Earnings Call Transcript
Invitation Homes Inc. (INVH)
Earnings Call Transcript - INVH Q1 2024
Operator, Operator
Greetings and welcome to the Invitation Homes First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.
Scott McLaughlin, Senior VP 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 First Quarter 2024 Earnings Release and Supplemental Information. This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources, and other 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 2023 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures, in yesterday's earnings release. I'll now turn the call over to Dallas Tanner, our Chief Executive Officer.
Dallas Tanner, CEO
Good morning, everyone, and thank you for joining us. Our teams kicked off 2024 with a great start to the year. In particular, our first quarter results reflect high same-store average occupancy, accelerating same-store rent growth and strong same-store core revenue and NOI growth. We believe this puts us in a great position as we begin our peak leasing season. That being said, operating and leasing success is only one aspect of our anticipated growth this year. When we spoke to you in February, we told you that our 14,000-home property and asset management agreement with Starwood was just the beginning. Less than three months later, we've added over 7,000 more homes onto our management platform, including through last night's announcement of our joint venture with Quarterra, Centerbridge, and other high-quality investors, as well as our agreement with Nuveen that we signed in March. We are honored to work with each of these respective partners who highly value our coast-to-coast SFR management expertise and best-in-class operating and management capabilities. We believe this is just the beginning of the journey to grow our professional management and services business, which, as a reminder, offers many benefits to Invitation Homes. First, we earn attractive property and asset management fees that are commensurate with our unmatched expertise and scale. Second, we're able to grow earnings in a capital-light manner, including through the opportunity to potentially acquire these homes at a later date. Third, we develop deeper insight via the operational data we collect, which help us to better operate our own homes and markets. And fourth, we can further leverage the combined power of scale and density by spreading our costs across a larger number of homes, thereby improving our margins. We believe our partners and residents also benefit from choosing Invitation Homes as their manager. In addition to getting direct access to our operating, leasing, and asset management expertise, our partners can realize potential savings from utilizing our vast vendor network, our staffing optimization, and our advantageous pricing agreements. Residents, in turn, receive our signature Genuine Care and ProCare services along with the value-add amenities we offer, including, for example, our Internet bundle that we buy in bulk in several of our markets and provide to residents at a discount to retail pricing. Another area of growth for us remains our new product pipeline. We announced last month that we added several large homebuilders to our growing list of relationships, including D.R. Horton, Meritage Homes, and Dream Finders Homes. We're under contract with them to build approximately 500 new homes primarily in Charlotte, Jacksonville, and Nashville, with deliveries expected to start later this year. Underwritten cap rates on these acquisitions are in line with our previously stated targets of roughly a 6% yield on cost, which I will remind you is a return that's effectively free of any development risk to us today. Given the dynamic environment we've seen in the last couple of years and the volatility in land pricing, cost of materials, and interest and cap rates, our contracts are designed to protect us from the risks inherent with on-balance sheet development while achieving what we believe are a far superior risk-adjusted total return. We're proud of the growth we delivered through partnering with the best and largest homebuilders in the country while also helping to create much-needed new housing supply in the communities we serve. To wrap up, we're pleased with how our teams have started off this year. I extend my thanks to all of our associates for their hard work in seamlessly bringing thousands of new homes onto our platform, while at the same time, continuing to deliver outstanding operating and leasing results. As we look ahead, we're excited by our ability to sustain this momentum as we leverage our strategic approach and operational excellence to drive continued growth for our stakeholders through the remainder of the year. With that, I'll pass the call onto Charles Young, our President and Chief Operating Officer.
