Earnings Call Transcript
Invitation Homes Inc. (INVH)
Earnings Call Transcript - INVH Q1 2020
Operator, Operator
Greetings, and welcome to the Invitation Homes First Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Greg Van Winkle, Vice President of Investor Relations. Please go ahead.
Greg Van Winkle, Vice President of Investor Relations
Thank you. Good morning, and thank you for joining us for our first quarter 2020 earnings conference call. On today's call from Invitation Homes are Dallas Tanner, President and Chief Executive Officer; Ernie Freedman, Chief Financial Officer; and Charles Young, Chief Operating Officer. I would like to point everyone to our first quarter 2020 earnings press release and supplemental information, which we may reference on today's call. This document can be found on the Investor Relations section of our website at www.invh.com. I would also like to inform you that certain statements made during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other non-historical statements. They're 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 2019 annual report on Form 10-K and other filings we make with the SEC from time to time, including the potential negative impact of the outbreak of the novel coronavirus, known as COVID-19, on our business, employees, residents and our ability to operate our business. Future impact to the operation is highly uncertain and cannot be predicted. The extent of the impact will depend on future developments, including actions taken to contain and mitigate the COVID-19 outbreak. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so. During this call, we may also discuss certain non-GAAP financial measures. You can find additional information regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures, in our earnings release and supplemental information which are available on the Investor Relations section of our website. I will now turn the call over to our President and Chief Executive Officer, Dallas Tanner.
Dallas Tanner, President and CEO
Thank you, Greg. I want to start by saying I sincerely hope all of you listening are doing well and staying safe. Invitation Homes' mission to provide quality housing for American families impacts many stakeholders, including our residents, associates, vendors, communities and investors. I could not be prouder of the way our teams have embodied our core values of genuine care and standout citizenship to keep these stakeholders safe and bring stability to residents' lives with a comforting home and a friendly experience. On today's call, Charles and Ernie will provide an update on our results and financial position, but I'd like to begin by telling you what we are focused on as a management team. First and foremost is health and safety. Our homes are ports in the storm for thousands of families, making it our duty to continue serving residents through this pandemic. To perform this duty safely, we implemented important precautions early on. For prospective residents, we are relying on self-showings by utilizing our Smart Home technology and keyless entry systems. For current residents, we are making every effort to fulfill critical service needs while ensuring safety measures, including deferral of non-emergency service trips, health and wellness verification for residents, service techs and vendors before visiting homes, and observation of social distancing best practices in all of our resident and associate interactions. While our focus on health and safety begins with physical health, it also includes financial health. We have created appropriate solutions to financial hardship for those who need it. This includes payment plans without late fees for residents who require flexibility to meet their rental obligations over time and a voluntary moratorium on evictions. The second important focus area I'll address is the financial well-being of our company. We entered the pandemic in a position of strength with record high occupancy, significant liquidity available to us and zero debt maturing before 2022. We also entered the pandemic knowing that our business had several differentiators that might work in our favor despite the uncertain environment. First, we provide the essential human need of housing and a leasing lifestyle that we believe is even more attractive versus other housing alternatives in times of uncertainty. Second, as you know, we have been purposeful about assembling an infill portfolio in locations where we expect greater resilience to economic cycles. Third, the residents we serve, on average, came into the pandemic with two wage earners per household, generating income of almost $110,000 that covered rent obligations by five times. And fourth, we operate a high-margin business. Despite these positive differentiators, we took certain steps beginning in mid-March to further strengthen our operating and financial position, not knowing exactly how things might unfold. These actions included prioritizing occupancy, which climbed to a record high 97.2% in April; drawing roughly one-quarter of our revolver to increase working capital; and pushing pause temporarily on sourcing new acquisitions. Based on how well our business performed in March and April, it appears that the positive differentiators of our business and the additional COVID-specific steps we took to strengthen our position are working favorably to this point in the pandemic. Shelter-in-place has not impacted our ability to lease homes. In fact, residents have been moving into our portfolio at a similar rate to last year and at a greater rate than they have been moving out. Both renewal and new lease rate growth remained positive in April and occupancy reaches all-time highs. On this higher potential revenue base, we collected rents at over 95% of our typical collection rate in April, and are tracking even better in May than we were in April through the fifth day of the month. The third area we are focused on is staying close to information on the ground in our markets. Our platform has been purpose-built to provide real-time feedback. Our teams from operations management to customer service reps, maintenance supervisors and investment directors are in-house and local. This on-the-ground presence has served us well in navigating fast-changing scenarios like natural disasters in the past, and we've been able to leverage our playbook from these past events to help our teams identify and quickly adapt to rapid changes in each of our markets today. We believe our local presence and agility should also benefit us as we emerge on the other side of this pandemic with more clarity about the future. I will say a few more words at the end of our prepared remarks, but at this time, I would like to turn it over to Charles Young, our Chief Operating Officer.
