Invitation Homes Inc (INVH) 2022 Q1 法說會逐字稿

Welcome to the Invitation Homes First Quarter 2022 Earnings Conference Call. My name is Ruby, and I will be your moderator for today's call. (Operator Instructions)

I will now hand over to your host, Scott McLaughlin, to begin. Scott, please go ahead.

Good morning, and welcome. I'm here today from Invitation Homes with Dallas Tanner, our President and Chief Executive Officer; Charles Young, Chief Operating Officer; and Ernie Freedman, Chief Financial Officer.

During this call, we may reference our first quarter 2022 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 in any such statements. We describe some of these risks and uncertainties in our 2021 annual report on Form 10-K and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.

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

With that, let me turn the call over to Dallas.

Thanks, Scott, and good morning to those of you joining us today. We believe the fundamental tailwinds remain as strong as ever for our business, and I'm pleased by our team's solid execution that achieved our first quarter results.

On the heels of Invitation Homes' 10-year anniversary, it is clear that we've built a great real estate business that own and operate for-lease product with first-rate service. But that's just the foundation as our success is determined by the genuine care and the premier experience we provide to our residents every day and the loyalty and trust our residents place in us.

We see this evidenced by our average resident tenure of nearly 32 months, occupancy of over 98% with extraordinary resident retention and work order satisfaction scores of over 4.7 out of 5. To the nearly 1 million residents who made a house a home with us and especially to all of our associates, thank you for 10 great years.

I often speak about how our homes are attracted to a resident demographic that is not only growing, but whose preferences continue to evolve. This continues to play out with a large population surge in younger adults, just beginning to approach our average resident age of 39 years old. A common theme within this millennial cohort is that they want to live freer, meaning they want more choice and flexibility in their lives, including how and where they live. The pandemic accelerated this shift with many people choosing to move from tight quarters in higher-cost cities to working from a home in a new location with great schools and a higher quality of life. More recently, the macroeconomic environment, including rising mortgage rates, has meant leasing a home is often a more affordable option than owning. According to recent data from John Burns, leasing a home is over 12% more affordable on average than owning a home within our markets. These factors and more have led to unprecedented demand for our product, which has been intensified due to a lack of available high-quality, well-located homes.

At Invitation Homes, we're proud to be a part of the solution to this imbalance by offering choice and flexibility within housing. One way we're offering this is through our partnerships with homebuilders across the country as well as through our recently announced ventures with Rockpoint and Pathway Homes. I'll start with our builder relationships, which are helping to add new residential housing supply and expand choice for consumers where it's needed the most.

Our current approach keeps development risk off of our balance sheet and partners us with some of the best in the business to select and buy new homes in great locations. We've talked a lot about our preferred relationship with Pulte Homes, which continues to progress towards our goal of buying 7,500 homes over the next several years. We're also working with other national, regional and local homebuilders. Through these relationships, as of the end of the first quarter, we've built a pipeline of nearly 2,000 new homes. And in a disciplined way, we're adding more every month. Most of these projects we're helping builders bring online will include a mix of owner-occupied and for-lease homes, which underscores our firm belief that everyone should have the choice to live in a great neighborhood, whether they lease or own. So we're proud to be bringing not just new homes, but new and diverse communities to life.

Another example is our latest Rockpoint joint venture, which we announced last month to specialize in premium location, higher price point homes for lease. These homes will offer superior locations within our markets and open up investment opportunities where we have limited or no current product. And they also provide us an opportunity to invest in additional projects with our home builder partners. In Phoenix, for example, that might be a home in a submarket like Scottsdale or in the Plano submarket of Dallas. In turn, we believe residents of these homes may want a higher level of convenience and live-easy amenities and choose to spend more on ancillary and other services. We expect the new JV to begin buying homes soon with us earning asset and property management fees in addition to our share of income as we target this new premium segment.

Another example is our investment in Pathway Homes. Pathway works directly with aspiring homeowners to identify and purchase a home, offering them the opportunity to lease their home first with an option to buy at a later date if they choose. Pathway has started acquiring homes and is well on the way to providing residents the choice to lease today with the flexibility to buy tomorrow if they so desire.

To further our commitment to choice and flexibility and in response to the ongoing strong demand for our homes for lease, we plan to keep growing our portfolio this year. We plan to leverage our multichannel acquisition strategy, our proprietary acquisition IQ technology, and our localized end markets to help us grow prudently where pricing, total risk-adjusted returns and scale make the most sense.

We're targeting total gross acquisition, including through our JVs, of $2 billion this year. We continue to make good progress so far in that regard with plenty of opportunities still in front of us.

In summary, whether it's through our growth, our homebuilder relationships or our strategic partnerships, we're very proud of our 10-year history of providing choice and flexibility in housing, along with a best-in-class resident experience that allows our residents to live freer.

On behalf of this great company and fantastic team, I couldn't be more excited about the opportunities the next 10 years will bring as we remain committed to being part of the overall housing solution that this nation needs.

And with that, I'll pass it on to Charles, our Chief Operating Officer.

Thank you, Dallas. As Dallas mentioned, this year is off to a strong start, with solid fundamentals helping our teams achieve high retention, attractive rate growth, strong occupancy and above all, premier resident service. Let's walk through the first quarter operating results in more detail.

Our same-store NOI growth remained over 10% for the third quarter in a row, coming in at 11.7% in the first quarter of 2022. Same-store core revenues grew 9.4%, driven by average monthly rental rate growth of 8.3% and a 47.1% increase in other income. Average occupancy remains strong at 98.1% for the first quarter, which marks 18 consecutive months that occupancy has stayed at or above 98%. Meanwhile, resident turnover remains at historic lows, with first quarter turnover at 4.6%.

Demand continues to increase compared to the prior year. We have seen increasing traffic to our website for prospective residents, including over 20% increases in the number of new website visitors in favor to virtual tours. We believe this demand, as evidenced by our leasing activity with new lease rate growth up 14.8% for the quarter and renewal rate growth up 9.7%. This drove blended rate growth to 10.9%, up 550 basis points year-over-year.

We continue to take a balanced look at our renewal rates each month compared to market rents. As a result, we believe we have a sizable loss to lease nearing 20% with our average rent across the portfolio of almost $2,100, significantly below current market rates.

