Earnings Call Transcript
Invitation Homes Inc. (INVH)
Earnings Call Transcript - INVH Q3 2022
Operator, Operator
Greetings and welcome to the Invitation Homes Third Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Scott McLaughlin, Vice President of Investor Relations. Please proceed.
Scott McLaughlin, Vice President of Investor Relations
Good morning and welcome. I'm here today from Invitation Homes with Dallas Tanner, our President and Chief Executive Officer; Charles Young, Chief Operating Officer; and Ernie Freedman, Chief Financial Officer. During this call we may reference our third quarter 2022 earnings release and supplemental information. This document was issued yesterday after 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 in any such statements. We describe some of these risks and uncertainties in our 2021 annual report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures including reconciliations to the most comparable GAAP measures in yesterday's earnings release. With that let me turn the call over to Dallas.
Dallas Tanner, CEO
Thanks Scott and good morning. I appreciate everyone joining us today. It was a solid quarter for Invitation Homes with same-store NOI growth of 8.6%, blended lease rate growth of 11.6% and average occupancy of 97.5%. Our continued low turnover, high occupancy, and high resident satisfaction scores remain a testament to the outstanding efforts of our associates. My thanks to them for providing another quarter of premier resident service especially those recently impacted by Hurricane Ian. I couldn't be prouder of the quick and caring response our team members provided in the wake of the storm as well as our role in helping the communities we serve. Across the country we provide housing choice and flexibility that residents desire and need. While the macro world we all live in has changed quite a bit in the past year, we believe our business remains well positioned to succeed within it. Here's why. To start, we believe professionally managed single-family homes for lease are an important part of the housing solution in the United States. We still face a housing supply shortage in this country by as many as several million units according to some accounts. Today's elevated interest and mortgage rates haven't helped as seen by the pullback from builders in the last month and further decline in starts for single-family homes. It's also harder for those thinking of buying a home in the near term. Recent reports have noted that monthly payments on new mortgages have increased by as much as 60% since the start of this year due to higher mortgage rates. According to last month's data from John Burns, this contributes to a cost of homeownership that is over 20% higher on average than leasing across Invitation Homes markets. That works out to an average difference of roughly $600 a month in savings from leasing a home. So, leasing remains a preferred choice for many families combining convenience and flexibility as well as value. These advantages further fan the favorable tailwinds of demographics especially among millennials who are just beginning to approach our average resident age of 39 years old. With our expectation that these favorable supply and demand dynamics will stay with us, there's a call to grow our industry-leading scale technology and experience. We consider this in tandem with our cost of capital. Our updated acquisition assumption for the full year is $1.1 billion, and through the third quarter, we've acquired approximately $1 billion of that target. We have slowed our acquisition pace in light of the current environment, taking advantage of opportunities to recycle assets and weighing our cost of capital on balance sheet versus our joint ventures. As a result, we're continuing to explore all opportunities available to us to expand our investment management businesses and explore accretive growth while at the same time operating as prudent capital allocators who remain nimble for when opportunities may arise. As we have continued to learn and grow, so have many of our best practices, including how we address energy and sustainability. We recently deepened our bench with the hiring of two in-house experts to oversee our ESG and energy initiatives. We have a responsibility and a commitment to be a leader in these areas among our industry, and I'm pleased to see us making good progress. Of particular note, we recently learned that our latest GRESB score increased over 13% year-over-year, a significant improvement that reflects the great work by our ESG task force. Before wrapping up, I'd like to comment on our reported results and our updated guidance. Our revised full-year guidance for 2022 is consistent with our prior expectations for the overall business with two exceptions: property taxes and bad debt. Property tax assessments have been impacted more quickly than we would have anticipated due to the robust home price appreciation within our markets. Our bad debt is expected to stay somewhat elevated compared to before the pandemic, as it’s taking us longer to address residents who are not current with the rents. We're committed to doing our best to help manage through these items. In closing, we believe our business remains favorably positioned within the residential and the broader REIT space. And we're excited by the positive impact we're making for greater options in housing and the opportunities we believe this brings to Invitation Homes and our stakeholders. With that, I'll pass it on to Charles, our Chief Operating Officer.
