INVH - NYSE

Greetings and welcome to the Invitation Homes Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Scott McLaughlin, Senior Vice President of Investor Relations. Please go ahead.

Good afternoon and welcome. I’m here today from Invitation Homes with Dallas Tanner, Chief Executive Officer; Charles Young, President and Chief Operating Officer; Jon Olsen, Chief Financial Officer; and Scott Eisen, Chief Investment Officer. Following our prepared remarks, we’ll conduct a question-and-answer session with our covering sell-side analysts. [Operator Instructions] During today’s call, we may reference our third quarter 2024 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 2023 annual report on Form 10-K and other filings we make with the SEC from time to time. Except to the extent otherwise required by law, 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. With that, I’ll now turn the call over to Dallas Tanner, our Chief Executive Officer.

Thanks, Scott, and good afternoon, everyone. Our third quarter results reflect the hard work of our teams to maintain high occupancy control costs and continue to provide an outstanding experience for our residents, who are now staying with us nearly 38 months on average. I’m particularly thankful for the work our associates have done to demonstrate our trademark genuine care to residents impacted by the recent hurricanes. When we started this business a dozen years ago or so, what was clear to us then remains clear to us now. There is a strong need and a desire for choice and flexibility when it comes to leasing a home. This is evident by not only the 14 million Americans who choose to lease a home today, but also by the 110,000 households that choose to lease with us. We are very proud of being a premier single-family home leasing and management company that is committed to remaining the most transparent and offering the highest service while providing the best overall resident experience of any other provider. Our goal is to make leasing a home as easy, convenient and care-free as leasing a car or running a vacation home. Thanks to the hard work of our teams, our external growth initiatives and our investments in technology, I’m pleased with how far we’ve come and where we still aim to go. This includes our rapid expansion into third-party management, which together with our joint venture business has now reached over 25,000 homes. It also includes our strategic homebuilder relationships that we continue to deepen and grow and the expansion of our value-add services like smart home and bundled Internet. Our value-add services are on track to achieve our target of over $60 million in gross revenues this year and we continue to explore additional ways we can offer convenient and desirable amenities for our residents. Returning to our current results. Last night’s earnings release contained our latest expectations for the full year 2024. These reflect our penny raise at the midpoint for both core FFO and AFFO per share, along with very favorable same-store expense updates that Jon will discuss in detail in a moment. In addition, our revised guidance includes some moderation in same-store revenue growth during the second half of the year. As we’ve pointed out previously, this is due in part to a return to a healthier more sustainable cycle following the significant market rent growth we experienced during the past 3 years. In addition, as we noted on our July call, it’s also being driven by some supply and absorption pressures, including from new BTR listings and motivated for lease pricing in a few of our markets, primarily Phoenix, Tampa, Orlando and Dallas. With peak BTR deliveries already behind us and with a large drop-off in new starts that began in 2023, it’s expected that new BTR deliveries could fall as much as 65% next year. Based on this, we believe the current supply pressures are temporary in nature and that our team’s focus on absorption over the next few quarters will help us to work through this period. Outside of the near-term noise, we believe these markets remain attractive for long-term risk-adjusted returns with strong population, job and future rent growth. In that regard, our investment thesis remains supported by the demographics, which remain very exciting for our business. John Burns research expects the number of renter households to grow by nearly 0.5 million people per year for the next 4 years and to continue growing strong beyond that through 2033. It’s been over 10 years since we’ve seen a renter expansion of that magnitude. We believe our portfolio of homes is uniquely positioned to benefit from that long-term demand growth. Burns also notes that there will be over 13,000 people turning 35 years old in this country every day for at least the next 10 years, which is right in the ballpark of our average new resident age of approximately 38 years old. With that macro picture intact and fundamentals remaining strong, we continue to be as bullish as we’ve been in our business and its future prospects. In closing, I’d like to once again thank all of our teams for their hard work, their dedication as well as our investors for their continued trust and support. We remain excited about the opportunities that lie ahead for us, and we expect to continue achieving solid growth that remain among the strongest in the residential REIT sector. With that, I’ll now pass the call on to Charles Young, our President and Chief Operating Officer.