On the expense side, as everyone knows, just about everything costs more in the current inflationary environment. But through the efforts of our teams, we were pleased to hold same-store core operating expense growth of 4.5% during the first quarter year-over-year. The 2 biggest contributors to the increase were property taxes, which were up 4.3%, along with repair and maintenance expense, which was up 18.9%, primarily due to the challenging comparison to prior year and higher costs. Lower turnover meanwhile continues to help offset some of these rising costs with a 12.4% decline from last year.

To help us control costs, we continue to seek efficiencies through tech enhancements. This includes our mobile maintenance app that we launched last year, which has been a big win-win for our residents and us. Using their smartphone, residents can easily send us photos and videos of their service need, allowing our technicians to better prepare when they arrive. In turn, this significantly reduces the need for follow-up visits, resulting in higher customer satisfaction and allowing our service technicians to be more productive. For the first time, the number of maintenance requests we received from digital methods exceeded those from our call center, and we expect the mobile maintenance app to continue to drive this shift. I'm pleased to see technology make our processes more efficient while remembering it's our people who make the difference.

Thanks to the continued strong demand for our homes, our strategic execution, above all, the efforts of our associates to put our residents first, we stand on great footing for peak season. I'd like to thank our teams for another successful quarter.

I'll now turn the call over to Ernie, our Chief Financial Officer.

Thank you, Charles. Today, I will discuss the following 3 topics: balance sheet and capital markets activity, followed by our investment activity during the quarter, before closing with our first quarter financial results.

First, balance sheet and capital markets activity. At the end of March, we priced our third public bond offering that totaled $600 million. The offering advances our stated objective to proactively manage our maturity ladder, and in particular, addresses our 2025 and 2026 debt maturities in a measured and prudent manner while harnessing the advantages of the investment-grade ratings we received last year. The new 10-year bonds mature in 2032 when we have no other debt currently maturing.

Because the offering closed in early April, its impact is not reflected in our March 31 financial statements or supplemental schedules. However, we have provided the pro forma impact on certain of our metrics in a footnote to supplemental Schedules 2(b) and 2(c).

In January, we converted the remaining $141 million principal balance of our convertible notes into approximately 6.2 million shares of common stock. We also utilized our ATM program during the first quarter to help fund our growth objectives. This included the sale of 2.1 million shares at an average price of just over $41 a share, totaling $85 million of gross proceeds that settled during the quarter, along with approximately $15 million in additional proceeds from the sale of about 400,000 shares that settled just after quarter end.

At the end of the first quarter, our net debt-to-EBITDA ratio was 6.0x. This achieves the top of our targeted range of 5.5x to 6x and represents a more than 1 turn reduction from first quarter of last year. We ended the first quarter of 2022 with nearly $1.5 billion of liquidity, including approximately $467 million of cash and the full capacity of our $1 billion revolver available.

I'll now cover my second topic, which is our investment activities. During the first quarter, we acquired a total of 822 homes for $341 million, through several acquisition channels. This included 518 wholly owned homes for $218 million at an average 5.3% cap rate as well as 304 homes for $123 million through our joint ventures. During the quarter, we sold 141 wholly owned homes for $52 million.

Finally, I'll walk you through my third topic, which is our first quarter 2022 financial results. Core FFO per share increased 13.5% year-over-year to $0.40, primarily due to NOI growth and interest expense savings. AFFO per share increased 11.9% year-over-year to $0.35. Our full year 2022 guidance remains unchanged from the initial guidance we set in February.

In conclusion, we're pleased to see this year off to another strong start. With fundamentals continuing to favor single-family rental and many people choosing to lease a professionally managed home in a great location, we believe we are well positioned to continue to provide strong financial results while providing the best overall resident experience.

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

(Operator Instructions) Our first question is from Rich Hill of Morgan Stanley.

I'll leave the bad debt questions to someone else, but I did want to focus on acquisitions for a second. I think your original forecast was $1.5 billion of balance sheet acquisitions for '22. That's certainly what we model. I think on a run rate basis, you're pretty far off that pace in 1Q. So maybe we can just talk through the cadence of 2Q, 3Q and 4Q. And if you think that $1.5 billion is still the right level to be thinking about.

Yes, Rich, let me -- this is Ernie. I'll start and I'll pass it over to Dallas. I'll remind folks that we're 50% ahead of our pace from last year. In the first quarter last year, our total acquisitions were $233 million. This year, we came in close to $350 million. So it's typically seasonal for us, Rich, that the first quarter is a little bit slower. The fourth quarter in the past has been a little bit slower, and things really ramp up in the second and third quarters for us. But I'll turn it over to Dallas to provide any more color there.

Yes, Ernie's right. The first quarter is typically a little bit slower out of the gate because of the activity that tends to kind of not occur towards the end of the previous year.

The other thing I'd add, Rich, is we added close -- a little over 450 new homes into our builder pipeline in the first quarter just under contract. So you're not seeing that come through the numbers as well.

So actually pretty happy with where we are kind of early in the year, to Ernie's point. I think we're also seeing really good momentum on the builder side both in our strategic partnerships with companies like Pulte, and then again in our merchant build program locally. So we're in a good spot. And I think we'll start to see a little bit of that velocity increase quarter-over-quarter.

Got it. And so maybe just one follow-up question on the revenue side of the equation, and I'm going to ask a sort of a direct question about what the earn-in benefit that's building for '23 is. And I'm sorry if you disclosed loss to lease, I didn't hear it. But could you maybe talk through what you think the earn in? So what's already baked for same-store revenue for '23?

And the reason I ask the question is your new lease spreads are really good. Your turnover is relatively low, very low. So it does suggest to me that there is a lot of big same-store revenue already in for '23, '24 and maybe even '25. So I just -- I'd love to maybe unpack that a little bit more, Ernie, as much as possible without putting you in a position where I'm asking you to guide.

Well, I'm just glad you're not asking for '26 and '27 also, Rich, since you're all the way out to '25. Your supposition is correct. Charles did mention it in his call script that our loss lease continues to run at almost 20%. And importantly, and we've seen some people talk about this, I think you as well, our renewal rates continue to accelerate for us. We saw a modest acceleration, good acceleration over the first part of the year and certainly big acceleration over last year. But our renewal rates are not where our new lease rates are. And then that's purposeful in terms of what we think is the right thing to do in this environment and where we're at.