Charles Young, COO
Thank you, Dallas. I'd like to begin by thanking all of our teams for their commitment to providing outstanding customer service and earning the loyalty of our residents every day. I'm especially proud of our associates in Florida and the Carolinas for their hard work and genuine care following Hurricane Ian. We're thankful to have avoided any reported injuries from the storm. Now, let's discuss the details of our third quarter operating results. Our same-store net operating income grew 8.6% year-over-year. Same-store core revenue growth was 8.3%, primarily driven by a 9.6% increase in average monthly rent, and a 15.5% increase in other income. Our same-store average occupancy was 97.5% for the third quarter. The sequential decrease from the second quarter reflects our expected return to a more normal seasonality patterns that have otherwise been absent the past two years. We also saw a return of elevated bad debt in the third quarter to 170 basis points. The quarterly rate has fluctuated this year, from as high as 190 basis points to as low as 70 basis points. Rental system payments have been a factor in the volatility, and we are seeing that many of these programs are starting to wind down. We've been proud of our role in working with residents who need help, and we'll continue to seek solutions to common ground. Overall, our portfolio remains very healthy. New resident average household incomes continue to improve climbing to over $134,000 per year, representing an average income-to-rent ratio of 5.3 times. Returning to our same-store results for the quarter, core operating expenses increased 7.6% year-over-year, primarily driven by a 3.8% increase in fixed expenses, a 15.4% increase in repair and maintenance expense and a 15.2% increase in turnover expenses. These increases were attributable to the continued inflationary pressures and a rise in the number of move-outs of residents who are not current with their rent. Our teams are working hard to leverage our procurement relationships, our scale and our technology to combat these pressures where we can. Next, I'll cover third quarter leasing trends. New lease rates grew 15.6% and renewal rates grew 10.2%. This resulted in blended rent growth of 11.6% or 100 basis points higher than the third quarter of 2021. Given that we're nearing the end of the year, I'll also touch on how things are shaping up for October. We expect new lease rate growth for this month to come in at 9% or better, and renewal increases to come in at 10% or better. We sent out renewals for November and December in the mid-10% range. All told, these are strong increases that we believe underscore the current health of the single-family fundamentals. Looking ahead, we remain focused on ways we can better utilize technology to lower cost and improve resident experience. One example of how we've done this is with our mobile maintenance app. We launched the app a bit over a year ago, and it's now been downloaded over 110,000 times with an average app score rating in the high 4s. Our residents are submitting about 40% of total work orders through the app today. These submissions include a high rate of photos and videos, reducing the need for return trips and making the experience a lot more convenient for our residents. Since the launch of the mobile app, we have also reduced a proportion of our overall maintenance requests that are received by our call center by nearly one-third. Once again, I'm proud of our teams, who rose to the challenges of a hurricane, high bar prior year comps and significant inflation to deliver a solid result for the third quarter. We remain laser-focused on executing and planning to finish the year strong. I'll now turn the call over to Ernie, our Chief Financial Officer.
Ernie Freedman, CFO
Thank you, Charles. Today, I will discuss the following topics: first, our balance sheet; second, our financial results for the third quarter; and third, our revised 2022 guidance. I'll begin with my first topic: our balance sheet. We believe our solid investment-grade rated balance sheet positions us well as we navigate the current environment. To recap, 99% of our debt is fixed or swapped to fixed at a weighted average interest rate of 3.6%, with approximately two-thirds of our debt being unsecured. We've also made significant progress in laddering our debt maturities with no debt due until 2025. Our net debt-to-EBITDA ratio is now 5.7 times, solidly within our target range of 5.5 to 6 times. As of the end of the third quarter, our liquidity totaled nearly $1.9 billion through a combination of unrestricted cash and undrawn capacity on our revolving credit facility and term loan. Turning now to my second topic, our third quarter financial results. Core FFO increased 9.5% year-over-year to $0.42 per share, primarily due to an increase in NOI, driven by strong rent growth and demand for our homes. This drove an 8.2% year-over-year increase in AFFO to $0.34 per share. I'd like to point out the following two non-recurring items included in our third quarter reconciliation of reported FFO to core FFO. The first is our estimated financial impact of Hurricane Ian. Our third quarter net casualty losses in our core FFO reconciliation include a $19 million accrual for estimated losses and damages related to the storm. Based on our prior experience, it's possible that additional damage may be identified over the coming months, and if needed, we will adjust our estimates. Additionally, a small portion of the losses may be recoverable through our insurance policies that provide coverage for wind, flood, and business interruption, subject to deductibles and limits. The second non-recurring item is an approximate $7.5 million global settlement of a multistate alleged class action regarding resident late fees. The settlement covers claims initially asserted in May of 2018 and involved allegations similar to what others in the residential sector have faced or are still facing. While we strongly believe that the allegations were without merit and we do not admit to any liability in the settlement, we believe it was in the best interest of the business to settle the case in order to save time and expense associated with the litigation. Settlement remains subject to court approval. The last thing I will cover is our updated guidance for the full year. Included in last night's release are the details of these updates which reflect our revised expectations for same-store results and core FFO and AFFO per share. As Dallas mentioned, the majority of the change in our updated same-store core operating expense guidance is due to our revised expectations for real estate taxes. Home price depreciation has been very strong in our markets for much of 2021 and 2022. Historically, we have seen that local assessors might take longer to reflect current fair values in their assessments and that millage rate resets might partially offset increasing assessments. Although we have not yet received all final tax bills, based on the information available to us, we believe our growth in real estate taxes will now be 7% to 8% for 2022 or about 300 basis points higher than previous expectations. This increase is primarily due to significantly higher assessments and anticipated tax bills for our homes in Florida and Georgia, partially offset by favorable expectations in other jurisdictions. Assessments in Florida and Georgia were up on average almost 30% from the prior year. We plan to appeal a much higher proportion of these assessments compared to prior years, knowing that there will be a timing difference between when we appeal and when any rebates are received. Less impactful is the change in our outlook for same-store core revenue growth. We reduced our expectations as we now expect bad debt to remain somewhat elevated relative to pre-pandemic historical norms as it continues to take longer to address residents who are not current with their rent. In conclusion, it's clearly been a dynamic year-to-date, marked with favorable supply-and-demand fundamentals and overall strong performance from our associates and business. We believe our seasoned team and time-tested platform are well prepared to continue to execute and deliver solid results. With that, operator, please open the line for questions.