Thank you, Dallas. As you mentioned, it’s been a busy time for our associates, many of whom have worked tirelessly to help our residents impacted by recent hurricanes. Based on our early assessment, we believe we experienced mostly limited damages from these storms. The majority of the work orders created so far have been related to roofs, fencing and general service requests, and both our internal maintenance teams and our network of vendors are actively engaged across our markets. I’m really proud of the response and the assistance that we have provided to our residents and their communities. While these moments can be challenging, they also highlight some of the many benefits of leasing with us. Our mobile maintenance app allows our residents to log maintenance requests, attach pictures of storm damage and send these to us right away so we know what to expect before we even pull into the driveway. Meanwhile, our large network of roofers, tree cutting crews and debris haulers and our dedicated team of associates who live within the local communities allow us to deliver fast, efficient and effective service and maintenance that we believe is unrivaled in the industry. In addition, we believe our premier quality locations and genuine care leads us to the best outcomes for our residents and our business. These attributes not only help us attract great residents but also help us keep turnover low as satisfied residents typically stay longer. As Dallas mentioned earlier, our average length of stay is now approaching 38 months, while same-store turnover for the trailing four quarters was just 23% among the best in the industry. Against that backdrop, I’ll now discuss our third quarter same-store leasing results. Renewal rent growth was 4.2%, a solid result that is in line with more normal third quarter renewal growth rates. New lease rent growth was 1.7%, which together with renewals, brought our blended rent growth to 3.6%. Third quarter same-store core revenues grew 3.6% year-over-year, primarily driven by a 3.7% increase in average monthly rent, a 10 basis point year-over-year improvement in bad debt and a 2.4% increase in other income. Occupancy averaged a healthy 97% during the third quarter, nearly the same as the prior year result. Meanwhile, our associates did a great job in controlling costs during the third quarter. Same-store core expenses increased only 3.1% year-over-year, driven by moderation in our fixed expense growth of 5.3% and a 0.5% decrease in controllable expenses. Taken together, this resulted in a year-over-year increase of 3.9% in same-store NOI. Looking ahead now to our preliminary October same-store leasing results. Average occupancy was 96.5%, in line with September results. In addition, October renewal rent growth is coming in at 3.7%, while new lease rents contracted 1.4%, achieving blended rent growth of 2.2%. To Dallas’ earlier point, these preliminary October results reflect some continued supply and absorption pressures that we’re experiencing in a few of our markets. As a reminder, we’ve seen it before when new supply influences market pricing, such as in Las Vegas last year, and we worked through it. We’re also encouraged by some preliminary signs heading into November. While it’s still early, these include solid acceleration in our renewal rent growth with nearly 3/4 of our book already completed north of 4% as well as improved absorption. We remain optimistic as we approach the end of the year. To wrap up, it’s been a dynamic year for our associates, who I’d like to thank once again for a great job in serving our residents, enabling our rapid growth through homebuilder acquisitions and third-party management and ensuring everyone is safe and sound in their homes. I know we have the right team in place to push the focus and support one another as we work towards our goals for the remainder of the year. With that, I’ll now turn the call over to Jon Olsen, our Chief Financial Officer.

Thanks, Charles. Today, I’ll walk through an update on our investment-grade balance sheet, discuss several of our recent capital markets activities and then wrap up with our third quarter financial results and revised full year guidance. I’ll start with our balance sheet. At the end of the third quarter, we had over $2 billion in available liquidity through a combination of unrestricted cash and undrawn capacity on our revolving credit facility. Over 3/4 of our total debt was unsecured, and our net debt to trailing 12-month adjusted EBITDA was 5.4x, slightly better than our targeted range of 5.5x to 6x. Following next month’s anticipated payoff of our 2018 for securitization, we’ll have no debt reaching final maturity until 2027. In addition, over 99% of our total debt was fixed rate or swapped to fixed rate and 84% of our wholly owned homes were unencumbered as of quarter end. These strong metrics come alongside several third quarter achievements that improve the quality and strength of our investment-grade balance sheet. I’ll call out four of these. First, Fitch Ratings upgraded our issuer and issue-level credit ratings from BBB flat to BBB+ with a stable outlook. Second, we replaced our $3.5 billion bank credit facility with a new $3.5 billion senior unsecured credit facility, consisting of a $1.75 billion revolving line of credit and a $1.75 billion term loan both reaching final maturity in September 2029. Our cost of funds for the new credit facility improved by about 15 basis points. Third, in early September, we took advantage of an attractive window to issue $500 million of 4 7/8% senior notes due in February 2035, further extending our debt maturity ladder. These bonds priced at a spread of 128 basis points over the 10-year treasury or about 5 basis points better than what secondary trading in our existing bonds implied. And fourth, towards the end of the third quarter, we amended a number of our existing interest rate swaps and entered into new swap trades to effectively extend $1.4 billion of interest rate hedges through mid-2028 on average. After our old swaps roll off and new swaps become active, we expect the weighted average strike rate of our swap book to stabilize at approximately 2.95% in mid-2025, only 9 basis points higher than the 2.86% weighted average strike rate of our current swap book. You can find more detail on specific swap rates and effective timing in Note 8 of our Form 10-Q. Next, I’ll cover our financial results for the third quarter. Core FFO and AFFO per share for the third quarter increased 6.8% and 7.2% year-over-year to $0.47 and $0.38 per share, respectively. These results were driven primarily by higher same-store NOI and exclude the incremental accrual relating to our FTC settlement, as well as estimated net casualty losses from third quarter storms, consistent with our historical approach. I’ll now review our revised full year 2024 guidance. Last night, we raised the midpoints of both our core FFO and AFFO per share guidance ranges by $0.01 to $1.88 and $1.59 per share, respectively. At the midpoints, our earnings guidance implies year-over-year growth of 6.2% and 6% for core FFO and AFFO per share, respectively. In addition, we’ve narrowed our same-store NOI growth guidance and maintained our 4.5% same-store NOI growth rate at the midpoint. As we’ve discussed, we’ve revised our expectations for more moderate same-store revenue growth in the second half of this year, and we’ve also significantly improved expectations for same-store expense growth primarily due to favorable information received to-date from Florida and Georgia, which together account for over half of our property tax expense. As a result, we have revised our full year guidance for property tax growth of 5% to 6.5% year-over-year. As we near the end of the year, I want to acknowledge the great progress we’ve made in the first 10 months. These achievements are a testament to the hard work and discipline of our associates, and I’m thankful for what we’ve accomplished. That said, we know we need to remain focused and agile as we approach the remainder of the year, and I have every confidence we’ll deliver on this front. That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Michael Goldsmith with UBS. Your line is open.

