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Greetings, and welcome to the Invitation Homes Third Quarter 2020 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 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 third 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 third 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, our Quarterly Report on Form 10-Q for the period ended June 30, 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. We 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. We're thrilled to report yet another quarter of outstanding execution in a time when the need for high quality single family rental housing is greater than ever. I'm so proud of our team for consistently meeting that demand with unparalleled resident service, which is also translating to strong results for our shareholders. There are three points I want to emphasize in my remarks today. The first is that we continue to perform extremely well during COVID validating the strength and the stability of our business. The second is that we are more bullish than ever about the long term due to the fundamental tailwinds for our sector and Invitation Homes unique advantages.
The third is that because of our favorable position, we're staying on offense with respect to external growth, leveraging the power of our platform. We're having great success in finding acquisitions with compelling, expected returns that will also add to our economies of scale. We are opportunistically increasing our acquisition pace and we've diversified our capital sources with the joint venture to enhance and ensure our ability to remain opportunistic over a multi-year period.
I'll now elaborate on our results that continue to strengthen through the pandemic Same-store occupancy set another record high of 97.8% in the third quarter, up 190 basis points year-over-year and 30 basis points from last quarter. Rent growth has also accelerated, indicative of the fundamental strength in our markets. New lease rent growth of 5.5% in the quarter, was 130 basis points better than last year and up to 280 basis points from last quarter. On this higher base and potential rents, we continued to collect through September at a rate of 98% of our historical average collection rates.
The unique differentiators of our business also continue to be a benefit to expenses. As a result, we were able to deliver 3.6%, same-store NOI growth in a period that continues to prove challenging for the broader economy and real estate sector. More importantly, we've continued to be a port in the storm for our residents, delivering exceptional service and genuine care that is resulting in an all time high residents, satisfaction scores.
The self show technology and virtual experience that we've been utilizing for years is allowing perspective residents to feel safe throughout the leasing process. The freestanding nature of our assets is also allowing us to safely serve residents and maintain homes with some tweaks to our protocols for extra safety. With the safety measures in place, we have now completely worked through our backlog of work orders that have previously been deferred during the springtime.
To say that our associates have been exceptional in their care for residents would be an understatement. I could not be prouder of our associates hard work and commitment under the circumstances. And we recently recognized their effort with a special bonus for all our frontline workers and non-executives in our corporate and field offices. We also continue to provide COVID specific benefits and flexibility to associates designed to promote their health, and also well being.
We believe the past several quarters have battled tested and demonstrated the durability of our business. And looking ahead, we continue to see a bright future. The millennial generation is only beginning to reach our average resident age of 39 years. And surveying data indicates that COVID may be accelerating a shift in demand for denser urban housing to single family alternatives. With limited supply of single family homes available, we believe our sector is positioned to be a key part of housing solutions for years to come.
Furthermore, we think the ease and flexibility of leasing from a professional property manager make the value proposition even more compelling for institutional single family rental operators, who today on less than 2% of the overall single family rental home market. With these tailwinds that are back, we ramped up acquisition activity in the third quarter and exceeded our expectations by deploying $175 million. The initial underwritten yield in these homes is consistent with where we were acquiring pre-COVID at 5.5% cap rates.
After quarter end, we also closed the bulk acquisition in Dallas for $59 million at a 5.7% NOI cap rate on in-place rents, which we see upside to as we bring these homes onto our platform. But simply we feel very strongly that it continues to be a great time to invest in single family rental homes, especially with our ability to leverage our proprietary acquisition IQ technology, and local investment team's relationships and experience in buying across multiple channels.
To diversify our capital sources in pursuit of this external growth opportunity, we have formed a joint venture with a like-minded partner that is expected to provide over $1 billion of additional dry powder for the next couple of years. This adds to the over $500 million of cash on our own balance sheet, in addition to strong operating cash flow, which we can use to grow our wholly owned portfolio. With these multiple capital sources available to fund our growth, we'll continue to have the opportunity to bring down our overall leverage. At the same time, we achieve our external growth goals.
And thinking joint venture capital, our industry leading scale technology and experience as an operator positioned us well against the backdrop of substantial private investor demand, wanting to enter the single family rental space. We are thrilled to have partnered with a highly accomplished investor in a structure that makes great sense for our business. The structure allows for us to invest and manage properties for the JV identically to the way we invest in operate our wholly-owned portfolio.
Acquisitions will be sourced by our investment team on an entity blind basis and allocated automatically between Invitation Homes and the JV in accordance with predetermined ratios that enable both entities to simultaneously achieve their capital deployment goals. In addition, our [indiscernible] structure makes the JV a potential pipeline for future on balance sheet, external growth when the JV reaches the end of its anticipated five to eight year life. Along the way, we learn asset management and property management fees expected to be well in excess of any incremental costs.