Operator, Operator
Thank you. Our first question today comes from Derek Johnston from Deutsche Bank. Please, go ahead.
Derek Johnston, Analyst
Hi, everyone. Thank you. Can you discuss the supply growth or shrinkage in SFR homes available for sale? So what is the number of homes you were tracking on the MLS or Zillow? And I'm looking for supply growth of single-family listings and more importantly the measure of change in that metric over the past few months.
Dallas Tanner, CEO
Hi, Derek, this is Dallas. It's a good question. And I think it's something that, obviously, we've spent quite a bit of time looking at over the years and paying even maybe more attention to, in light of recent volatility around mortgage rates and some of the home price appreciation metrics that are out there. Today, I would say, it's so far kind of acting and behaving for the most part in our markets fairly cyclical, obviously being impacted by the fact that mortgage rates have taken off to new highs. We're not seeing anything that suggests wholesale change as of yet. In fact, we had some people in our offices this week who are a bit more experts on the matter and we spent some time looking at resale supply across, call it, Invitation Homes markets. And funny enough, it's pretty early, we're actually seeing a drop in new listings that you would typically see at this time of the year. And it sort of makes sense, as you start to think about where mortgage debt in the country is. Vast majority of the country has mortgage rates in place today that are quite favorable relative to where you could currently go out and price. So, as much as I think the near-term headlines had been that maybe we'd start to see some opportunities in terms of additional supply to be able to buy on the resale side, that just hasn't been the case thus far. So far it feels like, months of supply are doing their normal cyclical creep a little bit late in the year. But when you start to really dive down and look at less than 60 days on the market, that's when you're seeing actual new listings decline in the majority of Invitation Homes markets.
Operator, Operator
Our next question comes from Nicholas Joseph from Citi. Please, go ahead.
Nicholas Joseph, Analyst
Thank you. Maybe just on external growth, it seems like you're pulling back on acquisitions, at least, currently. And I recognize, kind of, the business was born out of a dislocation in the housing market. And so, what are you looking for in terms of reentering, or what kind of dislocation would you need to see to go in large scale on acquisition mode? And then, as you think about funding that, how do you think about JVs versus increasing leverage from here?
Dallas Tanner, CEO
Hi Nick, this is Dallas. That’s a great question. Reflecting on our May call, we mentioned that we had begun to reduce our acquisitions to assess market conditions later this year. We’ve noticed some softening in normalized cap rates. Currently, prices in the areas where we usually invest seem to be in the mid-5s, around 5.25. We plan to take a cautious approach, looking for opportunities to enter the market gradually if new valuations present better risk-adjusted returns. As we consider portfolio growth over time, we will utilize joint ventures and the liquidity that Ernie highlighted earlier. Additionally, we’ve recognized the importance of expanding our investment management businesses, especially when our REIT's cost of capital isn't ideal. Presently, we are not satisfied with equity prices. Moving forward, we will leverage our partnerships and joint ventures, seeking meaningful investments. We believe we can achieve significant outperformance through our fee structures and management within those joint ventures. Our partners have been reliable and share our view on the potential of the current market. While we are cautious in the short term, we are preparing for promising opportunities to expand our external growth as market conditions permit.
Operator, Operator
Our next question is from Jeff Spector of Bank of America. Please go ahead.
Jeff Spector, Analyst
Good morning. If it's okay, just two parts on the real estate taxes and assessments. I know you guys provided an update in September. I guess, first, if you can just describe the process. Ernie, you said that based on information available today that clearly the market is surprised by this update. When did this come to light? And then second, …
Ernie Freedman, CFO
Yeah.
Jeff Spector, Analyst
... I guess, can you just talk about the normal appeal process or historically in Florida, Georgia the likelihood or success you've seen in the past, just to give us a feel for what may happen in the coming months? Thank you.