Charles Young, President and COO
Thank you, Dallas. Our associates really shined during the first quarter, delivering great results and preparing the business for our peak leasing and maintenance season, all while bringing 14,000 third-party managed homes into our operations. During the first quarter, we maintained high occupancy, accelerated lease rent growth, and continued to see our customers stay longer with us. We believe this is all part of a simple formula to sustainable NOI growth throughout the year. Now let's cover our first quarter same-store operating results in more detail. Fundamentals remain strong and thanks to the great performance of our teams, we grew same-store NOI by 4.7% in the first quarter. Same-store core revenues grew 5.6% year-over-year, driven by average monthly rental rate growth of 4.6%, an 80-basis point year-over-year improvement in bad debt, and a 15.9% increase in other income, primarily related to our value-add offerings. Same-store core operating expenses in the first quarter increased 7.4% year-over-year. This was the result of an 11.8% increase in fixed expenses and a 0.5% decrease in controllable costs. For fixed expenses, the largest driver of the increase was property taxes. As we anticipated and previously discussed, due to the under-accrual of property taxes in the first three quarters of last year, we expect property tax expense growth to be higher during the first three quarters of this year before normalizing in the fourth quarter. Meanwhile, on the controllable side of expenses, we're pleased to see the cost of goods continue to moderate as well as a strong effort by our teams to control costs. This is reflected in our 0.5% reduction in controllable expenses year-over-year as well as our 4.6% reduction in controllable costs from the fourth quarter of 2023 to the first quarter of 2024. Of particular note, the first quarter same-store turnover rate of 5.2% was flat with last year's first quarter results. Yet turnover expense was down 2.4% year-over-year. This is due in part to the progress we've made in working through our lease compliance backlog. In that regard, it's great to see more of our markets returning to pre-pandemic normal levels of bad debt. As a reminder, normal for us is approximately 40 to 60 basis points of bad debt as a percentage of gross rental revenues, which has historically been industry-leading among our SFR peers. Looking ahead, while we still have some work to do in a few of our markets, we remain encouraged by the continued high quality of our new residents, whose average household income over the last 12 months is now approximately $158,000 a year, bringing our average income-to-rent ratio to 5.6x. Now let's cover our same-store leasing trends in the first quarter. Renewals grew 5.8% and new leases increased 0.8% year-over-year. This drove blended rent growth to 4.4%. Average occupancy in the first quarter remained strong at 97.6%. Our preliminary April 2024 results show our peak leasing season has started off well. Renewal rent growth accelerated to 6%, while new lease rate growth accelerated to 3.1%, delivering blended rent growth of 5.2% in April. Average occupancy generally held steady at 97.5%. With occupancy in a strong position and fundamentals remaining in our favor, we believe we're in great shape to capture the demand we're seeing in our markets and continue the great momentum our teams have built. I'd like to thank them again for their focus on resident service and operational excellence, along with their diligent efforts as we plan and prepare for future growth. With that, I'll now turn the call over to Jon Olsen, our Chief Financial Officer.
Jon Olsen, CFO
Thanks, Charles, and good morning, everyone. Today, I'll cover our financial results for the first quarter of 2024, followed by an update on our investment-grade rated balance sheet before opening the line for questions. I'll start with our first quarter 2024 financial results. Core FFO increased 5.7% year-over-year to $0.47 per share, primarily due to an increase in NOI. These results also reflect the first quarter contribution from the 14,000-home portfolio we started managing in mid-January. The fees we earned were partially offset by investments we made in resources and support to help prepare for anticipated future growth. These items are included on our income statement under management fee revenues and property management expenses, respectively. Meanwhile, higher core FFO drove our 6.8% year-over-year increase in AFFO to $0.41 per share. We're pleased with these results and appreciate the considerable efforts of our associates to help us begin the year strong. Turning now to our investment-grade rated balance sheet. We had over $1.7 billion in available liquidity at the end of the first quarter through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Our net debt to trailing 12-month adjusted EBITDA ratio was 5.4x at March 31, 2024, down slightly from 5.5x as of December 31 and just below our 5.5x to 6x targeted range. We have no debt reaching final maturity until 2026. In addition, 99.5% of our total debt is fixed rate or swapped to fixed rate and over 76% of our total debt is unsecured. This week, we received further validation of the strength of our balance sheet. Specifically, I'm referring to our announcement that Moody's recently upgraded the company to Baa2 from Baa3, joining both S&P and Fitch with BBB flat investment-grade ratings. Looking forward, we believe this ratings upgrade further enhances our positioning for when compelling opportunities arise. In summary, we believe Invitation Homes is at the beginning of a new phase of our business in which exciting opportunities could become more actionable and the quality of our balance sheet, systems, and talent are the best they've ever been. All of this puts us on a path from which we believe we can continue to deliver outsized results for our stockholders and the best possible experience for our residents. That concludes our prepared remarks. Operator, please open the line for questions.
Operator, Operator
Our first question will come from Michael Goldsmith from UBS.
Michael Goldsmith, Analyst
In the past, you've mentioned starting to push rates around the Super Bowl, so mid-February. This year, it seems like there may have been a step back, as these spreads appeared to decline in March, before your recent comment about their acceleration in April. I'm trying to understand the sequential trajectory of the new lease rent trends during the quarter and into April. Were there any factors that influenced some of the fluctuations we've seen, which have led to the current pace?