Charles Young, Chief Operating Officer
Thank you, Dallas. I want to express my gratitude to our teams for their commitment. We've asked our associates to be adaptable in response to the rapidly changing protocols, and they have risen to the occasion. Resident satisfaction has continued to improve even amid the challenges posed by COVID-19, with our survey scores reaching near all-time highs in April. I am proud to lead a team that cares deeply about our mission, and their ongoing selflessness is truly inspiring. In my comments, I will briefly review our first quarter operating results before discussing the operational impact we've felt due to COVID-19. Our same-store core revenues for the first quarter of 2020 increased by 4.5% year-over-year. This growth was fueled by an average monthly rental rate increase of 3.9%, a 20 basis point rise in average occupancy to 96.7%, and a 13.5% increase in other property income, net of resident recoveries. Same-store core expense growth for the quarter was 5.3%, leading to a same-store NOI growth of 4%, which exceeded our expectations. The environment we are now operating in is markedly different from that of most of the first quarter due to COVID-19, and I’d like to highlight three areas of impact: occupancy, rent collections, and revenue management along with leasing trends, noting that move-ins are surpassing move-outs. I will then contextualize these trends as we look toward the future. Regarding occupancy, we began the pandemic from a strong position. As the situation evolved, occupancy continued to rise, maintaining a streak of sequential increases that began in October and persisted through April. In April, our same-store average occupancy reached an unprecedented 97.2%, which is 60 basis points higher than last year, with 12 out of our 16 markets averaging 97% or more. Our overall portfolio average occupancy also hit a record high of 95.4% in April. Moving on to rent collections, we implemented a voluntary moratorium on evictions in both April and May and established payment plans for residents facing financial difficulties due to COVID-19. Despite these measures, our collection rate in April exceeded 95% of our historical average, with less than 2% of residents requesting to defer part of their April rent. Collections have improved since the end of April, with approximately half of the 5% shortfall in rent collections already resolved. By the 5th of May, our May collection rate surpassed 100% of our pre-COVID historical average, putting us at nearly 109% compared to this time in April, when the collection rate was 92% before rising above 95% by the end of the month. Now, I'll update you on our leasing trends and strategy. Our turnover rate is showing signs of a decrease, as evidenced by flat turnover in March year-over-year and a same-store turnover rate of 2.2% in April, down from 2.5% the previous year. We achieved rate increases for renewals of 4.2% in March and 4.1% in April. Most residents who moved out in March and April had given notice before COVID-19 spread, but the pandemic likely influenced the renewal decisions of residents with leases expiring in May. While it’s too early for definitive data on May turnover, it appears to be trending positively. Overall, we anticipate that our turnover will perform better than other residential sectors during challenging times, as our residents tend to stay longer, renew more, and typically include families that are more committed to their housing choices. Now, I will discuss new leases. To proactively address COVID-related uncertainty, we began incorporating concessions into our pricing strategy in early March to facilitate leasing vacant homes. As we assessed the pandemic’s impact in April, we observed stronger than expected move-in rates. In March, we signed 2,260 new leases with same-store new lease rate growth of 3.2%, including concessions. In April, we signed 2,099 new leases with 1% rate growth after concessions. Additionally, day 3 resident turnover improved by 4 days in March and 2 days in April compared to last year. Due to our strong leasing activity, we have now reduced the concessions we offer while remaining focused on performance metrics and staying flexible as needed. Overall, our same-store blended rent growth was 3.9% for March and 3.2% for April. In conclusion, revenues have remained relatively strong. We are pleased with our rent collections, and record occupancy is another positive sign. Rental rates and leasing volumes have also performed well. We value our high-quality, loyal resident base and believe the pandemic's effects might make leasing single-family homes more appealing compared to other housing options, especially those with higher unit densities and shared amenities. As we navigate the uncertainty of the pandemic, it is vital that we stay adaptable and continue using our local market insights for informed reactions. Our dedicated team in the field has done an excellent job of this so far, prioritizing safety, caring for residents, and positioning the company for optimal results while minimizing risks. With that, I will pass it on to Ernie Freedman, our Chief Financial Officer.
Ernest Freedman, Chief Financial Officer
Thank you, Charles. Today, I will discuss two topics: first, financial results for the first quarter; and second, our liquidity position. I will begin with our financial results. Core FFO and AFFO per share for the first quarter increased 4.4% and 5.1% year-over-year to $0.34 and $0.29, respectively. These results exceeded our expectations. As Dallas and Charles described, we continue to see positive signs in the business and believe we have a differentiated model that is well-equipped versus many other types of commercial and residential real estate for the road ahead. That said, we are withdrawing our 2020 guidance due to uncertainty regarding the future economic impact of COVID-19. Regarding our liquidity, we entered the current period in a strong position. We have almost $1.1 billion in available liquidity, no debt maturing before 2022 and minimal near-term investing commitments. Our almost $1.1 billion of liquidity consists of $345 million of fully unrestricted cash and $730 million of capacity on our credit facility as of April 30. As we think about our liquidity needs going forward, we are focused in three areas: first, operating cash flow considerations; second, investing cash flow considerations; and third, financing cash flow considerations. With regard to operating cash flow, the two primary risks relate to occupancy levels and rent collections. The good news is that we are seeing positive results with respect to both. First, with occupancy, we’ve seen continuous increases since the start of the pandemic and demand that is stronger than this time last year. Although we are early into this new part of the economic cycle, our thesis with respect to the attractive nature of our product type and the stickiness of our residents appears to be playing out. Rent collections have also been a positive story. We came into April with a very low amount of past rents due to us. And as Charles described, our