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Greetings, and welcome to the Invitation Homes Second Quarter 2020 Earnings Conference Call. All participants are in listen-only mode at this time. [Operator Instructions] As a reminder, this conference is being recorded.
At this time, I would like to turn the call over to Greg Van Winkle, Vice President of Corporate Strategy, Capital Markets and Investor Relations. Please go ahead.
Thank you. Good morning and thank you for joining us for our second quarter 2020 earnings conference call. On today's call from Invitation Homes are Dallas Tanner, President and Chief Executive Officer; Ernie Freedman, Chief Financial Officer; and Charles Young, Chief Operating Officer.
I'd like to point everyone to our second quarter 2020 earnings press release and supplemental information, which we may reference on today's call. This document can be found on the Investor Relations section of our website at www.invh.com. I'd also like to inform you that certain statements made 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 in any such statements.
We describe some of these risks and uncertainties in our 2019 annual report on Form 10-K and quarterly report on Form 10-Q for the period ended March 31, 2020 and other filings we make with the SEC from time to time. Invitation Homes does not update forward-looking statements and expressly disclaims any obligation to do so.
During this call, we may also discuss certain non-GAAP financial measures. You can find additional information regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures, in our earnings release and supplemental information, which are available on the Investor Relations section of our website.
I'll now turn the call over to our President and Chief Executive Officer, Dallas Tanner.
Thank you, Greg. I hope everyone today is doing well and staying safe, which continues to be our top priority at Invitation Homes. Residents are choosing the Invitation Homes leasing lifestyle now more than ever, and we believe we are safely delivering what customers are asking for with exceptional execution. I'm proud of what we've led with genuine care through the pandemic and is showing up favorably in both our resident satisfaction scores and our financial results.
AFFO per share increased over 9% year-over-year in the second quarter. Blended rent growth accelerated sequentially each month of quarter. Turnover rate and days to reresident continue to be materially lower than prior year, contributing to our record high occupancy of 97.5% while at the same time helping to drive controllable costs and recurring CapEx lower year-over-year. Rent collections also improved over the course of the quarter with June and July collections near historical averages.
These positive trends in our business, supported by the essential nature of our product, the location of our homes and the stability of our resident base also gave us the validation we were looking for to resume acquisitions in June. I'm very proud that our team has been able to accomplish all of these things over the last several months while prioritizing the safety of our residents, associates and communities above all else and while being there to help some residents through difficult financial circumstances with payment programs.
Let me expand on what we're doing from a safety perspective for the wellbeing of all of our stakeholders. First, we continue to leverage self-show technology for leasing tours. And as a reminder, this technology is not something new we have to implement. We have been successfully offering self-showing as an option for years. Today, our self-show capability is not only helping to keep agents and prospective residents safe, it’s also serving as a competitive advantage in the leasing market.
With respect to occupied homes, you have implemented optionality to perform resident move-in orientations and pre-move-out visits virtually while we remain paused on ProCare proactive homebuilding. We continue to address emergency work orders as we have since the beginning of the pandemic. And in June, we resumed providing non-emergency service to residents as appropriate on a case by case basis. In providing service to residents, our teams and partners follow a strict set of safety protocols on which associates have been trained.
Our procurement team has also worked hard to secure PPE, and we are maintaining a three month supply of masks, gloves and hand sanitizers. Finally, we continue to focus on ensuring that associates, who are able to work from home are well equipped to do so. And we continue to provide additional COVID specific benefits to associates designed to promote their health and wellbeing.
In being thoughtful about these measures, we've been able to run our business nearly as efficiently in the current environment as we did with our offices fully opened. As we move forward from here, we will continue to stay nimble in the present to safely provide high quality homes and genuine care to our residents while at the same time pursuing growth toward a bright future. We remain bullish about the long-term. We see a significant pipeline of demand moving towards single family rental over the next decade with over 65 million Americans aged 20 to 34 years old and we believe single family housing supply is unlikely to be sufficient to meet the demand that these demographics create in our markets.
The ripple effects of COVID-19 seem to be intensifying shift in preferences towards single-family space over denser housing options today. In fact we've begun surveying residents upon move-in to learn more about how the pandemic may be influencing their housing decisions. Approximately 30% of the over 500 survey respondents, who moved into our homes in April and May, moved from denser urban areas to our homes. And approximately 30% said, COVID-19 increased their desire to live in a single family home versus an apartment or a townhome.
On top of organic growth and accretive acquisition, we are also pursuing initiatives like value enhancing CapEx investments and ancillary service expansion to further enhance our resident experience, portfolio and returns. As we pursue this long-term growth opportunity and as we navigate the near-term COVID environment, there are three key differentiators that we think contribute to our advantage. The first is the location of our homes in the areas we are currently investing, infill neighborhoods and high growth markets, where supply and demand fundamentals are most in our favor.
The second is our scale and market density with almost 5,000 homes per market. That scale is nearly impossible to replicate and is a key driver of our efficiency in the real-time market intel we derive from our portfolio. Third is our focus on being local and leveraging on-the-ground teams in our markets in collaboration with centralized support. This enhances our control over asset quality and the resident experience. And is only possible with the scale and the people we have in place.