Charles Young, President and COO
Sure. This is Charles. Appreciate the question. Look, we've seen a really healthy acceleration through the quarter. As we talked about last quarter, we had solved for occupancy coming out of last year as we had some lease compliance turnover that spiked. We did exactly what we said we were going to do. We got occupancy up from 97.1% to 97.6% for the quarter, which is really healthy. And then we started pushing rates in January in anticipation, as you're talking about, for February to jump. So from January to February, we went up over 300 basis points, continued to push into March to the high 2s and looking at April here, in the high 3s. That's all new lease rent growth. The blend has also accelerated the last 3, 4 months as we anticipated. What's really great though is we're still 97.5% occupied and we're seeing further acceleration into May. So we set ourselves up really nicely to capture the demand that comes this time of the year in peak season. So really haven't seen any kind of dislocation from what is the typical seasonality that we expected. And if there was anything, it was just us setting ourselves up to take advantage of the demand that's in front of us by getting occupied.
Operator, Operator
Our next question comes from Eric Wolfe from Citi.
Eric Wolfe, Analyst
I know you get asked this question a lot, but a recent article brought up regulatory risk again and then generated some more questions. So I was just curious from your perspective, what you're advocating for that you think would help the housing affordability issues? If it's not limits on ownership or rent control, what do you think would improve housing affordability and what role are you going to play in that?
Dallas Tanner, CEO
Thank you for the question. The cost of housing in the country is indeed quite high and continues to escalate, primarily due to rising mortgage rates and a shortage of supply. Our focus is on encouraging new supply in the market, which is why we collaborate with numerous homebuilder partners to help them establish large new communities that often feature a mix of for-sale and for-lease housing. It's essential to note that there are 47 million households in the U.S. that rent, making up about one-third of the population, a trend that has persisted for decades. Our residents frequently express their desire for choice and flexibility in leasing homes, which often comes at a significantly lower cost than ownership. In West Coast markets, for instance, renting can be nearly $2,000 a month cheaper than owning in places like Seattle or Southern California. Data from experts like John Burns supports this. Efforts to restrict companies like ours from being a necessary or appealing option for consumers appear misguided and counterproductive. That’s reflected in the fact that anti-leasing and anti-professional management bills have not gained much traction at both national and state levels. Despite narratives that criticize companies providing housing solutions, we will continue to engage with our trade associations and work effectively at state and local levels. We've also seen positive legislation pass in states that actively promote a housing debate aimed at facilitating private capital investment in the market and increasing the number of available dwelling units. Our mission is to contribute to this narrative by continually bringing new supply to the market, and we are committed to this goal, collaborating with some of the country’s most talented individuals in the process.
Operator, Operator
Our next question next comes from Brad Heffern from RBC Capital Markets.
Brad Heffern, Analyst
Jon, is there any context that you can give for the incremental contribution from the new third-party management agreements to earnings? I know you're obviously not changing the guidance, but just some sort of scale on that would be great.
Jon Olsen, CFO
Sure. So I think it's important to note that, as you point out, we had guided to $0.02 of earnings contribution from third-party management. Included in that guide were both the Starwood and the Nuveen agreements. The Upward America agreement that we announced yesterday is not in there. I think it's also important to note, however, that only one of those three portfolios has been onboarded at this stage, just the Starwood portfolio. The Nuveen portfolio is scheduled to be onboarded in mid-May and then Upward America, sometime in the third quarter. So I think as we approach those onboarding dates, we get better and better visibility into the operating metrics specific to those portfolios of homes, and we'll have better insight into what we think the potential is. So I think time will tell. We're still very early on. But as we approach those onboarding dates and we get more time under our belt actually managing those portfolios, we'll see if there's some upside to what we've guided thus far.
Operator, Operator
Our next question comes from Steve Sakwa from Evercore ISI.
Steve Sakwa, Analyst
Charles, I don't know if you had touched on the renewal increases that had maybe gone out for kind of the April, May, June, and maybe even July period. So any commentary around that would be great.
Charles Young, President and COO
Yes. I had mentioned it. We went out for May and June in the mid-7s, which was similar, maybe just slightly lower from what we did with April, and we ended up April at 6.0%, which was accelerating from all of Q1. So still healthy as you look back on any historical means.
Operator, Operator
Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets.
Austin Wurschmidt, Analyst
Just have a question related to transaction activity. And I was hoping you could provide some additional comments around the more significant entrance into Nashville; whether or not you're looking at other new markets to enter; and then just more broadly, about activity in the transaction market and whether you think there's enough in the pipeline to kind of hit that full year acquisition guidance?