Good afternoon. Thanks a lot for taking my questions. The sequential occupancy decline in the third quarter was approximately in line with historical norms, but renewal and new lease spreads both fell below the pre-COVID norms. I suspect just given the environment of high cost of alternative housing and good demand, you would have a bit more pricing power. Can you walk through kind of what [Technical Difficulty] on the spreads here and you can also break out how the spreads are performing in markets facing build pressure and those that are not? Thank you.

This is Charles. You broke up a little bit, but I think I got the gist of what you’re asking. Look, as we highlighted in our opening remarks, we’re seeing some supply pressure in a handful of markets, specifically on the new lease side, which is making us compete on price. That slower absorption is really happening in markets like Tampa, Orlando, Phoenix, Dallas and we’ve seen this before. We talked about it in Vegas, we dealt with this in ‘23 and kind of worked through it over a few quarters. And outside of those markets, the rest of them are kind of expecting – are acting as we expected. Normal seasonality as you get into the end of Q3. But other than that, there are no real surprises there. Overall, for those markets that we’re talking about in the rest of the book, the good news is turnover remains low. If you just look across where we stand, we’re at historically low on turnover. So we’re renewing at a really high rate. Our renewal book is generally where we expect on seasonal levels, to your question, an 80% renewal rate is super healthy. So overall occupancy is about where we see normally, maybe down a little bit from what we expected early in the year. But we expect that we’re going to absorb pretty quickly here. The demand remains strong. We’re going to have to kind of work through these markets that are seeing a little bit more temporary supply. And we take – we figured that it will take a couple of quarters. But overall, the book is in a healthy shape, we just need to work through these few markets that are a little slower to absorb right now. Operator?

Our next question comes from the line of Steve Sakwa with Evercore ISI. Your line is open.

Hi, great. Good afternoon. Maybe just on the capital deployment front, I didn’t know if Scott can maybe talk about maybe how the yield landscape is changing with the builders, I know rates have bounced around quite a bit and so trying to figure out exact cost of capital is difficult. But I’m just curious if you are seeing better opportunities to buy homes today and how you are thinking about the yield expectations on new development purchases from the builders?

Great question, Steve. Thanks. Listen, in terms of what we did for the third quarter, first of all, I’m a little over 1 year into my role here, and I’m very pleased with the progress that the team has made in terms of building our builder backlog, diversifying our relationships with multiple builders. And look, we’re very pleased with the deal flow that we’re seeing from the builder community. As you saw in terms of what we announced in the third quarter, we closed almost 900 homes for $320 million at around a 6% cap. Year-to-date, we’ve closed about 1,600 homes for a total deployment of about $560 million. We still are seeing builder transactions in terms of our forward pipeline and dialogue with them in and around a 6 cap. Obviously, there was a brief period here with the 10-year dip down where mortgage rates dropped briefly, but then obviously, it’s risen up again here. But I’d say in terms of our dialogue, it’s a very strategic dialogue we’re having discussions with them, not about stuff that’s been delivered in 30 days, but stuff that’s 3, 6 to 9 months out. I think we’re very pleased with that dialogue and what we’re seeing. And I think it’s sort of too soon to tell in terms of whether there’s going to be any material change given what’s happening in the homebuilding industry. But I think we’re happy with what we’re seeing. And again, we’re still sort of in the market and trying to target in and around a 6.

Next question comes from the line of Eric Wolfe with Citi. Your line is open.