collections in April and to this point in May have been solid. Also as a reminder, we retain a security deposit from every resident, typically equal to one month's rent when they sign their initial lease, and these deposits total $152 million as of April 30. These deposits are not included in the $345 million unrestricted cash and almost $1.1 billion of liquidity I referenced earlier, but would be available to us to cover shortfalls in rent payments if necessary. While rent collections have remained high to date, we’ve completed internal stress tests to help guide us to actions that may be considered if rent collections were to decrease. In these scenarios, the high-margin nature of our business and our low dividend payout ratio help serve as a buffer. Moving on to investing cash flow. Our business has some unique advantages that help us mitigate risk. First, we are not engaged in any development activity. Second, the granular nature of our assets allows us to be nimble with our investment activity, ramping up or down quickly to adapt to changes in risk reward. After closing $28 million of acquisitions in April, we have only $19 million of acquisitions in our pipeline beyond April and have temporarily paused putting new homes under contract. At the same time, we've remained active selling homes that have been earmarked for disposition, with $31 million of dispositions in April and another $59 million under contract to close after April, and more in our pipeline being prepared for sale. While we do not know what the future may hold, the housing market remains open with healthy transaction volumes at present. I will also point out that we can ramp up acquisition activity just as quickly as we brought it down. While we continue to stay on the sidelines as we assess risks and market conditions today, we will be able to pivot quickly to resume buying when the time is right. I will now address financing needs and capital markets risk. While capital markets have been volatile and challenging for new issuance in certain channels, we do not have any near-term refinancing needs. As a result of our proactive refinancing over the last several years, we have zero debt maturing prior to 2022, and weighted average years to maturity of 4.7 years as of March 31. 51% of our homes are unencumbered. Our other approximately 39,000 homes are pledged as collateral for non-recourse-secured debt of $6.6 billion or 76% of our total debt. On a trailing 12-month basis, these homes generated cash flow that covered debt service by 3.1 times. Outside of secured debt, the remainder of our debt consists primarily of a term loan and revolving credit in our unsecured facility. Covenants on this facility leave cushion for an almost 60% drop in EBITDA and an almost 50% drop in total asset value, as measured by broker price opinions. In summary, we have a safe balance sheet today. We are pleased with our strong liquidity position, the quality of our real estate, the strength of our resident base and how the business has performed through the pandemic thus far. Before we open the call up for Q&A, I want to hand it back to Dallas for some final remarks.
Dallas Tanner, President and CEO
Thanks, Ernie. On today's call, we focus more on the near-term than we typically do. Appropriately so, given the importance of the measures we've taken to navigate the current environment with safety and prudence. However, I would be remiss if I didn't spend some time talking about the big picture for Invitation Homes. Our long-term growth story remains intact, and I am confident we will emerge from the pandemic in a position of strength, ready to run again. We continue to have conviction that we offer a differentiated product and living experience, catering to the large percentage of the U.S. population that wishes to live in a single-family home while enjoying the flexibility and convenience of leasing from a professional property manager. That thesis has been validated in the strength of our demand, as evidenced by our leasing trends for the past several years. Demographics point to continued growth in single-family leasing demand over the next decade. The events being experienced in the world today do not change that. And it is possible that they will have a lasting impact that drives Americans to place an even greater value on the space and distance from neighbors that single-family living naturally provides. The locations and high-quality nature of our homes and service further differentiate our resident experience, which we continue to refine and see runway to make even better. While our front lines have been focused on safely serving residents, our strategy and ancillary growth teams have not stopped making progress on important projects behind the scenes. We remain on track with preparations for our next generation of ancillary services and have put ourselves in a position to pilot some of these opportunities at the appropriate time. We also continue to monitor each of our acquisition channels very closely. When we gain more clarity in our footing and the market dynamics, we will be ready to resume acquisitions in a disciplined fashion. We look forward to returning to a more normal environment, but the passion we bring to supporting residents will prevail regardless of circumstance. The last two months have renewed my conviction in the strength and resilience of our people and of our platform. I could not be happier with how we have responded to the pandemic. Let me be clear. These are unprecedented and uncertain times, but we like how we've performed so far. Of all the types of real estate that could be owned, we are happy that single-family homes are what we own today. Lastly, in times like today, it's natural to reflect on what matters to you most, your core values and your mission. Our mission statement says, “Together with you, we make a house a home,” and that resonates with me today more than ever. Many of our residents are healthcare professionals and first responders. And it's our absolute honor to support these heroes and alleviate a small amount of stress by providing them with comfortable, well-maintained homes they can return to at the end of the day to recharge and be with their loved ones. We are all feeling some form of disruption in our lives today and deserve the stability that a home can provide. We are proud of the exceptional job our teams have done adapting to the challenges around them to continue helping residents make a house a home. With that, let's open up the line for question and answer.
Operator, Operator
Thank you. Our first question today will come from Derek Johnston of Deutsche Bank. Please go ahead. Mr. Johnston, your line is open. You may be muted on your end.
Derek Johnston, Analyst
Hi. Yes, I was. Thank you very much. Hi, guys. Good morning. So you are in a unique position with regard to self-guided tours of properties and, presumably, meeting the social distancing standards of today. Has this been an active channel? And what percentage of the portfolio is able to accommodate self-guided tours? And what percentage of self-guided tours are you actually closing on?
