Invitation Homes Inc. (INVH) Q3 2017 Earnings Report, Transcript and Summary

Greetings, and welcome to the Invitation Homes Third Quarter 2017 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, Director of Investor Relations. Please go ahead.

Thank you, Jasmine. Good morning, and thank you for joining us for our third quarter 2017 earnings conference call. On today's call from Invitation Homes are John Bartling, Chief Executive Officer; Ernie Freedman, Chief Financial Officer; Dallas Tanner, Chief Investment Officer; and Bruce Lavine, Chief Operations Officer. I'd like to point everyone to our third quarter 2017 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. Finally, I'd like to inform you that certain statements made during the 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 risk and uncertainties in our 2016 annual report on Form 10-K, our merger proxy filed on October 16, 2017 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 with 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, John Bartling.

Thank you, Greg, and good morning, everyone. As we near the anticipated closing of our merger with Starwood Waypoint Homes, I'm happy to report that we had another strong quarter of great financial and operating results on top of what has been a very active and transformational year for Invitation Homes. 2017 financial performance is progressing in line with our expectations, with third quarter same-store NOI up 8.1% and AFFO up 28.3% year-over-year. Rent growth remained strong with renewal rates up 5% again. At the same time, turnover moved even lower, a testament to the quality of our locations, product, service and people. In addition, we continue to find success of elevating the efficiency of our platform, achieving 18% growth in other income and a 3% reduction in controllable costs during the third quarter. Looking ahead, supply and demand fundamentals remain favorable in our markets. This is evidenced by our strong rent growth, especially in the Western U.S., where we saw same-store blended rent growth of almost 7% in Q3. Home price appreciation remains strong as well with prices in Invitation Homes market up 6.5% year-over-year, 50 basis points better than the national average. Against this macro fundamental backdrop, along with strong financial results we achieved in the first three quarters of 2017, we believe we are on track to deliver same-store NOI growth for the full year of 6.8% to 7.2%. Also of note this quarter was the way we responded to Hurricane Irma. We are particularly appreciative of how quickly our associates moved to assist our Florida and Atlanta residents in the wake of the storm. Thankfully, no injuries to residents or associates were reported. In line with our initial estimates, we have accrued $16 million of casualty loss expense, a small portion of which should be recoverable through insurance. Finally, a few words on our proposed merger. We remain on track to close the transaction before the end of the year with Starwood Waypoint shareholder's vote scheduled for November 14. As mentioned in August, we believe bringing together these two portfolios and innovative platforms will create the preeminent single-family REIT in the United States. With 70% of our revenues generated from high-growth Western and Florida regions and almost $2 billion in renovations, Invitation Homes will be well positioned to benefit from the growing demand for single-family rental housing in the U.S. as well as the inherent synergies in enhanced resident services that come with additional scale. This is a win-win for both residents and shareholders. As we get closer to the closing date, it is worth noting that both Boards and integration teams are working well together. The processes to bring the companies together post-close are running smoothly as we work diligently to efficiently manage 82,000 homes. With that, I'll now turn the call over to our Chief Financial Officer, Ernie Freedman.