Hey, thanks. You mentioned that you’re confident that the business will generate growth at the top end of the residential space going forward. So with that in mind, I was just hoping you could share – any thoughts on next year in terms of earn-in, maybe where your loss to lease is going to be at year-end or just anything else you think we should think about for next year’s growth potential?

Thanks, Eric. I think we’ll hold off on talking about next year until we reconvene in about 90 days. I think to your point about earn-in, I think that’s around 2%. We’ll be in a position where we can potentially talk about loss to lease a little bit later in the year when it’s more relevant as a jump off. But I think for now, we’ll kind of leave it at that.

Next question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

Great. Thanks for taking my question. I guess just thinking more strategically, if you look at your development pipeline and where you’re growing, Tampa, Orlando seem to be some of the bigger markets, same with AMH. Those are also where the builders tend to be giving the most concessions and are the most active as well. I mean, any thoughts here on diversifying the portfolio more growing in different markets or do you think this is more just one-time in nature and the market will just kind of right-size itself and things get back to normal?

Hey, it’s a great question. This is Dallas. It’s interesting, right? We’ve been in this business now almost a dozen years. And I think as we’ve sort of watched how the cycles ebb and flow, to your point, there’s certainly different pockets of opportunity along the way that are both sometimes market dependent, whereas you see, to your point, maybe an overbuild situation or a little softness in some of the normalized construction sales. You also can see that times and seasons in the resale market. We obviously took advantage of the resale market early on in the formation of the business, but we’ve pivoted obviously, in the last couple of years, Scott noted it earlier. I mean we are extremely happy with the new product both from a full community aspect and also a scattered site that we are doing now with a number of both public and private homebuilders. We think there’s more room probably to go upstream there over time, in terms of generating better returns, maybe taking on a little bit more inherent risk. But the reality is you’ve got to time this based on sort of a long view, both from a demographic perspective, and from a new supply perspective. And so you’re right, we would expect that if the market cools a little bit more, and we’re seeing some of this in the homebuilder numbers today, there’ll be more opportunities. And there’ll rationally be really level-headed conversations around how we could either help support taking on new supply because there’s plenty of renter demand generally over a long horizon, but also just be diligent about where we want to have that exposure. Not all markets are created equal. We have markets that are high NOI margin markets maybe a little bit less growth or more growth, then we have markets where maybe property tax and a few things can weigh on the expense side, but they’re very high growth in nature. And so I think balancing that approach as we think about new markets that we may or may not enter and we can talk a little bit about Nashville and some of these markets where we started to get a little bit more exposure will all go into the soup of how we think about the next 3 to 5 years.

And what I would add here, this is Scott, is in terms of for the quarter. Obviously, you saw that we had some overweighting in Denver, Tampa and the Carolinas for our acquisitions backlog. We are in active dialogue with the builders about doing in all of our IH growth markets. And so Phoenix, Vegas, Denver, Nashville, these are markets where we’re in active dialogue with the builders and evaluating and underwriting opportunities. So our aperture and lens for where we want to focus our investments, it’s not just in the markets where we had some volume for the quarter. When we look at the quarter, they were actually included in our 900 homes were closing for the quarter, was 4 communities that we bought from either developers or homebuilders that were either partially or fully leased in terms of the acquisition opportunities. So we’re excited what we see out there, and we’re looking to go to other markets as well.

Next question comes from the line of Adam Kramer with Morgan Stanley. Your line is open.

Great. Thanks for the time. I was wondering if you could maybe quantify the impact of new supply say in one of your markets. And maybe as well, I think the narrative is that a lot of this new supply is build to rent, likely more on the kind of periphery of market. If you could just quantify how much this is affecting your infill homes, which you would think would be a little bit more insulated versus maybe your build to rent, your homebuilder partnership home that you would think would be a little bit more at risk from this new supply. Just quantify the difference in performance to kind of see the impact of this new supply would be really helpful?

Hey, Adam. Great question. And it’s different by market, little bit anecdotal, and I’ll let Charles jump up at the top here if he wants to add anything. But I think if you just look at, for example, like say, the top 20 operators in the SFR space, and we track a lot of this information because it’s out there publicly. You look at listings being up somewhere between 15% and 20% in aggregate versus where maybe it was at the beginning of the year or early spring. That’s sort of indicative of the things we’re seeing in Phoenix, Tampa, Orlando. Some of these markets like Phoenix, for example, they started to peak at the end of Q1, but they were getting like 700 to 800 new BTR deliveries on a month-over-month basis. Now I think the piece of it that we’re pretty bullish on, and we mentioned in our opening remarks that we think this takes a few quarters to sort of work itself through, is the expectation, and this is tracked by a number of economists is that a lot of those BTR deliveries come down by about 60% to 65% next year. So while we are fighting for new occupants on the new lease side, we see little or no impact on the renewal side of our business. Going back to the past three quarters, we renewed Q1 at 80%, Q2 at 78% and Q3 at 79%. All that what we would do is sort of pre-pandemic, pretty normal and historic rates as we’ve come off of the peaks 2 years ago. So renewal business feels great. New lease in spots has some dislocation. And by the way, on the flip side, you’re seeing that in the Midwest, where we’re getting 10% and 11% new lease growth in Chicago. We’ve never seen that before. So in those areas of the country where there hasn’t been much building in the last 3 or 4 years, that’s going to lend itself to some near-term sort of rate help. And I think in these parts of the markets where there’s been a lot of development and investment starting really 2 or 3 years ago, those deliveries are coming on, and we’ll just deal with that over the next couple of quarters. Nothing we can’t handle.