And said another way, that means we are building up a higher loss to leasing price than any other residential sector. You may certainly see with other companies in the single-family sector like us. And so it does set us up for a good position in terms of having a longer runway of above-trend growth. Because of that, as long as market rates continue to be as strong as they are, we're not seeing anything that would tell us otherwise.

So without giving a specific number for '23, '24 or '25, I think as people are thinking about models, it's right to see that we likely have a longer runway of above-trend growth because we're comparing against a difficult year from last year. Others in the residential space aren't -- last year, others in the residential space have concessions still going on early last year. And so it does set us up for probably a nice growth profile over the next few years.

Okay. That's helpful. And Ernie, just one quick clarification question. Could you remind me what recapture of loss to leases on an annualized basis?

I want to make sure I understand that, Rich, when you say recapture of loss to lease.

Yes. I'm basically saying if your loss to lease is 20%, how much of that do you think you can gain in a given year? Obviously, you're not going to get 100% of that because you don't have 100% turnover. So I'm really asking a question of how much of that loss to lease can you gain in '22, '23, '24?

Yes. Got it. So about 1/4 of our leases are 2-year leases, so you won't recapture it on those. And then again, as long as renewal leases continue to stay behind new lease, which is what we had in the first quarter and will likely persist for a while here, certainly, we'll -- you'd have to discount it even further. I have to do some quick math in my head to get to it, Rich, but it's probably the recapture rates are lower than you would see in multifamily because of the short-term leases and the fact that renewal leases in multifamily are at or exceeding new leases right now. So you'd have to discount that in terms of how much you would see captured this year. But I'd have to do a little bit of math to get back to you.

Our next question is from Derek Johnston of Deutsche Bank.

Yes. So just on the turnover really seems to hit a new low every quarter. Are you seeing any indications of a return to normal? Or could this lower level be somewhat of a new normal in a post-pandemic and maybe higher rate environment. And then in that case, would it be safe to assume that the natural rate of occupancy could be higher going forward?

Yes. Great question. This is Charles. Yes, we have been really proud of how turnover has trended down over the last couple of years, honestly. And even before the pandemic, we were seeing that come down year-over-year. We think a lot of it is around the product, our location, the service we're providing.

However, the pandemic has slowed down some of that move out. And we guided that we thought we'd be a little higher in turnover in 2022. That has not shown up yet, to your point. And we're keeping an eye on it. I don't think it will stay at this level like we're seeing right now. However, I don't think it's going to go back to where we were previously. It's going to be somewhere between that -- given that and given our days to re-resident and how we performed in the past, we do think that this is 97.5%, 98% occupancy business if we continue to do what we're supposed to.

And so we'll see how turnover goes. Right now, it's holding. I do expect there'll be at some point of the year, it might come back a little bit, but it's a seasonal metric anyway, and we'll have to see what the Q2 and Q3 has.

Excellent. Thank you. And then just quickly on getting the Pathway Homes portfolio going with the 46 acquisitions and aiding aspiring homebuyers in a pretty tight market was encouraging to us. So can you give us some further details on how it works and if you feel it addresses or alleviates any regulatory touch points in terms of assisting residents?

Well, I think it's early in terms of alleviating stress points in terms of the lack of supply we face. We'll either support or sponsor ourselves as we grow the business. I think more importantly, we're really excited about the progress that they've made in getting the product out, in acquiring the resident that is looking for that lease with an option to purchase. I do think that we are seeing the marketplace evolve to where the customer does want flexibility of choice. I talked a little bit about that in my opening remarks.

There is a cohort of people, specifically millennials, that are looking for this flexibility and optionality. And in our business, if you look at the way that we've structured our leases with some of the ancillary programs, or if you look at some of these new ventures we have to things like Pathway, we're trying to design a program that is completely geared towards choice for the consumer. And I think there is a strong sentiment in the marketplace that people are looking for some of these nontraditional methods to ease into a single-family experience, whether it be through leasing or through some of these other products.

So we're excited. It's obviously just launched. Our partners are doing a great job. We're excited to support it. It's a great revenue -- It will be a great revenue center for us over time. And I think it's naturally where the marketplace is starting to evolve. It's not one-dimensional as it was, say, 20 or 30 years ago.

Our next question is from Chandni Luthra of Goldman Sachs.

So in terms of kind of thinking long term, how do you think about managing homes as a business for basically kind of not your JV partners? So essentially, do you think about third-party property management? And is that something that you could perhaps evaluate down the line?

Yes. We'd never say never. The one thing is we've looked at the business on itself. It's not a high-margin business generally, property management. And I think you really do want to have a strategic view as to why you would do that. Does it help you with your bottom line, right? Can you mitigate costs over some broader subset of homes? I think what we've really been focused on is curating an experience for our customers that's very specific and that we can repeat across the country through scale and high-touch service.

And so for us, if we were to ever entertain that down the road, we'd likely want to provide that same level of service. And you can certainly see a world where as our ancillary offerings expand and some of the other things that we do with the customer, it can be beneficial. But you have to have enough scale to where it really made sense, I think, is our current viewpoint on the third-party space. There's only so many hours in the day, and we'd love to spend our time making sure that we're driving the best returns possible on our capital.

Got it. And then on the Rockpoint Homes, I mean these higher price point homes, basically, how is the geography different, even if it's in sort of the same, say, geography, is the location difference, say, from your current homes in that these quasi-suburb, close to transportation corridors portfolio that you have. How are these higher price point homes different from that standpoint?

It's a great question, one we've talked about a little bit at Citi and a few of the other conferences. But really, they're meant to be a little bit more infill, a little bit higher price point, you might say a little bit higher-end finishes. We own some of this in our portfolio today. in parts of the country where maybe you get priced out of certain categories as well. You can think of markets like Seattle that way in terms of having really interesting opportunities to invest in infill locations, but maybe the price points are a little bit higher.

It also is a nice complement to our partnerships with our builders and the partners in that space, where they have communities that might be tucked a little bit more infill at higher price points and segments with which would be well beyond what our average rents are today. And so we view it as completely complementary to what we're doing. As we've looked at the customer and these higher price points of our own portfolio, we see very similar statistics in terms of the types of decisions they make while in our portfolio. And we also note that there's a growing room of preferentials that are preferring to lease at these higher price point assets. And so for us, we look at it as a value-add really across the chain. And it's not all that different from what we currently own and operate, just a little bit higher price points, maybe a little further in.