Charles Young, Chief Operating Officer
Yes. So this is Charles. Thanks for the question. Our advantage has been that we implemented the Smart Home technology in self-show tours years ago. And currently, about 60% of our portfolio has the capability and 100% of our on-the-market homes have the self-show capability. It's been our main channel in which how we show homes, given the kind of spread nature. And our talented leasing agents are able to utilize the technology to make sure that residents get to see as many homes as they need to, but at the same time, if they need to work with one of our agents, we will provide that as well. So to your last question, the majority of our homes are going through the self-show. Now not everybody is comfortable with that. And so at times, we'll do an in-person tour. But given the pandemic, we made adjustments where we would open the home for a resident ahead of time, and then wait for them outside trying to adhere to the social distancing guidelines. So we made some pivots, but it really wasn't a major pivot for us because this is a core way in which we operate our business on the leasing side.
Derek Johnston, Analyst
Got it. That’s very helpful. Thanks. And just switching gears quickly for my second one. I think Charles mentioned it. Can you discuss the previous concessions that were in place for new leases, maybe even the nuances by market and kind of where they stand today? Thank you.
Charles Young, Chief Operating Officer
Yes, this is Charles again. Thank you for the question. As the pandemic progressed, there was a lot of uncertainty in the market. We decided with our revenue management team and operations to focus on occupancy to ensure we maintained a strong position. Fortunately, we entered the situation with high occupancy, which helped us significantly. We implemented a market-wide strategy with less than one month's average rent concession, around $1,500, for about 2 to 3 weeks. After that, we gradually reduced concessions market by market based on our demand indicators. This approach was effective, and we reached an all-time high in occupancy. While there was some impact on rate, we believe that trade-off was worthwhile, and it's easier to scale back concessions. We see this as a valuable tool that creates urgency for residents, and it's simple for us to retract. In April, we noticed a slight increase in demand and began to lessen the concessions. As of May, we are no longer offering any concessions in areas like California, Seattle, Phoenix, Denver, Vegas, and the Carolinas. We're currently in the peak leasing season and seeing positive demand. In Florida, Atlanta, and Dallas, we have reduced concessions by about a third, and we've cut two-thirds in Chicago, Minneapolis, and Houston. It's still early in May, so we'll monitor these developments closely. We expect to possibly pull back concessions further, as this strategy supports our occupancy and should lead to an increase in rate growth from April.
Operator, Operator
Our next question will come from Jeff Spector of Bank of America. Please go ahead.
Jeff Spector, Analyst
Good morning. Thank you. My first question is on demand. If you can talk a little bit more about the renter, where are they coming from? Any changes that you're seeing? We are getting lots of questions on folks leaving cities, looking for suburban renting homes. I guess, can you give us a little bit more color on possibly even by region?
Charles Young, Chief Operating Officer
Yes. So thank you for the question. Charles, again. As I said, demand has been strong, especially as we got past the initial couple of weeks of uncertainty. And so by the beginning of April, into the middle of April, we started to see demand kind of across the board step up when we looked at our number of showings and applications that were coming through. And it was really kind of across the board. Early on, as you can imagine, there were some hiccups in markets like Vegas with the casinos shutting down early and some of the Florida hospitality impact. But even now, we are still seeing okay demand, and that's what we've done in terms of pulling back our concessions in those markets. That being said, it's hard to say exactly where people are coming from. That's not something that we typically gauge. But as you look at demand and as you look at our occupancy rise, I think we're really in a healthy position. I think it's a statement to single-family and the resiliency of our industry, that there's demand for our solid neighborhoods, more space that's offered by our homes, backyards, it kind of helps in the social distancing situation as well as how do we think about any of the people moving out of the cities and maybe coming into homes with their parents or with their families or cohabitating with other family members. So can't tell you specifically, but we have seen some good demand across the board, with our typical markets out west probably seeing a bit more than others.
Jeff Spector, Analyst
Thanks, Charles. And my second question, just pretty amazing that May collections were stronger. Can you provide any comments on your thoughts on how that happened, or any color there?
Charles Young, Chief Operating Officer
Thank you for the question. As we reflect on April and the events that unfolded, it was quite swift. Late March brought surprises for many, leaving our residents uncertain about their employment situations and the implications of shelter-in-place orders. In April, we chose to be flexible with our residents, meeting with them individually to gain a better understanding of their circumstances. This approach proved effective, leading to solid results in April and an even stronger performance in May. One key takeaway from April was our ability to leverage technology to enhance our website, allowing residents to fill out hardship forms easily. We improved our communication regarding expectations and the process for submitting hardship requests. We discovered that many residents simply needed the option to delay their payments until later in the month. In April, most requests were for this delay, with around 1.5% to 2% needing to push payments out by a month or two. Entering May, we continued to operate with genuine care and remained committed to our mission. Our streamlined communication and systems helped us perform even better in May, and some collections from April were reflected in May's figures. Ultimately, I want to emphasize the resilience of our resident base, characterized by households earning over $100,000 with two wage earners, which gives us confidence about the long-term potential of this space.
Jeff Spector, Analyst
Thank you.
Operator, Operator
Our next question will come from Michael Bilerman of Citi. Please go ahead.
Michael Bilerman, Analyst
Good morning out there. I wanted to ask about guidance, in the sense that you look at your resilient business model, you think about the lower turnover, you think about the data that you’ve from April and May. And I recognize it's an unprecedented situation. There's a lot of uncertainty, but you have such good handle on what your revenues and expense trends are. Why not even provide just a quarterly update in terms of where you view your operating metrics from a revenue expense and NOI perspective and even drill down to an actual FFO number? Because you really have all the tools necessary to be able to do that, especially given the fact that you have such resilient cash flows, why not be one of the companies that provides that comfort to the Street about where your cash flows are likely to be?
