Invitation Homes Inc (INVH) 2023 Q1 法說會逐字稿

Greetings, and welcome to the Invitation Homes First Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome. I'm here today from Invitation Homes with Dallas Tanner, Chief Executive Officer; Charles Young, President and Chief Operating Officer; Ernie Freedman, Chief Financial Officer; and Jon Olsen, EVP of Corporate Strategy and Finance, and as previously announced, the company's CFO beginning June 1. Following our prepared remarks, we'll conduct a question-and-answer session with our covering sell-side analysts. (Operator Instructions)

During today's call, we may reference our first quarter 2023 earnings release and supplemental information. This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com.

Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2022 annual report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.

We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in yesterday's earnings release.

I'll now turn the call over to Dallas, our Chief Executive Officer.

Good morning and thank you for joining us. We are pleased to report a strong first quarter result yesterday afternoon, reflecting a great start for our year. Average same-store occupancy improved 50 basis points over the fourth quarter to 97.8%, and new lease rent growth has accelerated sequentially every month so far this year. We're encouraged by the execution of our teams and remain bullish on our industry and our business as long-term fundamentals continue to be favorable, bolstered by our superior balance sheet and liquidity and backed by our best-in-class platform, we will seek to continue to deliver sector-leading NOI growth as we've done for the past 5 years.

Since our inception, we've matured and performed through a variety of operating and macroeconomic environments, including a global pandemic and record-high inflation. Throughout this time, we've witnessed the resilience and the relative strength of our business. This is illustrated by a great chart from John Burns Research and Consulting that we included in our March investor deck. This data shows that over the past 40 years, national SFR rent growth has historically stayed positive even during recessions.

In addition, in a recessionary period, we would expect that our business could see a reduction in move-outs and a benefit to occupancy. And that external growth opportunities could become more attractive. For these reasons and more, we believe single-family leasing is one of the most stable property types in real estate.

The Invitation Homes offers one of the best risk-adjusted return propositions compared to other commercial real estate sectors.

To start, supply and demand fundamentals continue to favor our business. On the demand side, this includes the demographic surge of the millennial generation who have begun reaching our average resident age of 39 years old.

But it also includes individuals and families of all ages, who desire the flexibility and convenience of leasing a single-family home. Like all of us on the call today, our residents value great schools, proximity to growing job centers, access to transportation corridors in desirable neighborhoods for their families. They usually need or want more space with a garage and a yard to better fit their growing household and to have more room for a home office, a kid’s play room, and their pets.

And more importantly, today's residents are requesting flexibility and choice along with the appeal of a down payment-light lifestyle. Further driving the demand for single-family home leasing is the rising cost of homeownership as well as the lack of inventory of for-sale housing.

According to John Burns’s March data, and weighted by our markets, the monthly cost of owning a single-family home remained on average over $900 more expensive than leasing that same home. Others have calculated an even higher cost of average for ownership versus leasing.

On the supply side, the U.S. continues to suffer from a shortage of housing. With the shortfall in supply relative to demand estimated to be in the millions of units. Like most economists, we think the best way to improve housing affordability is to grow the U.S. housing stock. And more specifically, by encouraging development of new housing supply. This important work really needs to begin at the state and local levels, including planning and zoning boards.

And we stand at a strong support of those who want to bring positive change in this regard. In fact, we see ourselves as part of the solution to increasing housing supply through our new product pipeline that is now approaching $1 billion.

We will continue to seek out responsible opportunities to add supply and as a result, help improve housing availability and affordability. In consideration of these fundamentals, we believe leasing a home is a great option for anyone who wants all the benefits of living in a home without the hassle or expensive homeownership. And we believe Invitation Homes offers the best service, platform and locations for residents to choose from.

One reason for this relates to the core belief we've held since the early days of our business that we could revolutionize the single-family resident experience by professionalizing resident service. In short, we took a decades-old antiquated mom-and-pop model and transformed that based on the needs and desires of a 21st century resident.

As part of that approach, we continue to expand our service offerings and look for new and better ways to enhance the simplicity and convenience of the leasing lifestyle. At the same time, we continue to explore ways to improve efficiency through size and scale. We also remain focused on growing our portfolio accretively over the long term. And more importantly, in locations where we would expect the most favorable long-term fundamentals.

With regards to growth, we're committed to being prudent capital allocators through all real estate cycles. For the first quarter of 2023, this meant being a net seller of homes disposing of 284 wholly-owned homes for gross proceeds of $95 million and buying 181 wholly-owned homes for $62 million. For the most part, we've recycled capital out of less desirable homes and into brand-new well-located homes as part of our new product pipeline.