So does that give you any kind of -- does it make it harder from a maintenance standpoint?

I'm sorry, make it harder? I'm not understanding the question.

I guess what I'm asking, Dallas, is given that the location is a bit different, does it make harder from a maintenance standpoint (inaudible).

No. Okay. I'm sorry. It wasn't coming through very clear. No, it still has all the same characteristics we typically want to try and achieve when acquiring assets. It just could be that it's in a little bit more of a higher price point segment within those kind of geographies.

And I'll give you an example that I mentioned on the call. We operate in Phoenix really inside of the major rings, right? The 202s, the 101 freeways, but there are different geographies within some of those submarkets. Our South Scottsdale submarket, for example, would fit great into this higher quality price point where we own plenty of homes in Tempe, which is 5 to 10 minutes away just a little bit further south. So I use that as an example where it might just be a little bit more infill, but still off the same major arterials, similar school scores and things like that. It's just a little bit higher price point segment.

Our next question is from Nicholas Joseph of Citi.

Ernie, guidance was unchanged. But if you look at the same-store numbers, they were ahead of what the full year implies. Obviously, the comps change and we're still early in the year. But how did 1Q trend relative to what guidance assumed? And was it more of a company policy decision to wait until the middle of the year? Or are things trending more towards the midpoint?

Yes, Nick, I can tell you with the guidance perspective, we are trending a little bit better and toward the higher end of the ranges, but it wasn't such a significant outperformance. So we felt this early in the year, it made sense for us to provide a guidance update.

Typically in the past, we haven't done guidance updates in the first quarter, to your point. I wouldn't call it a policy, but just the reality is we just provided guidance about 60, 70 days ago. And this year has been -- other than a couple of nuanced things that are kind of offsetting each other, has been kind of what we expected it to be. But as I said, we're trending a little bit better than the midpoint, but it makes sense at this point, we thought to make a material change to guidance seeing where we're at in the year is playing out for the most part as we expected at this point.

That's helpful. And then can you provide an update to the California lawsuit, where it is today and kind of any updates from our conference back in early March?

Nick, Dallas. Not a lot to update, but just kind of by way of summary, in late February, we elected to remove the California State Court action to Federal Court. So that action is now pending in Federal District Court in the Southern District of California.

We're currently preparing our motion to dismiss the complaint, which we intend to file shortly, and it's really in accordance with the court's schedule. So under that schedule, once we do that, the plaintiff has time to respond. We have time to respond to that. And so it will definitely take us into kind of the middle part of the year.

Outside of that, as I've said before, we have -- we think we have some pretty compelling arguments, and we're just interested, I guess, in having our time in court to go and defend ourselves properly.

Our next question is from Jeff Spector of Bank of America.

And first, congratulations on the 10-year anniversary.

Thank you.

Thanks, Jeff.

Absolutely. Amazing 10 years. First question I had was just on -- Charles commented on the website traffic, and it seemed like there was some moderation in the new lease rate growth. I guess, can you talk about that a little bit and tie those together.

Yes. So as I mentioned, we're seeing good demand. Occupancy is maintaining 98%. And then you look across kind of how we've been progressing in Q1, which is typically a slower period, each month on the new lease side, we've seen improvement. And so ending on the new lease side in Q1 of 14.8% is really strong, and April has continued to accelerate, and we'll be in the 15 [percentage range].

So it's still early. We're not completely close, but we're still seeing good demand going in the peak season, maintaining our strong occupancy. Turnover seems to be holding. So we see nothing but kind of good upside going into peak season.

Okay. That's great news. So April, you're saying that you're seeing an acceleration into peak. And then, I guess, any particular market color you can add on to that, Charles?

Yes. It's been strong all around. Markets are the kind of typical. Phoenix-led on the new lease side has been really strong in Q1 at north of 20%, almost 23%, north of 23%.

But what's been unique about this market and some of the demand kind of conversations we've had previously around people moving, the Florida markets are really stepping up for us. So South Florida is on the new lease side, north of 20% as well, just around 20.9%.

We're also seeing Vegas, which has historically been strong. That's still strong at 19%. Atlanta has been holding well north of 15% and Tampa. So those Florida markets are really kind of in addition to what we've seen in -- historically on the West. And the same thing kind of on the renewal side, Phoenix, Vegas, South Florida. Seattle catching up after having some limitations, which is great, and we're happy to see that in Atlanta, and Tampa are also holding pretty strong on the renewal side. So it's great to see our typical markets that have been performing at kind of the top, and to see the Eastern Florida do well is nice as well.

Our next question is from Neil Malkin with Capital One.

I was wondering if you could talk about ancillary revenue. I think previously, you mentioned that you had a couple of pretty significant initiatives you're working on. One being the smart rent systems and things along those lines. Can you just give us an update on how those things are going, if there's any more in the pipeline? And what you kind of see as your -- just as an example, 4Q like '22 quarterly run rate versus '19 given the things that you've done over the last couple of years or plan to initiate on?

Yes. Great. Thanks for the question. No, we're really proud of what we've been able to do on the ancillary side. We had our Investor Day a couple of years ago, and we said we're going to start to build these programs and infrastructure. We put a team around it, they're a fabulous team, and they're really executing well.

As you mentioned, the kind of the hallmark of the ancillary is our smart home technology. We have that in all of our available homes. It's in well over half of our homes, and we continue to add every month as homes turn.

But what we've done there also is launch our video doorbell piece, which is additional revenue as well as convenience for the resident, and we're packaging that really in a nice way. So that's going to give us further growth that's going to go into the numbers that Ernie will talk about in a minute.

The other thing that we've worked on this year and last year going into this year is our pet programs, really optimizing what we're doing there as well as thinking about future partnerships. We launched our filter program, which is a win-win in terms of better air quality and energy savings for our residents, but it also keeps the HVAC costs down for us in terms of overall maintenance. We have insurance partnerships. We have a pest partnership with Terminix, which is a great partnership as they get -- our residents get a lower cost than they would find on their own, and we get a revenue share with that.

We're working on some pilots around utility management and energy as well as landscaping. And landscaping is a big one as we look at it because this is a lease obligation that our residents need to do, but we can give them a really easy and affordable option that makes it a bit of a turnkey.