Dallas Tanner, CEO
Yes, this is Dallas. I'll start and then ask Scott to add anything he would like. First and foremost, we returned to Nashville last summer as part of a transaction that allowed us to significantly increase our scale in that market. I think Scott can provide more details about what we are seeing in real-time regarding the opportunities. We feel confident about our guidance ranges, and there is no change there. It's important to note that new construction varies in timing throughout the year. We are definitely exploring M&A and currently having discussions. In the past six months, we have been very active, adding 20,000 units. I want to emphasize how exciting the 3PM business is for us. The first three transactions we've completed have been quite different. One was a pure-play third-party management arrangement with a potential option for a future takeout. Another involved us acquiring management contracts and considering further expansion with that capital partner. Lastly, we invested in a new home construction portfolio alongside both professional capital and a seasoned homebuilder. By participating in the equity stack, we have aligned incentives and a clear view of how to grow that business and portfolio over time. Scott, would you like to provide more insights on what we're seeing from a scale perspective?
Scott Eisen, CIO
Sure. And just to address your questions about markets. I mean Nashville is a good example where we're adding new homes in that market, both through third-party management agreements and also some communities that we are buying as well. And so that's just an example of something that we're trying to take the market where we were undersized before but clearly, we're getting some good scale in the near run and we hope to grow there more over time. We have other markets that we're also eyeing that we're going to get exposed to through the third-party management contracts, and we're hoping to see more like in Austin and San Antonio, for example, as markets. In addition, one thing that I would add is that we continue to expand our dialogue with the homebuilders. Obviously, we've done a lot historically with Pulte and Lennar, but we're also adding more national and midsize builder relationships to the table here. We're doing some deals with Horton and we're doing some deals with Meritage. We've got some other midsize builders that we're adding to the stable. We continue to add more of the build-for-rent product where we're helping create supply, as Dallas talked about earlier, and working with the homebuilders to give them confidence to start new communities and know that we can buy some of the homes and have some of those homes be purchased by retail customers. So we continue to do our part to create more supply and obviously, it's adding to our acquisition backlog and pipeline.
Operator, Operator
Our next question comes from Juan Sanabria from BMO Capital Markets.
Juan Sanabria, Analyst
I'm interested in your perspective on the overall size of the opportunity. Can you provide some basic figures on the potential impact if you were to add around 10,000 homes, or any other metric you’d like to discuss? Also, regarding the previous question on regulation, there have been negative headlines in the industry concerning collusion or pricing issues. Are you concerned that as you take on more responsibilities and manage third-party assets within one system, there might be risks related to pricing for the industry?
Dallas Tanner, CEO
Thank you for your questions. I will address a few different points, and Jon can add anything related to the economics. It's important to understand the scale of the U.S. housing market. There are approximately 147 million households in the U.S., with about 47 million households renting. In the single-family rental market, there are around 15 million homes available for lease, but only about 3% of those are managed by professional capital, which approximates to 500,000 units spread across at least 60 companies. Most data on the remaining 97% of single-family rentals is not accessible. Contrary to what might be assumed, our company possesses our own data and utilizes publicly available listing information to guide our insights on rents and home pricing, which we have been doing for the past decade. As for our internal initiative that we refer to as 3PM, which focuses on expanding our platform to serve other owners of single-family rentals, it’s still in its early stages. We’ve identified about 500,000 professionally owned units within the larger pool. We are eager to keep expanding our business. For instance, adding 20,000 units over a six- to nine-month period would significantly strengthen our operations. We are exploring bids to enhance efficiency and reduce costs, which would not only boost our capacity but also enable us to offer better pricing to our customers. The current landscape may encompass tens of thousands or even over 100,000 units. We anticipate that the single-family rental industry will continue to expand, and over the next decade, we believe that the share of professionally managed rentals could increase, similar to trends observed in the multifamily market over the past 30 years, where around 15% is owned by professional capital and 85% by small family offices or individual investors. We hope that single-family rentals will develop more professionally in the coming decades. Jon, would you like to contribute your thoughts on this?
Jonathan Olsen, CFO
Yes. I think the other part of your question is the right question. The answer is, at this stage of the game, we don't have a shorthand rubric that we can share in terms of how to think about every X thousand homes brought on the platform through third-party management. I think over time, as we onboard the two portfolios that we're looking forward to, the law of large numbers suggests that we ought to be able to do that. But I think it's also important to remember that there are a lot of variables that make a simplification a little bit challenging, right? Market mixes vary, price points vary, sort of degree of up-front renovation done varies. And so I think as we, through our asset management exercises, help shape these portfolios to perform as best they can and as we get more homes on the platform and have more sort of actual operating and financial results we can look at, I think we'll be in a much better position to share what we think is a smart way to think about how much those opportunities can potentially add to the bottom line over time.
Operator, Operator
Our next question comes from John Pawlowski from Green Street.
John Pawlowski, Analyst
Charles or Dallas, do you have any insights on why market rents aren't increasing significantly faster, considering the affordability gap in some of your markets, Dallas? Is the supply greater than we realize, or is migration to the Sunbelt not happening as quickly as expected? I'm curious about your thoughts on the underlying reasons.