Our next question comes from the line of Jesse Lederman with

Hi. Thanks for taking my question. You lowered revenue growth guidance last quarter as well. So can you talk about what happened incrementally during the quarter or for your outlook for the fourth quarter that were not embedded within your outlook 3 months ago? Thank you.

Jesse, it’s Jon. Thanks for your question. Yeah, I think let’s look back at where we were, right? So NAREIT fell first week of June, we were coming off the first 5 months of 2024 that exceeded our lofty expectations for the year. We were very, very bullish. Towards the end of June, you started to see some softness emerge in a handful of markets, and by the time of our July call, we thought it was prudent to acknowledge that we weren’t going to continue on the same trajectory. I think subsequent to that, we got more and better visibility into some of the supply pressures and the degree to which we were going to need to be able to compete on the basis of price, coupled with sort of a slower rate of absorption in the markets and you put it all together, and I think our revision here is reflective of just a more fulsome picture of exactly what’s happening on the ground that was only just emerging at the time of our July call.

Next question is from John Pawlowski with Green Street. Your line is open.

Thanks. I just want to follow up on the throughout of the conversation theme. Charles and Dallas, you said the renewal book looks great as expected. You did expect renewal growth rates to accelerate and now your renewal growth rate is lower than some built apartments. And so I’m struggling with that tone and the renewals are great and as expected. Clearly, there’s more price sensitivity on the existing tenants and it seems to be more broad-based than just certain pockets of the portfolio. Can you expand on that? Because I think me and others are confused in the market right now.

Yeah. Thanks for the question. Look, we – I think we signaled over the summer that since August, we’ve been increasing our renewal ask. And as it’s been working through the book, we were kind of flat from September to October. But as I mentioned in our earlier statements, we’re seeing nice acceleration now from November. It’s too early to call December, but we expect it will continue to accelerate from there. So it’s hard to predict exactly when these things will hit. But we’re seeing, as we look at our book, that there’s some be acceleration there. And so at this point, we’re kind of coming off a bottom here in September, October, and accelerating nicely. On top of what Dallas just said, we’re also renewing at a high level. And as you try – and you’re in a market like this, we’re trying to get to the optimized kind of balance of revenue, you also want to close the back door. And so we think about all that as we do this and so we feel good about where we are in renewals overall.

Next question comes from the line of Josh Dennerlein with Bank of America. Your line is open.

Hey, guys. Sorry to harp on that, but it looks like you did say on the 2Q call, you were going out with that 7% ask on renewals, and I think I heard, what like all 4s for October. I guess just how does that negotiation compare with like prior periods, like that seems like wide? Or is that normal for you guys?

A couple of thoughts. I think the reality is when we talked about this, is we were seeing early supply and absorption noise in these few markets as we talked about, Tampa, Orlando, Dallas, Phoenix, and we wanted our teams to make sure that they weren’t turning over too much into those markets. So we had them adjust and compete on price. And if you go back and look at our numbers, that’s where we saw some of the softness. And now that we’re kind of working through and as we’ve talked about, we’re absorbing well here in October and going into November, we’re optimistic that we’re going to continue to kind of build the book back. We’re seeing some confidence where those markets can hold a bit more than they were as we were seeing the softness coming to the end of the summer, typical seasonality and all that. So as I said, month-to-month, quarter-to-quarter, there’ll be a little bit of adjustment, but we’ve gone out at higher rates, and we’re going to start to capture those over time.

Next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Hi, good afternoon. Just picked your question on strategy, you guys have a significant exposure to Florida. Obviously, climate is changing, whether – we could debate the causes or not. But curious on if you’re comfortable holding that weighting longer term, and then hurricanes seem to be part of just life in general today. And why we should be normalizing those costs out? It just seems like part of doing business or the cost of doing business in those markets?