So those are the hallmark of the programs that we're running in '22. But as we look forward, we're building partnerships that we think are going to be real win-wins for our residents as we think about whether it's gym memberships or convenient food memberships in terms of thinking about high-speed Internet, which are attractive things to our residents. These are parts of the business that we hope to have a suite of things that we're building over time that's going to help to get to that run rate.

I'll give it over to Ernie to talk about kind of where we are in the numbers from ancillary perspective.

Neil, you referred to 2019, which is back, I'm guessing, to our Investor Day, when we thought we'd had an annualized run rate of about $15 million to $30 million a year for ancillary items. The team has done a great job to get us ahead of that pace, and we're actually going to deliver somewhere between $40 million and $45 million of ancillary income this year in 2022. So ahead of the $30 million annualized number we provided 3 years ago. And that's going to ramp up here a little bit as we go through the year.

So as we get into the fourth quarter, to your question, that number is probably closer to, say, $12 million, plus or minus. So yes, that puts us in a good footing for continued growth. And that's before any of these new items that Charles has talked about, which will start earning in later this year as well in the next year, too. So we continue to see upside from ancillary income opportunities.

That's great. Really, really helpful. I guess another one for me. In terms of pathway, how much of a component of the company it could be, I've seen some advertisements for other types of programs, companies that are similar. Wondering if that impacts your view on the, I guess, market share or like addressable market, ability to capture as much as you maybe had thought or maybe impacts your view on how much money to allocate to that or to invest in funds and future funds. Anything you could talk about on the competitive landscape and how maybe that evolves near term would be great.

Yes. Let's just take a step back for a second and think about what that funnel looks like. So there's, call it, roughly 170 million households in the U.S., of which about 50 million, plus or minus, are in some form of a rental product today, right?

And as you think about what I mentioned earlier around shifting preferences, millennial kind of changes of behavior and the things that we're seeing even in our portfolio with rent-to-income ratios and things like that, there's definitely a customer out there that's looking for flexibility.

Rising mortgage rates are probably only adding to some of these decision points for people right now about maybe putting off potential homeownership with we'll see where rates go. So it all lends itself to platforms and companies that can provide choice, I think, are going to carry really good momentum through kind of different parts of the cycle.

So while we're early in our venture down pathways, we're certainly bullish on the prospects of offering choice and maybe a life cycle for people in terms of the different stages of their lives and what they need and how to suit those needs best while helping people stay downpayment-light. I think that's a very kind of important characteristic over the types of things we want to spend our time on, which is how do we drive overall cost down for the consumer while creating an experience that looks and feels maybe close to home ownership.

And so we're bullish about where that's going. It's early in the process. As we disclosed at the end of the first quarter, we had, call it, our first 50 homes kind of in that program. Partners are learning a lot about the customer, and I think we'll continue to see some of these shifting opportunities.

I think the key thing for us is what do we believe that we can do over time and distance and actually provide value through scale. And we see this as 1 or 2 of those kind of categories, whether it's a rent-to-own structure, a sale-leaseback structure or maybe some of these alternative equity builder programs that are consumer-friendly and were already in the business, and it should be an easy thing for us to part with our offerings down the road.

Okay. Great. And then just a little part B of that exact line, maybe -- I know you're probably limited in what you can say that we're on a public call. But do you think that this is also something that helps you almost have an embedded shield toward legislative scrutiny or sort of Twitter headline negative news, that you're helping people get into homes. Is that sort of an added intangible benefit you guys kind of think about?

Well, I think on itself, having an array of products available to consumers is just a good thing for the marketplace. We can't really predict where the shifting political wins are going to be or what they're going to focus on. We don't spend a lot of time worrying about that, just worrying about running our business the right way and finding ways to solve problems that consumers are currently facing.

So at the end of the day, no, we spend a lot of time thinking about great products, great processes. Charles just talked about all the exciting things we're trying to focus on that are going to curate a better experience for the resident. We think the results people speak for themselves, but we're certainly ready to defend what it is that we do, which is provide quality product at a much better price than you can find in the marketplace today.

Our next question is from Austin Wurschmidt of KeyBanc.

I was wondering if you guys could provide a little bit of detail and context around the 80 basis points increase in bad debt as a percentage of rental revenue and maybe what markets are driving that? And is this a concerning trend for you?

Yes. Great question. This is Charles here. Let me step you back a little bit. If you think back over our collections, bad debt, second half of the year, we were really seeing a nice, gradual improvement in all of our markets, including California. And some of our residential peers have talked about this, but going into Q1, we saw that the rental agencies were a little slow in their payments that were outstanding. And you couple that with residents who were waiting on those payments and deciding not to pay, that kind of hit us in Q1 as a bit of a surprise, especially in February. And so we were really improving in all markets, like I said, up until December. January is always a little off and then February was a bit of a surprise.

Now the good news is we bounced back. Some of those payments started to show up in March. And in April, we're still a little bit of time left, but we've seen a significant increase because the payments have shown up, but you also couple that with what's going on in California and that April payments and beyond are no longer eligible for rental assistance. And so the psychology effect of that on the residents is they're starting to pay where they thought they might have a chance -- some of them had a chance to wait out for rental assistance.

So April is encouraging. As I said, all other markets are gradually getting back to normal. If you think back to kind of how we thought about the year, we knew the first half would be a little more challenging from a collection and bad debt, and we thought that the second half is where we start to catch up. So we don't see it as a major concern, but we're going to keep an eye on it and we'll see how we progress with California going forward.

Got it. That's a helpful clarification. And then I'm just curious if there's anything holding you guys back from driving higher turnover. And Ernie, I believe you said it's kind of the renewals you're sending out below new leases is the right thing to do. So should we take that as you're self-limiting increases? Or should we expect and have you assume that those will continue to increase as we get into the peak leasing season?

Yes. This is Charles. I'll take that one. We've really taken a balanced approach. We believe it's the right approach given the tenure of our residents living in a home, families, all of that. Also keep in mind that renewals are priced 90 days in advance. And so if you go back over the last year or more, every month, we've improved on our renewal pricing. And we'll continue to get that.

As we look out to kind of May and June, we're asking over 10% on our ask. And you look at our Q1 renewal spreads at 9.7%, as I mentioned on the new lease side, we've actually seen more acceleration in April on renewals into the mid-10% range. So we think there will be continued improvement. We'll see how high that goes, but the goal here is to really take a balanced approach and be thoughtful around our resident experience. And keep a resident who's good paying in the home for a long time, a 10% increase is really good.