Charles Young, President and COO
Yes. I think I wouldn't look at it as a culprit. If you go back outside of the COVID years, we're trending above where we've been historically on both new lease and renewals. So on a blended rate, and we're more occupied than we've ever been. And people underestimate the value of that occupancy to our NOI growth. And so look, I think we're just seeing back to normal kind of seasonality. And coming off of COVID, it feels like it's a slowdown. But the reality is, it's still really healthy. To your point, though, there are certain markets that were really humming during the pandemic, and they're coming back to earth a little bit, Phoenix and Vegas being a couple of those that we've talked about. I expect that we'll start to see them move kind of more positive on the new lease rate side in the near future as we've gotten them occupied now and things are settling down. Florida has been humming for a long time. South Florida is still really strong right now if you look at our rates. But Tampa and Orlando are seeing a little bit of a slowdown relative to what we saw over the last couple of years. So generally, it's really strong. There are not a lot of demographic changes that are material, but we saw a lot of people moving to Florida and Texas and other markets. That slowed down. And so that's taken away a little bit of the edge. But that, again, just takes us back to where we think we are, which is kind of a normal seasonality and normal kind of undersupply of homes. If you look at us relative to multifamily, we know we're in a good position. Tailwinds are in our favor. We've been able to grow occupancy in a slow season, get occupied, and now we're going to capture that demand going forward. So feel like we're in healthy shape. There's some dynamics in individual markets. We can get into it if you have more further questions. But generally, we're in good shape.
Dallas Tanner, CEO
Yes, this is Dallas. I want to share a couple of observations that I know you might be aware of. New home construction represents about 30% of the overall home transaction market, and people are staying in their homes a bit longer. You can see some of this in our competitors' data as well. Additionally, we don't experience as much loss to lease compared to some other businesses. We have seen significant rate growth, which puts us in a stronger position. Moreover, our average customer stay has now exceeded three years. As Charles and I work with the teams on optimization, we will focus on ensuring that we capture as much rate as possible during renewals. Our goal is to achieve robust new lease growth, but we believe that renewals will make up a larger portion of our business than we previously anticipated when we launched the company 12 years ago. It seems likely that customers will continue to stay longer until we enter a lower rate environment that provides more home transaction opportunities.
Operator, Operator
Our next question comes from Jamie Feldman from Wells Fargo.
James Feldman, Analyst
So I just wanted to shift gears a little and just talk about the balance sheet and debt strategy. Can you just talk through your plans for the rest of the year? And then as you think about next year with the $3.5 billion of interest rate swaps coming due, just what are you thinking about planning for those? And just how should we think about potential earnings accretion, dilution, as we look through the rest of the year and into next year, just based on how you're currently thinking about your strategy and rates being higher for longer?
Jonathan Olsen, CFO
Yes. Thanks for the question. Look, we have about $3.1 billion of debt maturing in 2026. That, as we talked about, I think, on the last call is comprised of two debt instruments. It's $610 million of our last remaining floating-rate securitization IH 2018-4 and the $2.5 billion term loan component of our five-year bank facility. We are sitting on the remaining cash from our August 2023 bond deal. That cash is available to either grow the business or to pay off debt. Today, if we look at where that 2018-4 securitization is swapped to, that is swapped to a rate of about 4.15, 4.2%. Compare that to what we're earning on the cash sitting on our balance sheet, which is around 5.5%. So we're not in a rush to pay that debt off despite the fact that we have ample unrestricted cash sitting on the balance sheet to do so. With respect to the bank facility, we have begun dialogue with our lender partners. We are going to focus on a recast of that facility here over the coming months. We'll obviously keep you posted as that process progresses. But I would say that we feel very comfortable with our access to capital. We feel very comfortable with the balance sheet. And I think it's important to remember, we have plenty of time left. We've shown that we typically aren't going to wait until the last minute to do something. But I think we also have bought ourselves the ability to be patient, which is helpful. With respect to the swap book, there are some swaps expiring in November of this year. I would point out that those correspond pretty well to that 2018-4 floating-rate securitization. So if we assume that, that swap expiry potentially aligns with the debt repayment, that probably makes sense, and I don't anticipate that we would replace that floating-rate debt with anything other than fixed-rate debt.
Operator, Operator
Our next question comes from Haendel St. Juste from Mizuho Securities.