Hey, Juan, Dallas. I’ll address the first part. Ordinary course for us with asset management is always to look at sort of weighting of the book. And clearly, as you would expect, with Florida specifically, really, over the last 10 years, we’ve constantly looked at ways to sort of help shape the book so that we’re out of flood plains and we’re doing things that are a little bit more careful because we’re so bullish on sort of Florida’s growth profile overall. And in terms of the way we think about total return, right, we want obviously, good revenue growth. We obviously need some asset appreciation. We have sold – I think we sold a few hundred homes this year in Florida. There’s times and seasons where we sold more, particularly in South Florida. We really like the prospects hurricanes aside of the growth story that’s probably in Central Florida, around Tampa and Orlando. A lot of really interesting fun facts on the ground, things we’re seeing with businesses, household formation, net migration, multicultural sort of net migration into those markets. We think there is a lot of reasons to be long on those for a long time. And you see some of that in the information.

And then just to be clear, when you look back over the last 4 years or so, we continue to, as Dallas said, the portfolio. And I think over the last 4 years, we sold almost 1,600 homes in Florida. So, we continue to actively asset manage the portfolio and we are very focused on kind of what that proportionality is.

Yes. Juan, it’s Jon. To the last part of your question, I would just point out that, we have a large portfolio in the Southeastern U.S. and Florida. So, storms have been and will continue to be a part of life. But when we think about that, I think it’s important to remember a few things. One, over the course of our history, we have had many years without any material storm impact. We have also had years like 2024 where hurricane season has proven to be more active, but we have a really well established playbook that we stand ready to activate when and as if needed. I would also point out that we are well insured. Our portfolio is neither coastal, it’s not waterfront. And over the course of our entire operating history, we have a very favorable loss history we can point to that benefits our property program renewal as we think about managing the risk in markets like that. Lastly, I would just point out that our underwriting approach and our asset management approach that lets us sort of manage on a house-by-house basis allows us to minimize the number of properties in the book that might otherwise contribute outsized risk relative to the rest of the portfolio. So, examples of that would be flood maps are redrawn periodically. And so if 123 Main Street wasn’t previously mapped in a special flood hazard area, and then the maps are redrawn, and now it is, well that sets off a flag for Scott’s team and on an asset management basis that becomes an immediate disposition candidate. When we are underwriting homes, we look at flood maps, we look at the year of construction, and we compare that to when the building codes went through substantial changes over time. So, these are all things that we do and work with, with our insurance consultants to manage the risk, shape the portfolio such that, as Dallas said, we can feel good about the risk-adjusted total return opportunity in those markets, which we think is still very compelling.

Our next question comes from the line of Haendel St. Juste with Mizuho. Your line is now open.

Hey guys. I had a question on other income, pretty light this quarter. I think the growth was up 3% versus I think double digits in prior quarters. Is that a tough comps, or something else, maybe some color there. And then the impact on third-party management in the quarter, can you tell me what that was? And then maybe what we should think about that line item on an annualized basis going forward. Thanks.

Thanks Haendel. Can you repeat the second part of your question? I apologize.

Second part was on the third-party management income, so just curious.

Yes. So, I think – with respect to fee income, of the $19 million of total fee income in the third quarter, about $15 million of that was related to third-party management and the balance was from various joint ventures. I think that $15 million quarterly number is a pretty decent run rate going forward. We will keep you updated to the extent that, that changes with either growth or dispositions or other sort of fee income streams that maybe aren’t activated at the moment. But it feels as though there is probably a little bit of upside to that because the upward America deal took place midway through the third quarter. Not particularly big in the grand scheme of things. So, I think that $15 million run rate number makes a decent amount of sense. With respect to other income, we continue to see pretty strong growth in some areas of that book, particularly Internet and media, sort of those bundled services. You have to remember that as our occupancy has taken a little bit of a dip, that’s going to flow through with respect to the other income lines as well. So, I would say that, that is not unexpected in light of the totality of the quarter.

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

Yes. Thanks. Hi everybody. On the storm costs, can you give some additional color on how the insurance policy is working or give the figure on how much damage insurance is actually paying for. $50 million plus of exposure just seems like a large number, so trying to figure out how it got there.

Yes, it’s a good question. I mean I think in terms of the quantum, we are talking about four named windstorms that affected markets where we own a lot of homes. So, I think that’s the first observation that I want to make sure we sort of establish upfront. In terms of how the insurance program works, we have a $200 million per occurrence limit for named windstorm, which means that for every named windstorm, we have coverage of up to $200 million for the 72-hour continuous period from when the named windstorm begins. So, put another way, if there were multiple named storms – named windstorms that struck more than 72 hours apart, each of those occurrences would have a $200 million limit. With respect to things like deductibles it varies a little bit like by location. So, in Texas and Florida, our deductible is 5% of total insured value. So, just making up numbers here for illustrative purposes, if we had a $400,000 home and $100,000 of that was land value, then the 5% deductible on total insured value would be on the $300,000, so that would be a $15,000 deductible for that home. When you look at markets like Georgia or other markets outside of Texas and Florida, that deductible goes from 5% down to 2%.