We believe our strategy of partnering with the best homebuilders is a superior approach to investing on a risk-adjusted basis as it keeps development and its associated risk, including an expensive land bank and high G&A load off of our balance sheet.

At the same time, our strong balance sheet and current liquidity, including JV capital allow us to remain nimble and as opportunities arise, we will be ready. Before I close, I want to speak to the continued dislocation between the retail pricing of single-family homes and public market valuations. Strong demand for housing continues to support home prices in our markets and at our price points. While the lock-in effect, in which existing homeowners are discouraged from giving up their longer mortgage rates is keeping resale supply relatively low.

We're seeing evidence of this supply and demand imbalance when we list our homes for sale and receive multiple competing offers at great prices. We believe the resilience of the U.S. housing market in the current cycle has been underestimated over the past year, and that the protracted supply and demand imbalance for single-family housing continues to provide good structural support for home prices just as it does for rent growth.

Lastly, on the topic of sustainability. I hope you've taken a moment to read our new progress overview, which we published last month. It's available on our sustainability web page and includes information about our efforts to increase the quantity and the quality of our ESG disclosures. This includes new greenhouse gas emission disclosures and an opportunity for engaged stakeholders to participate in an online survey to share their thoughts and their ideas with us. We welcome this feedback.

My thanks again to all of our teams for their hard work, dedication, and commitment this past quarter and for the remainder of the year ahead. Our associates are the heart and soul of Invitation Homes, and we appreciate how they embrace the responsibility to deliver the highest level of service to our residents and strong results for our shareholders. Our plan is to keep pushing to be great here.

With that, I'll pass it on to Charles, our President and Chief Operating Officer.

Thanks, Dallas, and good morning, everyone. I'd like to begin by thanking our associates for starting off the year strong. I'm really proud of the efforts you display every single day to ensure that our residents feel heard, served and appreciated.

I'll now review the details of our first quarter operating results. I'll start with same-store core revenues, which grew 7.7% year-over-year. This growth was primarily driven by an 8.5% increase in average monthly rent and a 7.3% increase in other income. These results include some encouraging signs. Over half of our markets are now operating in a more normal course of business in terms of timely rent payments and resolution processes.

For our other markets, progress continues to move in the right direction as we work through these lease compliance backlogs. These improvements were reflected in our first quarter bad debt, which beat our expectations by holding flat with our fourth quarter reported results even as rent assistance declined by over half during the same period. This indicates to us that residents are returning to a more normal payment pattern post-COVID.

We're also seeing stronger demand return following the winter leasing season with new lease rent growth accelerating sequentially each month during the first quarter. Overall, for the first quarter, same-store new lease rent growth came in at 5.7% and same-store renewal growth was 8%, resulting in blended rent growth of 7.3%. Our preliminary April results show further acceleration in the new lease side to 7.5% with renewals at 7.2% and blended 7.3%. Preliminary average occupancy in April was 97.8%.

Turning back to our first quarter same-store results. Core operating expenses increased 14% year-over-year, representing a favorable result compared to our initial guidance expectations for the first quarter expense growth in the mid-teens. The year-over-year increase was driven by an expected year-over-year increase in property taxes due to robust home price appreciation.

In addition to the under-accrual of property taxes expenses in the first 3 quarters of 2022, as we've previously discussed. Expense growth was also impacted by the progress we've made in working through more of the lease compliance backlog compared with last year as well as higher vacant utility costs and rates and continued inflationary pressures.

Taken together, these results led to first quarter growth in same-store NOI of 5% year-over-year. Our teams continue to pursue various ways to improve our efficiency and resident experience. With technology upgrades frequently topping the list. For example, we continue to put mobile technology into the hands of our residents. This includes a mobile experience for maintenance, which we've spoken about previously. This has been a great success with residents using it to send us over 40% of maintenance requests. In addition, we've also just launched a new mobile experience for leasing. That enables prospective residents to create a profile, save searches and view their favorite houses. In today's mobile-first world, these new mobile experiences are game changers for our residents and us.

Many thanks to all of our teams for working diligently to manage all the details of our business this past quarter, while staying focused on resident service and operational excellence. I believe we are well equipped and energized to carry the positive momentum you've begun through our peak leasing season and the remainder of the year.

I'll now turn the call over to Jon Olsen, the company's next Chief Financial Officer.