Thank you all for supporting us as we continue to put these competitive advantages to work for the benefit of our residents, associates, communities and investors. Our mission statement is together with you, we make a house a home. Demand for our product is as strong as it has ever been and we will continue to meet that demand by leading on our core values of genuine care and standout citizenship to make a house a home, regardless of what may come our way.
With that, I'll turn it over to Charles Young, our Chief Operating Officer.
Thank you, Dallas. First, I want to say thank you to our field and the team. I knew we had a great team before the pandemic, but what I've witnessed over the last several months has proven just how remarkable our associates really are. They've seen a lot of change coming their way, but I've never wavered in their commitment to genuine resident care. That commitment was evident in our second quarter operating results, which I'll cover now.
Same-store average occupancy in the second quarter was 97.5%, up 80 basis points sequentially and up 100 basis points year-over-year. Average rental rate increased 3.7% year-over-year in the second quarter. As a result, gross rental revenues increased 4.7% year-over-year, partially offsetting this were two factors related to COVID-19. The first was an increase in bad debt from 0.4% of gross rental income in the second quarter of 2019 to 1.9% in the second quarter of 2020, which was 150 basis point impact on same-store core revenue growth in the quarter.
The second was a significant decrease in our other property income, which was 107 basis point impact on same-store core revenue growth in the quarter, primarily attributable to our non-enforcement of late fees. As a result, overall, same-store core revenues grew 2% year-over-year in the quarter. Same-store core expenses increased 1.3% year-over-year, net of resident recovery same-store controllable expenses decreased 4.2%. The majority of the year-over-year decrease in controllable expenses with due to improvements in turnover costs largely attributable to lower resident turnover rates.
Fixed expenses in the second quarter increased 4.8%, primarily due to higher property taxes. This resulted in a 2.3% year-over-year increase in same-store NOI. I'd now like to expand on leasing trends and revenue collections. Starting with leasing activity, the strong trends we saw at the start of the quarter have become even stronger each month with a differentiated real estate product driving uniquely healthy demand we have not run any wide-scale concessions since the beginning of April. And new lease rate growth has picked up considerably during peak leasing season.
In June and July, new lease rate growth was 4.6% and 4.9% respectively. At the same time, days to re-resident continues to compare favorably to prior year, improving five days year-over-year in the second quarter. With respect to renewal activity, our turnover rate continues to decline. Same-store turnover rate fell 16% year-over-year in the second quarter of 2020, bringing our same-store turnover rate to approximately 28% on a trailing 12 month basis.
Renewal rents increased 3.5% in the second quarter and 3% in July. This resulted in same-store blended rent growth of 3.3% in the second quarter and 3.7% in July. The combination of lower turnover and lower days to re-resident continues to result in record high occupancy. In a typical year, we see occupancy decline seasonally in the summer months, but this summer we have seen occupancy rise. In July of 2020, same-store occupancy averaged 97.8%, a full 170 basis [ph] points higher than the previous July record set in 2019.
Furthermore, 14 of our 16 markets had average occupancy above 97% in July. And eight of our markets had average occupancy above 98%.
Next, I'll cover revenue collections, which have held up well since the beginning of the pandemic and improved further over the course of the second quarter. For context, pre-COVID, our total collections in a month represented 99% of billed revenue on average, with 96% representing payments of current month's rent and 3% representing payments from past due rents from prior months.
In each month from April through July, we have seen payment of current month's rents amount to approximately 92% of billings compared to 96% historical average. As the pandemic has gone on, we have seen greater number of residents catch up on delayed payments from prior months. As a result, our overall collections as a percentage of monthly billings increased from 94% in April to 96% in May and 97% in each of June and July. This compares to our historical average of 99%.
I'll close with a few remarks about how we're planning for the road ahead. We do not know what the future holds with respect to the spread of COVID-19, but we do know that it was our job to safely provide an outstanding experience for our residents and assure that they feel our genuine care, regardless of the obstacles. We've done so in the past during natural disasters, and we're doing so now during this pandemic. The key is to stay nimble and we're focused on leveraging the power of our people and our platform to adapt to future changes that are sure to come our way.
With that, I'll turn it over to Ernie Freedman, our Chief Financial Officer.
Thank you, Charles. Today, I will discuss the following topics: balance sheet and capital markets activity, investment activity, financial results for the second quarter and thoughts concerning the second half of 2020.
With respect to the balance sheet, we improved our already strong liquidity position from last quarter. As of June 30, we had almost $1.6 billion in available liquidity. No debt maturing before 2022 in over half of our assets unencumbered. In the second quarter of 2020, we issued and sold 16.7 million shares of common stock for net proceeds of $448 million. We used $150 million of the proceeds to repay the full balance outstanding on a revolving credit facility. We expect to use the remaining proceeds primarily to acquire homes. By funding acquisitions with proceeds from our equity raise, as well as cash flow operations and dispositions, we have the opportunity to achieve accretive external growth, at the same time that we reduce leverage on our balance sheet.
