INVH - NYSE

Welcome to the Invitation Homes Second Quarter 2025 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.

Thank you, operator, and good morning. I'm joined today from Invitation Homes with Dallas Tanner, our Chief Executive Officer; Charles Young, our President; Jon Olsen, our Chief Financial Officer; Scott Eisen, our Chief Investment Officer; and Tim Lobner, our Chief Operating Officer. Following our prepared remarks, we'll open the line for questions from our covering sell-side analysts. During today's call, we may reference our second quarter 2025 earnings release and supplemental information. We issued this document yesterday afternoon after the market closed, and it is available on the Investor Relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other nonhistorical statements which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated. We describe some of these risks and uncertainties in our 2024 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, we do not update forward-looking statements and expressly disclaim 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. Please begin, Dallas.

Thank you, Scott, and good morning, everyone. We appreciate you joining us today. I'm pleased to share our second quarter results that once again reflect the outstanding work of our associates, the disciplined execution of our long-term strategy and the strength of our resident-focused experience. Before we dive in, I want to take a moment to acknowledge the devastating flash floods that struck the Texas Hill Country earlier this month. The images and the stories have been heartbreaking with some of our own friends and family having been impacted. In response, we've made a donation to support the Red Cross' local aid work in addition to our annual support of their national relief efforts, and we're matching associate donations dollar for dollar. As a Texas-based company, it's our responsibility and privilege to support our neighbors in their times of need and by investing in communities during both good and difficult times. That's who we are, and it's what Genuine Care is all about. Speaking of Genuine Care, there's been no greater ambassador of that mindset than my friend and colleague, Charles Young. As many of you know, Charles has accepted an exciting opportunity to lead another public REIT. While we're excited for what lies ahead for him, we're also mindful that today marks his final earnings call with us. Charles, it's been an incredible 8.5-year journey. Your leadership, integrity and heart have left a lasting mark on our company, and we're all better for having worked alongside you. We wish you nothing but continued success in your next chapter. As you heard Scott say earlier, Tim Lobner is with us in the room today. Tim has been with Invitation Homes since 2012 and is an exceptional and experienced leader, having overseen our repairs, turns and maintenance teams since 2014 and in more recent years also led our field and leasing teams. He'll continue in his role as our Chief Operating Officer, and I'll reassume the title of President in what we expect to be a seamless transition. Let's turn now to our second quarter performance and highlight the key drivers behind our results. What really stands out is the continued validation of our approach. During the second quarter, our average resident tenure was 40 months, and our renewal rate approached 80%, a continued testament to the quality of our homes, the strength of our service platform and the trust we've built with our residents.

Thank you, Dallas, and I truly appreciate your kind words earlier. It's been a privilege to work with you and this great team. To all of our associates, the success of our company starts with you. What I'll miss most are the relationships and camaraderie we've built together over the years. I'm deeply grateful for the pride, dedication and commitment you bring to work every single day. It's been an honor to be a part of this journey with you. Following my last day on September 1, I will leave confident that you're in great hands with Dallas, Tim and the entire team. The future of Invitation Homes is bright, and I look forward to watching what you accomplish together. Now on to our second quarter operational results. On the revenue side, we've delivered solid growth through a combination of strategic rate optimization and healthy occupancy. Bad debt continued to improve returning to the high end of our historical range, a reflection of both the stability of our resident base and the strength of our screening processes. We also maintained effective cost controls while continuing to invest in our homes. Maintenance and repair costs remained well managed through ProCare and our in- house maintenance teams. Preventative maintenance programs and prompt response times helped contain costs while supporting high-resident satisfaction. At the same time, our investments in technology and process improvements continue to drive operational efficiencies across the portfolio. We're especially proud of our team's ability to balance cost discipline with high-quality service. As Dallas mentioned, our average resident stay is now 40 months, a strong indicator of this success. Longer stays not only reflect resident satisfaction, but also contribute to lower turnover costs and better condition of our homes. Satisfied residents tend to stay longer and take better care of their homes, supporting long-term asset performance. Altogether, we achieved second quarter same-store core revenue growth of 2.4% year-over-year, while core operating expenses rose 2.2%, resulting in a 2.5% NOI growth. Turning now to leasing performance. We saw strong results across key metrics. During the second quarter, blended rent growth was 4%, driven by 4.7% renewal rent growth and 2.2% growth in new leases. This demonstrates our ability to capture market opportunities during the peak leasing season and underscores the importance of renewal rate growth, given that over 3/4 of our business is renewals. The year continues to unfold in line with our expectations, including with our preliminary July results. Same-store average occupancy is coming in at 96.6% for the month of July while renewal lease rate growth remained strong at 5%, combined with new lease rate growth of 1.3%. This brings our blended lease rate growth for July to 3.8%. To wrap up, our second quarter operating results reflect the strength of our platform, the quality of our portfolio and the dedication of our best-in-class associates. As we look ahead to the second half of the year, the teams remain well positioned to build on this momentum. I have strong confidence in their ability to deliver and to continue setting a higher standard with each step forward. With that, I'll turn the call over to Jon Olsen to walk through our financial results and capital position.