Now we have that loss to lease. And as things turn, we'll capture that, and we're going to keep pushing and improving the renewal rates when we can capture it.

Very helpful. And then just this last follow-up to that is, can you walk through the puts and takes around the impact that lower turnover has on guidance versus the increase that you assume for the full year? Because obviously, on one hand, you're recapturing that much higher new lease rate than what you're achieving on renewals. But on the flip side, you're incurring higher turn costs and perhaps frictional vacancy. So how do those 2 kind of balance out and depending on how that plays out.

Austin, in the moment, if we have lower turnover, it's going to have a better impact for our results, and that will have higher occupancy because we'll have lower downtime from vacant units. And we'll have lower expenses because we'll be avoiding turnover costs.

And then it just really just depends on what the difference is between that renewal rate you're getting and that new lease rate in terms of the long-term earn-in from that. And as Charles pointed out, as everyone I'm sure have seen, our new lease rates have been higher than our renewal rates for a period of time.

So we think it's the right call from an economics perspective. We think it's the right call in terms of dealing with our residents. And for us, as Charles alluded to in beginning of your questions, where bad debt came in a little bit higher than we would have expected at the beginning of the year here in the first quarter, we're more than offsetting that by better rate. We're doing better on the rate side than we expected to, both on new lease as well as on renewals. We had high expectations, but we've exceeded those expectations in the first quarter, and they continue to trend that way. And we've done a little bit better on occupancy as well for the reasons I just described.

Our next question is from Brad Heffern of RBC Capital Markets.

Acquisition cap rates, I noticed they ticked up by about 30 basis points from the low end of the third quarter. I'm curious, has competition abated at all? Or what else would you attribute that change to?

Still early to say that there's an argument around rising mortgage rates and creating some new supply. It just comes down to kind of shift mix and what we're seeing in the marketplace generally. I wouldn't read too much into it either way.

But early in the year, as I mentioned earlier on the call, there's a little less supply than you typically see. You see the spring and summer seasons, you typically see your supply creep up. We'll keep an eye on it and keep you guys posted. But right now, going in cap rates, they're pretty good.

Okay. Got it. And then on the third-party homebuilder pipeline, I know it went up a few hundred homes for the last quarter. The '22 deliveries went up as well, but I saw that '23 went down, and then there were 167 cancellations. So I was wondering if you could just give some color on the puts and takes there.

Yes, the '23 and the cancellations are lined up with each other. There was one project that we're moving forward with the builder. And as they were completing the work on zoning, it turned out it wasn't going to work out for us. And then that's one of the nice things we like about this program is that there's that flexibility to get locked into something that may not work. So we don't expect cancellations each quarter, but we did happen to have one to cancel, and it was '23 delivery that was the project that ended up canceling on us. And we'll just move forward, and as you saw, we grew the pipeline pretty robustly beyond that.

Our next question is from Keegan Carl of Berenberg.

So just kind of going back to acquisitions in the quarter. Can you just walk us through your expected yields, because if you do back-envelope math, 5.3% stabilized cap rate, same-store NOI margin of 70%. Your rent's roughly 30% higher than your existing rents. So just kind of curious what sort of rent growth you're baking in going forward.

On new acquisitions?

Yes.

Well, I think it's safe to say that like in your models, it varies by market. And your year 1 assumptions are going to be a little bit more aggressive than your other assumptions. But at the end of the day, kind of mid- to high single digits probably for your year 1 is kind of probably your base case, and then you just got to -- you have to mirror the product with the submarket and everything else that you're buying. So it can kind of go from there.

But you're right in that those are really healthy cap rates going in. Considering where rate growth has been and where it's likely going, it could be pretty good yields years 2 and years 3.

Got it. And then shifting gears here, I guess, specific to 2 markets. So if you take a look at Denver and Seattle, there's no improvement quarter-over-quarter in occupancy. Just curious, is this still a function of renovations taking longer than expected?

It's been really a function of 2 things. One is that we continue to buy in those markets. And two, as we talked about last quarter, we've made some improvements across many of our markets in terms of being able to [run ventures] down a little bit quicker, but there's still some challenges with regards to getting the vendors onboard our GCs to help us with that. And those are 2 markets where we've seen a little bit more challenge, but we're starting to make some good steps and moving in the right direction for both of those.

Got it. And just one final one for me. So insurance expenses were up 5.1% year-over-year same-store. I guess what should we kind of expect for the balance of the year given you're supposed to hear about it in March?

Yes. We actually had a pretty flat renewal with regards to our property insurances, the vast majority. The liability lines were low double digits, but the vast majority of the cost coming through on insurance is in the property line. So I think you actually see that get a little bit better as we get through the rest of the year. So we still had the first 2 months of the year that we're comparing to the prior insurance policy. New insurance policy on the property side is flat year-over-year. So I think you'll see some improvement in our year-over-year insurance growth will decline from what you saw in the first quarter.

Our next question is from Juan Sanabria of BMO Capital.

I just wanted to touch on the builder relationships and the contracts there. Could you just remind us how the pricing works when you lock in the prices for homes, and how that fluctuates, if at all, with change in cost of capital, particularly on the debt side?

Yes. So from a high level, typically, what we do is we'll structure an agreement where we lock in pricing prior to the -- obviously, the project getting going through zoning and some of those entitlement works Ernie mentioned earlier. And then we have a little bit of some protections built in for both our builder partner and for us. So in a rising cost environment, we have an out if things get to a point where we're not comfortable with what that price needs to be based on a variety of what I would call kind of open book factors.

And then on the flip side, if we're able to beat cost in a couple of key areas, we share in some of those wins and our entry point gets a little bit better. So we try to make these contracts as flexible for us and for our partner as we can while locking in conviction that we're all in on the opportunity, subject to that range in pricing. And that range is pretty tight in terms of where final pricing ends up than we've already -- like to what you would imagine, we underwrote initially to, call it, a worst-case scenario that we like the price no matter what within that kind of specific range. So, so far, so good in terms of the majority of how these structures have gone, then we're reviewing a lot of other projects right now. So excited about what the future will hold.

And then just a follow-up on the qui tam issue, recognizing you're confident in what may happen in California going forward. But curious if you've had any indications of potential investigations or questioning by anybody on those same issues that have been alleged in California and other geographies outside of California.

No, we have not.

Our next question is from Dennis McGill of Zelman.