As a reminder, we entered 2020 buying homes at a pace of approximately $200 million per quarter. Our acquisition volume in the second quarter was $46 million, as we temporarily paused the sourcing of new acquisitions in mid-March to monitor the impact of the pandemic. We have been very pleased with the resilience of our business since then, significant liquidity, no near-term refinancing needs, continued cash flow growth and strong demand for our product. Invitation Homes is on solid footing.
As a result, we resume sourcing new acquisitions in June. While for-sale inventory levels remain tight, we have been successful in finding compelling acquisition opportunities by leveraging the advantages of our in-house local investment teams and proprietary AcquisitionIQ technology. Doing so, we've been able to ramp up our buying to a pace similar to pre-COVID levels. We also continue to sell homes in accordance with our 2020 disposition plan.
In the second quarter, we sold 416 homes that did not fit within our long-term strategy for gross proceeds of $114 million.
Next, I'll cover our financial results for the second quarter. Core FFO and AFFO per share for the second quarter increased 4.4% and 9.4%, year-over-year to $0.32 and $0.27 respectively. These results were driven primarily by higher same-store NOI and lower recurring CapEx. The impact of bad debt is included in both our core FFO and AFFO results.
I'd like to take a moment to explain our policy for recognizing bad debt on past due amounts. All rental revenues and other property income for both our same-store and total portfolio are reflected net of bad debt. We reserve residents’ accounts receivables balances aged greater than 30 days as bad debt, as a resident's security deposit should cover the first 30 days of receivables. For all receivables balances aged greater than 30 days, we reserve as bad debt 100% of outstanding receivables from the resident, less the amount of their security deposit.
For the purpose of receivables aging, charges are considered due based on the terms of the original lease, not based on any payment plan created. In other words, any past due rents that have not been paid that do not have a security deposit balance on hand to offset them are not recognized as revenue in our P&L, regardless of whether a payment plan has been negotiated with a resident. Those rents are later collected that will show up in revenue as a good guy in the period collected.
We view our financial performance to-date as a testament to the resilience of our business model that is well positioned compared to many other real estate types for the world we are living in. We are pleased with the prospects for our business going forward, but it remains difficult to provide guidance for the second half of 2020 due to uncertainty concerning local, state and federal regulatory environments, as well as how the pandemic may continue to evolve.
That said, we did want to share some thoughts about how we are thinking about the second half of 2020 comparing to our just completed second quarter. First, let me discuss items impacting revenue. In the first quarter, we recognized 40 basis points of bad debt. In the second quarter that grew to 190 basis points. If we continue to collect it approximately 97% of our billings per month, we would expect bad debt to remain elevated in the second half of the year. Another source of uncertainty is around other income, and more specifically late fees.
In the second quarter, late fee income fell by a little over $3 million compared to last year. At this point, we continue to experience similar declines, and it remains to be seen how various regulations and restrictions may evolve. Helping to potentially offset these unfavorable variances are the possibility for continued lower turnover in days to re-resident, which were the two key drivers of our record-high occupancy in the first half of 2020.
As Charles mentioned, average occupancy was 170 basis points higher in July of this year versus last year, an excellent start for the second half of 2020. In addition, with more clarity in the near term, we continue to see solid growth in both our renewal and new lease rates over expiring leases.
Regarding expenses, I'll remind you that our control book expenses usually have some seasonality associated with them. We would expect our third quarter to have higher repairs and maintenance and turnover expenses compared to second quarter. As we previously discussed, we are back in the market, making offers on home acquisitions. Typically acquisitions in the second half of the year have minimal financial impact to the current year's results due to the time it takes to complete our initial renovation of an acquired home and for the first resident to move in.
Below the NOI line, we expect property management and G&A combined to be about $0.005 higher in each of the third and fourth quarters compared to the second quarter.
Finally, with respect to financing costs, we expect interest expense to be about a $0.01 higher in each of the third and fourth quarters compared to the second quarter due to contractual increases in our step up swaps.
Average share count will also be higher in the third and fourth quarters compared to the second quarter when you take into account our June issuance of 16.7 million shares. Supplemental Schedule 2(a) includes share count information as of June 30.
I will close by reiterating how proud we are of the way our corporate and field teams have executed thus far in 2020 and how great it is to see the positive impact we are having in our communities. We have a resilient business and a first-rate team of associates. We are pleased with our strong liquidity position, the quality of our real estate and the strength of our resident base. We are staying nimble to position our residents, associates, communities, and investors for success in both the near term and long term.
With that, let's open up the line for Q&A.
We will now begin the question-and-answer session. Our first question will come from Sam Choe with Credit Suisse.
Hi, guys. I'm on for Doug today. I mean, Ernie talked about the non-enforcement of late fees. I think Charles did, too. But I’m just kind of wondering at this point, how you're thinking about those resident friendly initiatives now versus when we started the pandemic and the going back to that late fee, does 2Q kind of offer that good run rate throughout the pandemic.