Thank you, Charles. I'm excited to join you all today. I've been part of the Invitation Homes team since 2012, and I'm honored to have been named CFO upon Ernie's departure next month. Ernie has led our finance organization for the past 7.5 years, and in that time, he has overseen tremendous growth and many important milestones for the company.

We're both here in the room this morning to answer any questions you may have following our prepared remarks.

I'll begin by covering our financial results for the first quarter and then provide an update on our investment-grade rated balance sheet and liquidity position before wrapping up to open the line for questions.

As we've stated, our first quarter results were in line with or slightly ahead of our expectations and offer a solid start to the year.

Core FFO for the first quarter of 2023 increased 9.5% year-over-year to $0.44 per share, primarily due to an increase in NOI, and AFFO increased 9% to $0.38 per share. Our full year 2023 guidance remains unchanged from the initial guidance we provided in February as we are still early in the year.

Next, I'll cover our balance sheet and liquidity position. We believe this is an area of strength for us, not only in comparison to how far we've come since our public listing over 6 years ago, but also relative to many of our investment-grade peers today. In the 6 years since our IPO and merger, we have applied a consistent and measured strategy to de-lever the balance sheet, improve the laddering of our debt maturities, refinance secured debt with unsecured debt, unencumbered assets and lower our net debt-to-EBITDAre ratio.

We ended the first quarter with over $1.3 billion in available liquidity comprised of our unrestricted cash and undrawn revolver capacity. We have no debt reaching final maturity before 2026. And at the end of the first quarter, over 99% of our debt was fixed rate or swapped to fixed rate, nearly 3/4 of our debt was unsecured and over 83% of our homes were unencumbered.

Our net debt-to-EBITDAre ratio improved from 5.7x at the end of 2022 to 5.5x as of March 31. In recognition of the great work by our team and the meaningful progress we've made -- in March, S&P Global Ratings upgraded our issuer and issue-level credit ratings from BBB- to BBB flat.

In addition, last week, Moody's Investors Service revised our rating outlook from stable to positive. In closing, we're pleased to start the year strong and believe our favorable fundamentals, best-in-class operating platform, dedicated associates and strong balance sheet position us well to continue delivering solid results.

On behalf of everyone at Invitation Homes, we extend our thanks to Ernie for the enormous impact he has made and look forward to furthering the legacy he helped build.

With that, operator, please open the line for questions.

(Operator Instructions) The first question comes from the line of Josh Dennerlein with Bank of America.

It's Josh Dennerlein. In the opening remarks, you mentioned demographics influencing demand, and it sounds like you expect sector-leading NOI growth to kind of continue as a result. I guess could you maybe walk us through the demographics that you're seeing come through your portfolio today? And how that's impacting your outlook?

Yes. I think -- this is Dallas, by the way. One of the things we've been most bullish on has been the consistency around the fundamentals of who our customer is as they come in. The strength of what we would call the credit quality and the personal balance sheet. And I think lastly, the duration of stay.

And as we've looked at our business over the last decade, literally quarter-over-quarter, we're seeing that duration and length of stay push well into the 40-ish type of months with us as they move out. We're seeing that in our West Coast markets, and we're seeing our Eastern markets start to quickly kind of close the gap. And so I think as you think about this Millennial cohort, the types of things they want, the flexibility around choice, a leasing lifestyle. Charles talked about it in his opening remarks, this mobile-friendly kind of universe that we all operate in personally. It sets itself up to be very favorable for somebody who is looking for choice and flexibility while maintaining a down payment-light approach. We're seeing continued strength in the underwriting of the customer, as I mentioned in my second point. And it continues to be impressed upon us that our top of funnel and the demand side of our business is extremely healthy.

We have a lot of intrigue in properties as they become available. We have a lot of pre-leasing activity. And we're not seeing any real degradation in our customer as of today.

Your next question comes from the line of Eric Wolfe with Citibank.

Dallas, you've talked a lot about the lock-in effect on interest rates and what it's doing to sale inventory and ultimately transactions. Just curious whether you can see anything that would change that going forward? Or should we ultimately just expect a pretty depressed level of acquisitions for a long time?

Well, I think there's 2 questions in that question. So -- the first piece on the lock-in effect with 80-some-odd percent of mortgages being sub-5%, it has probably caused a lot of us and people that are in the market for housing to think about staying put, which I think has also impacted some of the resale supply. It's had a positive effect in our business because I also think it's helping support longer duration of stay, demand, et cetera.