Thank you, John. Today, I will cover the following topics: operating results for the third quarter and October, portfolio activity for the third quarter, financial results for the third quarter, balance sheet and capital markets activity and updated 2017 guidance. The third quarter of 2017 was another good quarter for us operationally. Total portfolio NOI grew 8.3% year-over-year, and we experienced this NOI growth despite a slight decrease in home count. For our same-store portfolio of 42,795 homes, NOI growth accelerated to 8.1%. Same-store revenues grew 4.7%, consistent with the first half of the year, driven by average rental rate growth of 4.2% and other income growth of 17.8%. Same-store occupancy remained high, averaging 95.4% in the third quarter and ending the quarter at 95.8%. Same-store expenses declined 0.3% in the controllable portion of expenses, as noted on Supplemental Schedule 3(b), declined even more at 2.9%. Personnel costs were 15.4% lower, turnover costs were 9.1% lower and leasing and marketing costs were 7.4% lower year-over-year. Blended net effective rental rate growth was 4.3% in the third quarter. Renewal rent growth remained firm at 5%. At the same time, annualized turnover declined 150 basis points year-over-year at 38.1%, a great result, especially considering that third quarter is a seasonally higher turnover period in our business. On new leases, we achieved 3.4% growth. Northern and Southern California, Seattle and Phoenix were our strongest growing regions with same-store blended rent growth between 6.5% and 8%. In October, blended net effective rental rate growth declined seasonally, as expected, to 3.7%. Average occupancy for the month was 95.4%, 10 bps higher than October of 2016. October turnover annualized was 33.3%. Newer asks for November and December went out at over 6% on average and we've realized approximately 5% on those signed thus far. I'll now move on to our portfolio activity. In the third quarter of 2017, the total number of homes in our portfolio increased by 142 to 47,867 homes. We continue to recycle capital into higher quality homes, buying 270 homes for an estimated $77 million and selling 128 homes for $25 million. Our average acquisition basis, including purchase price, closing costs and estimated renovation spend, was $286,000, higher than our average disposition price of $198,000. I'll now walk through our third quarter 2017 financial results. Core FFO increased 20.3% year-over-year to $75.4 million or $0.24 per share in the third quarter. The year-over-year increase in core FFO was primarily due to an increase in NOI. Lower cash interest expense also contributed to the increase. The increase in core FFO as well as a decline in recurring CapEx drove a 28.3% year-over-year increase in AFFO to $62 million or $0.20 per share. Supplemental Schedule 1 provides a reconciliation from GAAP net loss to our reported FFO, core FFO and AFFO, including detail on each adjustment we make for nonrecurring items. This quarter, there are two of these nonrecurring items in particular I would like to call out to your attention. The first is merger and transaction-related costs. This is a new line of appearing on our core FFO reconciliation, and we will be recording any one-time costs related to the proposed merger and integration of Starwood Waypoint Homes on this line going forward with the exception of severance expense, which will continue to be reported separately on the severance expense line. In the third quarter, merger and transaction-related costs totaled $4.9 million. This $4.9 million was recorded on our GAAP financial statements in general and administrative expense. The second is casualty loss, which is a component of impairment and other on our GAAP financial statements. Included in the $14.1 million of third quarter net casualty losses in our core FFO reconciliation was a $16 million accrual for damages related to Hurricane Irma. This accrual does not take into account any potential insurance recoveries we may receive that we expect recoveries to be minimal given that most of our impacted homes did not incur enough damage to exceed deductibles. Estimated damages resulting from Irma were recorded as a liability on our balance sheet and to the extent that actual damages ultimately differ from our estimate where we receive insurance proceeds against the damages, we will record these differences on the impairment and other line of our GAAP income statement. These differences would also be backed out of core FFO and appear on the casualty loss line of our core FFO reconciliation. To be clear, NOI will not be directly impacted by the expenses necessary to repair damage related to Hurricane Irma or the associated insurance recoveries. I'll now turn to an update on our balance sheet and capital markets activity. We remain committed to continuing on a path towards an investment-grade balance sheet. Capital markets remain wide open, and we were able to take advantage of that subsequent to quarter end by pricing the industry's first 7-year securitization loan at the best pricing we achieved in our company's history. The total principal amount of the loan is $865 million, of which we will retain 5% to comply with risk retention requirements. And total cost of funds is LIBOR plus 144 basis points. The transaction is expected to close in November. We intend to use the net proceeds to repay IH 2014-2 and IH 2014-3 to fund certain reserves and for general corporate purposes. This securitization transaction and associated debt repayments are expected to result in $4.8 million of net annual interest expense savings and return over $900 million of assets to the unencumbered pool, making 50% of our assets unencumbered. Pro forma weighted average maturity on our debt at the end of the third quarter was 5.1 years with no maturities due before March 2020. Loan-to-value is approximately 40%, and 82% of our debt is fixed or swapped to fixed rate. We also have a $1 billion revolver, which was undrawn at quarter end, and $134 million of unrestricted cash. The last thing I will cover is guidance for the full year 2017. Because our merger with Starwood Waypoint Homes has not yet closed, all guidance provided on today's call is for Invitation Homes as a stand-alone company and does not contemplate any impact from the merger. As John discussed, we continue to have strong fundamental tailwinds at our back and same-store NOI growth in the first three quarters of 2017 was in line with our expectation. As such, we are tightening our full year 2017 guidance range for same-store NOI growth to 6.8% to 7.2%, driven by 4.7% to 4.9% same-store revenue growth and 1.4% to 1.6% same-store expense growth. The majority of the 20 basis point decrease to the midpoint of our same-store revenue growth guidance is attributable to Hurricane Irma's interruption of leasing activity in Florida. In addition, the decline in our same-store revenue expectation is offset by lower expected same-store expenses as a result of better cost controls on controllable expenses as well as lower insurance premiums. Full year 2017 core FFO is expected to be $0.98 to $1.02 per share and AFFO is expected to be $0.82 to $0.86 per share. One more quick housekeeping announcement before I turn the call back over to John and then to Q&A. We will need to keep this call focused on Invitation Homes' earning results and outlook as a stand-alone company. We will not be able to provide further related to the proposed merger with Starwood Waypoint Homes and we'd refer you to Invitation Homes' merger proxy filed with the SEC for information related to that matter. Now I'll turn the call over to John. John?