Yes, this is Charles. Thanks for your question. So just going back to where this thing started with the pandemic in March, we waived all of the late fees for April, just trying to be thoughtful with our residents. And then from there, we kind of took it on a month-by-month basis and tried to see how it all played out. So, come May and in June we started this slowly reintroduce. But really it was only with residents who we hadn't had a chance to interact with. And even when they did call us many times, we would waive those late fees. I would take them off the ledgers. The whole goal really was to try to get the communication going with our residents and make sure that we were interacting with them and working with them, so they can stay in their homes.
When you look at your point, when you looked at the landscape, about 1/3 of our homes fall into some form of restriction in regards to running late fees, and we're taking a very conservative position on that. As you know, it's a changing landscape and things are being extended. And so we're taking more of a conservative stance and we're keeping an eye on it. And like we said, we're still working with our residents if they reach out to us. Our main goal is to make sure that we're keeping our residents in our homes and trying to work with those who need help.
Got it. Okay. That's really helpful. And we've seen collections normalized from April to July, I'm just wondering if there's any delays in that second stimulus package by Congress. Do you have a sense of how much of your resident population might be affected?
It's hard to see, have full visibility into that. We've liked our process that we've been able to stabilize, but it's really hard to see what it's going to do. The vast majority of our residents have been paying on time and continue to. So we'll keep an eye on it, but we like how we've been trending so far.
Okay. Thank you so much.
Our next question comes from Rich Hill with Morgan Stanley.
Hey, good morning, guys. Dallas, maybe this is just a strategy question for you. Look, it sounds like you're ramping up acquisitions. You like the markets that you're in. It looks like most of your markets did really well. Houston was a little bit weaker, but could you maybe just talk us through, how you're going to acquire homes given you already have a lot of density in your markets and there seems to be even more competition for single family homes on the other side of COVID-19 than prior to COVID-19. So, how are you going to do it and what markets do you like best?
Yes. Hi, Rich. A couple of points I'd like to make in response. First would be you're right that the market is relatively tight. There's limited supply, but even on that basis, we'll still see somewhere between $5.5 million and $6 million transactions over the next year. So in that environment, we were pretty good at being nimble and being local and on the ground and being able to stay flexible. We're also, as you know, pretty agnostic in terms of which channel they come through so long as they fit the profile of the property type that we want in the portfolio long term. We've actually had quite a bit of success in the one off space, being able to stay active locally in the markets, putting in offers on properties on a one by one basis. We've had a little bit more success in the last couple of months of doing some smaller opportunities with builders where we're buying five, 10, 15 homes at a time.
And so while you're right in that it's a very competitive environment, given the lack of supply. The fact that we've been as active as we have been for the past eight years and been able to run our offense, so to speak, in the same fashion, we picked up right where we left off in terms of just slowing down our pace and getting right back into it. Ernie talked about our pace being in line with pre-COVID levels. And I would expect that we can certainly deploy capital in a meaningful way in that pace in today's environment.
Okay. So any thoughts on specific markets or you're just going let it come as it may?
Well, we've said this before, and I should have said this in response to your first question. So my apologies, but we managed 12,500 homes in Atlanta as efficiently as we manage 3,500 homes in Seattle. And so for us, we still feel like in the majorities of our footprints, we have the additional capacity to expand our scale and maybe even get better density. With that comes better services, a better understanding of how the portfolio is behaving and ultimately driving decision making toward what the customer wants. So the Sunbelt markets, the West part of the – Western coastal parts of our markets are all parts of the portfolio that we'd like to see some expansion in. We love what we have in Atlanta. It could even have more in a market like that if it makes sense.
But there's not – it hasn't really been anything Rich that would say that we should shift our strategy. I mean, the demographics in the household formation in our Sunbelt and coastal markets are still two times the national average in terms of the household formation. All the fundamentals are saying that growth is going to continue to happen in those parts of the country. So we're bullish on continuing to build out our footprint in these markets.
Got it. Thank you, Dallas. And Ernie, just a quick question for you. I appreciate the thoughts on 2H. What I heard was that fundamentals remain very solid, maybe not accelerating from what we saw in 2Q, but very solid. But I also look at your bad debt policy, and it strikes me as quite conservative. So is it fair to say fundamentals are going to maintain from where they are. But maybe you'll get a little bit of bad debt back as you collect unpaid rent.
Yes, Rich, I hope that's the case. And there's always seasonality in the business, but seasonality is probably going to be a little skewed this year, just because of what's been happening around the pandemic. As you saw, we saw accelerating fundamentals on the new lease side, and it's rare for us to have increasing, excuse me, occupancy through the summer months, because typically you have higher turnover there. So that's all pointing favorably to us and with our bad debt policy, we gave a lot of consideration around what to do with folks who are on payment plans. About a third of our receivable balances are on payment plans, and most of those residents are paying. And because of the way our policy is set up today, we are reserving for future, hopefully payments from those folks.
If we have another three or six months worth of history, which we will as the year rounds out, and we see people continue to do well on those payment plans, they'll certainly give us a pause and reason to consider revisiting our policy with around bad debt. If we see those people playing, but we wanted to be a little more conservative at this point in time, because we only have a couple months of history at this point, the pandemic is only about four months old. But we'd like to think we took a conservative view on it, and that maybe we'll do a little bit better if people continue to make good on their payment plans like we're seeing the vast majority of folks do.