Thanks, Charles. Today, I'll provide an update on our financial position and capital markets activities and then wrap up by discussing our second quarter financial results. Before I do, I'd like to take a moment to echo Dallas' earlier comments. It has been my great pleasure to work with Charles over the last 8 years. As a leader, Charles is both calm and inspirational. And as a colleague and friend, he sets a standard to which others can aspire. I wish Charles great success in his next endeavor, and I look forward to watching what he achieves. Turning now to the second quarter. As of quarter end, our investment-grade rated balance sheet offered robust liquidity of approximately $1.3 billion in unrestricted cash and undrawn capacity on our revolving credit facility. This provides us with substantial dry powder and the flexibility to pursue compelling growth initiatives and capitalize on strategic opportunities. Our capital structure remains strong with our net debt to trailing 12-month adjusted EBITDA ratio at 5.3x as of quarter end. This remains slightly below our target range of 5.5 to 6x underscoring our disciplined approach to leverage and balance sheet management. In addition, over 83% of our debt is unsecured and nearly 88% of our debt is fixed rate or swapped to fixed rate. This includes the benefit of $400 million of new interest rate swaps we executed during the second quarter, which brings our total swap book to over $2 billion with a weighted average strike rate of just over 3%. The quality of our balance sheet is further enhanced by our substantial pool of unencumbered assets that provide additional financial flexibility. We have well-laddered debt maturities with no debt reaching final maturity until mid-2027 and we continue to evaluate opportunities in the capital markets to optimize our maturity schedule and cost of capital. Let me now turn to our financial results and outlook for the remainder of the year. In the second quarter, we reported core FFO of $0.48 per share and year-to-date core FFO of $0.97 per share, positioning us well relative to our full year guidance range of $1.88 to $1.94 per share. AFFO, which reflects the impact of recurring capital expenditures, was $0.41 per share for the quarter, bringing our year-to-date total to $0.84 per share, which is also tracking well relative to our full year guidance range of $1.58 to $1.64 per share. We're pleased with our strong first half performance and the momentum we've built, which gives us high conviction in our original outlook. We remain focused on execution and on carrying our momentum into the back half of the year. With that, operator, we're ready to open the line for questions.

[Operator Instructions] The first question comes from Eric Wolfe with Citi.

Your occupancy guidance implies a pretty large deceleration in the back half of the year to, I think, around 96%, maybe even a little bit lower. I think you said July was around 96.6%. So I was just curious whether that's sort of a conservative projection for the rest of the year if you're actually seeing something in your future [ expirations ] that would cause that occupancy to keep coming down.

Yes. So the years are unfolding as we expected. And first half of the year, turnover is a little lower. So occupancy stayed a bit higher. But we expected that come Q3 seasonal turnover would show up, and that's what you're seeing in the July occupancy numbers. And that's typical for the -- for how the year kind of unfolds through Q3, you'll get some turnover. And as we get towards the end of the year, we're kind of build back. Hard to predict exactly where it's going to end up, but it's right in line with what we expected. The other thing that I'd mention is we know that there's a little bit of supply, especially in some of our markets as we think about Central Florida, Texas and others where we're having to stay on market a little longer, bringing our days to re-resident up slightly. And so that's another thing that's adding towards the -- what we expected was a bit of a reset year on occupancy to get down into the mid-96s.