Ernie Freedman, CFO
Sure, Jeff. Regarding real estate taxes, there are two main components to consider: the assessment and the millage rates. Preliminary assessments start to come in during the third quarter in both Florida and Georgia, but we typically don’t receive millage rate information until mid-October or later. In some cases, we still haven’t seen the final millage rates. Historically, we’ve noticed that when assessments increase, millage rates tend to decrease, but we won’t have a complete understanding of this until late October. That’s why during our engagements in August and September, we didn’t have clear information on the direction of real estate tax bills and wanted to ensure we had all necessary details before making firm conclusions about our fourth-quarter outlook. This is also why our adjustments aren’t reflected in the third quarter since we lacked complete data at that time, but we do have it now. Concerning appeals, the timeline varies significantly by jurisdiction. Some may resolve in three to six months, while others could take nine to 18 months. We will have a clearer picture of our success rate on appeals as we progress into 2023, with a few cases possibly extending into early 2024 for final outcomes. We are hopeful about the assessments being high and plan to pursue appeals more aggressively than in the past, particularly in those two states, and we will see how that develops.
Operator, Operator
Our next question is from Haendel St. Juste from Mizuho. Please go ahead.
Haendel St. Juste, Analyst
Hi guys. Good morning out there. So you delivered very solid operating results in the third quarter and better stability in rents than we've seen in multifamily. But obviously cutting guidance late in here was a bit of a surprise. So I was hoping you could help us understand a bit more what's going on, at least with the same-store revenue reduction. You mentioned a few times that bad debt is taking longer to get resolved. So I'm curious, why is it taking so much longer? And is that mostly focused in a particular region perhaps California? And do you think bad debt overall can become a tailwind into next year? Thanks.
Charles Young, COO
Hi Haendel, it’s Charles. Thanks for the question. Let me take a moment to provide some context about the situation. Since the early days of the pandemic, we have been mindful of assisting residents facing financial hardships, helping thousands with flexible payment plans. However, in 2022, we refocused on enforcing our lease agreements wherever legally possible. What we are observing is that states are taking significantly longer, often two or three times more, to process cases of non-payment. Specifically, Southern California is the most challenging area, along with Northern California, Illinois, and Georgia. Despite these challenges, we have been proactive in securing rental assistance for our residents, helping over 12,000 individuals obtain support, amounting to more than $57 million in 2022 alone. We anticipated a slowdown in rental assistance as the year progressed, but the speed of that decline in Q3 was quicker than expected. On a positive note, as this has occurred, we have improved our ability to collect normal rent from residents, who are beginning to recognize the necessity of making payments rather than waiting for assistance. This trend is evident across the board, with the most significant slowdown occurring in the California markets, where delays are pronounced. As we’ve mentioned before, L.A. County and L.A. City are among the slowest to transition back to regular legal processes. We are managing through these changes, but it will require some time as we navigate these transitions over the next few quarters.
Operator, Operator
Our next question is from Brad Heffern at RBC Capital Markets. Please go ahead.
Brad Heffern, Analyst
Hey. Thanks. Good morning, everyone. Ernie, a follow-up on the property taxes. So typically when you have one elevated expense quarter you get three more of them as it sort of flows through. Obviously, you're not giving 2023 guidance. But I'm curious should we expect to see some sort of teens operating expense growth in the first few quarters of 2023 as this increased property tax level flows through?
Ernie Freedman, CFO
No, I'm actually pleased you brought that up so we can clarify. It will be the opposite. We need to catch up because we did not accrue enough in the first three quarters of 2022. Therefore, we will experience a significantly high growth rate for real estate taxes in the fourth quarter since we increased the amount, but this is due to being under accrued in hindsight without having all the necessary information. You will notice a marked increase in the fourth quarter. As we look at our year-over-year comparisons, you will see that since we've reset at a higher level, it will be slightly elevated in the early part of the year. The fourth quarter will also present an easier comparison if circumstances remain similar, but it shouldn't match the high level seen in the fourth quarter.
Operator, Operator
Our next question is from Juan Sanabria from BMO Capital Markets. Please go ahead.
Juan Sanabria, Analyst
Hi. Just going back to an earlier question regarding some of the for-sale product coming back to the market. What's going on with that? Is that being moved to for rent? And is there maybe kind of a shadow supply in the single-family rental space that's impacting, whether it's occupancy or churn or rate that you could speak to across your portfolio and anything different geography-wise?