Ernest Freedman, Chief Financial Officer
Hi, Michael. This is Ernie. I appreciate the question; it's a great question. We discussed it internally and examined various scenarios with the data we have. However, this is an unprecedented situation. We are six days into May collections, and we are pleased with our current position, but it's still early in the month. We're only about seven to eight weeks into this entire process. For instance, in April, we did not charge late fees. To be honest, we're not yet sure what we will do for May, and we're keeping our options open as we consider our next steps. While we have seen a lot of data, establishing guidance within a wide range wouldn't be very useful at this stage. Although we are happy with our current standing, there are too many uncertainties right now. As the year progresses and we gather more data, we will look to reestablish guidance as soon as we can. We just feel it's a bit early to do that this quarter, Michael.
Michael Bilerman, Analyst
Can you talk a little bit about maybe some of the components? So what you've seen across the REIT sector is you have companies that have maintained their guidance of providing it and re-forecasting. You've seen those that have removed the actual FFO, but given the actual details of the components. And then you've had companies like yourself that have just said, we are not going to give you anything. So can you give us a little bit more sort of details around the revenue, expense and NOI, at least on the near term, because you have the data, right? So in the first quarter, you are running at 4.5% revenues, 5.3% expenses, 4% NOI. You had a range out there of 4% revenue, 3.75% expenses, 4.25% NOI for the year. At least in the second quarter, based on what you see, where should those ranges be? Is there more pressure on expenses? Are revenues trending a little bit lower than what you had seen? Just so that we at least get a current momentum on the numbers. And then is there anything else that may be impacting the P&L from a G&A perspective? All the liquidity things, Ernie, that you talked about that you’ve brought down, what sort of impact or drag could that create on a near-term basis? Just to give us a little bit more detail around the financial impact of all these.
Ernest Freedman, Chief Financial Officer
Yes, Michael. Let me help by reiterating that we've chosen not to provide guidance. As you know, we've never offered quarterly guidance in the past. However, I can share some trends that may be useful. In the first quarter, we were very pleased with the results. From an FFO and AFFO perspective, we exceeded our expectations slightly. On the revenue side, we significantly outperformed our expectations. Our expenses were slightly better than anticipated, although we had indicated at the start of the year that the beginning would be challenging in terms of expense growth. This ultimately led to a better NOI result. So, the first quarter went well. Looking ahead to the second quarter, we will definitely face some pressure, especially regarding revenue. We did not initially budget for the concessions we have used, as Charles mentioned during the end of March and into April. However, he indicated that we have reduced those concessions and may have the opportunity to reduce them further. We are still pursuing renewal increases, but we expect them to be somewhat lower than initially anticipated at the beginning of the year, largely due to the unexpected pandemic situation. We anticipate the most pressure will be on revenue, and that's before considering potential bad debt expenses. We are pleased with our current collection rates, although they did come in lower than historical averages for April. This situation will take time to develop, and we are only a few days into May. On the expenses side, we expected to see some easing as the year progressed, and we anticipate that expense comparisons will become a bit easier. We do not face the same challenges seen in other residential sectors, such as density in common areas. Therefore, in the short term, we expect to see less pressure on expenses, although some catch-up in expenses may occur later in the year related to deferred work orders mentioned by Charles. For now, we should see positive results regarding expenses. Additionally, we are being cautious with our G&A and property management spending, and we are saving costs since we are limiting travel and related expenditures. We hope to achieve a favorable run rate for G&A and property management compared to the first quarter. I don’t want to be overly specific with ranges, dollar amounts, or percentages, but I hope this gives you some insight into the trends we expect in the near term.
Michael Bilerman, Analyst
Right. And anything on the liquidity, just raising the additional capital just in terms of the drag cost on that?
Ernest Freedman, Chief Financial Officer
Well, you saw we’ve on our line, which we wouldn't have expected in a year of about $270 million at the interest rate that, that gets charged if we were to leave that outstanding for the full-year. That'd be a little bit more than $0.01 of drag from what we would have expected. But if things continue to progress well, we may come to the conclusion we don't need to leave the working capital cash balances as high as they are today because we did that really just to be cautious and to be careful, but things have played out very well for us to date, so we certainly have got the opportunity to do a little bit better than that.
Operator, Operator
Our next question will come from Hardik Goel of Zelman & Associates. Please go ahead.
Hardik Goel, Analyst
Hey, guys. I just wanted to understand better how the accounting will work for, number one, the concessions, and then the delinquency reserve. So your core revenue number will net out the concessions, I’m guessing. And the delinquency will be reported as a reserve until you know what bad debt is, or can you walk me through how that will work?