The next question comes from Steve Sakwa with Evercore ISI.

I guess sort of following up on Eric's question, I guess, the inverse of that is kind of the new lease side which obviously has been slower than the renewals, and I realize it's only maybe 20% to 25% of the business. But I guess, what gets the kind of the new lease pricing to kind of move higher? And would it be your expectation as we move into next year as some of the supply comes down that you would see an acceleration in new lease pricing?

Yes. This is Charles. Yes, we expected that was -- that this is the year in terms of new lease that we're going to have a little bit more pressure given what we were seeing with the build-to-rent supply in some of our bigger markets. The good news is we're past the peak of deliveries, and we're watching that now. We expect that they're going to continue to kind of come down at the second half of the year, but we still have some absorbing to do. And as we do that, I think, we'll be pretty well set up for '26. How quickly each market kind of absorbs is going to vary. We're seeing good signs as you look at Orlando, Texas, Phoenix, Tampa, we're keeping an eye on it. Demand is still here. Just in those bigger markets, we're having to absorb and stay on market a little longer and fight for that rate on the new lease side and balance that with the occupancy. But you mentioned it, we're also -- really, the strength has been renewals, that's 2/3 of what we do, and we've been accelerating on renewals since April, with July being at 5%, which is great. And it just is a testament to the resiliency of the platform and our residents and that they're choosing to stay with us, which is great.

The next question comes from Jana Galan with Bank of America.

Question on the transaction markets and kind of views around any potential portfolios of size that could come to market. And then just also curious what you're seeing for your dispositions kind of where are the cap rates there? And are these going to owner occupants or potentially other investor groups?

Yes, I'd say on the transaction market, look, we are -- we look at portfolios as they come. I think we're kind of seeing the same cadence of opportunities from bulk purchases that we've seen over the last few years here. So I don't think we've seen any material change in terms of what we see there. I think we continue to have a great dialogue with the homebuilders. I think the end of month tapes and some of the builder inventory. I think we found some attractive opportunities and modest size to pick up some attractive cap rates there. We continue to engage with our homebuilder partners every day on forward purchase opportunities and evaluate them as they come. And so I think we see a pretty consistent market. We're being cautious. We're trying to find the right deals in the right markets at the right cap rate, and we'll continue to be cautious about the acquisition side. In terms of dispose, think most of that market continues to be an end user focus for us. And we continue to try to dispose in the markets that we've already been identified. Obviously, it's California, Tampa and Florida and places like that, we continue to execute mostly to end users one at a time, and we'll see how that market evolves.

The next question comes from Jamie Feldman with Wells Fargo.

Great. I guess just following up on Jana's question here. So you think about second quarter, some of your largest acquisition markets are also -- like Tampa specifically is one of the markets where it seems like you're having some of the weaker fundamentals. So how do we -- how do you think long term about buying in some of these more active homebuilder markets with more supply risk over the long term where cycles may put more pressure on fundamentals as you think about building out the portfolio and expanding your relationships?

Yes, this is Dallas. Take a step back, I mean, you have to zoom out and remember that we have a view that on a long-term risk- adjusted basis, we want to be primarily Sunbelt and coastal with our footprint. And so you're totally right in saying that there's been a little bit of near-term noise specifically on the new lease side in some of these markets. But on the renewal side of the house, once you get a customer in place, it's actually quite strong even in a market where maybe there is a bit more supply that you're competing against if something goes vacant. That being said, Scott sort of touched on this, when we're looking at some of these opportunities, specifically right now, things that are coming in from the builders, where there's sort of inventory that they want to move. We're getting pretty significant discounts going in, which allows us to be really conservative on our underwritten rents. Specifically, in the end of month, sort of end of quarter tapes by market, we're able to be pretty aggressive there. And so we definitely think about those types of things like a Tampa, where maybe we're seeing some softness on the new lease side of things in our same- store pool but you just have to underwrite that risk on the front-end going in. And so we feel very comfortable with the acquisitions that were made in the second quarter. We talked about this in the script that most of these are brand-new homes, either one-off that fills in north our scattered business really well and/or some of the BTR deliveries that were scheduled.