Next question is from Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Yes. Thanks. Good afternoon. Can you guys characterize how traffic is trending either web or in person just on a year-over-year basis in the recent months? And whether you saw any seasonality and demand occur sooner? And then just kind of marry that with where kind of conversion rates on those prospects has also tracked? Thanks.

Yes. Where we sit today is quite healthy. And that’s why you hear us have some confidence that we are going to be able to absorb just having to compete on price to do that. If you look at our kind of website traffic quarter-over-quarter, Q2 to Q3, it’s up. Going back to last year, you were still kind of humming at that point, so slightly down year-over-year. But historically, as good as we have seen in any prior COVID period. Our showings are really healthy in terms of driving to a self-show and being able to then convert from there. So, across the markets, we are seeing real health. Again, there is just some supply to try to work through in the handful of markets that we talked about. But generally, we are running at a strong occupancy at mid-96 for this time of the year. We will build back from here and go into next year in a really healthy shape where demand seems to continue to be here. And we know that because we are in the right markets. And ultimately, we know that there is a long-term kind of dislocation between the amount of homes that are out there and the demand that we have for our products. So, we are seeing good demand, and we are going to keep chopping through it.

Next question is from Michael Gorman with BTIG. Your line is open.

Yes. Thanks. I had a question on NOI margins. We saw a pretty significant expansion obviously from pre-COVID levels and also a substantial expansion in other property income over that same window. And I am just wondering, as we think about margins going forward here, is there any potential headwind or kind of return to the mean here from some of the provisions with the FTC settlement that you accrued for in the quarter, whether that’s related to fee income growth or as was discussed earlier, other income growth as we kind of head into 2025? Thanks.

Hi. It’s Jon. Thanks for the question. I will just start off by making clear that we do not believe the FTC settlement is going to have any ongoing impact on the way we can run our business or the other income line specifically. The stipulations of that settlement agreement really have more to do with reporting and training and the like. And so just to be crystal clear, I don’t think there is a read-through in that regard. A lot of the margin expansion versus the pre-COVID period, I think is related to a number of things. One, clearly, we have been running at much higher occupancy, much stronger rental rate growth than what we saw pre-COVID. Will there be a bit of mean reversion, possibly. But I think it’s important to remember that over the course of those years, we have gotten much better at what we do and much more efficient. I think the resident experience continues to improve. I think turnover for this product type is going to continue to be low, certainly relative to multifamily and certainly relative to what I think are early years as a public company were. So, we feel really good about where we sit. I would also note that we are cautiously optimistic that we are finally seeing some real moderation with respect to property tax expense, and to the extent that, that rate of increase is more subdued going forward. That’s obviously going to have a benefit to our NOI margins over the coming years.

Next question is from Julien Blouin with Goldman Sachs. Your line is open.

Yes. Hi. I just wanted to go back to the renewal questions. I guess it sounds like the difference between ask and realized renewals is wider than historical. Do you sort of expect that to continue for the next maybe couple of quarters? How long can that sort of continue in some of these high-supply markets as you sort of focus on absorption?

Yes. Look, we – during COVID, we were kind of signaling kind of the changes and where we are going out. And based on this, we found it can be confusing in providing kind of the specific renewal ask. And so I think what’s most important is we focus in on kind of actual results going forward. And as I said, post-August, we have been asking more and more. It’s going to vary what that ask and spread is going to be based on all of the dynamics in the market-per-market. Per home, it really is it is a dynamic situation, so trying to kind of zero in on that spread isn’t as healthy as just focusing in on the results. And what we are seeing today is that we are going – we are from October to November with 75% of our book or close to in the bag, we are north of 4%, which is good acceleration and in early look into December, which is early, we are seeing further acceleration. So, that’s what really matters ultimately. And again, it’s going to vary month-to-month in terms of where we go out. But we like the results that we are seeing. People want to stay in our homes. There is demand in these markets. We believe even in the markets where we are having to compete on price. We believe in these markets long-term. This is where we want to be and this is where all the demographics and where jobs are being created are all positive. So, we are happy with where the book stands as we finish this year and go into 2025.

Next question comes from the line of Jade Rahmani with KBW. Your line is open.

Hi. This is Jason Sabshon on for Jade. I would be curious to hear about what kind of cap rates you are seeing on new acquisitions and the bid-ask spread has narrowed and whether the 10-year move in the past month has had any impact? Thank you.