I think in terms of your question around the retail market and what we'd expect from sellers, yes, there's no doubt that if people have a mortgage today, if you acquired it or you refinanced in the last 36 months it’s an asset for folks. And so that may have an impact on resale supply.

The good news for us is our focus for the last couple of years has been building out a much more robust new product pipeline, which today sits close to $1 billion. And we're really excited about that product as it's coming into our portfolio, both this year and years beyond. I think the resale environment has been limited the last 3 to 4 years.

It hasn't really been a source of truth for people as they're trying to build up, call it, their base. Fortunately, for us, we have real scale in markets. I think where we may see other opportunities down the road this year could be as we see some of these smaller operators who are having trouble getting scale or sizing up, there could be opportunities where potential M&A over the next couple of years. So I think we'll stay aggressive in our new product pipeline. We're obviously always looking at things as the resale market changes, but just being ready. And I think we're in a position to do that.

Your next question comes from the line of Austin Wurschmidt with KeyBanc.

I'm just curious if you guys are surprised at all by the strength in new lease rate growth year-to-date, which you highlighted has accelerated each month and surpassed renewals in April. And I'm just wondering if that enables you to pull back a bit on renewals to limit turnover and help control costs. And if you could provide an update on loss to lease, that would be helpful as well.

Yes. This is Charles. Thanks for the question. Yes, look, we've seen really healthy demand here in the first quarter. And while we expected it to be solid, it's a little bit out ahead of our expectations, which is great. The funnel is strong. We've been able to grow occupancy by 50 basis points from 97.3% to 97.8%, while, as you mentioned, accelerating new lease rent growth, renewals still have been really strong.

We've been in the mid-7s, and that's slightly above where we thought we'd be, and we're maintaining that in April in the 7s. And as you look forward to May and June, we went out in the mid-7s on our ask, and we'll see where that ends up. You're asking the right question, there is a balance here as we're seeing this demand and trying to balance off the lease compliance backlog that we're working through to make sure that we maintain strong occupancy.

But right now, we like our kind of balance that we have, the optimization and demand to catch up when we do turn over a home because we are slightly up on turnover, but historically, really low numbers still in the 22% so we like where we are. We'll see how the summer plays out. We're slightly ahead of expectations and optimistic going into the summer. And then the last question around loss to lease. We're in that -- as we updated it today, about 5% to 6% loss to lease.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

I was hoping you could talk more about the expense side of your outlook. Any of the moving pieces that maybe you have a little bit less confidence in, whether it's insurance, taxes, utilities, anything R&M, anything else we might want to think about here as the year unfolds? And also when you -- if you can give a date for when you did or you will renegotiate your insurance for the year?

Sure, thanks for the question. This is Jon. Our insurance policy period runs from March to February. So we have now put our new insurance policy in place.

Recall that on our last call, we talked about our expectation for the property policy being up somewhere in the neighborhood of 20% to 25% year-over-year.

The actual policy came in right in the middle of that range, actually a little bit closer to the bottom end.

And as we've talked about in the past, the other insurance line items showed smaller year-over-year increases. So our expectation for the balance of the year is that for the next 3 quarters, we'll see the insurance line item be up in the neighborhood of 20% year-over-year. And then for the full year, we'd expect insurance to be up about 16% year-over-year.

Your next question comes from the line of Brad Heffern with RBC Capital Markets.

On the property tax front, I noticed that it was down 3% from the fourth quarter. Can you talk about what that's related to? Is it lower appraisals or appeal wins? Or is there something else going on there?

Actually, no. So recall that, last year, in the fourth quarter, we talked about having been under-accrued for property taxes in the first part of 2022. And so we had a fairly sizable catch-up entry in the fourth quarter. So what you can expect to see this year is much higher year-over-year property tax increases in the first 3 quarters of the year and then moderating in the fourth quarter. And we've said that we expect property taxes to be up in the range of 6.5% to 7.5% for the full year.

Your next question comes from the line of Haendel St. Juste with Mizuho.

First, congrats to Jon and Charles for their new roles. And Ernie, I guess you will be around for a while but you'll be missed. Dallas, I wanted to go back to your comments earlier on -- I think you mentioned you're working to find a responsible way to help add more supply. I'm curious if you can elaborate on what that means. Are you inclined to do more development partnerships or even do it on balance sheet? And if I could sneak in one? Can you comment on the new SEC increase on Page 55 of the 10-K, the inquiry into your compliance with building codes and permitting requirements?

Thanks, Haendel. I'll comment briefly on your last, which is we don't comment on any other legal matters other than to say that we always fully cooperate with any inquiries we get.