And as a reminder, in some of these markets, we're also doing capital recycling. And so we've got some markets where we've got older homes or homes that we have a gain on, and we're trying to recycle capital into newer inventory and brand new homes. So it's both being in markets where we have a big presence, and we see resiliency, but also recycling capital in some of our selected homes.

The next question comes from Michael Goldsmith with UBS.

This is Ami on for Michael. I was hoping that you could dig in a little bit more in terms of BTR supply in some of the large markets to maybe help put some context or numbers around what you're seeing. And additionally, are you seeing any incremental pressure from scattered site supply?

Let me take the last part of your question on scattered site supply. There's no doubt that as the home buying and selling market on the resale side is sort of stuck right now in terms of where the bid-ask spread is between somebody's current mortgage rate, a home they may or may want to go buy. We've certainly seen in some of these markets, a little bit of that inventory creep into the overall SFR scattered site sort of inventory that's out there. And that's probably putting a little bit of some additional pressure in the near term on rents and new lease rent growth in some of the markets we've talked about. In terms of BTR, it actually feels like it's getting a bit better. And I'll let Scott comment on this a little bit differently. But if you went back to last year, you would see a lot of concessions as people are kind of leasing things up. We're still seeing some of that from our peers. But by and large, it's just sort of normal absorption, albeit that the markets in some of those kind of key Sunbelt markets, we talked about this last fall, we're going to have a pretty significant amount of supply that's coming through. It's not -- it actually feels in my view, based on our own data and things we're seeing a bit better than it was maybe last year. But that too will wane. I mean Burns has talked about deliveries being down significantly year-over-year as we go into '26. And all the data that we're following suggests the same.

The next question comes from Haendel St. Juste with Mizuho.

Congratulations, Charles. It's been a pleasure and look forward to following your next chapter. My question is more on the investment side on the investment book, the mezz investment book, I guess, the lending book. So can you -- I know you're just getting started there, but can you talk about kind of the opportunity that you see there, maybe putting some numbers around what potentially you can deploy capital in that niche over the near term could look like and perhaps over the longer term?

Thanks. In terms of this program, like we said, we announced it in June. We closed on our first loan. It's early days for this program. We're out in the market as we speak, building relationships with the developers, building relationships with the brokerage community. We've got a lot of lines in the water in terms of understanding the opportunity and engaging with prospective borrowers here. So I think we continue to be excited about the program. And I think it's going to be the same thing, targeting build-to-rent communities in markets where we have an operational presence, where we feel like we understand rents, where we feel like we understand the market and ideally on projects that eventually we'd like to own those communities. But it's kind of hard to put an exact number around it at this certain point in terms of volume, but we're out there engaging every day. We've got term sheets and lines in the water, and we'll report back to you when we have more progress.

The next question comes from Jesse Lederman with

Another one on the acquisitions maybe for Scott. So roughly 1,000 acquisitions during the quarter but only 485 or so deliveries. So were the remaining -- I understand those are probably still new homes, but not categorized as deliveries per se in the supplemental. So I mean, were those existing homes? Were those just one-off from builders, and they're not categorized as deliveries because they're not like [ CFR ] communities? Maybe some more clarity there would be great.

Yes. No, great question, Jesse. In terms of that you're exactly right that the 485 identifies the forward purchase communities where we had a forward contract with a builder to have them deliver over a 12-month period, et cetera. And then the rest was a combination of buying end-of-month builder tapes in terms of one-off opportunities where we saw attractive pricing from the builders. Some of this, as you've noted, we bought some homes from our partners. And we had some of our JV 3PM partners that were interested in getting a little bit of liquidity, and there were houses that we knew very well, and we already managed and there was an opportunity for us to purchase them at an attractive price. And so when you put it all together, it was a combination of that. I think we've got another stabilized build-to-rent community that was an attractive acquisition opportunity at a good cap rate for us. So you're right, it was a combination of those forward deliveries and buying on a one-off basis.