Hey. It’s a great question. It’s Scott. Yes, look, when we look at kind of what we are seeing, I kind of break it down into various channels here, right. And I think we have talked prior on the call in terms of the builders and deals we are seeing in the backlog on our forward purchases. And again, we are still sort of seeing those transactions in and around a 6% cap rate. We have definitely seen some, call it, stabilized communities come to market that are fully leased and it feels like what I am seeing out in the market today for some of these stabilized communities is in the 5.5% cap range, plus or minus. And obviously, there is a little less risk associated with a fully stabilized community as opposed to in a forward purchase where you have to take some execution risk on the leasing. And then as far as other markets, we really haven’t seen any meaningful activity in the MLS market, so it’s hard to really have an opinion on kind of what those cap rates are today. But in terms of the various channels we look at, that’s kind of where we are seeing the market today.

Next question is from John Pawlowski with Green Street. Your line is open.

Hey. Thanks for taking the follow-up. One for Dallas or Jon, given where your cost of capital is today, what’s the number one use in the source of funds we should expect in the coming quarters?

Let me jump in, Jon, and then feel free to add anything. I would say, John, it’s always a balanced approach to where cost of capital is. I mean I think you saw that we did a pretty significant well-priced bond deal last month. I think total coupon was like 4.89. That’s a great cost of capital for us and some of the capital markets activity that Jon has been doing. We also continue to recycle, Scott talked about some of the dispositions and things that we are using. And lastly, I would say we have a significant amount of interest and third-party capital, wanting to come in and combine forces and look to expand our profile in our JVs and in the JV markets that we are operating. I think we can do a number of things. We have plenty of access to capital, as Jon talked about earlier, having done all the credit work and the credit facility work that he did earlier this year with the capital markets team. We have a decent amount of free cash flow that comes into the company. And we have the ability to issue in the event that we see things that could or could not make sense. All things being equal, we are going to continue to lean in on growth. I think the goal here is to continue to lean in and find ways to create accretive external growth profiles for the business over time in distance, continue to lean in on the organic programming we are doing around ancillary revenue and enhancing the customer experience and then eliminating the drag which will create additional free cash flow for the company as well with some of our processes that are centered around resident retention. And I think the team is doing an excellent job on kind of those three fronts. So, if we come up against some opportunities, we will just have to make the right decision at those times as to where we would want to take the cost of capital from.

Yes, John, it’s Jon. The only thing I would add to that is, obviously, with the recent bond deal, we are sitting on a fairly sizable cash position. I think as we have talked about a few times in the past, about $600 million of that cash on the balance sheet is likely to be applied to paying off our 2018-4 securitization in November. But beyond that, the way we think about funding opportunity is on funding needs is really based on sort of what the opportunity set looks like at any given point in time. And what we try to do is be thoughtful when the opportunity presents itself and when it appears to be an attractive opportunity, we want to move, and we want to move quickly. I mean that’s one of the – one of the things that I think we are particularly good at is being opportunistic with respect to what the capital markets is offering. But clearly, we are not going to just go out there and raise capital willy-nilly if we don’t have an identified use of proceeds.

And our last question comes from the line of Jamie Feldman with Wells Fargo. Your line is open.

Great. Thanks for taking my follow-up. So, the election is less than one week away. Just curious to hear your thoughts based on different outcomes, either at the Federal level or the State level. What do you think you will be doing differently come January, in spending? How you think you might be spending your time differently? And I guess the key is really more on the State level. Are there certain races that could impact your desirability to be in certain places that you are in now or not in now?

Jamie, that is the fun question of the day. And I think everyone sitting around is trying to figure out what that all means at the Federal level. You nailed it with what you said there at the end, which is really state issues are the ones that we are hyper focused on all the time. Yes, look, there are some things on the ballot in California that we have been actively participating in making sure we advocate for the right processes that center around rent control and things like that. Those are clearly on our radar. Most of our other states don’t have anything too dramatic in front of them. Right now that causes us real concern. I think at the Federal level, while we spend a lot of time there, we talk about this. Most of the noise seems to come from the politics around the Federal level. The reality is that most of the risk is at the State and local municipalities. I would just add that like there has been some really good dialogue between the industry and I would say both parties at the Federal level around creating opportunities that induce private capital to create more supply. And that’s an area that we are obviously hyper-focused on. Scott talked about the 900 deliveries we had in the quarter. We have got somewhere between 2,000 and 3,000 homes being built right now. We are continually leaning in with our balance sheet to create new product. We think it’s not only important, but it’s part of our growth story and our future as a company in bringing and constantly recycling new products into our portfolio and finding ways to meaningfully invest in these markets and communities. I think the NIM [ph] piece of it is the thing that local communities and states are going to have to manage. We need access to more supply. There is plenty of units in demand outside of even some of these near-term supply pressures. This stuff will get absorbed fairly quickly. So, your guess is as good as mine, and they will have a more interesting answer after the election.

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