Haendel St. Juste, Analyst
So Dallas, sorry, I have one more question on third-party management. I appreciate your earlier comments about the state of housing in the U.S. and the historical role of SFRs. However, the difference in the latest article is that it comes from the Republican governor of Texas, a significant red state, who is calling for certain items to be added to the legislative agenda in Texas to protect families. Since you are based in Texas, I'm interested in what you are hearing and what you might expect regarding this issue, and how it could influence your plans to potentially grow your portfolio in Texas, which currently contributes about 6% of your total revenue.
Dallas Tanner, CEO
Thanks, Haendel. You're right in that Texas doesn't represent a very big portion of our business. Look, I hate to speculate on any comment that I don't have sort of the full context of. We're active at both state and local levels in Texas and other markets. And everything we're hearing on the ground is pretty pro-housing and pretty friendly in terms of where state legislatures are and things that they want to focus on. We've had a number of wins in Georgia and Florida, North Carolina over the last year. We've even seen some of the, what I would call, really crazy bills in California get shelved in the last little bit, and it feels like there's sort of a little bit of a pendulum swing to moderation. Look, the tricky part about housing generally in the country is going to be that it's a social issue over and over again. And the affordability issues that have been in the country really for the last decade since the GFC, are largely supply-driven in nature. I'm not an expert on political matters and/or where people are going to fall on any one particular issue. I have become well-versed in that we see a lot of headlines all the time. And there's click bait, and we live in a 24-hour news cycle where things can also get taken out of context very quickly. And so our focus is, as a provider of housing, to be consistent, both in the things that Charles and Jon shared and Scott around deliveries, execution, how we view the customer experience, and creating this kind of lifestyle flexibility for a massive subset of consumers that are nearly 47 million households deep. SFR represents about 10 basis points of that, at the end of the day. And so those 10 basis points in the way that we behave, I think, are the only things that we can control in real-time, which is just be a great business that offers flexibility and service. And by the way, have the conversations at state and local levels as we continue to build out our thesis around housing to make sure that we're part of the solutions and that the facts are actually understood. And I think that particular article was disappointing. The headline reads one way and as you get into the article deeper, you realize that a lot of the facts in the subset suggests that a lot of this stuff isn't gaining traction because I think as you get into the data, you start to figure out that we need many different types of solutions to come out of this problem. So we'll be one part of a subset of many, but the question makes sense, Haendel. Can't tell you what any particular politician is thinking at any given time.
Operator, Operator
Our next question comes from Josh Dennerlein from Bank of America.
Joshua Dennerlein, Analyst
Jon, just wanted to follow up on a comment you made on the fees you're receiving from the management contracts being offset by some investment spend. How should we think about the duration of that investment spend? And could you elaborate on maybe just what that investment spend entails?
Jonathan Olsen, CFO
Yes. Look, I think as we onboard these portfolios, obviously, we need to add some heads in the field; we need to add some heads in the back office; and we need to make some technology investments. I don't anticipate that we're going to be perfect at this coming out of the gate. The good news is, as we've talked about, this is a really attractive, high-margin business for us. But just as we spent years optimizing our balance sheet, optimizing our operating platform, iterating towards a better outcome and sort of a better structure, we're going to be doing the same with respect to the third-party property management business. So some of these incremental costs that show up in property management expense are upfront and onetime in nature and will spread across the majority of these new agreements. Some of them are more variable and are going to correlate more strongly to the number of homes that come online. But I think big picture, this is a really attractive business from an earnings contribution perspective. And our expectation is that we should be able to make those margins higher for us as we get more and more efficient in terms of how we manage.
Operator, Operator
Our next question comes from Adam Kramer from Morgan Stanley.
Adam Kramer, Analyst
Earlier, I wanted to ask about your expectations for new and renewal growth for 2024 compared to what you expected three months ago. I understand you didn't provide specific figures back then. Could you provide some insights, considering you now have had four months and additional visibility regarding renewals for the upcoming months? How do your expectations for new and renewal growth compare to those you shared three months ago?
Jonathan Olsen, CFO
Yes. Thanks for the question. I think, obviously, we have not revised guidance. We continue to feel very comfortable with our expectations for where blended rate growth will shake out over the course of the year. What we've said is, we expect the blend to be high 4s, low 5s. Look, we're sitting here on May 1, we feel really good about the results we saw in the first quarter. We feel really good about the fact that it's aligning very, very closely with how we sort of shaped guidance and our view for how the year would likely progress. So I'm not sure that there's really much, if any, change. I think the May blend of 5.2% that Charles alluded to earlier is reflective of things kind of falling in line the way we expected them to.
Charles Young, President and COO
Sorry, the April blend of 5.2%, just to clarify.
Operator, Operator
Our next question comes from Daniel Tricarico from Scotiabank.
