Invitation Homes Inc. (NYSE:INVH) Q1 2023 Earnings Conference Call May 2, 2023 11:00 AM ET
Company Participants
Scott McLaughlin – Senior Vice President, Investor Relations
Dallas Tanner – Chief Executive Officer
Charles Young – President and COO
Ernie Freedman – Chief Financial Officer
Jon Olsen – Executive Vice President, Corporate Strategy and Finance
Conference Call Participants
Josh Dennerlein – Bank of America
Eric Wolfe – Citibank
Austin Wurschmidt – KeyBanc
Jamie Feldman – Wells Fargo
Brad Heffern – RBC Capital Markets
Haendel St. Juste – Mizuho
Adam Kramer – Morgan Stanley
John Pawlowski – Green Street
Daniel Tricarico – Scotiabank
Juan Sanabria – BMO Capital Markets
Keegan Carl – Wolfe Research
Dennis McGill – Zelman & Associates
Steve Sakwa – Evercore
Adam Hamilton – Credit Suisse
Jason Sabshon – KBW
Nick Joseph – Citibank
Michael Gorman – BTIG
Anthony Powell – Barclays
Operator
Greetings. And welcome to the Invitation Homes First Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode at this time. [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.
Scott McLaughlin
Good morning and welcome. I am 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 1st.
Following our prepared remarks, we will conduct a question-and-answer session with our covering sell-side analysts. In the interest of time, we ask that you limit yourselves to one question and then re-queue if you would like to ask a follow-up question.
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 non-historical 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 will now turn the call over to Dallas, our Chief Executive Officer.
Dallas Tanner
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 a 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 have 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 have done for the past five years.
Since our inception, we have matured and performed through a variety of operating and macroeconomic environments, including a global pandemic and record high inflation. Throughout this time, we have 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 can 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 agents 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 kids 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 March data, and weighted by our markets, the monthly cost of owning a single-family home remain 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 core belief we have held since the early days of our business that we could revolutionalize 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 have 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 have 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 allows 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, which existing homeowners are discouraged from giving up their lower mortgage rates is keeping resale supply relatively low. We have seeing evidence of this supply and demand imbalance when we list our homes for sale and received 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 have taken a moment to read our new progress overview, which we published last month. It’s available on our sustainability webpage 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 engage 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 will pass it on to Charles, our President and Chief Operating Officer.
Charles Young
Thanks, Dallas, and good morning, everyone. I’d like to begin by thanking our associates for starting off the year strong. I am really proud of the efforts you display every single day to ensure that our residents feel heard, served and appreciated.
I will now review the details of our first quarter operating results. I will 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 have 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 three quarters of 2022, as we have previously discussed.
Expense growth was also impacted by progress we have 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 have spoken about previously. This has been a great success with residents using it to send us over 40% of maintenance requests.
In addition, we have 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 have begun through our peak leasing season and the remainder of the year.
I will now turn the call over to Jon Olsen, the company’s next Chief Financial Officer.
Jon Olsen
Thank you, Charles. I am excited to join you all today. I have been part of the Invitation Homes team since 2012 and I am 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 have both here in the room this morning to answer any questions you may have following our prepared remarks.
I will 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 have 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 will 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 have come since our public listing over six years ago, but also relative to many of our investment-grade peers today.
In the six years since our IPO and merger, we have applied a consistent and measured strategy to delever the balance sheet, improve the laddering of our debt maturities, refinance secured debt with unsecured debt, unencumbered assets and lower our net debt-to-EBITDA 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 three quarters of our debt was unsecured and over 83% of our homes were unencumbered. Our net debt-to-EBITDA ratio improved from 5.7 times at the end of 2022 to 5.5 times as of March 31st.
In recognition of the great work by our team and the meaningful progress we have 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 have 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.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of Josh Dennerlein with Bank of America. Your line is open. Josh Dennerlein, your line is open.
Josh Dennerlein
Oh! Hey. Sorry, guys. It’s Josh Dennerlein. Sorry about that. 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 have seeing come through your portfolio today and how that’s impacting your outlook?