In closing, we are excited about what the future holds for Invitation Homes. We believe the single family rental sector is favorably positioned within the housing market relative to other types of residential real estate. Within our uniquely positioned industry, we are differentiated from peers by three key advantages. The first is location of our homes, infill neighborhoods within high growth markets where the supply and demand are most in our favor.
The second is our scale and market density with nearly 5,000 homes per market. The third is our local expertise and on the ground teams in our markets that enable us to better control the quality of our assets and the overall resident experience. We are committed to further enhancing that residents experience in the years ahead as we grow. And we thank you for your support as we pursue our mission.
I'll now turn it over to Charles Young, our Chief Operating Officer.
Thank you, Dallas. Let me reiterate our appreciation for our teams who are out there everyday delivering genuine care to our residents. Their efforts have led to outstanding outcomes for both our residents and our shareholders for years. But the difference they make has shined even brighter during the pandemic. This quarter was no different. We're continuing to see the high quality homes and genuine care we deliver contribute to residents moving in sooner and staying longer. Specifically in the third quarter day three resident improved 14 days year-over-year to 26 days.
And turnover fell 16% year-over-year from 8.7% to 7.3%. This drove 190 basis points year-over-year increase in occupancy to 97.8% with September marking the 11th straight month of sequential occupancy increases. At the same time, we are executing well to capture market rents. New lease rent growth, which we believe is most indicative of where fundamentals are today accelerated to 5.5% in the third quarter, up 130 basis points year-over-year.
Furthermore, new lease rent growth increased each month during the quarter. Renewal rents increased 3.3% in the third quarter bringing same-store blended rent growth for the quarter to 4%. Same-store core revenues grew 2.4% year-over-year in the quarter 40 basis points higher than our second quarter performance. As a result of the aforementioned occupancy increase in a 3.2% increase in average rental rate, gross rental revenues increased 5.3% year-over-year.
As expected, this increase was partially offset by two factors related to COVID-19. The first was an increase in bad debt from 0.4% of gross rental income in the third quarter of 2019 to 2.1% in the third quarter of 2020, which had 175 basis points impact on same-store core revenue growth in the quarter.
The second was a significant decrease in other property income, which had a 94 basis point impact on same-store core revenue growth in the quarter, primarily attributable to our non-enforcement of late fees. Same-store core expenses increased 0.4% year-over-year, net of resident recovery, same-store controllable expenses decreased 4.7% due primarily to lower resident turnover, fixed expenses in the quarter increased 3.9% primarily due to higher property taxes. This was halted in a 3.6% year-over-year increase in same-store NOI.
Next I'll cover revenue collections, which remain very healthy, even as we continue to offer flexible payment options to our residents in need. And each month of the third quarter, our cash collections totaled 97% of monthly billings compared to a pre COVID average of 99%. We believe the strength of our revenue collections is a testament to the high quality and stability of our resident base. We put some context around that residents moving in over the last 12 months had an average income of nearly $110,000 across approximately two wage owners on average, covering rent by 4.8 times.
As we move forward, similar to the last many months, we will remain nimble in leverage our local market presence to adapt quickly to change as we focus on providing high quality housing and service to our residents. That focus on flexibility and genuine care has served us well through the pandemic thus far. And I'm confident that it will continue to result in the best possible outcomes for our residents and shareholders. As we navigate the road ahead.
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 liquidity, investment activity in the third quarter, financial results for the third quarter and thoughts concerning the fourth quarter of 2020. With respect to liquidity, we had almost $1.6 billion of unrestricted cash and revolver capacity as a September 30th. We have no debt reaching final maturity before 2022 in over half of our assets are unencumbered.
Looking ahead, we remain committed to reducing leverage. The $560 million of cash on our balance sheet, along with expected operating cash flow and disposition proceeds, gives us significant runway to continue funding acquisitions without any additional debt. In the third quarter, we used cash from our June equity raise to acquire 544 homes for $175 million. We also sold 403 homes that did not fit with our long-term strategy for gross proceeds of $115 million. As things stand today with a compelling, external growth opportunity we are seeing in our markets, we plan to remain a net acquirer for the balance of 2020 and into 2021.
Next I'll cover our financial results for the third quarter. Core FFO and AFFO per share for the third quarter increased 1.9% and 5.8% year-over-year to $0.30 and $0.24 respectively. These results were driven primarily by higher same-store NOI in lower recurring CapEx.
As a reminder, the impact of bad debt is included in both our core FFO and AFFO results. We reserve all receivables aged greater than 30 days as security deposits from residents upon moving typically cover receivables balances, age less than 30 days. Under our bad debt policy, charges are considered due based on the terms of the original lease with past due amounts in excess of security deposits, not recognized as revenue, even if they payment plan is in place with the resident.
I'll now provide some thoughts on the fourth quarter of 2020. As Dallas mentioned, we feel great about the way our business is positioned for both the near and long-term future. That said pinpointing future results remains difficult due to uncertainty concerning the regulatory landscape and how the pandemic may continue to evolve. With two months left in 2020, though, I will provide some thoughts about how we are thinking about the conclusion of the year.