Dallas Tanner, CEO
Juan, no. Actually, I'd sort of say the opposite. All things being equal, I think if you look at our blended rate growth this quarter at roughly I think 11.6%, we went back and looked at called pre-pandemic numbers from the third quarter of 2019, we're at like 4.5%. So we're still seeing, call it, accelerated demand and appreciating that in between the balance of home price appreciation and the amount of demand for product. Our occupancy is still elevated in the mid kind of 97s. And so as you think about that on a kind of historical basis over the last 10 or 11 years that we run the business, we're actually seeing more demand this time of the year than we would typically see in a normal year. So I wouldn't say so. Now certainly, there are other operators out there that are probably digesting new product as it comes to the marketplace. And some of your Sun Belt markets you might see maybe a little bit of additional more supply. But we're not seeing anything in our numbers and Charles could speak to this as well that would suggest that we're having any change in top of funnel or our ability to execute on leases. Now all things being equal this tends to be in a normal year the slower part of the year from a leasing perspective. So it is good to keep that perspective that as you get into the last quarter of the year and kind of early, call it, January, that is where we have generally always had our lowest leasing velocity outside of the two what I would call the 2021 pandemic year. So those last two kind of fall months into the winter have not behaved as normal as what we are seeing probably a little bit more so this year. So we're not seeing any of the supply front at the end of the day that's causing us really any concern. It's just more about how can we execute the business, fight the inflationary cost pressures and continue to kind of maximize efficiencies within our platform.
Operator, Operator
Our next question comes from Adam Kramer at Morgan Stanley. Please go ahead.
Adam Kramer, Analyst
Hi, guys. Appreciate it. Just want to ask about bad debt. Look recognize that there may have been some kind of rental assistance impacts in the quarter, but clearly kind of less than prior quarters. So just wondering if you can kind of quantify the rental systems received in the quarter. And then relative to kind of the 170 bps of bad debt in the quarter recognizing kind of pre-COVID normal was maybe 30 bps to 40 bps what's kind of the process from getting from here to there? How long could that take? And is there a chance that we kind of just structurally or maybe due to regulatory changes that maybe we never kind of get back to that kind of pre-COVID basis points 30 to 40 basis points?
Ernie Freedman, CFO
Let me address the first part of your question regarding the impact of rental assistance and the decline we experienced from the second quarter to the third quarter. I'll hand it over to Charles to discuss our outlook on bad debt. From the second to the third quarter, our rental assistance payments decreased by $9 million, going from $23 million to $14 million. Meanwhile, bad debt increased by $5 million during this same period. One might expect that a loss of $9 million in rental assistance would lead to a $9 million increase in bad debt, but it only went up by $5 million due to the factors Charles mentioned. Individuals are beginning to recognize that rental assistance will no longer be available to them, and they are starting to return to a more pre-pandemic state of keeping up with rent payments. Looking ahead, we anticipate a continuation of this trend, with rental assistance likely continuing to decline and possibly phasing out, though a small amount might linger into the first quarter of 2023. However, we are not relying on much assistance at all. Despite the recent drop-off, we have observed improved behavior from individuals making up for the decrease in rental assistance.
Charles Young, COO
Yes. As I said on earlier question, the flexibility that we were showing while we're waiting and supporting the residents, with rental assistance and how we've been tightening this year, we're just going to continue to do that as residents recognize that the rental assistance going away. The partial payments and all that stuff, we're going really back to where we were before. And as Ernie just mentioned, we've seen improvement in terms of how residents are paying. A lot of it is just the psychology effect of them getting back to understanding we are at our normal way in which we enforce the lease. And we'll continue to do that to execute while the rental assistance wanes and we're starting to see good improvement and we'll continue to push. And it will be, like I said, a little bit of a transition period as we work through back to normal eventually.
Operator, Operator
The next question is from Keegan Carl at Wolfe Research. Please go ahead.
Keegan Carl, Analyst
Hi, guys. Thanks for the time. Maybe, just wanted to clarify some things. Just kind of curious what percentage of your leases are month-to-month rather than annual? And how does this compare to pre-pandemic levels?
Charles Young, COO
Yes. So on the month-to-month side, we're at about 6% to 8%.
Ernie Freedman, CFO
Yes.
Charles Young, COO
California is really where we see the majority of the month-to-month leases. Other than that, we haven't really seen any change to the number. The California numbers are increasing just because of the CPI plus 5% that are happening on the renewals. And the numbers are close to each other in terms of doing a renewal or a new lease. And sometimes, they just choose to go month-to-month. We're not seeing any change in terms of retention or renewal rates. It's just around the month-to-month itself.
Operator, Operator
Our next question is from Chandni Luthra from Goldman Sachs. Please go ahead.
Chandni Luthra, Analyst
Hi. Thank you for taking my question. So you guys laid out taxes for next year, but how should we think about other line items within expenses going into 2023, like repair and maintenance, utilities, insurance, all of those line items, please?