Thanks, Ernie. Before turning the call over to Q&A, I would like to take a quick moment to say thank you to all of our stakeholders. Together with our Starwood Waypoint Homes colleagues, we're providing a compelling option to lease a home for hundreds of thousands of residents, who want to live in their neighborhood of choice, close to where they work and with their families to go to school. And we're continually tailoring our property management operations, as witnessed by the merger of these two great companies, to provide enhanced services and a worry-free living experience to our residents. As we continue to invest in our high-quality homes, we are meaningfully helping to lift neighborhoods and support local trades in our markets from realtors to roofers. In a dynamic housing market like this one, the power of our business model and strong residential markets really shines through. Suffice it to say, what a blast it has been to be a part of building this great company over the past three years. Invitation Homes was built with amazing sponsor, Board of Directors, team of associates and supporting vendor partners. In 2017 alone, we had an unprecedented IPO; successfully executed the industry's first financing with Fannie Mae; negotiated a transformational merger with our peer, Starwood Waypoint Homes; sustained the hurricane and even last week, successfully executed on our eighth securitization for almost $1 billion. All the while, executing day by day on our business plan to provide a great leasing lifestyle for our residents. It is important to note that through all of these multiple transactions or natural disasters, the power of the platform shined. As once again, we showed best-in-class performance with 8.1% same-store NOI growth. I couldn't be more encouraged for our associates and the Invitation Homes and Starwood Waypoint Homes shareholders' future with a wide range of growth option from the competitive advantage of scale to the compelling prospects of new product offerings. This team has the best people, all of whom have a deep understanding of investing in superior locations, what customer needs and the services that are required. With that, operator, would you please open up the line for questions?

[Operator Instructions] The first question comes from David Corak [B. Riley].

I just want to start on the expense side. Property taxes came in relatively low this quarter, even lower than the first half of the year. Can you just give some color on what's driving that? And then maybe any initial expectations on a decent run rate for that in terms of growth going forward?