Ernie, can you just remind us what the definition how you guys calculate loss to lease. Just mathematically what the way you're estimating both the market and the -- what latest rate you're using there?

Yes. So we just take where we see current market rates across our portfolio. It's a little trickier for us than the multifamily space because each of our 82,000 homes is unique. But each month, we reprice a good chunk of those through our renewal process. And so we take a snapshot out of our revenue management system as to where we think market rates are. And so we're comparing that market rate number to where our current rents are in our portfolio based on the leases that are in hand, the leases that are signed and people living in those homes since.

And that would include anyone that just signed a lease essentially being mark-to-market? So anybody that wasn't signed in the recent period would obviously be higher than that portfolio average?

Yes. That's why we have a loss to lease. Yes. We're taking the leases in hand as they are for the quarter, where they're at compared to where market rates are. So we're certainly in an environment now that people are signing leases now are much higher than the ones that were expiring.

No. Yes, that, I understand. I'm just saying, obviously, that you signed leases in the quarter and those, in theory, would be mark-to-market. Those new leases. Does the 20% loss to lease treat those as mark-to-market or exclude those from the comparison?

No, because leases in January potentially had some market increases. So we look at all the leases, Dennis. So yes, absolutely, we're looking at the most recent releases. Yes.

Okay. Got it. That's helpful. And then going back to just the Rockpoint JV, the new one. Previously, in the past, it has always been, I think, generally thought in the industry that higher-priced homes were a little more challenging to get the right yield or the right return. How do you guys think about that? Is that an evolution for you to get to believe you can get the same yield and return on these homes as the lower-priced homes? Or is there a different kind of risk reward balance that you're looking at there?

Yes. To be clear, they are a little bit different from a return profile. So -- and we've been pretty clear about this. We kind of see these homes coming in, in that kind of low 4s to mid-4s from a cap rate perspective.

The other key thing here, Dennis, is like more expensive product does not equal, bigger product. That's also an important differentiator. You want to make sure that, from an operating perspective, keep your square footages in check so that you don't get into trouble having bigger homes that cost more to turn. And obviously, on your rent on a per square foot basis, you're going to be a little bit more elevated.

But from a total yield perspective, from a customer perspective, from an ancillary opt-in kind of services perspective, we're really intrigued by this customer. And then we're going to get a little bit smarter in the category through our partnership with Rockpoint and hopefully, well into the future.

And to that point, Dennis, that's one of the reasons why we're doing this in a joint venture because we earn property management fees and asset management fees that help offset the lower initial yield that we expect to get on these homes, as Dallas described. And then we also have the opportunity to earn a promote. But we think the risk-adjusted return on a per home basis is going to be compelling compared to our regular portfolio. But we do recognize that there's probably a slightly lower yielding home at the outset, but that's offset by our opportunity to earn fees and actually puts us in a position with probably some stronger economics than we might be doing on our balance sheet.

Yes, makes sense. And then one more quick one for you, Ernie. It looked like there was some movement in the swaps during the quarter, maybe taking on a little bit more floating at this point versus before. Is that just timing? Or can you maybe just walk through what the impact was of that?

Yes, Dennis, that's exactly timing. We priced our bond offering on March 25, and we broke the swap that was associated with the debt we were going to pay off at that time, so we didn't take any pricing risk or interest rate risk, but we actually didn't close on the bonds until April 5. That's when we received the cash. And so we get right back to where we were before in terms of basically being 98%, 99% hedged. We just had -- over the quarter, it looks like we went down to 92% because we broke the swap before the bond actually closed a few days later.

Our next question is from Haendel St. Juste of Mizuho.

Ernie, I just wanted to go back and clarify. What was the bad debt assumption or improvement in bad debt at the start of the year? And what is that now? Has that changed at all in light of what's gone in Southern California?

Yes. We ended last year in the fourth quarter at about 1.1% bad debt is what we reported. We thought we'd have a number that was closer to that. We thought it would go up a little bit. As Charles mentioned earlier, you may have heard, January and December tend to be months that are a little bit more challenged for bad debt versus the rest of the year. So what surprised us was the February activity. So we thought we'd be a little bit higher than the 1.1%, but not as high as the 1.8% (sic) [1.9%] that we reported.

Too early to say at this point, Haendel, our full year expectations for bad debt has changed. As Charles alluded to, we seem to be getting back on track as we got into March, as we're seeing April. I certainly don't want to call the year off this early. And if we were surprised in February, I hope we won't be surprised later in the year, or maybe we'll be surprised to the upside.

What I will say, as I mentioned earlier, Haendel, we are doing better on the rate side and the occupancy side, it's certainly helping to offset that, so we therefore feel very good about our guidance. And I don't change what I said earlier that we're trending towards the higher end of our guidance range when it comes to like revenues.

Got it. Got it. Understood. Okay. On the whistleblower case going to court, is that going to pressure G&A at all? Are you comfortable with the range still here? Any reason for us to think that perhaps upper end or maybe a little bit more on the G&A side.

So Haendel, it's kind of going through the process we expected it. When you say it's going to court, we have -- we'll file our motion to dismiss, but then there'll be some activity that happens beyond that, as Dallas described. So we're not seeing anything different at this point that would tell us we need to do anything different with our guidance. We feel very good about where we're at with the case, but it's going to be a process. But nothing should be read into that other than we talked about.

Got it. Got it. Okay. And Dallas, maybe one for you here. Certainly seeing a lot in this industry evolve here the last 10 years. More recently, though, it seems like the industry, you guys paint a bit of defense in terms of the narrative with the oversight, the regulation, the messaging. Lately, it appears a bit of a shift, hearing more of the we're helping to solve the housing need. You have the Pathway JV.

I guess I'm curious, are you at the point now, or maybe the industry, where you start getting a bit more offensive in the messaging and dictating messaging a bit versus, say, having someone else dictate messaging. Which I guess you're at a point now where it seems like, sometimes, the value proposition, the quality of the homes which you're providing often gets muffled by all the other chatter going on around us.

Yes. Haendel, I mean, we obviously are aware of kind of shifting narratives that are out there, but they shift. And I think that's the key thing. If you go back, we are celebrating our 10-year this month and 10 years ago, the narrative was we were saving housing companies like ours that were coming in. And we talked about this a little bit at our event. We used to have neighbors come up and give us big hugs for fixing dilapidated homes that were in their neighborhood. And now, we're in a period where there's rising housing costs and everybody wants to figure out what's causing this, a lot of times, you just -- the narrative is going to shift, I think is the easiest way of saying it.