Yes. Thank you guys. Congrats on weathering a really tough environment.
Thank you. Rich.
Our next question comes from Haendel St. Juste of Mizuho.
Hey guys. Good morning, down there.
Hi, Haendel.
So my first question is with occupancy and retention at all time highs – new all time highs and favorable demand and pricing power clearly at hand. You guys are in a very advantageous position. What's the operating strategy from here? Are you inclined to continue to push rates more aggressively and perhaps later into the year than you typically would? As you say, we had 98% is occupied? And can we see further new and renewal pricing accelerations beyond July and into the fall?
Hey, Haendel. Charles here. Thanks for the question. We – early on in the pandemic, we knew we were solving for occupancy. We wanted to make sure not knowing what the future had. We ran concessions early, got our occupancy up, and then we saw that demand is here for our product. And so we continue to throw the move those away. So by May, we were fully free of concessions and we began to see a new lease rate growth. So when you look at the results for June and July 4.6, 4.9, we're seeing good acceleration on the new rate growth and our high accuracy allows us to have that position.
Now on the renewal side, we've been a bit more balanced knowing that residents are – some of our residents are in challenging positions, and we showed some flexibility in working with them. So you see our renewal rates positive, but not as high as they'd been historically. But we're starting to push that a bit now. And so our ask going into August is close to close to 5%, September over 5%. So we're finding that balance. Again, it is a seasonal business and we're watching this and we're getting towards the end of the peak season. So we'll continue to monitor. We have our deal teams and our revenue management teams are great, keeping our eye on what the dynamics are in each sub market. And right now we're always trying to find out proper balance and taking into account what's going on with the pandemic as well. But our portfolio is in strong position.
That's great, Charles. And the clarification on that last point, you said, you're asking 5% what are you generally getting or what's that spread been? Just curious on how that's translating into what you're receiving or expect to receive?
It's hard to predict in this market. Usually, we get 50 basis points to a 100 basis points. But in the pandemic, we're still working with families. So it's hard to put a specific number on it. September our ask was closer to 5.5. And so, we're going to be higher than the three, 3.5 we've been in the last several months. As you know, we're coming out at a higher ask. So we'll have to see. The spread is hard to predict during this period, but typically it's within 50 basis points to a 100 basis points.
Got it. Got it. My second question is on the days to re-residents, can you break that down into two pieces of the turn times and then the time to lease? And then I guess I'm curious, if you sit here at 98% occupancy, how much higher can it get from a turn time perspective? Are you getting close to that optimal number where 98% just structurally has less upside, or how should we think about the potential upside from here on the turn times, et cetera?
Yes. So taking your first question or your second question first, we always thought that this business could be a 97% occupancy business. As we looked at trending our turn times our turnover down into the 25% to 30%. We've been trending down to that, that way over the last kind of several quarters, which has been really positive. And as we get days of re-resident to the 30s, you just do the math and that's going to have you at a number that's where we are today.
Now what's happening a little faster, given the pandemic. So that's a good thing, and we're going to continue to pay attention to that. Days to re-resident has been a real bright spot for us. It was a focus for us since the beginning of the year. We knew we had an opportunity there. And as I said, we're – quarter-over-quarter, we're down five days and we continue to have that benefit in July. We're down closer to 10 days in July.
And you break down the components. We've been turning how homes we've made really good improvement this year at about 10 days. And the remainder has been the move-in period. So it's been healthy. The teams are doing all the right things, can't thank them enough, really impressed by their ability to work through this. And as they look at it, it's been a combination of pre-leasing and getting renovated, inventory and really pricing things appropriately. So I thank them for all the hard work and we'll continue to push.
Thank you. That's fantastic. And best of luck.
Our next question comes from Nick Joseph with Citi.
Thanks. I appreciate the color at the beginning of the call about the new residents moving from more dense urban areas. When you look at those residents, is there anything different in terms of either their age or if they have children relative to your typical residence?
Yes, we haven't really seen any material difference in regards to the demographics. Nothing has really stood out there. We did this survey, as Dallas mentioned in his remarks to figure out where people were trying to come from. And anecdotally, there's a demand to have more space. And that's been our long-term demographic has been over half of our residents are families. They have pets. And so they are appreciating the extra space. And I think during the pandemic, the social distancing is a benefit as well. And about just shy of 30% were coming from the cities. And many of them are just looking to try to have that space. So – but in terms of the demographic change, we haven't seen it. We'll continue to monitor, but it's still early in the process.
You wouldn't expect any kind of turnover differential as those leases expire that it may be more a temporary renter versus what you traditionally see.
I don't think so. But we're going to watch that. At our current turnover rates, our residents are staying on average three years and it seems to be expanding. And if we continue to do what we do and give them a great resident experience with genuine care. And we know that we have homes in great neighborhoods and we're good school districts, all that is why residents want to be in our homes and they're staying for a long period of time. So we'll continue to monitor. As we said, demand has been strong. So we'll watch that as we go.