Ernie Freedman, CFO
Yes. Chandni, this is Ernie. To be clear, with real estate taxes the question was pretty specific around just what's happened with the fourth quarter here and what things may look like on a year-over-year comp basis. I want to make very clear we didn't provide any guidance for what we thought 2023, overall real estate taxes would be. And Chandni, we're not providing guidance at this time for any 2023 items. So unfortunately, we're not able to answer that.
Operator, Operator
Our next question is from Brian Spahn from Evercore ISI. Please go ahead.
Brian Spahn, Analyst
Hi, Thanks. I might have missed this but could you talk about, where the loss of lease is today at the portfolio and just your expectations in capturing that today? And then also, what the earn-in looks like for next year just given the activity year-to-date?
Ernie Freedman, CFO
Yes. Loss of lease right now is tracking to be right around 10%, where we currently stand in terms of where market rents are. And if you were to just look at where we think rents end out through the remainder of the year, and where the year is at this point relative to what our average rents were for the year, our earn-in is it will be almost right at 4%, just a hair under 4% in terms of just from a rate perspective. Of course, we'll have to take into consideration what we think is going to happen with occupancy rates next year, as well as bad debt to get to a fuller picture for rental growth or revenue growth, excuse me.
Operator, Operator
Our next question comes from Neil Malkin from Capital One. Please go ahead.
Neil Malkin, Analyst
Thanks. Good morning. I have a question regarding homebuilding. It has two parts. First, with the decline in mortgage applications and homebuilder sentiment, are you receiving more inquiries? What kind of momentum or priorities are you focusing on for acquiring more homes through homebuilder partnerships? Secondly, what are your thoughts on potentially purchasing a regional homebuilder to establish a growth pipeline when the acquisition market is not favorable?
Dallas Tanner, CEO
Hi, this is Dallas. Yes, we definitely would want to stay opportunistic with any opportunities that come to us vis-à-vis homebuilders. There's certainly a lot of chatter out there. I think right now, it's sort of the early stages of what are homebuilders thinking with their future pipelines and call it, active inventory and things like that. It's safe to say we've gotten a lot of phone calls, and I’m assuming a lot of our peers are getting the same phone calls. I think it doesn't really change our strategy in terms of having a large desire to continue to stay infill buy opportunities that seem extremely accretive over the long-haul and put structures in place that will protect us, call from further downside risk that could happen in the marketplace. So, I still feel like it's pretty early in terms of kind of where some of this is shaking out. I think builders have done a nice job of trying to move some of their call it current sitting inventory. They've also got some tools in their toolbelt from what I'm hearing on the kind of just conversations around buying down mortgage rates and things like that. So, I imagine a lot of the near-term inventory can get taken care of through kind of the use of buying down rate. Also, obviously, selling scattered sites to operators like ourselves, we have done some of that. I think over the last couple of years, we've picked up a couple of hundred homes that way. So, we're going to continue to invest in it. It's part of our thesis. We have over 2000 homes in our pipeline that we're doing with Pulte and other partners. And we would view this as a very opportunistic moment for us, say over the next year or two, where we should be able to lean in and be a good partner with not only our current partners but maybe future partners down the road. So, from our advantage point, we've seen this once before. While my current belief is that we're not going to see housing move backwards like we did in 2007 and 2008, I think it could be a great opportunity for Invitation Homes over time to make additional meaningful investments that will add to our already, what I would call industry-leading scale and performance. So, we're viewing the next, call it, a couple of years as a great opportunity for growth.
Operator, Operator
Our next question comes from Jade Rahmani from KBW. Please go ahead.
Jason Sabshon, Analyst
Hi. This is actually Jason Sabshon, speaking on behalf of Jade. But there's a lot of chatter about multifamily demand slowing driven by a slowdown in housing formation. Do you view single-family rental as a substitute product for multi? And do you expect the sector to behave similarly?
Dallas Tanner, CEO
The short answer is we would expect SFR to be pretty resilient in a downcycle. I think we exhibited that quite frankly over the last 2.5 years during the pandemic. We had tremendous performance in 2021. In addition to that, a couple of things you got to keep in mind. One, the customer isn't exactly the same customer. While our businesses operate very similarly, if you look at them from a P&L or a balance sheet perspective, customers are typically different. The other advantage of single-family typically has is that on a rent per square foot basis, it's much more efficient with a single-family for-rent product. And then lastly, I would also add that in an opportunity where square footage may matter or people are looking at how can I have kind of call it, the greatest use of my dollars, SFR is going to provide a better bang for your buck. So, we would expect our business to hold up pretty well given any of the downcycle some of the embedded loss at least that Ernie talked about and the overall limitations around supply. You have to take a step back in these moments and also remember on a fundamental basis, we don’t have enough housing units in this country. Specifically, if you look at our portfolio and where we're lined up, you still are going to have household formation and demographic growth that's almost 2.5 times the US average. So we would expect a lot of near and medium-term demand for our product. And then we talked about it earlier in our call that millennial cohort of 65 million people between say the ages of 25 and 38 are just coming into our business right now. So we're actually quite bullish in terms of what I would call natural tailwinds that should feed into the SFR value proposition.