Sure, David. This is Ernie. Property taxes came in about where we expected. And of course, we baked into our expectations transactions that occurred during the year. Hard to really project much around what will happen going forward, so I don't want to get ahead of myself. We'll have a better sense for that here in the coming weeks as a lot of the tax bills from jurisdictions come through here in November and into early December. But things continue to track pretty well there. We do expect long, for at least the near-term, David, that taxes will grow greater than inflation because importantly, home prices are growing at great inflation rates. We're seeing the home prices on our markets going up on average about 6.5%, which is about 100 basis points greater than the national average. That will trickle down to us through assessments, but not the outsize from where we had expected based on that home price appreciation.

Okay. That's helpful. And then would you be able to share with us kind of the spot occupancy and rates through end of October or as of today?

Yes. So for the month of October, average occupancy, we mentioned in the call script, our spot occupancy at the end October was 95.8%. So very similar to where we ended September. And occupancy does build up typically throughput the month, and we saw that. And that puts us ahead of where we were last year, David, for October as well.

Okay. And then one last quick one for Dallas maybe. You guys were net acquirers this quarter, both in terms of number of homes and dollar amount. Can you just give us a sense as to kind of the channels that you're buying out of and any portfolios in there? And maybe just an update on deal flow and what you're seeing out there?

Yes. The market continues to be relatively tight. We're still – because we're local and we have a high-touch influence in our markets, we're able to see everything that kind of comes through a variety of different channels. As you're well aware of, we are working with particular groups, such as Zillow and Opendoor to identify outside opportunities that may be not transacting through normal channels. But I would say that our focus continues to be in the markets that are higher barrier-to-entry, where we're going to see some of the greatest economic rent growth. So markets like Seattle. And a market that we continue to be bullish on, we – as was pointed out in the call, love our West Coast concentration bias and so we'll continue to try to find opportunities. It helps being local and having an ability to maintain relationships with local sellers.

The next question comes from the line of Neil Malkin of RBC Capital.

Appreciate the strength in the West Coast. And this may be too soon to maybe get a read on, but do you guys have any sense for, if there's a larger or an increasing incident of people moving out, particularly in California for job relocation? And I guess, the reason I asked is it just seems like there's more and more things being put in place in California that make it harder to operate a business. So I just wonder if you're starting people maybe relocate to like Denver, Phoenix, something like that. Or is that not really happening?

Neil, this is Bruce. No, we're not seeing that happen in California. We've not seen a slowdown or we've not seen higher numbers of people who are relocating as a reason to move.

Okay. And then other one for me would be the weakness that we saw in 3Q just in terms of new leasing, that will be basically attributable to the – to Irma, would you say? Is that where you got probably hit the most?

So two parts to that. I would say, overall, we saw very strength in the West Coast. And as you get into 3Q, especially as you get into September, that's just we're coming out of peak leasing season. So we anticipated that our numbers would be where they were. With that said, I'll let Bruce talk about it. We certainly do have some impact from Irma. And certainly, those markets that it was weaker still than we would have anticipated because of the disruption from the hurricane.

Yes. I think, to add to that, Neil, we did see disruption in Irma from new lease perspective. I'll tell you, though, you probably recall that we were a little late in taking our foot off of the gas on rate growth last year, and it was to our detriment with regard to inventory. And so we were very, very conscious of wanting to respond and correct any opportunities that we had, any imbalances that we had with regard to our occupancy and lease rate. And the third factor, seasonality, continues to be – to play here as well. So those three combined did have an influence.

And just if I could follow up on that. Would you expect a bounce back maybe in Florida in the fourth quarter just given the either, A, not – lack of ability to potentially move into a home? And then B, maybe displaced residents from other areas that you guys weren't impacted by who are looking to seek residence while their homes are getting rebuilt?

So Neil, we're not seeing displaced residents. That did not factor – has not factored in for us yet. And as you heard in other reports, the damage was not as substantial to the degree that there were numerous homes that were not habitable any longer. We are seeing pent-up demand in the Florida markets. We made up basically half of our absorption loss in the month of September and October. And leasing numbers are quite strong. So I'm optimistic that there will be opportunities as the leasing continues to see new lease rate growth increase.

