's typical for how the year kind of unfolds through Q3; you'll get some turnover. As we get towards the end of the year, we're kind of building back. Hard to predict exactly where it's going to end up, but it's right in line with what we expected. The other thing that I'd mention is we know that there's a little bit of supply, especially in some of our markets as we think about Central Florida, Texas and others where we're having to stay on the market a little longer, bringing our days to re-resident up slightly. And so that's another thing that's adding towards what we expected was a bit of a reset year on occupancy to get down into the mid-96s.

Operator, Operator

The next question comes from Steve Sakwa with Evercore ISI.

Stephen Thomas Sakwa, Analyst

I guess sort of following up on Eric's question, the inverse of that is kind of the new lease side which obviously has been slower than the renewals, and I realize it's only maybe 20% to 25% of the business. But I guess, what gets the kind of the new lease pricing to kind of move higher? And would it be your expectation as we move into next year as some of the supply comes down that you would see an acceleration in new lease pricing?

Charles D. Young, President

Yes, this is Charles. We anticipated experiencing some pressure this year regarding new leases due to the build-to-rent supply in several key markets. The positive aspect is that we've passed the peak of deliveries, and we're monitoring the situation closely. We expect a decline in deliveries during the second half of the year, but there's still some absorption needed. As this occurs, I believe we'll be well-prepared for 2026. The pace of market absorption will vary. We're noticing encouraging signs in places like Orlando, Texas, Phoenix, and Tampa, and we're keeping an eye on them. Demand remains strong, but in those larger markets, we're facing longer absorption times and pressures on new lease rates while balancing occupancy. As you noted, renewals have been robust, making up two-thirds of our business, and we've seen an increase in renewals since April, with July showing a 5% growth, which is fantastic. This reflects the strength of our platform and the commitment of our residents to stay with us, which is very positive.

Operator, Operator

The next question comes from Jana Galan with Bank of America.

Jana Galan, Analyst

Question on the transaction markets and kind of views around any potential portfolios of size that could come to market. And then just also curious what you're seeing for your dispositions; kind of where are the cap rates there? And are these going to owner occupants or potentially other investor groups?

Charles D. Young, President

On the transaction market, we are examining portfolios as they become available. We are observing a similar rate of opportunities from bulk purchases as we have in recent years, without any significant changes in that regard. Our dialogue with homebuilders remains strong. We have identified attractive opportunities and moderate-sized deals that offer good cap rates. We regularly engage with our homebuilder partners about forward purchase opportunities and assess them continuously. The market appears consistent, and we are being cautious, aiming to secure the right deals in favorable markets at suitable cap rates while remaining careful regarding acquisitions. For disposals, our focus is primarily on end-users. We are actively disposing of properties in markets we've already targeted, specifically in California, Tampa, and Florida, through one-on-one transactions with end-users, while we monitor how that market develops.

Operator, Operator

The next question comes from Jamie Feldman with Wells Fargo.

James Colin Feldman, Analyst

I would like to follow up on Jana's question. When considering the second quarter, it appears that some of your largest acquisition markets, such as Tampa, are showing weaker fundamentals. How do you view the long-term strategy of investing in more active homebuilder markets that carry increased supply risk, particularly when cycles could exert more pressure on fundamentals as you work on building your portfolio and expanding your relationships?

Dallas B. Tanner, CEO

Yes, this is Dallas. Take a step back, I mean, you have to zoom out and remember that we have a view that on a long-term risk-adjusted basis, we want to be primarily Sunbelt and coastal with our footprint. And so you're totally right in saying that there's been a little bit of near-term noise specifically on the new lease side in some of these markets. But on the renewal side of the house, once you get a customer in place, it's actually quite strong even in a market where maybe there is a bit more supply that you're competing against if something goes vacant. That being said, Scott sort of touched on this, when we're looking at some of these opportunities, specifically right now, things that are coming in from the builders where there's sort of inventory that they want to move. We're getting pretty significant discounts going in, which allows us to be really conservative on our underwritten rents. Specifically, in the end-of-month, sort of end-of-quarter tapes by market, we're able to be pretty aggressive there. And so we definitely think about those types of things like a Tampa, where maybe we're seeing some softness on the new lease side of things in our same-store pool, but you just have to underwrite that risk on the front end going in. And so we feel very comfortable with the acquisitions that were made in the second quarter. We talked about this in the script that most of these are brand-new homes, either one-off that fills in north our scattered business really well and/or some of the BTR deliveries that were scheduled.