In terms of new product pipeline and the opportunities there. Today, we've been really cautious and careful around not putting the balance sheet in a position where we'd have to take maybe more of an egregious share of the risk in terms of how we want to build product. We really like our approach thus far. We are doing a lot of different underwrites and reviews on opportunities in the marketplace across a variety of builders and developers and potential partners.

It's well noted that we have a really good partnership with Pulte Homes. We'll continue to do as much with Pulte as we can. They've been terrific. And I would say that with the announcement of that partnership, what, roughly 18, 24 months ago, it's expanded to many other builders and developers coming to us looking for opportunities to grow together. So we've been able to be deliberate. We've been able to be picky about where we want to invest and why.

And I think we've been able to do it at a risk basis that is very variable to our shareholders in terms of not having an outsized portion of risk, a bunch of land sitting on our balance sheet, et cetera.

And by the way, I'd just add, like very little G&A. It's synonymous with our investment management team here. We've added a couple of people over time on the bus-dev side and also on the project management side, but it's going really well, and we're coming into these homes a really accretive basis that we feel good about. Excited to see where that continued chapter for our company develops and has greater magnitude.

Your next question comes from the line of Adam Kramer with Morgan Stanley.

And best wishes to Ernie. I appreciate all the help over the years. I just wanted to ask about bad debt on kind of a gross and net basis. Maybe just kind of walk us through how gross bad debt in 1Q compared to 4Q and then maybe the same for net. And then the areas where geographic areas, markets where you're still kind of worse than pre-COVID levels on kind of that gross bad debt line. Maybe just kind of highlight for us which markets are kind of still outliers on that basis?

Yes. With regard to -- this is Ernie. With regards to bad debt, we saw that our rent assistance that we received from the fourth quarter, the first quarter actually got cut in half. And so what's happening is that we're seeing a good pick up. And you can see what we reported in our earnings supplemental that for the first time in a while that 0 to 30 payment is increasing and got to 93%. So we're actually seeing a nice improvement in the gross bad debt and not getting as much help from things like rent assistance as we expected.

And in fact, the collections coming forward in the 0 to 30 bucket were a little bit better than we had anticipated. And we're able to clean up a little bit more than we anticipated in the first quarter, hence, we made the reference in our earnings release, that things came in a little bit better than we expected for the first part of the year, and that certainly bodes well.

But it's early, too. So we don't want to call it a trend yet, but we're certainly happy with where it's at, not only for the first 3 months of the year, but for the first 4 months of the year. I'll turn it over to Charles and he can talk a little bit about what we're seeing on a market-by-market basis.

Yes. So as Ernie said, we're starting to see kind of a return to normal and all trends are generally positive. And this is while rent assistance has gone, about half of last quarter and 20% year-over-year. So we're starting to get back into a normal rhythm.

In terms of markets, about half of our markets are operating at their historic levels, which are great. There are a few markets that because of kind of the lease compliance, backlog in the courts and that it's a little slower, SoCal being kind of the largest of that. But the L.A. County, L.A. City adjustment is favorable, and we'll see how that plays out. There's still kind of the courts are backlogged there. So it will take a little bit of time to clean up. The other markets that are a little slower are Atlanta and Vegas, but that's changing and adjusting quickly in NorCal and California courts as well.

Then we have another handful of markets that are trending in the right direction, but not quite back to historical levels. So -- we feel like we're moving in the right direction and things are kind of working themselves out. And as we talked about on the last call, we knew bad debt was going to be elevated in the first half of the year. And we're trending nicely, and we'll see if we can continue to keep that momentum. And by the second half, we'll be trending back towards where we want to be in cleaning this up.

Your next question comes from the line of John Pawlowski with Green Street.

Dallas, I want to circle back to the qui tam lawsuit. I know your views haven't changed where you do not think it has merit. But curious if the internal views have changed at all when trying to size the potential impact, if you're wrong and things go south in court. So can you help us give us a sense of whether your views have changed on the potential financial impact for shareholders?

No change in our views. And again, we're really careful guys. We don't want to comment on any pending litigation -- but no, it's just the same, John. And we'll continue to defend ourselves vigorously, and we believe that the claim is really without merit.

Your next question comes from the line of Daniel Tricarico with Scotiabank.

Question on the builder pipeline. It looks as though some of the 2023 and '24 deliveries were pushed out to the following year with the recent release. Can you comment on the different components driving that?