The next question comes from the line of Jade Rahmani of KBW.

In terms of acquisitions, where are you targeting cap rate on an economic basis after CapEx?

We're still seeing – much like we laid out at our merger call, we're still seeing blended opportunity to be buying on an NOI cap rate basis around a 5.5% cap depending on kind of the market mix. And obviously, you have a little bit of a difference between maybe what you'd see in markets like Northern California or Southern California relative to what you might see in some of the better neighborhoods of Atlanta. But on a blended basis, we still feel, call it, post-CapEx basis, we can still be in the mid 5s.

So that's after CapEx?

Correct.

Okay. Are there interesting markets where there's an opportunity outside of that range like in the 6s that you haven't been in previously?

Well, I think as you think about our portfolio, and we've been pretty consistent with how we've been building it, we want to fit in to those high barrier-to-entry markets. I think it's an important thing to point out with some of the operating statistics that Bruce and his team have put on the board. When you're in those high-demand areas, you have a better opportunity to see revenue growth. And so we'll continue to try to be in those high-demand areas within these MSAs, where we're currently invested. But we do look at other areas for opportunity, but we want to be where the jobs are and where the schools offer a quality of choice and, quite frankly, where people want to live. And those tend to be in those West Coast and Florida markets, where a large percentage of our portfolio is today.

Just on the leasing trends. I was wondering if you could comment on percentage move-outs to buy-in, how that's been trading as we're seeing a push from home builders to grow their entry-level product.

Sure. Jade, we've seen the move-out – the reason for move-out to buy a house had been very consistent for us over the last four or five quarters. It's range between 27% and 30% depending on the quarter. This past quarter, it was 28%. So we're not seeing any meaningful change in patterns there relative to our recent history.

The next question comes from the line of John Pawlowski of Green Street.

I was hoping you could just give a little color on how you'd characterize market level pricing power today versus a year ago. Blended rent growth decelerating from 6.1% to 4.3%. I guess, other than maybe a tough comp and some weakness in Florida, what specific factors are causing you to not achieve 6.1% like you did a year ago?

So let me start with that and I'll turn it over to Bruce, John. I think, first and foremost, is the period of time that you're looking at the numbers in 2016, we're comparing to a 2015 period. And the company was in a different stage of its maturation process at that point, really pushing out revenue management ideas, getting better at those as well as catching up for a company that have only been around for a few years and getting stabilized occupancy and really being able to push at that point. You think you're seeing this year is a similar market dynamic. But you're seeing a more mature company as it's going after the renting profile. And so for us, similar characteristics, similar market. We had some catch-up from the prior years. So certainly, more difficult comps. Of course, in the third quarter, you did have three or four markets that were impacted importantly by a natural disaster and some challenges there. Bruce, anything you want to add?

I think my earlier comment about the fact that we suffered slightly on the occupancy point because we were a tad too aggressive in that area applies this year as well. In some of the West Coast markets, the slight sequential differences almost feel like euphoria turning to bliss. You're not looking at 96 7s, but you're still very, very strong all of those markets and demand continues to be strong.

And I would say on the revenue management side, John, this is Bartling, one of the things we went out on the road and said is that it was important to get our lease expiration management in place. And I think what we've done has worked very well to put demand and supply against each other going forward. So I think even next year, as you look at pricing power, we're well positioned for the portfolio as we continue to manage our expirations against demand.

Okay. Very helpful. And I appreciate the comments on move out to buy being very much restrained. I guess, what – within that broad portfolio average, what markets are you seeing the most strain on affordability either manifesting itself through move-out to rent increases or moving out to buy activity?

This is Bruce. So we're seeing – the stronger home purchase markets right now would be Tampa. Surprisingly, in the last few months, Minnesota has seen a bit of a spike. Jacksonville continues to be one that does have a higher number of purchases, home purchases.