The next question comes from Julien Blouin with Goldman Sachs.

Maybe just digging into the new lease side, so positive 1.3% in July. I guess should we expect it to weaken seasonally further into August and September and then how should we think about the 4Q deceleration? Just thinking about sort of the rent curve last year, could it look similar? Or does sort of your willingness to flex occupancy this year, I mean, you might hold on to more rate?

Yes, this is Charles. It is, as I said earlier, the year is kind of unfolding as we expected. We peaked in Q2, which is typical. And then in Q3, you kind of balance out and depending on what's going on with that market. So Q4, typically as you get to the holidays, it does slow down a little bit. So we'll see where we end up. As you think about the new lease side, that balance really is being affected by some of our larger markets as we talked about. And I think that's what makes it a bit more unpredictable. We do see line of sight, though, that the absorption in those markets, we're chopping through that. And ultimately, we think we were seeing, as Dallas said earlier, that there's going to be -- deliveries is down and will be substantially down next year, hopefully at some point later this year. But what we do have clear line of sight on the renewal side, which has been really strong in 2/3 of what we do, and we expect that that's going to kind of maintain in that range where we are right now through the end of the year, and maybe have some upside in Q4. So the blend will balance out. But we're in that normal seasonality where you get the curve, you kind of peak and then it's going to step down depending on kind of the market impacts.

The next question comes from John Pawlowski with Green Street.

My question on the proportion of the book that's multiyear term leases, so 24-month leases, I think it's 25% of total leases. Are the in- place rents of that proportion of tenants well above market at this point? And is that kind of a slow but consistent drag on the headline new and renewal figures reported?

Yes. I wouldn't necessarily say that, John. I mean, I think if you look at loss to lease right now. And I would caution everyone not to read too much into it because it does bounce around a little bit. It's sort of, call it, a little bit kind of between 1.5% and 2% is probably the right rule of thumb. I don't think that the multiyear leasing profile of our book is substantially above market. We do think that we continue to have opportunities to go capture sort of market rate growth and do think that particularly in the case of residents who've been with us for a long time who've renewed several times over, average length of stay is now approaching [ 40 ] months. We are probably below market on a number of those, and we'll be looking to try to extract what we can when those leases do turn.

The next question comes from Juan Sanabria with BMO Capital Markets.

Just curious on the expense side. It seems like you're running ahead as a whole in particular on taxes and insurance, which you kind of flesh out more concretely in guidance. So just curious on the expectations for the second half? Is there a tougher comp? Or is there just some conservatism into the unchanged guidance with the range is still pretty wide.

Thanks, Juan. It's Jon. Yes, I think it's the latter, really. As Charles said, we feel very comfortable with where we sit relative to our guidance. The year is unfolding about how we anticipated. We're sort of in line with to maybe slightly ahead of where we expected we'd be. But at the same time, I think it's important to acknowledge that we're right in the depth of peak leasing season. It is a more challenging new lease environment. It is taking a little bit longer to get stuff absorbed. And I think we want to be mindful of the fact that it's a little bit of a grind in a few of our markets. Now that said, we are also waiting on Florida and Georgia property tax. We'll have a lot more information on those in the next 60 days. So if I put it all together, just to be clear, we feel really good about where we are. I think if I look at the balance of risks and opportunities, I feel good. But it just didn't make sense given the information in hand to go revise guidance today when we're going to know a lot more 60 days from now, and we can do it with a much greater level of clarity and confidence.

The next question comes from Adam Kramer with Morgan Stanley.

Maybe just -- I think it's sort of similar to some of the earlier questions. But maybe just to put a fine point on it. I think you guys in the past have talked about sort of a mid-3% blended rate growth guide or informal guide for the year. Given what you've done to date, obviously, renewal has been really strong, and I think you've sort of covered what's happening on the new lease side. Wondering if there's any change to that number or how you're thinking about that 3.5% or mid-3% blended rate growth guidance for the full year at this point?