First, let me discuss items impacting revenue. With strong demand continuing we expect occupancy and leasing spreads in the fourth quarter to be as good or better than in the third quarter. Rent collections remaining source of uncertainty, but have been fairly steady in recent months at approximately 97% of billings. If collections were to continue at that same rate, we would expect bad debt to remain in the twos as a percentage of gross rental income.
Finally, we expect non-enforcement of late fees to continue to be a drag on revenue growth in the fourth quarter. In each of the second and third quarters, late fee income fell by approximately $3 million year-over-year. As we continue to provide flexibility to residents, we would expect late fees to decline similarly year-over-year in the fourth quarter,
With respect to expenses, cost to maintain typically decreases seasonally from the third quarter to the fourth quarter. We'd expect a sequential decline in cost to maintain in the fourth quarter 2020 as well that we may not see as large of a seasonal decrease as in typical years, because turnover was already so low in the third quarter of 2020. That said, turnover should be beneficial from a year-over-year perspective.
Taking a step back, 2020 is shaping up to be a year to be proud of with respect to both our positive impact on residents and the financial results we are producing and mid challenging circumstances in the world around us. Resident satisfaction scores are at an all time high and we've generated year-to-date AFFO growth of 6.8% through the third quarter in sharp contrast to many others in the real estate sector.
We believe this is a result, not only of our unique fundamentals of the single family rental industry, but also of our differentiated locations, scale and local expertise. With those advantages on our side, we are focused on remaining nimble to continue delivering great outcomes for our residents, communities, and shareholders in our path forward.
With that, let's open up the line for Q&A.
We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from Nick Joseph from Citi. Please go ahead.
Thanks. Dallas, clearly the transaction market is attracting a lot of capital. So if you think about the amount of capital that's chasing deals, both from an institutional perspective, but also from end users, how do you think that ultimately impacts going in cap rates? And would you expect to see some compression there going forward?
We've asked ourselves the same question, Nick, in terms of how to think about expectations through the end of the year and also early next. Well, we've kind of found this kind of been the case for the last couple of years, because we've been able to in that sweet spot, called mid fives from a going in stabilized NOI cap rate, that's been pretty achievable now. You've certainly seen some ebb and flow and this year has been a little bit different than normal given that the transaction volume from the end user is going much further into the year than normal.
But we keep thinking, we might need to underwrite maybe a little bit have some expectations around cap rates can present, but they haven't. And in large part it's because rate on the leasing side is following a pair of pursue with the home price appreciation that we're seeing in the marketplaces. So overall it still feels really healthy. We'll see somewhere around 6 million transactions in the U.S. this year, which is in line with what expectations were going into the beginning of the year. And certainly the month of supply is something we're going to keep our eye on because it is pretty low right now, given where we are at this point in the year.
Thanks. And then maybe just the flip side of that disposition, you've continued to sell assets. Obviously, it sounds like external growth is a focus, but how should we think about disposition activity over the next few quarters?
Yes. We would expect to still be calling, pieces and parts of the portfolio that don't line up and we'll do that. That's ordinary course for us. We've been doing that for years. We have said in signal in the past that we think dispositions ultimately will be a little bit lower than where we've been traditionally and I'd expect that to be the case. The good news is that when we do go out and try to sell, given the low supply, we're getting excellent pricing and whether that's selling something vacant or small portfolios that we might sell to a smaller operator, pricing there's been excellent and multiple offers and all that everything you want to see from a selling perspective.
The trailing call it $125 million a quarter, a good run rate, at least in the near term.
Nick, this is Ernie. I think over the next period of time, you see it's kind of Atlanta [ph] in the $50 million to $100 million dollar range each quarter going forward, which would be about one to one and a half, maybe 2% of our portfolio that feels like for the foreseeable future where it will be.
Great. Thank you very much.
Thank, Nick.
The next question comes from Alua Askarbek with Bank of America. Please go ahead.
Hi everyone. Thanks for taking the questions. So just to start off looking at the renewal rates, it looks like they dropped 20 basis points from 2Q. Is it because renters are negotiating their leases more? Or is this just leases that became effective after being signed earlier in the pandemic?
Yes. Thanks for the question. This is Charles. When you think about renewal growth, a lot of it is the fact that we price renewals about 90 days before expiration. And so you're going out when the pandemic hit at March. You're going out at rates that we were being very cautious as the pandemic unfolded and we gave our teams a little bit more room to negotiate. And so as you look at how it's transpired, we hit our low point on the renewal side in June and July. When you think about where we were 90 days prior to that, but what's been great is we've gone out at a little higher rates and we've had our teams negotiate since then a little tighter on the – as to the actual and you seen each month since then, we're accelerating on a renewal growth and those trends continue today.
So I think some of it is just us being thoughtful, trying to solve for occupancy position of power. And then on the flip side when we do flip, because we're in a strong occupancy position, the new lease growth has been really strong. So we think renewals will continue to get better as things stabilize.