It's just timing on projects more or less than anything. I think, by and large, everything that we expected to take from a delivery perspective this year is on schedule and then some of it has to do with timing in P&Z and some of the zoning commission things that we mentioned in my earlier comments.

Your next question comes from the line of Keegan Carl with Wolfe Research. My apologies. Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just curious if you could speak a little bit more on the acquisition side. Are you seeing any potential distress from some larger portfolio owners given the change in rates and some financing may be coming due.

And as part of that question, maybe if you can just comment on where you see cap rates today for assets that are transacting and how does that compare to your implied cap rates and thinking about your own cost of capital?

Juan, Dallas. First, on balance sheet, we don't really love our current cost of capital. And it feels like on a real estate basis that our current cost of capital is not truly being valued where it should be. I would say, and we haven't been shy about saying this, that we'll continue to look to expand our joint venture business and raise outside capital. We can still buy really good real estate, both new product, resell product and I guess, potentially, you could say M&A, to your question.

And it's terrific for the REIT. It creates a bunch of fee structures, promotes and things that ultimately, is FFO and AFFO drip for shareholders. It feels like the market today is on a new home basis, if you really wanted to buy volume, you're kind of in the low to mid-5s would be kind of on an in-place stabilized cap rate.

I will go back to the earlier question, which is there aren't a lot of meaningful opportunities there in the resale space. And I don't think we've seen as much as people have wanted to think that residential was going to implode over the last year, we've seen really good price stability on the single-family housing side on a relative basis. Because it was mentioned today in the Journal, new home construction is making up about 1/3 of the resale market, which is about 50% higher than where it typically is -- in any given year.

And so homebuilders have done a nice job of helping support a transaction market in a way because they've been able to buy down mortgage rates and things like that. So not seeing a lot of distress from operators. I do think there could be moments of opportunity because if you don't have enough scale, if you don't have a significant portfolio today, I don't want to say that they're stuck but it's going to be harder to grow. I think scale is going to be more beneficial over the next couple of years, and it should benefit companies like ours in the REIT space where we have very low leverage and generally access and availability to different capital, buckets of capital.

And I think we have a good track record here over the last 12 years of finding ways to meaningfully grow and those opportunities are in front of us. So like I mentioned in my opening remarks, we feel like we're ready. We've got between, call it, current cash and ventures and availability of credit. We've got a couple of billion dollars of dry powder. We want to lean in when the right opportunities are in front of us. And right now, it's just been more of a capital recycling period.

Your next question comes from the line of Keegan Carl with Wolfe Research.

Just on your JV dispositions, what was the driver? And what was the average cap rate and what was sold?

On the JV disposition, is the question?

All the JV dispositions, this is Ernie. The JV dispositions are from our legacy Fannie Mae joint venture. And the plan for that joint venture over the next many years is slowly to dispose homes as they -- for the most part, when they're not renewing. And so you're just going to continue to see -- I'll call it, a drip of sales each quarter as they go forward. For our other JVs, we just finished the investment period for the 2020 Rockpoint JV. So we're far off from doing any sales there.

For the 2022 Rockpoint JV, we're still in the investment period there. And with regards to what we've been selling out of Fannie Mae you see it's a small number, it's consistent with what we have on the balance sheet.

Your next question comes from the line of Dennis McGill with Zelman & Associates.

Dallas, I guess just going back to the transaction market, I'd be interested in what you think breaks the stalemate because you're sitting here with a cap rate that's not all that attractive, but fundamentals are good. You're able to sell at an easy cap rate, attractive cap rate. It doesn't sound like inventory is going to be coming to market with a lock-in effect. So other than the long end of the curve coming down and debt costs coming down, which probably brings with it some economic challenges. What changes the confidence of everybody out there to just transact that this is the new norm?

Well, I think, one, you want to have yields that make sense, right? I don't think you want to see -- I don't think our shareholders would want us to necessarily be super active buying yields that aren't very accretive. I also think that there's going to be -- and look, you mentioned a stalemate. To be fair, the last year has been sort of tricky. I think it's been tricky for private operators that are considering recaps or financing activities, et cetera.

I think that will spur some opportunities for us. I also think we've got the right approach with our new product pipeline where those deliveries are going to start to stack at pretty meaningful yields even at today's current cost of capital. So I think the opportunity will sort of play itself through the marketplace as either one of a handful of things happen. Your point on the long side of the curve comes in and credit availability maybe helps enhance some transaction activities, you see more in the resale space.