Operator, Operator
Our next question comes from Adam Hamilton at Credit Suisse. Please go ahead.
Adam Hamilton, Analyst
Good morning, gentlemen. Thanks for your time. I really appreciate all the color around the bad debt, the tailwinds and what you just spoke about in terms of the housing tailwinds. So I was wondering if you could provide, maybe, some specifics around the geographical concentration of some of that bad debt and whether or not you guys are seeing any price sensitivity associated with that going forward. Thanks.
Charles Young, COO
Yes, this is Charles. Thank you for the question. As I mentioned, we're observing a slowdown in rental assistance and court systems specifically in Southern California. It used to take 60 to 90 days for these processes, but now it can take 180 to over 200 days. In Northern California, it ranges from 120 to 180 days. We are also noticing changes in other markets; for example, in Georgia, the process has extended from 90 days to over 150 days, and in Las Vegas, it has surprisingly increased to 150 days as well. In L.A. County and L.A. City, we are currently unable to file cases, and this will impact us next year. Therefore, we expect a lingering effect in California markets as we navigate through this. However, across all markets, as we continue to enforce legal processes, we are making progress, and residents are reacting as rental assistance diminishes. Regarding the month-to-month question that Keegan asked earlier, I mistakenly overstated the figure; we are actually at about 3.5% month-to-month. I wanted to clarify that.
Operator, Operator
Our next question is from Dennis McGill at Zelman & Associates. Please, go ahead.
Dennis McGill, Analyst
Hi. Good morning. Thanks, guys. Ernie could you just maybe walk through a little bit more beyond property taxes? If we look at the full year guidance for expense growth back into something for the fourth quarter, it seems like other categories as well would have to show some notable acceleration from where you were in the third quarter, which were already pretty elevated, unless I'm doing something wrong.
Ernie Freedman, CFO
Yes. No, Dennis, we continue to have inflationary pressures on both repairs and maintenance and churn. I would call out, we also do expect turnover to be maybe slightly higher than last year. But the bigger issue with the turnover is, as we are having some success as Charles talked about in dealing with residents who aren't paying rent, those churns tend to be more expensive when someone comes out. So you got the cost pressures as well our average cost per churn is going up a little bit more as well because of that. But you're absolutely right. It's been a challenging year for us across the board. When you take a look at what we think is going to happen with real estate taxes, we continue to expect to see continued pressures on repairs and maintenance as well as churn. And those are the categories that are really driving based on what our guidance is trying to interpolate what fourth quarter looks like, certainly the highest number we've seen all year, mainly driven by real estate taxes, but also because of some of the other issues.
Operator, Operator
Our next question is from Austin Wurschmidt from KeyBanc. Please, go ahead.
Austin Wurschmidt, Analyst
Great. Thanks. Good morning. Can you guys just remind us how you calculate loss to lease and how changes in home prices impact that calculation? I believe you said the loss to lease is 10%. And then, Dallas, I think earlier on the call you referenced a 20% average difference between the cost to own versus rent in your market. So can you just talk about the interplay of those various variables?
Ernie Freedman, CFO
Yes, Austin. I would say that the rental costs and the value obtained from renting do not directly correlate with home prices in our pricing strategy for leases. Our lease pricing is determined by market conditions, which can vary; sometimes the market supports higher prices, and other times it does not. Currently, our loss to lease, which is approximately 10%, is calculated based on pricing around 5% to 10% of our portfolio each month due to upcoming renewals and new leases. This serves as a good estimate for pricing for the entire portfolio. It's important to note that our product is relatively uniform, but each property is unique. We don't adjust pricing for all 80,000 homes in our portfolio each month. Instead, we use this limited pricing data as a reference for market rents, which we then analyze through our revenue management system. We calculate our estimated market rent on a weighted average basis for the entire portfolio. Additionally, this calculation does not align with a metric of affordability when comparing purchasing a home to renting in our markets, as those are two separate considerations. This is our method for determining the loss to lease.
Operator, Operator
Our next question is from Linda Tsai from Jefferies. Please, go ahead.
Linda Tsai, Analyst
Hi. To the extent there's concern over the economy slowing, do you have a sense of how your rents compare to the market rents of single-family homes across your different markets?