Ernest Freedman, Chief Financial Officer
Yes, certainly. While concessions are not new to us, we are utilizing them more frequently than in the past. Under our previous accounting policy, if a concession is under $500, we recognize the loss immediately without spreading it over the lease term. For concessions exceeding $500, we adhere to Generally Accepted Accounting Principles by amortizing the amount over the lease period. For example, for a $1,200 concession on a 12-month lease, we would recognize $100 each month. We will maintain our established approach to concessions. Regarding delinquency, our historical policy has been to reserve 100% for amounts that are over 30 days overdue or any current amounts in eviction, which are relatively few. We haven’t reserved anything for current amounts, between 0 to 30 days, due to the security deposits covering those. It’s still early to determine our actions moving forward, as we have had payment plans before and will implement more than ever before. However, it's important to note that only about 1% to 1.5% of our residents have requested assistance. Therefore, we might not reserve for balances over 30 days if we are confident in the payment plans. We have not made that decision yet, but currently, the amount is not significant. We will continue to recognize rental income based on the lease, and cash collections have been strong, supporting that. We'll evaluate how to handle deferred payment plans further into the second quarter as we monitor the number of requests and our historical collection patterns. Overall, collections have been effective, but there could be an accumulation of receivables throughout the year if the trend in payment plans remains low.
Hardik Goel, Analyst
Thanks. Regarding R&M and turn, I understand there is a comparison issue, but expenses are up around 18% to 20%. I'm curious about the impact of deferring noncritical expenses. How much would the expenses have increased if you hadn't deferred anything and the environment was normalized?
Ernest Freedman, Chief Financial Officer
Yes, it's interesting. Since everything occurred so late in March, the impact is very minimal. The items we're deferring today are typically managed by our service technicians. Although our technicians have lost some productivity in completing work orders, we have redirected their efforts towards other tasks, such as maintaining homes for self-showings and assisting with turnovers. They have done some of this in the past, but they are now focusing on service much more intensively. The only cost that we are not absorbing at this moment, which we would have incurred in the first quarter during those last couple of weeks, relates to any supplies they would need for their routine work orders. These costs are quite low. The more significant expenses arise from larger work orders, which can be handled by our team or by vendors. Thus, our first quarter results would not have shown much variation regardless of the pandemic's impact.
Hardik Goel, Analyst
Thank you. Lastly, if I could ask, what would be the cost for you to settle all your swaps if you had to do that today?
Ernest Freedman, Chief Financial Officer
Yes. We will disclose that today when we release our 10-Q a little later. The mark-to-market on the swaps is currently a little over $600 million. It was around $350 million at year-end. With interest rates declining, the duration became shorter, which slightly improved the mark, but the decrease in interest rates had a more significant impact. The good news is that no cash collateral is required for this, which is something we need to do. However, the mark-to-market has definitely increased with the lower interest rates.
Hardik Goel, Analyst
Got it. Thanks, Ernie.
Operator, Operator
Our next question today will come from Jade Rahmani of KBW. Please go ahead.
Jade Rahmani, Analyst
Thanks very much. It's good to hear from you guys. And hope you're all doing well. I wanted to ask about tenant demographics. Is there any color on employment industry profile that you could provide as well as perhaps some read on unemployment rate across the tenant base?
Dallas Tanner, President and CEO
Yes. Jade, this is Dallas. In terms of the demographics and what they do, we obviously do income verification on the way in. I think the headline there is really that their monthly rent to income ratios right now are at five times. In some markets, we are even seeing a stronger strength than five times, but the average is five times. But it's all walks of life in terms of where they come from. As I mentioned in my previous quarter remarks, first responders, teachers, health professionals, etc., kind of run the gamut. And so you will see that vary by kind of cohort and submarket, but it's not something that we track independently.
Jade Rahmani, Analyst
Okay. And I suppose there is a risk of unemployment insurance not being renewed at the end of July. Do you’ve any idea how much that stimulus is helping with respect to current rents? And a related question is, do you know what percentage of April and May rents were paid out of security deposits?
Ernest Freedman, Chief Financial Officer
Well, I will answer the second part of that question.
Dallas Tanner, President and CEO
Yes, anecdotally, we haven't received much information regarding stimulus checks being a factor, except for a small number of instances in May where people requested late pay cycles. Overall, those occurrences are quite rare at the moment, Jade.
Jade Rahmani, Analyst
Thanks. I do appreciate the conservatism around the decision to not provide guidance. I think that's the right decision. Thanks for taking the questions.
Dallas Tanner, President and CEO
Thanks, Jade.
Operator, Operator
Our next question today will come from Rich Hill of Morgan Stanley. Please go ahead.
Rich Hill, Analyst
Good morning, everyone. I would like to follow up on Michael's questions. I understand that you prefer not to give guidance, but you have shared a lot of information regarding certain aspects in April and early May. I want to ensure that I'm considering the methodology correctly. I'm focusing on three key points: what was collected in April and what has been collected in May so far, along with your lease renewal rates, rent concessions, and occupancy improvement. If I’m interpreting this correctly, let's say you don’t recover anything from April and you collect all of May and June, which would represent about a 2% headwind. Then, if we assume a 3.2% increase on 30% of your portfolio, that’s approximately a 1% tailwind. Plus, with the occupancy increase, shouldn't this keep your same-store revenue relatively flat for the first quarter? Essentially, I’m trying to understand if there’s anything I might be missing in these moving parts.
Ernest Freedman, Chief Financial Officer
Rich, that’s a lot of math to do on the fly here in the middle of … Yes. That may be right, but I certainly want to think about that after the call and take a look. But you're looking at the right components in terms of what could happen. I guess the big question is, and we're excited that we're at 100% collections for May as we stand today. That's based on historical average of where we are typically on a day 5. Rent collections come in throughout the entire month like you see with the other residential companies, too. And again, being that we're only 2 months into this, outside of not knowing what the future may hold three, six and nine months, we like our position going in.