Thanks. Dallas, you talked about the transaction market. Maybe just the flip side of that, potentially asset sales. You've obviously announced you exit Nashville. You're almost out of there. Are there any other markets you may potentially exit? You look at the Midwest market, Chicago and Minneapolis, you have fewer homes than you do in most of your other markets?
Sure. We're really comfortable with what we own today. We like the footprints that we have. You're right in the Midwest over the last couple of years. We have cooled down the size of our portfolio specifically in Chicago. Some of that comes with some of the local expertise that we have that center around, the difficulties in operating properties in certain parts of that market. But – by and far, largely Nick we're pretty comfortable with what we have, like the footprint that we've got, and we'll obviously do some culling of nonperforming assets, maybe some geographic dislocation that we're always working on.
But now, by and large, we're pretty comfortable with where we're at. I wouldn't expect us to do anything wholesale, at least the way we're thinking about things right now.
Thank you.
Our next question comes from Jade Rahmani with KBW.
Thanks very much. I was wondering if you're actively exploring any joint venture opportunities in adjacent home types or markets in order to expand the platform at scale and accelerate growth.
Good question. Jade. It's one that we get from time-to-time. I think we talked a little bit about this over similar meetings at Nareit. I think ultimately, we were very happy with the smaller equity offering we did earlier in the quarter to given us some additional flexibility to go out and grow our portfolio. JV opportunities, we get inquiries inbounds on some of those from time to time. And certainly something that we think about in terms of having an added resource or an added tool to maybe go out and acquire more properties, or be maybe more active in parts of markets where we feel we have sufficient exposure on our balance sheet.
So that's something that we'll continue to consider and think through. But as of right now, we're in a really good position. We've got plenty of dry powder to continue to grow our portfolio in parts of markets that we think lend themselves to really solid risk-adjusted returns. So we're in a good position.
Thanks very much. I'm wondering to find out if you could also provide any update as to the company's property management platform, is it at this point transitioned to a fully proprietary platform? Or would you describe it as a combination of services from multiple vendors?
Well, we've been internal from day one. So we put an emphasis as we built the business around making sure that we were 100% internally managed and all of our folks that centered in and around the management and the tenant relations, we're all internal. Now, we certainly use vendors and we use vendor networks to do about half of our service orders in today's environment, Jade. So the short answer would be, we are an internally managed platform, but we definitely do use vendors on the outside, particularly around roofs and HVAC and some of those things in terms of heavier list. But most of our small maintenance work, work orders and everything that we do through ProCare are all handled internally as well.
Thanks very much.
Thanks, Jade.
Our next question comes from Wes Golladay with RBC.
Hi, good morning everyone. I just want to go back to that resident move-in survey. You looked like people are moving in from urban environments, but I'm just wondering if any region stood out to you and did you see a lot of out-of-state migration?
There wasn't really any standout per market. It was – we were surveying recently moved in residents. And so, it's a – kind of a short burst of a survey. And so, no real standout in regards to certain markets showing more of a propensity than others. But overall, I think, there's – there's been a strong interest. And you can see it from our overall demand that's in the market right now. And so, we'll stay there.
Okay. And then I just want to go back to the bad debt reserve. Was that heavily skewed towards June because it seems like residents are just a little bit slower, but kind of near normal levels. Is that the correct way to look at it?
Well, I guess, Wes, when we look at it on a quarterly basis and so you can see our collection activity improved throughout the quarter. And we're generally running about the same amount in the current bucket, 0 to 30 buckets. It's hard to say it's skewed toward June, but certainly as you get to June, your May receivables announced are now – that are still outstanding are eligible for bad debt as or your April.
So, we saw kind of earned in throughout the period. So it's hard to say it's skewed one way or the other, but if we continue to collect it about 97%, it certainly feels like we're going to have bad debt kind of in that range that you saw in the second quarter. And hopefully, we can do better than that. But with four months of data, that's how we can look at the world today.
Okay, thank you.
Thanks, Wes.
Our next question comes from Alex Kalmus with Zelman and Associates.
Hi. Thank you for taking my question. Given SFR’s outperformance during the pandemic, there appears to be renewed interest from traditional real estate funds in the space. What is your impression of increased competition from private equity and potential consolidation of some of the more mid-sized players?
Yes, the industry continues to evolve. And I think we're still in this moment of new capital coming into the space, we grew with everything that you're saying. They're trying to build portfolios and trying to replicate what companies like Invitation Homes have already done. We welcome it at the end of the day because we think having quality of choice and more companies offering professional services are good thing for residents generally across the country. I think this will be a good value added – added an industry, and there's a lot of healthy demand out there that wants to take advantage of it.
Selfishly, the way we think about the business, we also think that over time and distance, it may lend itself to some consolidation opportunities. We believe we can run a portfolio as well or better than anyone out there today. And we think we can offer a customer experience of second to none because of our scale. So I think all of this new capital coming into the space over time and distance will largely be viewed as a good thing. And it's beneficial to our company as well.
Thank you for the color. And I know you guys are channel agnostic, but right now what would you say is the most abundant channel for your acquisition pipeline?