Got it. And where are renewals going out right now for November and December? You guys can share that.
Yes, no problem. So November, December, we're going out in a kind of low five to mid fives. And then we're just starting to look at January we're actually going out mid to high five. So like I said, we're going out a bit more aggressive to capture market rents. And then we're asking our teams to continue to work with folks, but also kind of tighten that negotiation band up. We've had a little bit more spread than normal because of the pandemic.
Great. Thank you.
The next question comes from Douglas Harter from Credit Suisse. Please go ahead.
Thanks. I guess as you layer in the JV, capital to be deployed, how should we think about the pace of acquisitions in the coming quarters?
Hey, Doug, this is Ernie. I think we see a real opportunity, especially coming off of how we did in the third quarter, and I'll turn it over to Dallas for a second here. Just to give you a little sense for how October shaped out. We talked about in the earnings release a bulk acquisition, but that was just a portion of what we did in October. Yes, I think our goal is we go into next year is roughly a 50:50 split between balance sheet activity and JV activity. And we're seeing the opportunity to potentially, ramp up our overall acquisition pace. And again, roughly half ago in the JV, half ago in the balance sheet. But, Dallas, why should give a quick highlight on October, so folks can get a sense for, it may be a one-off month, but it's been a very strong one for us October.
Yes. And just for clarity, remember we took off about three months of buying activity in the pandemic. So when we turn things back on towards the middle end of June, you obviously have a little bit of a lag between when you start to close properties. We've historically said, we feel pretty comfortable between that $200 million and $250 million a quarter, but Ernie’s point in October, we're likely to close about $150 million worth of new property. So our fourth quarter could be a little bit bigger. And then I would say that as we monitor the path of progress going forward, what supply looks and feels like, there's certainly an ability to outperform that $250 million a quarter, if we see the opportunity in front of us.
Yes. So 59 of that 150 was the bulk transaction we talked about in the earnings release, but we've seen the one-off acquisition pace, keep the ramping up each month during the last few months. So we're feeling really good as we go into next year.
And then just – I guess does the October volume kind of gets split between the JV and the balance sheet, or I guess when do we start to see that split?
Yes. We haven't closed into the JV yet. We're finalizing our financing for the JV. I would do expect before the year is done that you will see some assets close into the JV probably later in November, certainly in December. But as of right now, everything is still closing on the balance sheet.
Great. Thank you.
Thanks Doug.
Next question comes from Dennis McGill from Zelman & Associates. Please go ahead.
Good morning. Thank you guys. First question just has to do with more on the expense side. This is maybe more just a general directional question, but do you have any sense of how many of your tenants are in work from home mode now, and then more bigger picture as you roll forward? What they 12 or 18 months, give any thought to what an elevated level of work from home would mean for maintenance and service expenses either good or bad?
Hey, Dennis. This is Charles here. We don't have any specific data that says how many are working for home, but anecdotally many of us are. And I think it's clear that there's more use on our homes and then we'd had in the past. But there's also the benefit of lower turnover because people want to stay in their homes. They're appreciating that we have that extra space and extra bedroom and people can functionally work from home and take care of the kids and all that.
So we're going to continue to monitor it. I think at the end of the day, there may be a little bit more wear and tear, but it's going to be hard to quantify, but we're also seeing lower turnover. That's helping us. So I think it's going to balance itself out. We’ll see where it goes overtime. But we’re going to continue to monitor that. We’re now going into homes. We’re doing all of work orders as Dallas said in our prepared remarks. And we're completely caught up on any deferred work orders. So we're going to keep running our ProCare program and make sure that we're servicing our homes when residents need it.
So time will tell, but as you can expect, I would think most people are working from home, like the rest of the economy. That will get less and less over time as the economy starts to open back up.
Got it. And then on the property tax side, I think, it's been relatively stable in this 5%, 6% range. We're seeing really aggressive price appreciation in the marketplace now, especially on a seasonally adjusted basis. And I imagine that's going to take some time to come through. But what would you consider to be the typical lag of with the price appreciation today and when you might have to see that come through on the property tax side? And any preliminary conversations or expectations you'd have about how that might filter through would be helpful.
Yes, Dennis. This is Ernie. And unfortunately the downside of home price appreciation, which is such a positive for us is it is likely we’ll continue to see assessments that are greater than inflation and having greater than inflationary pressure on our real estate taxes. It typically takes about 12 to 18 months for it to cycle through. We're in pretty constant communication across the country. It's different times and different cycles, but we're in pretty constant communication across the country with folks with regards to what's happening in localities, we’re working with our experts, as well as working with – and the local assessors to see what we can do.
And so that should be a constant part of our business. It's our biggest expense. And we have a good team in place, good support around the country. But my guess is what you're seeing now you'll see flow through probably not in 2021 tax bills, but if not 2021, 2022.
Ernie, would you expect that there's going to be added pressure from just municipal budget shortfalls on rate on top of just the value pressure?