Daniel Tricarico, Analyst
On the acquisitions in the quarter, you quoted a 6.1% cap rate in the sup. Curious if you could break down what percentage of those are from the homebuilder pipeline versus the traditional MLS and what the spread on cap rates looks like today between those two channels?
Scott Eisen, CIO
Yes. This is Scott Eisen. That's a great question. From our perspective, most of our current activities are related to direct purchasing from homebuilders. We are engaging very little with the MLS at this time. Our primary focus is on expanding our third-party management business and increasing our partnerships with homebuilders. We are still aiming for homebuilder acquisitions with a target yield on cost expectation of around 6%. Regarding disposals, we are still active in the market as we mentioned, with a disposition rate in the low 4% range. I don't believe there has been any significant change in our expectations for acquisition yields.
Operator, Operator
Our next question comes from Jesse Lederman from Zelman & Associates.
Jesse Lederman, Analyst
Nice job during the quarter. You noted at a recent conference, you expect new move-in rent growth to exceed renewal rent growth this summer consistent with your typical trajectory, maybe pre-COVID. Can you discuss what you're seeing in the market that gives you confidence new move-in rent growth will accelerate roughly 300 basis points from April and how that 300 basis points relates to the typical, call it, April to summer peak acceleration?
Charles Young, President and COO
Yes. We are observing the usual acceleration in new leases as we move into the summer. Typically, we peak around June or July, and whether new leases will surpass renewals varies each year. I can't make that determination for this year. Generally, we expect new leases to grow faster, peaking in the summer while renewals tend to remain stable throughout the year. I could see a slight moderation in renewals during the summer, as mentioned by Dallas. The loss to lease is somewhat lower in the summer, indicating that we’ve stimulated demand, which could impact those numbers. We will see how things unfold. As we’ve indicated, this is a healthy and normal season for us, and the outcome for the summer will be revealed in time. We are also witnessing the growth we anticipated from the start of the year. We began January with negative new lease rent growth, and now by April, we've reached 3.1% and are seeing an upward trend into May. We'll see how the summer shapes up, but we're currently right where we want to be.
Operator, Operator
Our next question comes from Michael Gorman from BTIG.
Michael Gorman, Analyst
Apologies if I missed this, but could you spend a little time discussing the insurance renewal mentioned in the supplemental information? Specifically, could you address any changes in coverage levels or other terms that influenced the pricing execution? Additionally, I understand you kept guidance unchanged, but is there anything that could potentially raise insurance back to the initial guidance range of mid- to high teens growth from the 7.5% that is currently implied?
Jonathan Olsen, CFO
Yes, thank you for the great question. There is nothing that would lead insurance costs to increase. We worked with our insurance brokers and formed an early view, which was reflected in our initial guidance during our annual trips to London and Bermuda to meet with underwriters and explain our business's attractive built-in risk mitigants. Additionally, the reinsurance treaties were much more favorable than last year, which we were pleased with. However, insurance is a relatively small part of our expenses, so it doesn't have a huge impact. The more significant factor, as we've mentioned, is property tax. The elevated expenses year-over-year in the first quarter are mainly due to being under accrued for property tax in each of the first three quarters last year. Therefore, the expense growth numbers are expected and were included in our guidance. The positive outcome of our insurance renewal is largely due to the market environment and some favorable aspects of our business. We are not coastal and can manage assets on a house-by-house basis, which highlights the scale of our operations. For instance, our average insurance costs per home in Florida are under $1,000, while homeowners typically pay between $5,000 and $6,000 annually at our price points, showcasing the benefits of our scale. Lastly, we made no changes to our policy structure, limits, or any terms.
Operator, Operator
Our next question comes from Linda Tsai from Jefferies.
Linda Yu Tsai, Analyst
If renewals are a bigger part of your business going forward, how much more does this expand your margins over time? And how do we quantify how much less turn each quarter reduces OpEx?
Charles Young, President and COO
I'll let Jon address the specifics of margin expansion. However, if you look back at our business before the pandemic, we were experiencing a decrease in turnover year-over-year, which hit a low during the pandemic. Now, we're back on track with healthy turnover, largely due to high renewal rates. This is supported by various industry tailwinds and our commitment to Genuine Care, which enhances resident retention. We're seeing residents stay with us for over three years on average, and in California, it's approaching five years. This strong retention positively impacts our occupancy rates. The combination of low turnover and efficient re-residency processes keeps occupancy levels high. As Dallas noted, it presents a great opportunity in terms of lifestyle, and factors such as people's reasons for moving out or buying homes are at their lowest in recent years. This contributes to low turnover and robust renewals, and as Dallas mentioned, we anticipate this will continue to be a significant aspect of our business moving forward.
Operator, Operator
Our next question comes from Conor Peaks from Deutsche Bank.