Dallas Tanner
Yeah. I think — this is Dallas, by the way. One of the things we have 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 have looked at our business over the last decade, literally quarter-over-quarter, we have seeing that duration and length of stay push well into the 40-ish type of months with us. As they move out, we have seeing that in our West Coast markets and we have seeing our eastern markets start to quickly kind of close the gap.
And so I think as you think about this money of cohort, the types of things they want, the flexibility around choice 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 have seeing continued strength in the underwriting of the customer, as I mentioned 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 have not seeing any real degradation in our customer as of today.
Operator
Your next question comes from the line of Eric Wolfe with Citibank. Your line is open.
Eric Wolfe
Thanks. Dallas, you have 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?
Dallas Tanner
Well, I think, there’s two questions in that question. So, the first piece on the lock-in effect with 80%-some-odd 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 would expect from sellers? Yeah, there’s no doubt that if people are a mortgage today, if you acquired it or you refinanced in the last 36 months is an asset for folks and so that may have an impact on resale supply.
Good news for us is our focus 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 have 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 three years to four years. It hasn’t really been a source of truth for people as they have 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 will stay aggressive in our new product pipeline, we have obviously always looking at things as the resale market changes but just being ready and I think we have in a position to do that.
Operator
Your next question comes from the line of Austin Wurschmidt with KeyBanc. Your line is open.
Austin Wurschmidt
Great. Thanks and good morning. I am 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 am just wondering if that enables you to 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? Thank you.
Charles Young
Yeah. This is Charles. Thanks for the question. Yeah. Look, we have 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 have 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 have been in the mid-7s and that’s slightly above where we thought we would be, and we have maintaining that in April in the 7s. And as you look forward, May and June, we went out in the mid-7s on our ask and we will see where that ends up.
You have asking the right question, there is a balance here as we have seeing this demand and trying to balance off the lease compliance backlog that we have 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 where we are.
We will see how the summer plays out, we have slightly ahead of expectations and optimistic going into the summer. And then the last question around Los Alicia. We have in that — as we updated it today about 5% to 6% loss to lease.
Operator
Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.
Jamie Feldman
Yeah. Great. Thanks for taking my question. 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? Thank you.
Jon Olsen
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 have 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 three quarters, we will see the insurance line item be up in the neighborhood of 20% year-over-year and then for the full year, we would expect insurance to be up about 16% year-over-year.
Operator
Your next question comes from the line of Brad Heffern with RBC Capital Markets. Your line is open.
Brad Heffern
Yeah. Thanks. Good morning, everyone. 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?
Jon Olsen
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 three quarters of the year and then moderating in the fourth quarter and we have said that we expect property taxes to be up in the range of 6.5% to 7.5% for the full year.
Operator
Your next question comes from the line of Haendel St. Juste with Mizuho. Your line is open.
Haendel St. Juste
Thank you. First, congrats to Jon and Charles for new roles. And Ernie, I guess, a lot you will be missed. To go back to your comments earlier on, I think, you mentioned you have working to find a responsible way to help add more supply. I am 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? Thank you.
Dallas Tanner
Thanks, Haendel. I will 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 have been really cautious and careful around not putting the balance sheet in a position where we would 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 develop potential partners. It’s well noted that we have a really good partnership with Pulte Homes. We will continue to do as much with Pulte as we can. They have been terrific.
And I would say that with the announcement of that partnership, what, roughly 18 months, 24 months ago, it’s expanded to many other builders and developers coming to us looking for opportunities to grow together.
So we have been able to be deliberate, we have been able to be picky about where we want to invest and why, and I think we have 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 have added a couple of people over time on the buss guest side and also on the project management side, but it’s going really well and we have 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.
Operator
Your next question comes from the line of Adam Kramer with Morgan Stanley. Your line is open.
Adam Kramer
Hey, guys. Thanks for the question and best wishes to you, 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 have still kind of worse than pre-COVID 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?
Ernie Freedman
Yeah. 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 have 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 zero to 30 payment is increasing and got to 93%.
So we have actually seeing a nice improvement in the gross bad debt and not getting as much help from things like rents as we expected. And in fact, the collections coming forward the zero to 30 but were a little bit better than we had anticipated and we have 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 have certainly happy with where it’s at, not only for the first three months of the year, but for the first four months of the year. I will turn it over to Charles and he can talk a little bit about what we have seeing on a market-by-market basis.
Charles Young
Yeah. So, as Ernie said, we have starting to see kind of a return to normal and all trends are generally positive and this is why rent assistance has gone, was half of last quarter and 20% year-over-year. So we have 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 will see how that plays out. There’s still kind of the courts are backlog there. So it will take a little bit of time to clean up.
The other markets that are a little slower are Atlanta Vegas, but that’s changing and adjusting quickly in NorCal Vista, 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 have 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 have trending nicely, and we will see if we can continue to keep that momentum, and by the second half, we will be trending back towards where we want to be in cleaning this in.
Operator
Your next question comes from the line of John Pawlowski with Green Street. Your line is open.
John Pawlowski
Hey. Thanks for the time. Dallas, I want to circle back to the [inaudible] 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 have 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?
Dallas Tanner
There is no change in our views. And again, we have really careful guys. We don’t want to comment on any pending litigation. But, no, it’s just the same, John. And we will continue to defend ourselves vigorously and we believe that the claim is really without merit.
Operator
Your next question comes from the line of Daniel Tricarico with Scotiabank. Your line is open.
Daniel Tricarico
Thank you. Question on the builder pipeline, it looks as though some of the 2023 and 2024 deliveries were pushed out to the following year with the recent release. Can you comment on the different components driving that? Thanks.
Dallas Tanner
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&C and some of the zoning commission things that we mentioned in my earlier comments.
Operator
Your next question comes from the line of Keegan Carl with Wolfe Research. Your line is open. My apologies. Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.
Juan Sanabria
Hi. Thanks for the time. 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 implant cap are thinking about your own cost of capital?
Dallas Tanner
Yeah. Hi, 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 will 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 created 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 have 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 have seen as much as people have wanted to think that residential was going to implode over the last year, we have 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 a third 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 have 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 have 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 REITs 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 in front of them — front of us.
So like I mentioned in my opening remarks, like, we feel like we have ready. We have got between, call it, current cash and ventures and availability of credit. We have 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.
Operator
Your next question comes from the line of Keegan Carl with Wolfe Research. Your line is open.
Keegan Carl
Just on your JV dispositions, what was the driver and what was the average cap rate on what was sold?
Dallas Tanner
On the JV disposition, the question?
Ernie Freedman
On 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 dispose of homes as they — for the most part, when they have not renewing. And so you have just going to continue to see, I will call it, a drip of sales each quarter as they go forward.
For other JVs, we just finished the investment period for the 2020 Rockpoint JV. So we have far off from doing any sales there. For the 2022 Rockpoint JV, we have still in the investment period there. And with regards to what we have been selling at a Fannie Mae, you see it’s a small number, it’s consistent what we have on the balance sheet.
Operator
Your next question comes from the line of Dennis McGill with Zelman & Associates. Your line is open.
Dennis McGill
Hi. Thank you, guys. Dallas, I guess just going back to the transaction market, I’d be interested in what you think breaks the stalemate, because you have sitting here with a cap rate that’s not all that attractive, but fundamentals are good, you have 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?
Dallas Tanner
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 have 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 retail space.
But I also believe that the combination of our new product pipeline, 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 have 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.
Operator
Your next question comes from the line of Steve Sakwa with Evercore. Your line is open.
Steve Sakwa
Yeah. Thanks. I think Charles had provided maybe the April renewal. I am 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?
Charles Young
Yeah. 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 stay where we have going right now. Given the demand and kind of where we are with the current occupancy, we have 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 have 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 two markets that.
Again, high 96s are not bad and what we have starting to see is some increase in both of those markets as they go. So, with the healthy demand that we have seeing, generally, we feel like we will be able to kind of get to ship straight pretty quickly. The rest of the markets are running nicely in the high 97s to 98.
Operator
Your next question comes from the line of Sam Choe with Credit Suisse. Your line is open.
Adam Hamilton
Hi. This is Adam on for Sam. Thanks for taking my question. 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 have seen anything driving that demand besides the demographic shifts you have 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?
Charles Young
Yeah. 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 have 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 have 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 the last couple of years and while we have 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 have seen to date. So we feel real good about it.
Operator
Your next question comes from the line of Chandni Luthra with Goldman Sachs. Your line is open.
Unidentified Analyst
Hi. Good morning. This is Lee [ph] in on behalf of Chandni. Thanks for the question. 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 nice units in California? And what’s your expectation on the growth for the rest of the year? Thanks.
Jon Olsen
Thanks. Great question. This is Jon. Look, on turnover, there are a few factors at play here. The first is that you have 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 weight 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 have seeing in our markets.
As for the balance of the year, as we have 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 have very optimistic about how the business is performing.
Operator
Your next question comes from the line of Jade Rahmani with KBW. Your line is open.
Jason Sabshon
Hi. This is Jason Sabshon on for Jade. Does levering new investments make sense at this point or is it best to stay in levered and figure out financing later on?
Jon Olsen
Look, I can defer some of — this is Jon. But I would say we really like where our leverage profile is. We have worked hard to get it to a level where on a risk-adjusted basis, we have far better than we were 5 years ago when we — when the business went public.
I think we have used more leverage in some of our ventures and that’s sort of been my design and we have 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.
Operator
Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.
Jamie Feldman
Great. Thanks for taking follow-up question. I guess I just wanted to get your thoughts on NOI margins. I mean year-over-year, they have clearly down in most markets sequentially, they have a little bit more mix, 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 have got a better handle on the expense side, especially with insurance and taxes and a pretty good view on revenue as well?
Dallas Tanner
Yeah. I think it’s a good question. We have seeing a little bit elevated expense here in the first 3 quarters of this year for all the reasons we have 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 have seen from our business is sort of a steady improvement in NOI margin over time, as we have 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.
Operator
Your next question comes from the line of John Pawlowski with Green Street. Your line is open.
John Pawlowski
Thanks. 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. The trajectory of R&M and turnover trying in line, better or worse than you originally expected heading into this year?
Jon Olsen
I think they have trending generally in line with what we have expected. I think, overall, we have 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 have seeing on the cost to maintain side of things.
Operator
Your next question comes from the line of Eric Wolfe with Citibank. Your line is open.
Nick Joseph
Thanks. It’s actually Nick Joseph here with Eric. One of your Sun Belt or one of the Sun Belt department companies mentioned on their call that you thought the starts had come down about 60% from current levels. So wondering kind of historically, when you have seen big swings in apartment deliveries, what’s the impact on single-family rental operations?
Dallas Tanner
That’s an interesting question. We haven’t seen a lot of it and there’s sort of two 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 comparative multifamily. So it’s really not an apples-to-apples comparison.
Operator
Your next question comes from the line of Michael Gorman with BTIG. Your line is open.
Michael Gorman
Yeah. Thanks. Good morning. 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 have seen, especially in some of like the Florida market? Does that change how you have thinking about the progression of operating expenses throughout the year, even within the maintained guidance?
Jon Olsen
No. I don’t think we have anticipating a material impact related to weather patterns. I think right now what we have 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 rollout to make sure that we are protecting our assets and that we have well insured in the event of some sort of catastrophic events. But I would say that the impact is not expected to be significant.
Operator
Your next question comes from the line of Anthony Powell with Barclays. Your line is open.
Anthony Powell
Hi. Thank you. Question on Phoenix and Tampa. I think two markets that people were concerned about given a lot of the supply growth both on the multifamily and the single-family side. Are you seeing very strong rent growth there, so maybe comment on those two markets?
Charles Young
Yeah. This is Charles. I can jump in. Yeah. Tampa has been really strong for us. Its new lease rent growth of north of 8% in Q1 and maintaining on the renewal side in the mid-8%. 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 have at the 98% occupancy and new lease rent growth at 6.3% and so in our top five 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 — and Tampa as well. So two 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.
Operator
This completes our question-and-answer session. I would now like to turn the conference back over to Dallas Tanner for any closing remarks.
Dallas Tanner
We appreciate everybody’s participation and look forward to seeing everyone at upcoming conferences. Thank you.
Operator
The conference has now concluded. You may now disconnect.
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