We're very active in the one-off space, working with iBuyers, working with people that are selling their home. I think those markets continue to get more and more efficient. So it doesn't feel right. First of all, let's be clear. There's not a lot of distress in the marketplace, which is a healthy sign for housing so far. So it is the traditional transaction side of things. And then I think there's opportunities to do more with builders along the way and find ways to see redevelopment of infill locations that would fit our portfolio needs as well. So the most active being the traditional one-off sales right now.
Got it. Thank you very much.
Our next question comes from John Pawlowski with Green Street Advisors.
Hi, thanks a lot. Charles, as some of your local economies have had to walk back reopening plans in recent weeks and recent months. I'm just curious if any specific markets are starting to show some fatigue either in renewal negotiations on rate or collection trends, obviously very strong across the portfolio, but just any markets you’re concerned that’s standing up – standing out heading into the summer.
Yes, this is Charles. Really, we haven't seen anything that gives us any major concern. Like you said, across the board we're doing really well. And what I did do is take a minute to look at some of the States where we've seen an increase in the number of COVID cases, which is Arizona, Texas, Florida, a little bit of California. And as I dug in there, occupancy blended rent growth are all accelerating from June to July, which is positive.
The renewal rates to your question have continued to look good year-over-year and Q2, all of them were up. Phoenix is at an all-time high. July seems to be holding up really well. New lease growth in Phoenix is over 9%, NorCal 8%, SoCal 6%, even at Florida we're 5, 6 – 5.6% for July new lease growth. And then the other piece I've looked at is on the collection side. And all of those markets are Arizona, Texas, Florida, specifically collected more revenue in July versus June.
California is the exception, but we know that we're dealing with some more of the regulatory challenges, but it's not far off. It's like really flat kind of over year-over-year 99% of what it was in June versus July. So, really haven't seen much. We're still seeing overall good demand and – but we're going to continue to monitor as we watch this thing play out.
Okay. That makes sense. And then just curious for your longer term outlook, three, five year outlook on South Florida. It's been a market that’s lagged the rest of your portfolio, even pre-COVID. So if you could prune yourself Florida portfolio today, overnight, what percentage of the homes would you sell?
Hi, I'll take this one. Well, first of all, South Florida is an interesting market to your point. I mean, it tends to kind of flow in cycles as you well know. We actually really enjoy the portfolio – the size of the portfolio that we have. It makes it very efficient. It's been a little lackluster in terms of rate growth and there's some challenges in a couple of municipal areas.
We have been calling that portfolio over the past couple of years kind of fine tuning it to some degree, similar to what we've done in Chicago. We love the growth profile. We love the inbound when things are good. I don't know what the exact right size might be, John, over time and distance. We're certainly still recycling capital and occasionally buying in South Florida. We love the parts of North Dade and South Broward County.
We've had a lot of success in and around Jupiter and some of those sub-markets as well. So I believe it's a market we're going to be active in for a long time. And you might see us over time maybe slowly cull parts of that market just to make it a bit more efficient, but nothing worries us about the scale, getting that we're also a little bit underwhelmed by some of the growth that we see on the rate side. But it feels like our teams are doing a really good job there. We've actually seen all the efficiency metrics that Charles talked about earlier and get better and better in that market. So I like our chances. We probably want to run that portfolio for a bit longer before making any kind of definitive thoughts around what we would or wouldn't do there.
Okay, great. Thanks for the time.
Thanks.
Our next question comes from Alua Askarbek with Bank of America.
Hi, everyone. Thank you for taking the questions today. I just have two few – two quick questions, so just following up on the renewal rate. So you're saying that you guys don't really have any markets right now where you're limited on renewal rent increases like the multi-family guys.
Yes, we do have certain markets and we're following all of those rules where it does stand out, Washington being one of them. California has some limitations as well, but that – they’re – and that is reflected in some of our numbers, but generally we are going out at [indiscernible] and then allowing our local teams to work directly with the residents to try to get to a resolution that works for both of us. But we're going to follow every time that there is any type of restriction that's – either put in locally or by the state.
Got it. Okay. And then just a quick question on move-outs. I know turnover is really low and occupancy is really high, but have you seen an increase in move-outs for home ownership specifically during the quarter with mortgage rates really low? Is there any more interest in that?
Yes, historically we've been trending in the mid-20s and we saw this quarter, Q2, a slight uptick, it's 27. So it's not a huge jump. And obviously with interest rates, as you mentioned at historic rates, we'll continue to monitor that, but it's been in our benefit.
Got it. Okay, thank you.
Our next question comes from Rich Skidmore with Goldman Sachs.
Good morning. Dallas just a quick question just with regards to how to think about the capital recycling selling more homes than purchasing? How do you think about a) how that might trend as you go forward? And b) how we should think about financial impact of the divestitures versus the purchases? Thank you.
Yes, great question. So, on the – on your first point, I would say, it's important to understand that we rank every one of our homes in the portfolio on an ongoing basis. And there's a number of factors, but they all basically fall into two buckets. We rank our assets based on where they're located, which is, as you might imagine, pretty hard to change wherever home is and it currently sits today. And then we also rank our homes on an asset score that basically ties into the fit and finish and the property characteristics that are associated with that property. Our asset management team does a really nice job of going deep at the market and also at the sub-market level.