Like we're not too focused on the moment. I'm really focused on big picture. What is it that we do? We buy quality housing. We produce quality housing with our partners. And the goal is to create flexibility of choice. So if that's a defensive tone, I guess you could call it that, except that it's really offensive in the sense that we have total conviction around the business model. It's been here forever. No one's done it professionally. And we're going to continue to find ways to do it in even better fashion, whether it's through some of these other products and being more maybe sensitive to the fact that downpayment is hard for people to come by. Sure. That just means the industry is evolving. And we're happy really to be a participant in that.

I think we're getting better at talking about what it is that we do beyond just buying great real estate and offering great services. So some of that is the qualitative stuff, and it does matter. It's important that as an industry, we get the narrative out there about what it is that we do as companies. But at the end of the day, it's really about just running a great business.

The results have, I think, spoken for themselves, at least in the 5 years that we've been public. And I think us evolving as a company just shows that we're growing. We're finding ways to invest capital in meaningful ways that I think provide other alternatives for people. Because a lease isn't for everyone necessarily all the time either. And so we want to explore those avenues and figure out ways to make the company better over time.

Got it. Got it. Well, keep up the good fight. You've come a long way.

Thanks.

Thanks, Haendel.

Next question is from Linda Tsai of Jefferies.

Regarding increased traffic to your website, do you have a sense of who the demographics are and if they vary from that plus-120,000, 2-income 39-year-olds? I guess that's another way of asking if you see your total addressable market shifting?

Yes. Going through the website traffic, we don't see those specific demographics, but we do see our application traffic come in, and that's how we understand the household income as well as the age. The demographics still look similar, 39 years old. Although on the household income, we're seeing continued increase. We're almost $130,000 household income now. With our current rents that puts us at almost 5.5%, 5.4% -- 5.5x, 5.4x ratio. Yes, yes, 5x-plus. And so really healthy demographic, strong demand as we talked about. What I would clarify is some of that traffic is our existing residents coming back because we're driving traffic there as well as we're looking to try to build the ancillary part of our business. So a little nuance to that piece. But overall, we're seeing the same demographic.

We also survey our residents that are moving in. It's a smaller survey. But things haven't really changed there significantly. About 80% have lived in a single-family before. That's up slightly from prior quarter. And the main reasons that they're moving is they're looking for space, which is our business in single-family, backyards and extra bedrooms on a price per square foot, really affordable. And they want to be closer to work. And it just -- it solidifies our business model that we're in the right locations, offering the right product. So we triangulate on all of that information to make sure that we're buying in the right areas and doing the right things.

And then is there a way to quantify the cost savings or margin improvement that occurs for mobile maintenance requests versus call centers? And then besides reduced turnover, what do you see as potential margin drivers going forward?

Yes. It's the right question, and we're tracking that closely. We're seeing that our productivity of our team is higher where they get to more orders each day because of that. So we haven't reported yet publicly as to what that's meant from a margin increase perspective. In terms of our savings we have on personnel and other as well as maintenance costs. It's the right question. And as we have more data and we have more backing, we'll certainly be able to provide some more color on that.

Yes. And we do have data as we track our customer satisfaction scores that come from that. Our residents clearly like the experience of the mobile app in terms of you reduce the number of trips, as Ernie talked about. But that's a quantitative difference that we're seeing it. Ratings are always high on our work orders in the kind of the 4.6, 4.7, maybe higher. We're close to 4.9 on the mobile maintenance app, which is really great.

Our next question is from Alan Peterson of Green Street.

Just wanted to follow up with an additional Rockpoint JV question. I appreciate all the insight you guys have provided so far. Just wanted to see if you could touch on or quantify any differences in how you're thinking about margins between the higher price point homes relative to the rest of the portfolio? And is there any change in terms of the statistics on average length of stay or move out to buy trends for those higher price point homes?

Yes. What we really compare it to, Alan, is those types of homes we have in our portfolio today. So from a margin perspective, on a like-for-like basis, meaning in the same market, we would expect these to have higher margins by a couple of hundred basis points because of the higher rent levels that they're going to have, because we expect to ramp at a similar to maybe just a subtly increased cost with regards to repairs, maintenance. Those have higher taxes, but those kind of flow through from a valuation perspective.

So what it's really going to come down to is where the mix of where we buy those homes in terms of where they are. That will be the biggest determinant on overall how that joint venture does from a margin perspective, from that perspective. And then remind me, Al, what the second part of the question was?

In terms of just average length of stay, is it a touch higher or lower relative to the rest of the portfolio? Or "move out to buy" trends, are those that touch higher or lower?

Yes. Again, for the homes we have currently in our portfolio, they're pretty consistent. We didn't see a material difference. Depending on the market, sometimes you see one's a little bit higher, one's a little bit lower than the current portfolio. There wasn't much of a difference there. And again, I give us some conviction. And certainly, the folks at Rockpoint also got excited about the opportunity.

And then just another question for me. In terms of the amount of capital that's looking for SFR today, obviously, it's coming to the spotlight by some regulators and from local politicians, state politicians. But have you noticed any form of legislation or even new policies amongst homeowner associations that are starting to deter your ability to buy new homes within any given market?

Not really. I mean you occasionally have an issue with an association where maybe they're trying to limit the amount of rentals or have some sort of a seasoning period before somebody can do rentals. But no, nothing material.

Our final question today is from Jade Rahmani of KBW.

This is Sarah Obaidi on for Jade. Are you facing any supply chain issues impacting the business in terms of ability to execute and complete repairs or renovations?

Yes, nothing material in terms of supply chain. We talked about earlier, there's a little bit of inflationary pressure on cost. But in terms of supply chain, no. We saw early on in the pandemic, there were some issues around appliances. But we had alternate vendors that we could go to that help that.

As Ernie talked about, there's a little bit in some of our markets that we're buying just trying to get GCs. But that's specific to a couple of markets. Other than that, no real major supply chain challenges.

We have no further questions. So I will hand back to our hosts for their closing remarks.

We want to thank everyone for joining the call, and we look forward to seeing everybody at NAREIT in June. Thanks.

This concludes today's call. Thank you for joining. You may now disconnect your lines.