Well, Dennis, there could be, but at the same time, remember that they have to pass along those same assessments and increases to all the people who vote in those local jurisdictions because we get taxed the same way as end-users. And so I think in general, there's going to be pressures in some jurisdictions. And the good news is the jurisdictions, where is the biggest pressures and where's the – the biggest fiscal challenges are probably in markets where we're not invested, lot of the markets in the Northeast, very few in – a few of the dollars invested in the Midwest in some of those markets.
So I think other parts of the country we'll see even more pressure there, but my guess is broader commercial real estate owners will have more pressure than residential owners for the fact that if we get a higher tax bill, so does everyone else in the neighborhood who votes and lives in that jurisdiction.
Okay that’s helpful. Thank you guys. Good luck.
Thanks.
Thanks.
Next question comes from Rich Hill from Morgan Stanley. Please go ahead.
Hey, Ernie, how are you this morning?
Good morning Rich I'm doing well. How about yourself?
I'm lovely.
Great.
Hey I want to come back to the breadcrumbs that you were kind enough to give us both for 4Q and 2021. I want to, first of all, start with the headwinds on bad debt. At some point you're going to anniversary and at some point you are going to be collecting more rent in line with what you've historically collected. Because as we think about 2021 is there a scenario where those headwinds actually become tailwinds in the second half of the year?
I think certainly as things normalize and it's hard to predict when that's going to normalize, we hope it's in 2021, that we'll get back to I would hope bad debts, the numbers that we used to have in the past, which were 40 to 50 basis points. So I think that's certainly a possibility. It's very hard to predict right now when that may happen. But that would certainly be an expectation at some point as we work our way through this cycle.
Got it. And then the second portion of that is the leasing growth that you're seeing. I think you said 5% for renewals, everything that we're seeing on the new lease side suggest that, it can continue to accelerate higher from what you reported in 3Q. So as I'm thinking about 2020, 2021, it just seems to me that the bad debt headwind goes away, the lease growth continues to rise and so there's a real healthy path for maybe meaningful increase – acceleration in same-store rev. And I'm not asking you to guide, but I'm just trying to make our methodology is correct as we think about that.
Well, certainly as we're finishing out this fourth quarter here, where we're seeing acceleration in a lot of important factors in a favorable way on the same-store side. In October we're anticipating our original growth rates will be higher than it was in September, we're expecting the new lease rate to be higher than it was in September. And occupancy is actually going to tick up probably about five or 10 basis points as we finish out the month. So we're – and we finished at 97.9 for September, it looks like October is going to get to 98.0.
As they always say, trees don't grow to the sky Rich, but things are certainly set up favorably for us from a supply and demand perspective. And we're seeing this in a time where typically you wouldn't see any of it. We’re at a peak season right now. So, I've been in the residential space for a long time and have not seen accelerating fundamentals this late after peak season. So that all sets up very favorably for us.
On the flip side we're in a challenging environment. And it's not known exactly how that pandemic is going – how it's going to play out, whether local regulatory rules change on us and in terms of how we can run our business and things like that. But we're certainly feeling very good about how we did through the third quarter in fortunate where we're at team has worked really hard. It's setting us up for a good fourth quarter, as we gave the breadcrumbs, it feels a lot like how the third quarter will be, or maybe a little bit better on the same-store metrics, as I talked about in the prepared remarks. I want to be cautious about getting too far ahead of ourselves about what 90, 180, 360 days out may look like.
Understood. You and I have different jobs. But I appreciate that. Thanks guys. Nice quarter.
Thank you, Rich.
The next question comes from Haendel St. Juste from Mizuho. Please go ahead.
Hey there. Good morning.
Good morning Haendel.
Hey guys. So I guess my first question is on the pricing power in the portfolio, the continued acceleration in pricing power this year has been pretty remarkable, you're pushing rents at levels you were a year ago and deeper into the years than you typically would while still managing to grow occupancy 11 months in a row. And it sounds like by your comments that you're still, if you are willing to push maybe even a little harder on the rate side here going into the year end.
So I guess I'm curious, it sounds like the demand is strong, so perhaps some color on maybe some application levels and how they compare it to maybe a year ago? But also how were we thinking about occupancy? Are you willing to perhaps create a bit of occupancy here to sustain that 4%-ish type of blended rate growth?
And then as we look into next year, the world returning a bit to maybe a more normal place, or at least on a path to more normal post vaccine, how concerned are you about maybe some of that occupancy, degradation or other operating headwinds? Thanks.
No, you always seem to do a good job asking multiple questions in one. So we will make sure we try to get it done. So let me it over to Charles to see if we can get through each of those items you brought up.
Great. Hey, Haendel I'll do my best to kind of work through it. Why don't I start with occupancy because, I think, it's an important note to highlight? I think I said this on the last call when COVID hit, we were actually running really nicely on occupancy. We're at kind of an all-time high for that period in Q1, Q2 at the time. And so we came in under a position of strength and then we wanted to see how it all played out. And so we got a little conservative on rate and saw for that occupancy, but we quickly pivoted and you can see now how we're pushing. But some of that occupancy gain is yes, lower turnover, yes, it's COVID demand, but it's also been really great execution by our teams on days to be resident.
We're, as I mentioned, we're down 14 days in Q3 and we're down seven days overall. And that has a real push on how quickly we turn and keeping our occupancy up. So if we can continue to do that, that gives us some confidence to try to get back to some normalcy on the rate side and try to capture market rents. And so you're seeing that absolutely on the new lease side. And we ended September on new lease at a 6.2% and October, seems to have the same similar demand. Again, this is very late in the season. Typically, seasonality will slow down right now.
So we're trying to capture that. And as I talked about in my earlier call earlier comments, we're trying to balance the renewal side. We're getting back to normal to a degree, but we are still instructing our teams to find that right balance. And so we're not going to push too hard into the winter here when we don't have a vaccine and we know that there may be some moments where there's going to be some uncertainty.
So we're just trying to find that right balance. And keeping that occupancy high gives us a position where we feel like we can do that. And keeping days to be resident where we want to is another place to do that. And a lot of that has been driven by just getting our turn times down, pre-leasing and being really thoughtful around how we manage that side of the business.
Charles thank you. I guess I wanted to ask a question on the JV as well. Regarding more potential conflicts that might arise, I understand that JV is going to pursue similar assets that you will on your own balance sheet. So maybe, can you talk about the mechanism for resolving any perceived conflicts on what new buy versus what’s perhaps the JV would buy in similar markets? And then also understand that you said your new JV partner has also formed a new JV with one of your peers. So curious how that potential perception of conflict might be carved out or addressed? Thanks.
Yes, great question Haendel. First of all, I'll talk more about the overall structure, but there's no conflict between us and anything that would do with that other peer. We have a defined price zones that we're allowed to invest and operate in and the same for them. And so, as you know, we typically buy a little more, higher end nicer product. I think the way to think about the JV is that it's incremental growth for our business at the end of the day.
And I'll give you an example. In a market like Atlanta, where we have 12,500 units, we are on balance sheet, obviously a bit more, picky about what would go into the portfolio at any given time, given that we have substantial scale and exposure in that market. We certainly see opportunities to invest in Atlanta and the JV is a perfect vehicle for us to go in and to maybe be more active than we otherwise would on our wholly owned balance sheet, given our own capital limitations or expectations.
The way that we've done it internally is that with our buying, we have basically an agnostic way for our teams to be as active as they normally are. And then we're able to allocate the properties between the balance sheet and the JV after they go into contract. And so at the ground level or at the call it market level, our folks aren't making those decisions as to where they go. We have predetermined ratios as Ernie mentioned that help us kind of delineate when and where those will go based on market parameters that we've discussed with our partners in the JV.
Yes, that’s great Dallas. And if I may add a follow-up to that, what about future overall JV appetite? I can guess is this it for now? Certainly we've heard stories of the long list of folks interested in investing in the space. So just curious if the future of JV appetite, if perhaps you'd be willing to bring in a second partner, or perhaps, are you more inclined to expand this current JV out or, do you have the ability to extend this one further up? Thanks.
We're comfortable with the partner we have right now. I think 2020 is the perfect example of why having a flexible structure with a partner like Rockpoint is perfect for us in this environment. There's stock price volatility. You still see meaningful opportunities to invest and grow your own balance sheet. We have absolute flexibility as a company to take down any potential M&A on our balance sheet. We haven't given away any of those rights or anything like that.
And in addition, as we see opportunities to grow, if this particular structure worked, I'm sure we could find ways to expand it if we want it to, but we're comfortable with what we've got. And we don't want to take a focus off growing our own balance sheet as well. That is a big focus for us and we have not negated any of that flexibility going forward.
Great. Thanks Dallas.
Thank you.
Thanks Haendel.
Thank you. Next question comes from Jade Rahmani from KBW. Please go ahead.
Hi everyone. This is Ryan [ph] on Jade. Thanks for taking the questions. Just looking at the bill to rent model that a number of other players are looking to pursue or are pursuing, has your view around that strategy changed at all? Wondering if he would consider increasing your footprint there whether through on balance sheet or potentially through JVs in that strategy?
So about 10% of what we buy today comes from builders more or less in parts of communities where we'll buy new product that's got builder warranties and everything else associated with, that you like about that model. But again, not compromising location. I think for us as we've done some of this and dove into it, first thing is we don't like the balance sheet risk that's associated with being a developer in today's environment. You've got rising prices, rising costs, labor challenges.
We love the idea of being able to buy direct and being able to be one of the best buyers of finished homes from builders. We think that's a good opportunity for us if it lines up with our expectations around location. We are certainly open to thinking strategically with partners in the market, whether it be builders that are local or boutique in nature in finding ways to create more opportunities together.
I think we are very comfortable right now in the fact that we're not out buying land, working on entitlements and running that part of the business. We feel very comfortable with our playbook that we're operating in right now.
Great. You mentioned you see upside in the Dallas portfolio, you acquired in terms of yield. I was wondering if you can quantify that at all and maybe more broadly discuss the type of return of public you can typically achieve by bringing on these smaller portfolios onto your more scaled platform?
Yes, that's a great question. I can also talk about the trade that we did in the first quarter in Las Vegas last year. It's interesting when we buy these portfolios where the asset quality lines up with what we want in our portfolio long-term, almost nine times out of 10, we see some embedded loss to lease in a lot of these properties. And so for us, we're able to be either a bit more aggressive on the underwrite or feel pretty comfortable given where the current yields are that we can argue a discount on pricing and be able to go in and over the course of 12 months, pick up a lot of that embedded loss of lease.
So in the case of the portfolio in Dallas, there's probably an easy 30 basis points of yield there if we just go in and restructure leases, whether on the renewal or as things go vacant and roll off. And we saw that in the portfolio that we did in Las Vegas last year, where, I think, we bought it in the kind of mid-to-high fives and very quickly we were in like the low sixes once we had turned all those turned all those units within a 12-month period, or re-established renewal pricing. Very quickly, we got to kind of a stabilize NOA yield in the low sixes.
So that's hard to buy in a market like Las Vegas or Dallas today given the quality that we go after. So we definitely like the opportunities to buy these smaller portfolios that have been assembled and are somewhat stabilized.
Great. Thanks for taking the questions.
Thank you.
The next question comes from Rick Skidmore with Goldman Sachs. Please go ahead.
Thank you. Dallas, just a couple of quick ones, in terms of ramping up acquisitions, do you have to scale up personnel to do that, or can you do that in your existing headcount?
We're built for a variety of scale with the team that we have, so no impact on head count.
All right. And then second quick one. In terms of ancillary revenue, you talked about a year ago at your Investor Day ancillary revenue growth. How are you thinking about that now and as you go into 2021? Thanks.
Yes, we're well in line with our plan that we laid out the Investor Day. We've updated both the programming and our smart rent packages, as well as some of the optional opportunities for our residents. And there's a few more pilots we'll be rolling out this year that will help expand that offering. It was also driven down on our monthly costs, which will create a better spread for the business overall over the long haul.
The second thing is we've also rolled out our updated filter programs, which are now automatic as part of our leases. If you sign a new lease with us today, we will – you get filters drop shipped to your home every 90 days that are expected to be replaced by the resident. There's a cost benefit to that for the business as well. But also on the expense side, we believe that this will have a material impact over time in helping drive down HVAC cost.
And then there are a few other things that we're piloting this year that we talked about during the Investor Day, such as pest control, a few other kind of ideas that we're piling out and fine tuning before we roll out nationally. But we're well on our way to achieving some of those goals that we laid out in September of last year.
Okay. Thank you.
Thank you.
The next question comes from Tyler Batory from Janney Capital Markets. Please go ahead.
Hey, good morning. Thank you for taking my questions. Wanted to follow-up on the acquisition topic. I'm sorry to beat a dead horse in terms of some of these questions. But any markets specifically that are looking more or less attractive in terms of some of the demand dynamics out there as you are ramping up acquisitions, any thoughts in terms of moving into new markets, perhaps?
And then last, when you are looking at the mix of where you might be sourcing acquisitions, any change there, I should see more opportunities on the bolt side or on crafts working with builders as well?
Yes, no real change in the volume mix. I would say 70%, 80% of this is typically coming through traditional channels right now, maybe another 10% to 15% through builder relationships. And then I put 5% in kind of the iBuyers/FSBO community piece of it. I think our channels are getting better and more robust with iBuyers, we're working on algorithms and things with them that will also open up hopefully new product lines. We talked about sale lease back in the past, and that's an area that we're really focused on.
In terms of market mix, no, it's the usual suspects for us. I mean, we love the Sun Belt. We love the fact that our coastal presence is still have a tremendous amount of demand. I mean, if you look at the difference between what multi-family are seeing in California, versus what we're seeing in single family, it's almost night and day. And we're seeing really good blended rates come out of both Southern and Northern California with extremely high occupancy. So those continue to be good markets for us.
We want to try to buy as much product as we can in markets like Phoenix, Denver, and Dallas and continue to add to our footprints as I mentioned before on the question around the JV in markets like Charlotte and Atlanta. And we've continued to call in relation to your disposition question on the margins parts of the Midwest, a little bit of South Florida being smart about HOAs that are presenting challenges or properties that have potential cap for us down the road.
So teams have done – the asset management group specifically has done a really nice job of putting the portfolio in the shape it is in today, so that Charles and his teams can go out and execute the numbers they are.
Okay, great. That's helpful. And as a follow-up question, curious on the CapEx side of things, both reoccurring, and on the initial renovation, CapEx you see many cost creep in terms of labor or material costs that might be impactful there.
Hey, Tyler, we haven't. So unfortunately – our initial renovation budgets have been running on budget or slightly inside, and we continue to harden our assets at the beginning, and investing more when we acquire a home than they would have maybe seven, or eight, or nine years ago. So that hasn't been a price pressure for us.
And on the R&M recurring CapEx side, fortunately we're locked into some good contracts for the majority of the things that we're buying for R&M. So we haven't seen any challenges really on the labor side or the cost side, but we're monitoring it very, very closely. It's the great question to ask in this environment that there could be some pressure there, but so far we're doing okay.
Great. That's all for me. Thank you.
Thanks.
The next question comes from John Pawlowski with Green Street. Please go ahead.
Just one question from me. Dallas, a follow-up on the disposition conversation, curious in some markets that you don't think are a long-term hold, are you less bullish on, is COVID kind of handing you a gift in terms of a temporary sugar high and values are propping up values where we stare at three to five years, and the values don't make sense in terms of the rent growth you can expect. And you potentially pull forward a market exit or a big bulk sale.
Yes, I think sugar rush is probably too strong of a word. I mean, truthfully John is, I think, about it if you take a step back, we're probably under supplied by plus or minus a million housing units today. So that's creating natural pressure on pricing, right, from a demand perspective. I think in some of these markets where we have seen, to your point, probably better pricing later in the year totally has to do with some of the COVID-related impact.
In Florida, for example, I'm sure you're seeing some of the same things. I mean, house prices are moving very quickly and people from the northeast moving south, they want the warm weather, they want space. A lot of bankers taking temporary residents in parts of like Florida. I know several of them. And they are buying homes and making decisions on school districts and all these things, whether it's for a one to two-year’s time or if it's going to be a longer term. I think some of that has definitely carried through on pricing powers, we’re going to sell assets.
But taking a step back to last year, this time we weren't having any problems selling assets at the same point in time in 2019. There's plenty of demand given that supply has been pretty low year-over-year. But I mean, a little bit of a sugar rush, maybe does that equate to maybe an opportunity to your latter part of your question in selling parts of markets down the road? Well first of all, I don't see – I don't see anything in our portfolio today that would suggest that we want to get out of the market completely. So I don't think it's really relevant to the way we're looking at our book today.
And remember these things, if you try to sell an entire market we’ll trade on some sort of a yield. So you got to be in line with where, normalized price parameters would be for somebody that's looking at something of a trade of that size. So I don't think so is the short answer to your question, but it certainly feels healthy. It feels like the lack of supply in the marketplace is being a bit exacerbated with people moving south. And you are seeing that reflect in both rate and asset pricing for sure.
Okay. Got it. Thank you.
Thank you.
The next question comes from Derek Johnston from Deutsche Bank. Please go ahead.
Hi everyone. How are you doing? You have covered a lot, so try to be creative. I'm trying to better understand the NAB accretion opportunity here. And given the continued and recent rise in single family home values and even largely, or especially in your markets, how do you track and what is the embedded mark-to-market of the portfolio versus when the homes were fired?
And secondly, more specific to the dispose in 3Q, can you share the gain on sales versus the initial home purchase price plus CapEx?
So Derrick we look at any of the – we look at it a couple of different ways. We do it in one way that you just kind of described was we take it on a home-by-home basis. We look at the last time we got a BPO, a broker price opinion. And then we rolled that forward based on our housing index. And we do that again on a home-by-home basis. So it's a pretty large spreadsheet, to give us a sense for what they think the homes are worth from a BPO perspective.
But what we also do is we triangulate it against the cap rate approach. We got pretty good sense of where cap rates are in each of our markets because we're active buyers and we're active sellers. And we compare those two amounts often average them, because they're not always on top of each other to get a sense for what I think our NAV is.
We certainly have had seen some great appreciation from when we bought these homes. And if you think about it, and then we bought 50,000 of these homes and the Invitation Homes around the world, mainly in 2012, 2013, 2014, and then we – another 30,000 homes came on the platform at fair value when we did a merger with Colony Starwood, and of course those homes are about the same time between 2012, 2013, 2014. There was some nice increases at that point.
So I don't have an exact number I can share with you that, what is the appreciation from our cost basis of our homes other than if you look at our GAAP financial statements and see what are our cost basis is there, I think, most would agree if you do a cap rate approach or BPO approach, there's a significant increase in what those values are today and where that would be in certainly in the many billions of dollars and in terms of the increase that's happened there.
And then in terms of we do disclose in our GAAP financial statements, the gains that we have as we sell homes off the top of my head, Derek, I can't give you the exact number. I'm sorry. As what that is, other than we disclosed on our financial statements.
We can look that up. Thanks guys.
There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Dallas Tanner for any closing remarks, please.
Thanks again for joining us today. We wish you all the best. Please stay safe. And operator this concludes our call.
Okay. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.