We've built our portfolio into about 220 sub-markets, geographic clusters that we measure performance in and around. And so, as part of our ordinary course, we'll go through those properties and basically hold ourselves accountable to their performance, both from an operating perspective and also from a return perspective, how do we think about the growth profile for those assets. Now, there's a lot of reasons why you would sell a home. One, you might sell a home because quite frankly becomes too valuable.
And to your second question, on a financial basis, it may make sense to sell that home back into the end user market, recycle capital and reinvest in parts of the market where it could make more sense. The second reason might be geographically, we feel like we either have too much concentration and we'd like to spread that risk as well for a variety of reasons. So our management team – our asset management teams, as part of our capital allocation plan every year, we'll go through that process. And we have kind of a general property watch list of things that we're looking at for potential reasons as to why we might sell. And then they're also coming up with recommendations around where we think we need a bit more scale. And that's all part of that recycling process to answer your question.
So, Rich, this is Ernie. So, I think, with the equity raise we did in June, it give us the opportunity in the second half of the year to pivot to net external growth. As Dallas talked about, we're always going to be a seller. We're always going to look to try to take those assets – those homes that just don't make sense for us long-term. And we've been selling at a pretty steady pace here for the last few quarters plus or minus $75 million to $100 million worth of homes.
But with the equity raise and having $600 million of cash almost on our balance sheet as of June 30th, and as we talked about in the prior remark, it gives us a chance to ramp back up our acquisition pipeline to where it was pre-COVID, which was about a couple of hundred million dollars per quarter. So that hopefully puts us in a position in the second half of the year to be a net acquirer of homes versus – or in the first of the half of the year is a little bit more of a net seller.
If you were to maintain kind of the net seller sort of perspective that you've been running out over the last couple of quarters, is that how dilutive to the near-term earnings? Or how do you think about dilution accretion in that trade-off of the capital recycling?
Yes, the good news for us, Rich, is where we're selling our assets and typically an asset we're selling it to an end user will set bank it on our books for anywhere between two to four months just to go through the normal sale process. The cap rates we sell out to end users typically are well below 4%. It can be in the 3% to 4% range. A lot of things that Dallas talked about the fact that house might be worth more to an end user than as a rental property. Whereas when we go to buy homes, we're typically buying today kind of in the mid fives cap rate, and that's in a market where there isn't distress. And that's where we've been buying for the last period of time.
So our capital recycling unlike in other real estate types even though we're improving the quality of our portfolio and getting in better locations tends to be a net accretive activity for us from an earnings perspective because we have the opportunity to sell assets in two ways to end users who may value them differently than an institution, who runs them as a rental property.
Thank you.
Our next question comes from Todd Stender with Wells Fargo.
Hi, thanks. Just to get a finer point on cap rates. You guys have been buying in that 5.4% range in the last couple quarters. Do you see that edging lower maybe due to higher price points over the coming months? Or maybe rents are raising enough to keep that cap rate at that level?
It – to Ernie’s earlier point, it's been pretty consistent in the kind of that mid fives generally for us over the past couple of years. And we've, specifically, been pretty picky about what we're willing to put in the portfolio. We're seeing rising rate, which does help to your point, but I would expect it to kind of stay in that mid fives. I wouldn't expect that we see any real wholesale or dramatic shifts given the type of home that we buy in and the types of portfolio that we manage today.
It all feels pretty, pretty good, kind of in that strength. And to Ernie’s earlier point, on one of the questions he answered, we tend to see some better buying opportunities typically in the back half of the year. Now, this year has been anything but typical and housing cycles may extend further and home buying and selling season later in the year, but we'll see – we'll manage and we'll watch how the next six months progressing, but generally speaking mid-fives is something that we feel pretty comfortable with.
Okay, that's helpful. And just looking at leverage, you've been using equity lately to pay down the line, that's helped your debt-to-EBITDA level drop into the low-seven times range. How much more movement should we see your leverage metrics move?
I think they're going to be more or less hold steady. We're using the capital that we raised here in June and more of the capital is going to be used for acquiring assets and for de-leveraging. So I think you'll see a steady out. And a lot of it's going to depend on how EBITDA plays out in the second half of the year. How things like bad debt trend and other like as good news, we're seeing good fundamentals, a good strong growth, otherwise in our portfolio when it comes to rental rate achievement, when it comes to occupancy.
So I think we'll continue to see that modest moving down that you've seen over the last period of time. You stay focused on that. And as we have – if it makes sense opportunistically to be able to try to do something with leverage, we'll certainly consider that. But our main focus is going to be to continue to delever through external growth in terms of buying assets unlevered, which is what we've been doing for a period of time here and it takes a little while for that to earn in. That's going to be the main focus. And then the second focus will be, hopefully, we continue to see positive NOI contribution and EBITDA growth as we move forward.
Thank you.
Thank you.
This concludes our question-and-answer session. And I would like to hand the call back over to Dallas Tanner for any closing remarks.
We appreciate everybody's interest in Invitation Homes. We hope that everybody out there stays safe and we’ll look forward to talking to you all next quarter. Thanks.
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.