Rich Hill, Analyst
Got it. Helpful, Ernie. And sorry to put you on the spot, but I had to ask the question. One follow-up to that. It seems like you have a pretty good handle on the COVID-19 implications to earnings, at least near-term. But have you given any thought to what this recession means medium to long-term? I recognize that there might be more demand as people move to greater spaces and single-family rental benefits from that. But have you given any thought to what this means longer term? And I guess I'm asking that because we just don't have a lot of history as a public company. I recognize Dallas has a fair amount of history owning homes through a recession, but how are you thinking about the recessionary impacts post COVID-19?
Dallas Tanner, President and CEO
I appreciate your question. There are two key aspects to consider in addressing this. First, we need to look at housing development and the influx of new units expected over the next year or two. Even if we enter a recession, we will still face a significant shortage of supply to meet normal household formation and demand, particularly as we see a wave of 65 million individuals aged 20 to 35 entering the market. This suggests that demand will remain strong. Historically, during past recessions, occupancy rates in our private portfolios have remained robust. While we may see some individuals moving back in with their parents, overall, we can anticipate modest rate growth, differentiated by market conditions. Our business is well-positioned in this environment, as we've mitigated potential risks found in areas with slower growth. We have an infill portfolio with higher economic rent levels and residents with a stronger income-to-rent ratio, which enhances our occupancy prospects. The demand for our offerings will likely remain healthy if they are situated near job centers and major transport routes, particularly for three to four-bedroom units suitable for families. I feel optimistic about our position going forward, despite uncertainties in the coming months.
Rich Hill, Analyst
Got it. Thank you, guys. Congrats on a really good quarter.
Dallas Tanner, President and CEO
Thanks, Rich.
Ernest Freedman, Chief Financial Officer
Thanks, Rich.
Operator, Operator
Our next question today will come from Jason Green of Evercore ISI. Please go ahead.
Jason Green, Analyst
Good morning. Just on the limited uptake regarding the payment plans. I guess, what do you think is driving that given, in other REIT sectors, we've seen some opportunistic tenants seeking relief. Is that underlying strength from the tenants, or is it more a reflection of your willingness to work with these tenants should they experience some distress?
Charles Young, Chief Operating Officer
Yes. This is Charles. I think it's a little bit of both. And just to be clear, we're also working within any kind of local rules and jurisdictions. California, Washington, they have specific rules that we're making sure we follow. But in April, our ability to work with them one-on-one and understand their circumstance, talk with them. And the reality is most of them just wanted some time to figure this thing out and see what it meant, and we gave them that flexibility. Those who had really lost their job or impacted health-wise, those are the ones that ended up going on payment plans. And to be clear, it's a small part of our portfolio. So I think it's a little bit of both. And in May, I think it became clear kind of what's going on, and stimulus was in place. You could see the future beginning to open up state by state and people feel a bit more comfortable, and they weren't asking for as much as they were when they were really uncertain in April.
Jason Green, Analyst
Got it. And then just on the home purchase side, we've seen a pretty public battle between the mortgage servicers and the GSEs. I guess in the marketplace today, do you see a greatly diminished ability for homebuyers to obtain financing to buy homes?
Dallas Tanner, President and CEO
Well, I can tell you this, we’ve seen the statistics be a little bit more towards people moving out for home purchasing. And it's clearly a friendly rate environment. So if somebody's got the down payment ability, they're in a strong position, but we're not seeing any trends in our own portfolio that suggest big wholesale shifts.
Got it. Thank you., Analyst
Got it. Thank you.
Operator, Operator
Our next question will come from Haendel St. Juste of Mizuho. Please go ahead.
Haendel St. Juste, Analyst
Hello out there. I hope you can hear me. Hello?
Ernest Freedman, Chief Financial Officer
Hey, Haendel. We can hear you.
Haendel St. Juste, Analyst
Hey. Great, thanks. So thanks for all the color. Wanted to go back to expenses for a second, just get a bit more color. You talked earlier about some of the near-term pressures and uncertainties. I was hoping you could talk a bit more about maybe some of the potential positive offsets, some of the things that you're seeing within the portfolio, maybe lower maintenance, less unit turns, maybe less leasing personnel? And how meaningful could those be in helping to offset some of the pressures you noted earlier?
Ernest Freedman, Chief Financial Officer
Yes, Haendel. Fortunately, our business was able to adapt quickly to the new environment due to our established processes. Therefore, we won't see significant changes in our expenses as a result. However, there are some areas of opportunity. On the fixed expense side, since our last conversation, we had a favorable insurance renewal that we hadn't anticipated, which means our insurance costs are likely to remain flat year-over-year for the rest of the year, rather than the higher single-digit increase we expected. This will certainly help us. Regarding property taxes, we will have to monitor the situation. I believe local jurisdictions will be cautious about imposing heavy real estate taxes on residents because they are likely facing budget constraints and residents may struggle to afford higher taxes due to the pandemic. This could potentially benefit us in terms of property taxes. As for controllable expenses, turnover is likely to be the largest factor. We saw a significant decline in turnover in April, with improvements in retention rates continuing into May. We will see how this trend develops, as turnover is one of our biggest expenses. Higher occupancy not only results in financial benefits but also means that without a turnover, we can typically increase the rent for new leases while saving on turnover expenses. This is a big advantage. Any changes in repairs and maintenance will likely just be a matter of timing. We expect to incur slightly lower R&M costs in the near term compared to what I mentioned earlier, but that will even out as we catch up on deferred work orders. We may consider outsourcing more of these tasks to speed up the process, although we haven't made that decision yet. Overall, we anticipate our expense environment will be similar to what we forecasted at the beginning of the year, or perhaps slightly improved, but we'll need to see how things unfold in the coming months.