Conor Peaks, Analyst
I think you touched on this a little bit earlier, but if we could discuss the economics around the homebuilders and maybe specifically why Invitation can get higher yields versus the homebuilder selling to individual buyers.
Dallas Tanner, CEO
This is Dallas. If there's anything I haven't covered, Scott, feel free to add. Looking at the big picture, we have noticed something important as we've developed our relationships over the past several years. First, the homebuilder industry has acknowledged the demand for rental properties. Many customers who can't qualify for a mortgage still want to live in desirable communities with good schools. They see us as a nimble partner, capable of achieving high volumes at lower costs while also improving efficiency on their side. We know what we want in our homes and are open to different exterior designs, but homebuilders can provide us with the same product consistently. Secondly, we can structure our transactions to help ease cost burdens. There is a clear market opportunity in this middle ground. Additionally, while I can't speak for homebuilders, I believe they see the retail segment as a solid business, even in a higher interest rate environment, and we help mitigate risks in their long-term planning. There's a natural alignment between institutional investors interested in the rental market—similar to the multifamily sector—and traditional builders or owner-operators. At the regional level, we can assist smaller builders in ways that many local banks haven't been able to over the past year, helping to reduce costs and provide more certainty in the production of new homes. This relationship makes logical sense. It's similar to the automotive industry, where major manufacturers have a significant retail segment and also cater to rental companies. We believe our business can develop in a meaningful commercial partnership with homebuilders, where even though we play a small role, we do so in a significant way that fosters a mutually beneficial relationship and encourages us to collaborate closely.
Scott Eisen, CIO
Conor, it's Scott Eisen. I want to add that when builders know that Invitation Homes is going to purchase a part of their project, it gives them the confidence to take on larger projects and build more homes. Consequently, they might initially plan for a 200-home community, but with our partnership, they could expand to a 300-home community. Regarding relative pricing, it's important to note that builders save on sales and marketing costs when collaborating with us since they do not have to market those homes themselves. Lastly, I would point out that we typically receive deliveries of about 8 to 10 homes per month from a builder, compared to the 3 to 5 homes they might sell through the retail market. All these factors contribute to why our approach benefits builders and complements their efforts in selling to individual retail customers.
Operator, Operator
Our last question today will come from Buck Horne from Raymond James.
Buck Horne, Analyst
I just want to follow up on that a little bit here because I guess the question from my mind on this topic is that you're not the only one in the market trying to negotiate deals with builders, and it's obviously a really hot topic. And so there's a lot of capital chasing deals with builders. But I guess you're talking about still being able to negotiate those 6% yield on cost numbers when everyone else is kind of saying maybe those numbers are in the 4s. I guess what's the secret sauce or is there a secret sauce other than what you guys have described so far to achieving those kinds of numbers?
Dallas Tanner, CEO
That’s a great question, and I appreciate your follow-up, Buck. It really revolves around predictability. We have a clear sense of our operating margins, and we consistently deliver on our commitments. Our track record in the market, especially with mergers and acquisitions, showcases our ability to close deals effectively. Our operating margins, which I believe contribute significantly to the influx of interest we've seen in our third-party management (3PM) sector, are appealing to both investors and operators. We are noticing rapid margin improvements for our partners in 3PM by implementing a few different strategies. A lot of this, as you know, relates to scale. Our business, with 97.5% occupancy and revenue growth in the mid-5% range, is in an ideal position as we enter a period of decreasing costs in areas like property tax and cost of goods sold. We couldn't be in a better situation as we look ahead in the coming years. We're just beginning to tap into our relationships with homebuilders. Like any professional endeavor we've engaged in over the past 12 years, these relationships take time to cultivate and rely on trust. Our approach to opportunities within the homebuilding sector is the same as our approach to managing risk in 3PM. We aim to collaborate with the most professional capital available because mutual expectations matter, and our commitment to follow through is equally important. This approach will set us up for conditional outperformance compared to other operators in the space who may not possess the same scale or capacity to close effectively and integrate seamlessly. I want to acknowledge the efforts of Charles in the field and Jon in the back office, as well as Scott and his team, who are working to establish relationships that will drive growth for Invitation Homes in the next decade. The single-family rental industry will increasingly focus on introducing new housing supply into the market, which I see as the narrative for the next several years. It's about creating new products and making sure we do it at yields that are sensible and provide a risk-adjusted total return profile for us and our shareholders.
Operator, Operator
This completes our question-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Dallas Tanner, CEO
We thank everyone for attending our call. We're grateful for your participation. We look forward to seeing everybody at Nareit in June. Thank you for your time today.
Operator, Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect.