Dallas Tanner: Thanks, Haendel. You’re right, that Texas doesn’t represent a very big portion of our business. Look, I hate to speculate on any comment that I don’t have sort of the full context of. We’re active at both state and local levels in Texas, and other markets. And everything we’re hearing on the ground is pretty pro-housing, and pretty friendly in terms of where state legislatures are and things that they want to focus on. We’ve had a number of wins in Georgia and Florida, North Carolina over the last year. We’ve even seen some of the what I would call, really crazy bills in California. It gets shelved in the last little bit, and it feels like there’s sort of a little bit of a pendulum swing to moderation. Look, the tricky part about housing, generally in the country, is going to be that it’s a social issue over and over and over.
And the affordability issues that have been in the country really for the last decade, since the GFC, are largely supply driven in nature. I’m not an expert on political matters, and/or where people are going to fall on any one particular issue. I have become well versed in that we see a lot of headlines, all the time. And there’s click bait and we live in a 24-hour news cycle, where things can also get taken out of context very quickly. And so, our focus is as a provider of housing, to be consistent both in the things that Charles and Jon shared and Scott around deliveries, execution, how we view the customer experience, and creating this kind of lifestyle flexibility for a massive subset of consumers that are nearly 47 million households deep.
SFR represents about 10 bps of that, at the end of the day. And so those 10 bps in the way that we behave, I think are the only things that we can control in the real time, which is just be a great business that offers flexibility and service. And by the way, have the conversations at state and local levels, as we continue to build out our thesis around housing to make sure that we’re part of the solutions, and that the facts are actually understood. And I think that particular article was disappointing. The headline reads one way and as you get into the article deeper, you realize that a lot of the facts in the subset, suggests that a lot of this stuff isn’t gaining traction, because I think as you get into the data, you start to figure out that we need many different types of solutions to come at this problem.
So, we’ll be one part of a subset of many, but the question makes sense and they — can’t tell you, what any particular politician’s thinking at any given time.
Operator: Our next question comes from Josh Dennerlein from Bank of America. Please go ahead. Your line is open.
Q – Josh Dennerlein: Hi, everyone. Thanks for the time. Jon, just wanted to follow up on a comment you made on the fees you’re receiving from the management contracts, are being offset by some investment set — investment spend. How should we think about the duration of that investment spend? And could you elaborate on maybe just, what that investment spend entails?
Jon Olsen: Yes. Look, I think as we onboard these portfolios, obviously, we need to add some heads in the field. We need to add some heads in the back office and we need to make some technology investments. I don’t anticipate that we’re going to be perfect at this, coming out of the gate. The good news is, as we’ve talked about, this is a really attractive high-margin business for us. But just as we spent years optimizing our balance sheet, optimizing our operating platform, iterating towards a better outcome and sort of a better structure, we’re going to be doing the same with respect to the third-party property management business. So some of these incremental costs that show up in property management expense are upfront and one-time in nature and will spread across the majority of these new agreements.
Some of them are more variable and are going to correlate more strongly to the number of homes that come online. But I think big picture, this is a really attractive business from an earnings contribution perspective. And our expectation is that we should be able to make those margins higher for us as we get more and more efficient in terms of how we manage.
Operator: Our next question comes from Adam Kramer from Morgan Stanley. Please go ahead. Your line is open.
Adam Kramer: Hey, guys. Thanks for the question. It was asked a little bit earlier, let me try to ask it in a different way. I just wanted to ask about maybe how your expectations for new and renewal growth for 2024 compared to your expectations last time we had roughly three months ago? I know, you didn’t provide some specific numbers at that point. Can you maybe just walk us through, given you’ve now had four months, right, and I think additional visibility — well, for the next few months, how do your expectations from doing renewal growth to stay compared to what you provided three months ago?
Jon Olsen: Yes. Thanks for the question. I think, obviously, we have not revised guidance. We continue to feel very comfortable with our expectations for where blended rate growth will shake out over the course of the year. What we’ve said is — we expect the blend to be high fours, low fives. Look, we’re sitting here on May 1, we feel really good about the results we saw in the first quarter. We feel really good about the fact that it’s aligning very, very closely with how we sort of shaped guidance and our view for how the year would likely progress. So I’m not sure that there’s really much, if any, change, I think the May blend of 5.2% that Charles alluded to earlier, is reflective of things kind of falling in line the way we expected them to.
Charles Young: Sorry, April blend of 5.2%, just to verify. Thank you.
Operator: Our next question comes from Daniel Tricarico from Scotiabank. Please go ahead. Your line is open.
Daniel Tricarico: Thank you. On the acquisitions in the quarter, you quoted a 6.1% cap rate in the sup. Curious if you could break down what percentage of those are from homebuilder pipeline versus the traditional MLS and what the spread on cap rates looks like today between those two channels?
Scott Eisen: Yeah. I would say that — this is Scott. Great question. From our perspective, a majority of what we’re doing right now is with the homebuilder direct purchasing. We’re doing very little on the MLS right now. We focus most of our efforts on growing our third-party management business and also focusing on doing more deals with our homebuilder partners. And look, we are still, as we’ve said before, targeting these homebuilder acquisitions in and around a 6% cap in terms of what our yield on cost expectation is for these transactions. And in terms of dispositions, I think we’re still in the market disposing as we had said we would, and it’s still in that range of the four-ish cap or so in terms of the historical rate. And I don’t think anything has changed materially in terms of what we’re seeing in terms of that acquisition yield.
Operator: Our next question comes from Jesse Lederman from Zelman & Associates. Please go ahead. Your line is open.
Jesse Lederman: Thanks for taking my question. Nice job during the quarter. You noted at a recent conference, you expect new move-in rent growth to exceed renewal rent growth this summer consistent with your typical trajectory, maybe pre-COVID. Can you discuss what you’re seeing in the market that gives you confidence new move-in rent growth will accelerate roughly 300 basis points from April and how that 300 basis points relates to the typical, call it, April to summer peak acceleration? Thank you.
Charles Young: Yeah. We’re seeing that typical kind of acceleration into — on the new lease side into the summer. And we usually peak somewhere in June, maybe July. It varies year-by-year, whether new leases will overtake renewals. I can’t predict that this year. I don’t think I’ve said that, but we typically see that you’re going to see new leases accelerate in the summer and renewals will stay steady throughout the year. I could see renewals moderating slightly in the summer as Dallas mentioned, the loss to lease is a little lower over the summer than the cohort we’ve kind of pushed on demand. So that might bring it down. So we’ll see how it goes. I think as we’ve talked about, we’re in the really kind of healthy and/or typical season and working out for the summer will be determined.
That said, we are seeing the acceleration that we expected to see from the start of the year. We started January, as we’re building up the occupancy, negative new lease rent growth and now in April at 3.1% and accelerating into May, we’ll see where it takes us for the summer. We’re right, where we want it to be.
Operator: Our next question comes from Michael Gorman from BTIG. Please go ahead. Your line is open.
Michael Gorman: Yeah. Thanks. Apologies if I missed this, but could you just spend a little bit of time talking about the insurance renewal that you mentioned in the Sup. And maybe just talk about if there’s any change in coverage levels or any other terms that allow for the execution there on the pricing? And then, I guess, just I know you left guidance unchanged, but is there anything left that would potentially push insurance back up to the initial guidance range of mid-to-high teens growth from the 7.5% that’s implied? Thank you.
Jon Olsen: Yeah. So, great question, thank you. There is nothing left that would cause insurance to come in higher. We working with our insurance brokers sort of formed an early view and that was reflected in our initial guidance, over the course of kind of our annual trip to London and Bermuda to meet with underwriters and sort of help explain all the reasons why our business has a number of really attractive risk built-in risk mitigants, coupled with the fact that reinsurance treaties came in much more constructive than last year, we were really pleased with the outcome there. I think at the end of the day, however, insurance is a relatively small line item for us. So there’s not a ton in it. What’s going to be much more impactful obviously is property tax as we talked about, the fact that expenses were sort of as elevated as they were year-over-year here in the first quarter is largely attributable to the fact that we were under accrued on property tax in each of the first three quarters last year.
So when people see the expense growth numbers that is, sort of to be expected. And that was also baked into our guidance. Specifically what caused our insurance renewal to be so positive? I think a lot of it is driven by the market environment, but there are also some nice things about our business that benefit us. We’re not coastal. We have the ability to asset manage on a house-by-house basis. And I think it’s a nice reminder of the scale of our business. On average, our insurance cost per home in the state of Florida, for example, are less than $1,000 for a homeowner. That’s probably between $5,000 and $6,000 annually at the price points where we operate. So I think that’s a really nice sort of testament to the benefits of scale. And then, to answer the first part of your question last just to round it out, we made no changes to our policy structure or limits or anything of that nature.
Operator: Our next question comes from Linda Tsai from Jefferies. Please go ahead. Your line is open.
Linda Tsai: Yes. Hi. If renewals are a bigger part of your business going forward, how much more does this expand your margins over time? And how do we quantify how much less turn each quarter reduces OpEx?
Charles Young: I’ll let Jon answer anything in terms of kind of margin expansion. But for us, if you go back and look at our business pre-pandemic, we were moving turnover down year-over-year. It really kind of bottomed out during the pandemic. But we’re back on that track where we’re just really healthy turnover and a lot of that is driven by having high renewals. And it’s a balance of some of the tailwinds that we’ve talked about in the industry, but also a big part of our genuine care and how we serve the resident and people want to stay with us longer getting over three years now with California getting closer to five. It’s a really healthy position. And that’s what shows up in our occupancy. You take that low turnover plus good days to re-resident that we’ve been operating at and keeps the occupancy high.
And from there I think given as Dallas said it’s a really nice opportunity in lifestyle that we see that people for moving out reasons to buy home as low — as low as it’s ever been in the last few years. It’s leading to really kind of strong low turnover and strong renewals. And as Dallas said we expect it will be a strong part of — a big part of our business going forward.
Operator: Our next question comes from Conor Peaks from Deutsche Bank. Please go ahead. Your line is open.
Conor Peaks: Hi. Thank you. I think you touched on this a little bit earlier, but if we could discuss the economics around the homebuilders and maybe specifically why invitation can get higher yields versus the homebuilder selling to individual buyers. Thanks.
Dallas Tanner: Hi. This is Dallas. And anything I don’t cover Scott if you would like to add anything please do. I think taking a step back one thing that’s come full circle and been evident to us as we’ve started growing a lot of these relationships over the last several years has been sort of the following. One, I think, the homebuilder industry recognizes a need for four lease product. They have a number of customers that come through that can’t qualify for mortgage, but they want to be in great communities with access to good schools et cetera. I think they view partners like us as a more fleet side of their business where we can do significant amounts of scales to get together at reduced costs and I would add I believe on their end it’s a much easier efficiency.
We know exactly what we want to have inside our homes and we’re happy to take multiple different elevations on the exterior but they’re building us the same product over and over and over. Two, we can also help with the way that we structure those transactions to help alleviate burden of cost and I think there is just a natural market that exists somewhere in the middle. The second piece of it is and I can’t speak for homebuilders, I think they view the retail business as a terrific business for them and they’ve been able to kind of work through even a higher rate environment. But I also think that we help derisk a portion of their future thinking. And so I think there is a natural symmetry between professional capital that wants to operate in the for-lease business, much like you see in multifamily versus maybe an owner operator or a just purely fee simple builder.
And then at the regional levels, we can actually, I think, help some of these smaller builders in ways that a lot of regional banks have not been able to facilitate over the last say a year or so where we can also help derisk some of the costs there and create some certainty around the production of new housing units. So, there’s just — it makes sense. It’s a lot like the car business where you pick any big car manufacturer in the U.S., a massive portion of their business is retail and they have a system outline to be successful in that category. But then they also sell to the Hertz, and the Progressives, and the 24-hour rental companies that we all lease from at different airports around the country. I think our business can evolve in a way with homebuilders.