No, I don't think we're in a position where we're going to, as I said, revised guidance today. We're certainly watching it. Renewals, as Charles said, have been really healthy, very resilient, and that's 3/4 of our business. So if we can continue to sort of see positive results on the renewal side, continue to get homes absorbed, I feel comfortable with where we are relative to our guide, as I said earlier. But I don't think we're in a position where we're going to go back and sort of speak to how that number may change. We'll obviously know more here by the time of our next call, and we'll have a couple of opportunities, I think, before then to meet with some of you all.

The next question comes from Brad Heffern with RBC.

Congratulations to Charles. SoCal has been a pain point for multi this year. It doesn't look that way, at least obviously, in your numbers. So can you walk through the fundamentals on the SFR side in Southern California?

Yes. SoCal has been a strength for us, running high occupancy, high blended, high new lease. New lease is affected by AB 1482, where we're limited on the renewal. So there's kind of built-in kind of loss to lease when we get to the new lease side. Given the lack of supply of homes, single-family homes in California, it puts our book in good shape. On the operating side, there's been some noise, but we're improving on the bad debt side. So overall, it's been a nice portfolio and kudos to the team for their execution.

The next question comes from Jade Rahmani with KBW.

It's clear that the Midwest has seen stronger rent growth recently. So do you view this trend as sustainable? And have you evaluated any acquisition opportunities there to diversify?

Great question. Look, we've been in the Midwest now since 2012. And we really enjoy the numbers that we've seen out of it the last year, 1.5 years. That being said, generally speaking, it's been a tougher marketplace for us to -- on a risk-adjusted basis to both see great home price appreciation and great revenue growth. And so the short answer is no, we don't see it as a reason to strategically pivot or do anything different with our long-term lens. We certainly enjoy the footprint that we have there. We kind of kept a flag in the Midwest with a little bit in Chicago and Minneapolis. And we're grateful for all the good growth fundamentals there, but it's because basically, there was no development or building for 10 years. And so it's nice to see it get its pop, but we're still long on kind of these high-growth kind of net migration markets in the South and Southeast and Southwest, where we think both household formation, demographic information, the amount of 35-year-old moving there year in and year out, all lend themselves to a good long-term lens on growth on a risk-adjusted basis.

Next question comes from Anthony Paolone with JPMorgan.

Congratulations, Charles. I guess -- apologies if I missed this, but you guys had another quarter of pretty strong dispositions at very low cap rates. Can you talk about just how much more of those you think you could do over the next few quarters? And also beyond just maybe selling to users, like any commonality among those assets as to why they've gone off at such low cap rates?

No. I think look, taking -- this is Dallas jumping in here. Look, you have to think about things in a couple of different ways. One, many times, some of our assets have a higher in place sort of use for a retail buyer and we target those as part of our asset management strategy. So as a home in California, for example, gets to such a low cap rate on a relative retail basis, we're a net seller. And as you think about where we can recycle those capital rates, into -- sorry, excuse me, not capital rates, into cap rates on the buy side, Scott and the team have done a really nice job like basically selling in the high 3s, low 4s, maybe mid-4s right now because things are a little bit more competitive. And we're moving that into basically 6 cap properties at today's pricing. And so as we look at sort of -- it's hard to forecast, we definitely feel good about our initial guide of what we said we would do both from a buy and a sell. And look, we're probably a little bit on the high side of our acquisition guide because we're seeing really good opportunities. But they'll be measured in terms of what we sell and when we sell it. And it's a great way to continue to recycle and to also offset risk in the portfolio. So if Scott sells a 45-year-old home in Southern California and reinvest in a brand-new home in Atlanta, we definitely like that as part of our capital recycling strategy.

The next question comes from Michael Goldsmith with UBS.

I was wondering kind of a bigger picture item. If we do see a rate cut and then we do see an increase in home sales, how is that -- how would you expect that to impact your ability to continue to achieve strong market rent growth. So would that more liquid home buying market be any sort of a headwind for rents or perhaps a tailwind?