Ernie Freedman, CFO
We price according to the market. Generally, across the broad rental space, our prices are on the higher end compared to other rentals. This trend is consistent from one market to another. Regarding the types and sizes of homes we offer, we believe we are very much aligned with the market standards. We aim to provide a slightly better experience because we are professionally managed, but we think we occupy a similar market space. Importantly, our affordability metrics show an average income of nearly $134,000 and a 5.3 income-to-rent ratio. While many rental companies have minimum requirements of 3:1, we feel we are in a strong position, especially considering that our homes typically have two wage earners on average.
Operator, Operator
Our next question is from Alan Peterson at Green Street. Please go ahead.
Alan Peterson, Analyst
Hi, everyone. Thanks for the time. Charles, we noticed on your website that you're now offering concessions in select markets. Just a question on concession usage. Is this meant to build up occupancy from here, or is the decision to use concessions based on the view that occupancy could continue to decline if you weren't to use them?
Charles Young, COO
Yes, we finished Q3 very strongly at 97.5%. As Dallas mentioned, we are now experiencing a seasonal return to the market that we didn't see in the past few years. This is typical as we enter Q4 and work towards the holiday season. We are implementing limited concessions on select homes leading up to Thanksgiving to ensure we maintain healthy occupancy, which is impressive at over 97% for this time of year. We are experiencing good demand and solid rent growth. The blended rent growth along with strong renewals is very positive. Our goal is to enter the slower period with as high an occupancy as possible, setting us up well for 2023.
Operator, Operator
Our next question is from Anthony Powell from Barclays. Please go ahead.
Anthony Powell, Analyst
Hi. A quick question on the bad debt. I wanted to confirm that it was all due to, I guess, COVID-era tenants who weren't paying versus newly delinquent tenants that may be finding some current issues given the economy?
Charles Young, COO
The increase in bad debt is primarily attributed to historical cases from the COVID era that are still being processed in the courts. We are enforcing the lease agreements on new cases, but this process isn't generating a significant number of new delinquencies. The courts are slower, which contributes to the complexity of the situation. Most of the significant figures are related to historical issues, particularly with residents from Southern California, as previously mentioned.
Operator, Operator
Our next question is from Juan Sanabria from BMO Capital Markets. Please go ahead.
Juan Sanabria, Analyst
Hi. I just wanted to follow up on the Pulte relationship and the relationship with other homebuilders where you're taking out a product upon completion. Is the pricing on that preset once you give them the go ahead to build or how should we think about the mechanics of kind of changing the takeout price given the higher debt cost and cost of capital in today's environment?
Dallas Tanner, CEO
The structure is quite straightforward. Whenever we evaluate a project, we determine a range within which we believe we can execute pricing. We have mechanisms in place to protect both parties, so if costs exceed a certain limit, we can discuss alternatives and have the option to withdraw. Conversely, if costs decrease or market conditions change, we can reassess. Overall, we feel secure with minimal upfront commitment. Most projects are already in progress, with updates ongoing. The general framework includes protections for both Pulte and ourselves, and we receive deliveries in different phases over an extended timeframe, allowing us to account for market dynamics. So, from a structural standpoint, it looks very favorable. As we pursue new opportunities, we will also focus more on price volatility and its potential impact on the overall market in the coming years. We will be vigilant in securing great assets in optimal locations while ensuring that pricing aligns favorably with current and future market conditions. I hope that addresses your question.
Operator, Operator
Our final question comes from Jade Rahmani from KBW. Please go ahead.
Jade Rahmani, Analyst
Hi. I just wanted to follow-up quickly. So is the shortfall in home purchase demand directly benefiting single-family rental new lease demand, or is the impact not material at this point? In other words, are you seeing a notable percentage of applications from people who otherwise would be looking to buy a home?
Dallas Tanner, CEO
No. Our top of funnel has felt pretty consistent in terms of call it the type of customer coming into our business today. And it lines up with things that we generally would see in normal years around this time of the year. Now that being said, and I think it's important to emphasize, we're not seeing anything that's suggesting wholesale changes in the housing market right now outside of maybe new listings coming into the space and decelerating, which should support home prices in the near term. That being said, I think we're also early in where the impact of mortgage rates are and what that could mean for our business both in how we capture existing demand in the marketplace, because one could obviously argue if the cost of owning a home is 60% higher today than it was in January of earlier this year, that's a net windfall to single-family rental one would assume. We're not seeing anything on the supply side that's suggesting that we're going to have a tremendous amount of inbound to put pressure on our existing supply. So we view the overall landscape as quite favorable, but we're also being realistic that it's still pretty early in terms of where mortgage rates are providing impact. But we'll obviously keep everybody updated on our thoughts as we go forward.
Operator, Operator
This concludes the Q&A session. I will hand the call back to Dallas.
Dallas Tanner, CEO
We appreciate everyone's participation today. We look forward to seeing everyone at upcoming conferences. Thanks.
Operator, Operator
Thank you all for joining today's conference call. You may now disconnect your lines.