Charles D. Young, President

And as a reminder, in some of these markets, we're also doing capital recycling. And so we've got some markets where we've got older homes or homes that we have a gain on, and we're trying to recycle capital into newer inventory and brand new homes. So it's both being in markets where we have a big presence, and we see resiliency, but also recycling capital in some of our selected homes.

Operator, Operator

The next question comes from Michael Goldsmith with UBS.

Ami Probandt, Analyst

This is Ami on for Michael. I was hoping that you could dig in a little bit more in terms of BTR supply in some of the large markets to maybe help put some context or numbers around what you're seeing. And additionally, are you seeing any incremental pressure from scattered site supply?

Dallas B. Tanner, CEO

Let me address the last part of your question about scattered site supply. The home buying and selling market is currently somewhat stagnant due to the disparity between current mortgage rates and potential home purchases. In some markets, we have noticed a slight increase in inventory affecting the overall scattered site inventory, which may create some short-term pressure on rents and new lease growth. Regarding build-to-rent (BTR), the situation seems to be improving. Last year, there were many concessions as properties were being leased, and though we still see some of that from competitors, overall absorption is pretty normal. However, some key Sunbelt markets are set to see a significant amount of new supply. Based on our data, the situation appears to be better than last year, but this improvement might not last. Burns has mentioned that deliveries are expected to decrease significantly year-over-year as we move into 2026, and our data aligns with this trend.

Operator, Operator

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

Haendel Emmanuel St. Juste, Analyst

Congratulations, Charles. It's been a pleasure, and I look forward to following your next chapter. My question is regarding the investment side of the mezzanine investment book, specifically the lending book. I know you're just getting started there, but could you discuss the opportunities you see in that area? Additionally, could you provide some numbers on how much capital you might deploy in that niche in the near term and potentially in the longer term?

Charles D. Young, President

Thanks. In terms of this program, like we said, we announced it in June. We closed on our first loan. It's early days for this program. We're out in the market as we speak, building relationships with the developers, building relationships with the brokerage community. We've got a lot of lines in the water in terms of understanding the opportunity and engaging with prospective borrowers here. So I think we continue to be excited about the program. And I think it's going to be the same thing, targeting build-to-rent communities in markets where we have an operational presence, where we feel like we understand rents, where we feel like we understand the market and ideally on projects that eventually we'd like to own those communities. But it's kind of hard to put an exact number around it at this certain point in terms of volume, but we're out there engaging every day. We've got term sheets and lines in the water, and we'll report back to you when we have more progress.

Operator, Operator

The next question comes from Jesse Lederman with Zelman & Associates.

Jesse T. Lederman, Analyst

I have a question about the acquisitions, perhaps for Scott. There were roughly 1,000 acquisitions during the quarter, but only about 485 deliveries. Can you clarify what happened with the rest? I understand they are probably new homes but are not classified as deliveries in the supplemental materials. Were those existing homes, or were they one-off deals from builders that aren't classified as deliveries because they're not part of CFR communities? Any additional clarity on this would be appreciated.

Scott McLaughlin, Senior Vice President of Investor Relations

Yes. No, great question, Jesse. In terms of that, you're exactly right that the 485 identifies the forward purchase communities where we had a forward contract with a builder to have them deliver over a 12-month period, etc. And then the rest was a combination of buying end-of-month builder tapes in terms of one-off opportunities where we saw attractive pricing from the builders. Some of this, as you've noted, we bought some homes from our partners. And we had some of our JV 3PM partners that were interested in getting a little bit of liquidity, and there were houses that we knew very well, and we already managed and there was an opportunity for us to purchase them at an attractive price. And so when you put it all together, it was a combination of that. I think we've got another stabilized build-to-rent community that was an attractive acquisition opportunity at a good cap rate for us. So you're right, it was a combination of those forward deliveries and buying on a one-off basis.

Operator, Operator

The next question comes from Julien Blouin with Goldman Sachs.

Julien Blouin, Analyst

Maybe just digging into the new lease side, so positive 1.3% in July. I guess should we expect it to weaken seasonally further into August and September and then how should we think about the 4Q deceleration? Just thinking about sort of the rent curve last year, could it look similar? Or does sort of your willingness to flex occupancy this year, I mean, you might hold on to more rate?

Charles D. Young, President

Yes, this is Charles. It is, as I said earlier, the year is kind of unfolding as we expected. We peaked in Q2, which is typical. And then in Q3, you kind of balance out and depending on what's going on with that market. So Q4, typically as you get to the holidays, it does slow down a little bit. So we'll see where we end up. As you think about the new lease side, that balance really is being affected by some of our larger markets as we talked about. And I think that's what makes it a bit more unpredictable. We do see line of sight, though, that the absorption in those markets, we're chopping through that. And ultimately, we think we were seeing, as Dallas said earlier, that there's going to be deliveries down significantly next year, hopefully at some point later this year. But what we do have clear line of sight on the renewal side, which has been really strong in 2/3 of what we do, and we expect that that's going to kind of maintain in that range where we are right now through the end of the year, and maybe have some upside in Q4. So the blend will balance out. But we're in that normal seasonality where you get the curve, you kind of peak and then it's going to step down depending on kind of the market impacts.

Operator, Operator

The next question comes from John Pawlowski with Green Street.

John Joseph Pawlowski, Analyst

My question on the proportion of the book that's multiyear term leases, so 24-month leases, I think it's 25% of total leases. Are the in-place rents of that proportion of tenants well above market at this point? And is that kind of a slow but consistent drag on the headline new and renewal figures reported?

Jonathan S. Olsen, CFO

Yes. I wouldn't necessarily say that, John. I mean, I think if you look at loss to lease right now. And I would caution everyone not to read too much into it because it does bounce around a little bit. It's sort of, call it, a little bit kind of between 1.5% and 2% is probably the right rule of thumb. I don't think that the multiyear leasing profile of our book is substantially above market. We do think that we continue to have opportunities to go capture sort of market rate growth and do think that particularly in the case of residents who've been with us for a long time who have renewed several times over, average length of stay is now approaching 40 months. We are probably below market on a number of those, and we'll be looking to try to extract what we can when those leases do turn.

Operator, Operator

The next question comes from Juan Sanabria with BMO Capital Markets.

Juan Carlos Sanabria, Analyst

Just curious on the expense side. It seems like you're running ahead as a whole in particular on taxes and insurance, which you kind of flesh out more concretely in guidance. So just curious on the expectations for the second half? Is there a tougher comp? Or is there just some conservatism into the unchanged guidance with the range still pretty wide?

Jonathan S. Olsen, CFO

Thanks, Juan. It's Jon. Yes, I think it's the latter, really. As Charles said, we feel very comfortable with where we sit relative to our guidance. The year is unfolding about how we anticipated. We're sort of in line with to maybe slightly ahead of where we expected we'd be. But at the same time, I think it's important to acknowledge that we're right in the depth of peak leasing season. It is a more challenging new lease environment. It is taking a little bit longer to get stuff absorbed. And I think we want to be mindful of the fact that it's a little bit of a grind in a few of our markets. Now that said, we are also waiting on Florida and Georgia property tax. We'll have a lot more information on those in the next 60 days. So if I put it all together, just to be clear, we feel really good about where we are. I think if I look at the balance of risks and opportunities, I feel good. But it just didn't make sense given the information in hand to go revise guidance today when we're going to know a lot more 60 days from now, and we can do it with a much greater level of clarity and confidence.

Operator, Operator

The next question comes from Adam Kramer with Morgan Stanley.

Adam Kramer, Analyst

I think it's similar to some of the earlier questions, but to clarify, you've previously mentioned a mid-3% blended rate growth guide for the year. Given your strong renewal performance and the updates on new leases, I’m curious if there have been any changes to that figure or how you're currently approaching the 3.5% or mid-3% blended rate growth guidance for the full year.

Jonathan S. Olsen, CFO

No, I don't think we're in a position where we're going to, as I said, revise guidance today. We're certainly watching it. Renewals, as Charles said, have been really healthy, very resilient, and that's 3/4 of our business. So if we can continue to sort of see positive results on the renewal side, continue to get homes absorbed, I feel comfortable with where we are relative to our guide, as I said earlier. But I don't think we're in a position where we're going to go back and sort of speak to how that number may change. We'll obviously know more here by the time of our next call, and we'll have a couple of opportunities, I think, before then to meet with some of you all.

Operator, Operator

The next question comes from Brad Heffern with RBC.

Bradley Barrett Heffern, Analyst

Congratulations to Charles. SoCal has been a pain point for multi this year. It doesn't look that way, at least obviously, in your numbers. So can you walk through the fundamentals on the SFR side in Southern California?

Charles D. Young, President

Yes. SoCal has been a strength for us, running high occupancy, high blended, high new lease. New lease is affected by AB 1482, where we're limited on the renewal. So there's kind of built-in loss to lease when we get to the new lease side. Given the lack of supply of homes, single-family homes in California, it puts our book in good shape. On the operating side, there's been some noise, but we're improving on the bad debt side. So overall, it's been a nice portfolio and kudos to the team for their execution.

Operator, Operator

The next question comes from Jade Rahmani with KBW.

Jade Joseph Rahmani, Analyst

It's clear that the Midwest has seen stronger rent growth recently. So do you view this trend as sustainable? And have you evaluated any acquisition opportunities there to diversify?

Dallas B. Tanner, CEO

Great question. We've been in the Midwest since 2012, and we have been pleased with the numbers we've seen over the last year and a half. However, it's been a challenging marketplace for us in terms of risk-adjusted home price appreciation and revenue growth. So, to put it simply, we do not see this as a reason to change our strategy or long-term perspective. We appreciate our presence in the Midwest, particularly in Chicago and Minneapolis, and we are thankful for the positive growth fundamentals in that area, largely due to the lack of development for a decade. While it's encouraging to see some growth, we remain focused on higher-growth markets in the South, Southeast, and Southwest, where factors such as household formation, demographic trends, and a consistent influx of 35-year-olds indicate strong long-term growth potential on a risk-adjusted basis.

Operator, Operator

Next question comes from Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

Congratulations, Charles. Sorry if I missed this, but you had another quarter of strong dispositions at very low cap rates. Can you discuss how much more of these you anticipate over the next few quarters? Also, beyond just selling to users, is there any commonality among those assets that explains why they've sold at such low cap rates?

Dallas B. Tanner, CEO

No. I think you have to consider things in a few different ways. Many times, some of our assets have a higher value for retail buyers, and we focus on those as part of our asset management strategy. For instance, when a home in California reaches a very low cap rate from a retail perspective, we become net sellers. When looking at how we can reinvest, Scott and the team have successfully sold properties in the high 3s, low 4s, possibly mid-4s, since the market has become more competitive. We are now channeling that capital into properties with about a 6 cap rate at current prices. While it’s difficult to predict, we feel optimistic about our initial guidance regarding both buying and selling. We're likely on the upper end of our acquisition targets because we are seeing strong opportunities. However, the timing of what we sell and when will be carefully considered. This approach allows us to continue recycling capital while also managing risk in our portfolio. For example, if Scott sells a 45-year-old home in Southern California and reinvests in a new home in Atlanta, we view that positively as part of our capital recycling strategy.

Operator, Operator

The next question comes from Michael Goldsmith with UBS.

Ami Probandt, Analyst

I was curious about the broader implications. If there is a rate cut followed by an increase in home sales, how do you think that would affect your ability to maintain strong market rent growth? Would a more active home buying market pose any challenges for rents or potentially offer some benefits?

Dallas B. Tanner, CEO

That's an interesting question, and I believe many of us are curious about it. As a company, we have a unique perspective because we observe transaction volumes in both the for-sale market and our rental business. Regarding the for-sale market, it's clear that a slightly lower mortgage rate could stimulate activity in the resale market, which we would generally see as a positive for our business. Increased transaction volume is beneficial for several reasons. Firstly, it provides valuable insight into our portfolio values and their expected trading levels. Additionally, it creates immediate demand for rental properties while also reducing existing inventory in the leasing market. In several of our operational markets, we have noticed that new lease rates are somewhat softer, and homes are transitioning from being for-sale to for-lease, increasing competition for us and our competitors. Therefore, we believe that heightened home transaction activity is a favorable influence for our business, fostering a healthier environment where people have choices, flexibility, and options in housing.

Operator, Operator

The next question comes from John Pawlowski with Green Street.

John Joseph Pawlowski, Analyst

Jon, I wanted to discuss the swap book, and $2 billion in notional swaps is significant. Could you share the total upfront cost you incurred for these swaps? I might be traditional in my thinking, but I believe it would be simpler to manage the debt naturally with fixed-rate, long-term bonds and accept the effects of higher rates. However, I'm not very knowledgeable about how cost-effective swaps are. Can you elaborate on the reasoning behind this particular strategy?

Jonathan S. Olsen, CFO

Sure. Thanks for the question, John. And I'll start off by saying I agree with you. Over time and distance, our expectation is that our balance sheet is going to become more and more fixed rate. Our swap book is sort of a legacy of what our historical capital structure looks like. But I think for us, if you think about the cost of a swap, basically, there is a credit charge baked into the spread we pay. So if you look at that strike rate column on Schedule 2(d), typically, in addition to a true cost related specifically to the swap, there's a credit charge that the counterparty charges to us. It's fairly de minimis. And then there is obviously the sort of mark-to-market effect over time, whereas these swaps can become either an asset or a liability and there have been instances where we've amended swaps to take advantage of the asset position, and there have been times when that's been a more substantial liability. But our overall strategy is to try to make the interest expense related to our capital structure more knowable, more transparent and more sort of, I would say, less volatile over time. But I think your point is well taken, and I would say that as the years continue to pass, we will expect to be less reliant on sort of hedging to manage a fixed rate capital structure.

Operator, Operator

The next question comes from Nick Yulico with Scotiabank.

Nicholas Philip Yulico, Analyst

I wanted to revisit the issue of property taxes, which you have projected this year at 5% to 6%. Last year, it was just under 6%, and you mentioned it might decrease. I'm curious about when we might see some tax relief considering that home values and rental prices are not appreciating as they once were. Could we potentially see this relief in 2026? I'm looking to understand the long-term growth rate of property taxes.

Jonathan S. Olsen, CFO

Yes. Thanks for the question, and it's obviously the right one. I would say that over the long term, our expectation is that our property tax expense growth starts to look more like what it did historically. We've talked on and off over the last couple of years about the degree to which assessed values sort of lag market values and there's a bit of a catch-up. And I think your point is well taken, and we are certainly cognizant of the fact that home price appreciation has slowed pretty significantly particularly in some of the Florida markets. I think what's important to remember is taxing authorities have sort of revenue obligations that they need to fulfill. And at least in the last several years, property tax has, I think, been a little bit of a plug in terms of getting those budgets where they need them to be. And so given the magnitude of property tax as an expense item, I think it's always going to have the potential to be both a risk and an opportunity area for us. We are certainly hopeful that the property tax relief you referenced comes to pass. And my expectation is that over the longer-term period, we should be back in that sort of 4% to 5% annual property tax expense growth range. It's just a question of when we get back to that more historical run rate.

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 B. Tanner, CEO

We want to thank everyone for joining us again. I also want to thank Charles for his leadership, his partnership and extend all our gratitude to our entire leadership teams and the associates in our business. They're working really hard every day and doing a great job. We appreciate everyone's continued support. We look forward to talking to everyone soon.

Operator, Operator

The conference has now concluded. You may now disconnect.