Haendel St. Juste, Analyst
Got it. That's helpful. Thanks, Ernie. So maybe a bit of a follow-up on that, the retention point you made. It looks like the first quarter was unchanged versus the fourth, but you mentioned that retention has picked up here in April into May. How is that in relation to the 70% retention look like you've had over the last few quarters? And how high do you think that can go? Certainly, we expect residents to stay longer, but just curious on maybe some thoughts on while there's 75%, maybe 80% of the new normal in this post-COVID paradigm?
Charles Young, Chief Operating Officer
Hey, Haendel. It's Charles. Thanks for the question. Yes, year-over-year, we were flat in Q1, but that’s still very good. We're at less than 30% on a trailing 12. In April, we reduced turnover from 2.5% to 2.2%, which we’re pleased with. As you mentioned, we're focused on occupancy right now, and given the current uncertainty, that seems like the right approach. We might sacrifice a bit of renewal growth, but we're still seeing some, although it's trending down slightly. We'll see where those numbers end up. We aim to operate in the low-70s to mid-70s in the short term. However, we're staying adaptable and evaluating the situation on a monthly basis to ensure we're making sound decisions. As we establish our guidance, we will have more data to work with. These times remain uncertain, but we believe people are likely to choose us, and we want to validate that.
Haendel St. Juste, Analyst
That's helpful, Charles. If I could squeeze in one more, Dallas, forgive me. But just curious on your cost of capital and capital deployment thoughts, understanding you guys are putting a pause, and rightfully so. You guys have a bit more higher leverage, market uncertainty, discounted stock price here. But you more than have that discount on the stock side in the past few weeks alone, though you're still trading at a discount here, this consensus spot NAV. So curious on your thoughts how you or the Board might be thinking about potentially issuing equity at a modest discount to NAV to fund what could appear to be a compelling investment opportunity? Is that something you are open to? And how do you as a team and a Board think about that trade-off? Thanks.
Ernest Freedman, Chief Financial Officer
Haendel, this is Ernie. I apologize, but we are running long here with another call coming up, and there are more people who want to ask questions. Going forward, we will be smart in how we allocate capital. Our approach will remain consistent with the past. If we have tools available, we will utilize them. However, we will stay focused on maintaining liquidity and being prudent with our capital allocation.
Haendel St. Juste, Analyst
Got it. Thanks.
Operator, Operator
Our next question today will come from John Pawlowski of Green Street Advisors. Please go ahead.
John Pawlowski, Analyst
Thanks for your time. I will keep this brief. Charles, were there any markets in April that saw increased turnover?
Charles Young, Chief Operating Officer
Let me see if I can clarify that for you. We really didn't observe any significant changes. Are you referring to April or asking about the first quarter, just to be clear?
John Pawlowski, Analyst
April.
Charles Young, Chief Operating Officer
Yes, we were largely on target and consistent compared to previous periods. In Chicago, Northern California, and the West Coast, the numbers were low as expected. There was a slight increase in the Florida markets, specifically Jacksonville, Orlando, and Tampa, but overall it was minimal. We are still experiencing positive trends in terms of turnover. Thank you.
John Pawlowski, Analyst
All right. Thanks. I will concede the floor. Thanks.
Dallas Tanner, President and CEO
Thanks, John.
Operator, Operator
And our next question will come from Doug Harter of Credit Suisse. Please go ahead.
Douglas Harter, Analyst
Thanks. Ernie, can you discuss how significant the late payments were in the first quarter and what the potential impact might be if you continue to waive them?
Ernest Freedman, Chief Financial Officer
We typically receive between $1 million and $1.25 million in late fees each month. For the quarter, that totals around $3.5 million to $4 million. In April, we did not charge late fees, and we will determine our approach for May and June. In certain jurisdictions, we will adhere to local regulations, which is appropriate. Late fees account for about 1% of our revenue, possibly a little less, so we will have to see how this develops over the next few months.
Douglas Harter, Analyst
And just along that, are there any other kind of ancillary fees or other kind of add-on fees that you're kind of not looking to collect at this point, or is everything else sort of collecting per usual?
Ernest Freedman, Chief Financial Officer
Everything else should be billing and collecting as usual. We are still billing for our largest ancillary items, which include utility reimbursements. Additionally, our other typical fees related to applications, pet rents, and similar charges are also being processed and paid by our residents.
Douglas Harter, Analyst
Great. Thank you, Ernie.
Operator, Operator
And ladies and gentlemen, this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Dallas Tanner for any closing remarks.
Dallas Tanner, President and CEO
Thank you again for joining us today, everybody. We wish you all the best. Please stay safe. Operator, this will conclude our call.
Operator, Operator
Thank you. And we thank everyone for attending today’s presentation, and you may now disconnect your lines.