But I also believe that the combination of our new product pipeline, and potential M&A being a bit more active in the resale space as that starts to normalize, will all lend itself to pretty normalized years for activity. It makes sense to me that a lot of single-family rental operators, you've read it kind of everywhere else have all taken a pause. We want to see what happens with housing prices. I think people are wanting to make sure that there's stability and price durability in the marketplace. It feels like it's there. And I think now it's just about identifying and executing on those opportunities.

Your next question comes from the line of Steve Sakwa with Evercore.

I think Charles had provided maybe the April renewal. I'm just curious if I missed it. Did you talk about where renewals were going out for May and June? And -- maybe secondly, could you just maybe comment on some of the larger occupancy drops like Las Vegas? And I guess, what are you seeing in some of the markets where the occupancy drop more than the portfolio average?

Yes. Great question. I did share where we went on in renewals earlier. For May, we went out in the mid-7s and June kind of mid- to high 7s. And we expect that to be kind of steady where we're going right now. Given the demand and kind of where we are with the current occupancy, we're in healthy shape.

To your other question, Vegas, I mentioned it earlier when we were talking about the lease compliance. It's one of those markets that was having some bad debt challenges and that the backlog is starting to break there. And so you're getting a little bit of a spike in turnover. And so as we clean that up, it's put some pressure on occupancy. The other kind of below average was in Minnesota. They had some earlier cleanup on the lease compliance over the winter. And you also have in the colder markets, some seasonality that hit them a little harder. So those are 2 markets that, again, high 96s are not bad. And what we're starting to see is some increase in both of those markets as they go. So -- with the healthy demand that we're seeing, generally, we feel like we'll be able to kind of get the ship straight pretty quickly. The rest of the markets are running nicely in the high 97s to 98.

Your next question comes from the line of Sam Choe with Credit Suisse.

This is Adam on for Sam. I wanted to circle back quickly to the lease growth discussion. We were really encouraged by the lease acceleration, especially on the new lease side going to peak leasing season. I was wondering if you've seen anything driving that demand besides the demographic shifts you've already discussed.

And adjacent to that, you mentioned some technology upgrades. Are there any new initiatives that could possibly help ancillary revenue on that side?

Yes, overall funnel is really strong. I mean I think as you look at it, the general demand for our product, given our location, schools, safety, all of that. The other thing that does stand out is purchased move-out reasons to purchase a home is down, the lowest it's been in a while. We're kind of balancing that with some of the turnover. But you look at current interest rates, it's natural that people will -- who need a single-family home are going to come to us. And -- that's what we're seeing. About 80% are rented prior and about 77% are coming from a single-family home prior to coming to us. And so all of that is trending in a positive direction and gives us kind of good demand.

And as we looked at kind of how we were able to accelerate through Q1, it does, as you said, put us in a healthy position going into the summer. Our thought, as we looked at this and we kind of set our perspective is that you got to be realistic to where we were in the last couple of years. And while we're going into it maybe a little ahead of time, we do feel like there's going to be a peak here.

It's not going to rise to the sky like we did during COVID. But we like our position, given our occupancy and the acceleration that we've seen to date. So we feel real good about it.

Your next question comes from the line of Chandni Luthra with Goldman Sachs.

This is [Ling] on behalf of Chandni. So could you talk more about the turnover expense overall, especially on the resident turnover, like how much of it was from normal seasonality and inflation? And how much of it was impacted by working through the delinquent units in California?

And what's your expectation on the growth for the rest of the year?

Thanks. Great question. This is Jon. Look, on turnover, there are a few factors that play here. The first is that you're seeing a year-over-year increase in turnover rate and that's related to what Charles walked through, which is the return of our markets to more normal course mechanisms related to delinquency resolution.

The second component is that the average cost per turn on those delinquency turns, as we talked about on the last call, can be materially higher than a regular way turn, sometimes to the effect of 40% to 50% more costly, and it would follow that they are likely to also take a little bit longer.

I think the other less influential factor is that, as Dallas talked about, with average length of stay elongating, you see a little bit more kind of normal wear and tear even in our regular way turns. But I think those are really the primary drivers coupled with continued inflationary pressure that we're seeing in our markets.

As for the balance of the year, as we've talked about, we expect to see somewhat lower occupancy in 2023 than we did last year. That's primarily related to our expectation for a little bit higher turnover. And the expectation that it's going to take us a little bit of time to work our way through our lease compliance backlog. But I think big picture, we're very optimistic about how the business is performing.

Your next question comes from the line of Jade Rahmani with KBW.

This is Jason Sabshon on for Jade. Does levering new investments make sense at this point? Or is it best to stay unlevered and figure out financing later on?