Really interesting question, and I think we're all wondering the same thing. Look, there's clearly -- we have an interesting vantage point as a company because we see transaction volume both in the for-sale market alongside our rental business. And as we look at the for-sale market, there's no doubt that maybe a little cheaper mortgage rate would help create some lubricant in sort of the resale marketplaces. And that we would view as generally always a net positive for our business. Transaction volume is a very good thing for a couple of reasons. One, gives us great marks on where our portfolio values are and where they should be trading. And it also creates near-term demand, both for rental space, and it takes existing inventory off the market at times in the for-lease space. So if you look in some of our markets where we're currently operating, and we're talking about new lease rate being a little bit softer. There's definitely been homes that have converted from the for-sale side of the house into the for-lease side of the business. And so that's additional competition for both us and for our peers. And so I would say, yes, we would view more home volume and transaction buying and selling as a better tailwind for our business generally. And candidly, it just creates a more healthy environment. People should have choice, flexibility and options across all the different parameters of housing.

The next question comes from John Pawlowski with Green Street.

Jon, I wanted to pick your brain on the swap book and $2 billion in notional amount of swaps is not a small number. So can you just give me a sense of the total upfront cost you paid to execute these swaps? And maybe I'm old fashioned, but kind of prefer you'd simplify things, just term out the debt naturally with fixed rate, longer-dated bonds and took the medicine -- took your medicine on higher rates. But I'm not that smart on how cost-effective swaps are. Can you just flesh out the thought process on this kind of unique strategy?

Sure. Thanks for the question, John. And I'll start off by saying I agree with you. Over time and distance, our expectation is that our balance sheet is going to become more and more fixed rate. Our swap book is sort of a legacy of what our historical capital structure look like. But I think for us, if you think about the cost of a swap, basically, there is a credit charge baked into the spread we pay. So if you look at that strike rate column on Schedule 2(d), typically, in addition to a true kind of cost related specifically to the swap, there's a credit charge that the counterparty charges to us. It's fairly de minimis. And then there is obviously the sort of mark-to-market effect over time, whereas these swaps can become either an asset or a liability and there have been instances where we've amended swaps to take advantage of the asset position, and there have been times when that's been a more substantial liability. But our overall strategy is to try to make the interest expense related to our capital structure more knowable, more transparent and more sort of, I would say, less volatile over time. But I think your point is well taken, and I would say that as the years continue to pass, we will expect to be less reliant on sort of hedging to manage a fixed rate sort of capital structure.

The next question comes from Nick Yulico with Scotiabank.

I just wanted to go back to the topic of property taxes and you have a guidance this year of 5% to 6%. You did just under 6% last year, and you were talking about it, it come down. But -- so I guess what I'm wondering is, at this point, I don't think home values are appreciating as they were nor rental, any sort of rental product. So at what point do you start seeing some tax relief? Is that a possibility in 2026? Just trying to think about like a longer-term property tax rate of growth.

Yes. Thanks for the question, and it's obviously the right one. I would say that over the long term, our expectation is that our property tax expense growth starts to look more like what it did historically. We've talked on and off over the last couple of years about the degree to which assessed values sort of lag market values and there's a bit of a catch-up. And I think your point is well taken, and we are certainly cognizant of the fact that home price appreciation has slowed pretty significantly particularly in some of the Florida markets. I think what's important to remember is taxing authorities have sort of revenue obligations that they need to fulfill. And at least in the last several years, property tax has, I think, been a little bit of a plug in terms of getting those budgets where they need them to be. And so given the magnitude of property tax as an expense item, I think it's always going to have the potential to be both a risk and an opportunity area for us. We are certainly hopeful that the property tax relief you referenced comes to pass. And my expectation is that over the longer-term period, we should be back in that sort of 4% to 5% annual property tax expense growth

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

We want to thank everyone for joining us again. I also want to thank Charles for his leadership, his partnership and extend all our gratitude to our entire leadership teams and the associates in our business. They're working really hard every day and doing a great job. We appreciate everyone's continued support. We look forward to talking to everyone soon.