Look, I can defer some of this is Jon. But I would say we really like where our leverage profile is. We've worked hard to get it to a level where on a risk-adjusted basis, we're far better than we were 5 years ago when the business went public. I think we've used more leverage in some of our ventures. And that's sort of been by design, and we've been programmatic and thoughtful about how to do that and when to do it. But I think, by and large, the cost to debt out there isn't that great right now even for an unsecured borrower like ourselves. So I don't see leverage being a significant part of our near strategy to go fund our growth.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

I guess I just wanted to get your thoughts on NOI margins. I mean year-over-year, they're clearly down in most markets sequentially, they've a little bit more mixed but definitely picked up for the portfolio overall. I mean, how do you see this trending through the course of the year or even beyond now that you've got a better handle on the expense side, especially with insurance and taxes. And a pretty good view on revenue as well.

Yes, I think it's a good question. We're seeing a little bit elevated expense here in the first 3 quarters of this year for all the reasons we've talked about previously. And that's going to put a little bit of pressure on margin for us, at least for the first 3 quarters of 2023.

I think over the long term, what you've seen from our business is sort of a steady improvement in NOI margin over time as we're able to extract more and more efficiencies in terms of how our property management platform operates, continue to harvest the benefits of our unrivaled scale in markets. So I think we continue to be bullish about our ability to drive NOI margin higher over the long term.

Your next question comes from the line of John Pawlowski with Green Street.

I just have one follow-up on the turnover and repair and maintenance conversation. Jon, so far this year and starting out in the spring and summer is trajectory of R&M and turnover trending in line, better or worse than you originally expected heading into this year?

I think they're trending generally in line with what we've expected. I think overall, we're performing relatively well, maybe a little bit ahead of our expectations for the year, but it's early in the year, right? So we want to continue to see how things develop. But I would say that we feel good about what we're seeing on the cost to maintain side of things.

Your next question comes from the line of Eric Wolfe with Citibank.

It's actually Nick Joseph here for Eric. One of your Sunbelt or one of the Sunbelt apartment companies mentioned on their call that starts had come down about 60% from current levels. So wondering kind of historically, when you've seen big swings in apartment deliveries, what's the impact on single-family rental operations?

It's an interesting question. We haven't seen a lot of it, and there's sort of 2 things on there. One, our customers are a little bit different. I mentioned, duration of stay and Charles talked about it as well that we have customers that are anchoring around schools and transportation quarters. So the customer profile is a little bit different. And then on a price per square foot, SFR is so much more affordable, generally speaking, than compared to multifamily. So it's really not an apples-to-apples comparison.

Your next question comes from the line of Michael Gorman with BTIG.

Sorry if I missed it, but I just wanted to double check. I know you maintained your operating guidance for the full year for operating expenses. Should we expect any kind of outsized impact in the second quarter just because of some of the extreme weather we've seen, especially in some of like the Florida markets? Does that change how you're thinking about the progression of operating expenses throughout the year, even within the maintained guidance?

No, I don't think we're anticipating a material impact related to weather patterns. I think right now, -- what we're seeing in the business is a business that is sort of recalibrating as some of the structural impediments to us operating the way we normally would work themselves out over time. I think weather is something that we are always going to have to deal with. I think we feel good about the processes we have in place, the ground game that we roll out to make sure that we are protecting our assets and that we're well insured in the event of some sort of catastrophic event. But I would say that the impact is not expected to be significant.

Your next question comes from the line of Anthony Powell with Barclays.

Question on Phoenix and Tampa. I think 2 markets that people were concerned about given a lot of the supply growth both on the multifamily and the single-family side. You're seeing very strong rent growth there. So maybe comment on those 2 markets.

Yes. This is Charles. I can jump in. Yes, Tampa has been really strong for us. It's new lease rent growth of north of 8% in Q1 and maintaining on the renewal side in the mid 8s. Phoenix, while Q4 was a little down relative to the kind of high flying we had last year.

You can see it's quickly kind of bounced back and we're at the 98% occupancy and new lease rent growth at 6.3%. And so in our top 5 as we look at the numbers. So to your point, it's one of the -- Phoenix is a resilient market and we were able to bounce back, and we have great operators there, so in Tampa as well. So 2 strong markets for us as we look at it, most of Florida has been really strong. The demand is really there as we think about demographic changes.

This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.

We appreciate everybody's participation and look forward to seeing everyone at upcoming conferences. Thank you.

The conference has now concluded. You may now disconnect.