The next question comes from the line of Buck Horne of Raymond James.

The question was on the core G&A run rate, if I could. Just – even stripping out the merger and severance cost and the one-time stock comp in that number, it seems to be trending a little bit higher. Is there something pushing that up near term and kind of what's your outlook kind of on a run rate basis for the G&A and also the property management?

Sure. Buck, it's Ernie. And you are right to point out that third quarter for us in G&A was a higher number than you saw in the first two quarters. In the first two quarters, we ran about $10.5 million to $11 million. It jumped up to a little over $13 million when you factor out the noise from some of the one-time type things. We actually had some timing issues in the third quarter that will reverse a little bit in the fourth quarter. One in particular was separate from the hurricane, we did actually pierce our self-insurance retention layer during the third quarter, which were quite a thing to accelerate, recognizing that in the third quarter, where would – so we had to recognize $1.7 million in the third quarter. That will start to reverse out in the fourth quarter from a timing perspective. So if you take out that $1.7 million, you get back to the kind of that run rate for us of $11-ish million, $11.5 million per quarter. So that's really what happened with G&A. And property management continues to kind of track as we would expect it to throughout the year with some minor timing issues then and there. So you should see a drop-off in the fourth quarter because of that one-time timing issue.

All right. That's perfect. And a quick question, did you – and any of the acquisitions delivered or anything you got in the acquisition pipeline now? Are you taking any delivery of built-for-rent homes yet?

I'll let Dallas talk about that.

Thanks. No. Today, as of today, we have not done any built-to-rent product in our portfolio.

Okay. And no plans to as of yet?

Not necessarily. I mean, we've looked around and we stay open-minded. I think it's really focused on where those opportunities present themselves. And in some of the markets we are in currently, we don't see a ton of those built-to-rent opportunities.

The next question comes from the line of Doug Harter of Crédit Suisse.

Ernie, I was hoping you could talk a little bit about the financing markets, kind of where terms are today and whether there's any update on being – the ability to do more GSE financing?

Sure. And the markets are wide open. You saw one of our peer company have a very successful transaction in September and we were able to have a very successful transaction. We'll close sometime this month. And the securitization market spreads continue to be more favorable. And actually, we're seeing secondary trading on our securitization will close soon. Trading had been slightly tighter from where we priced. So the security, there's a dearth of product, which helps borrowers like us from a capital markets perspective. The GSE markets, to be seen. We certainly got a great deal down with Fannie earlier this year. We understand that Freddie folks are giving some consideration to things as well, but can't speak for either of those two groups. That's another avenue that's open for us. Importantly for us, Doug, and we've talked about we have a commitment to wanting to move to an investment grade balance sheet. And so as we've seen that we've had very – a lot of success in the secured market to the securitizations and through the deals with the agencies, we've had a number of banks reach out to us to talk about ideas that would help us – that make that transition over the next period of time to create an even larger unencumbered pool, which today is at 50%; to increase our weighted average maturity, which today is at 5.1 and to open up some new avenues to us as well. So we're fortunate, not just us, the industry and a lot of borrowers are in a very good, healthy position maybe able to access the capital markets, and we'll continue to take advantage of that as we think about it moving forward with our capital markets plans.

Just on the last point. As you move to more unsecured, is there a near-term cost to do that relative to securitization? Or can you accomplish it with minimal extra cost in the short term?

Well, you really have to factor in a couple of things, Doug. So you have to look at the type of financing but importantly, the term. And so today, we have shorter-term securitization financing, I've seen, that's hedged. So we've hedged our cost for that at an 80% level. And so we haven't made final conclusions on what term we may be looking to do and how we may roll that out. So the answer is there could a cost associated with that, but we'll – that's something we'll study very carefully as we determine how we move forward, how we start making those – that transition and then do it in a smart way to provide flexibility to the organization, but also to provide certainty around our capital stack.

The next question comes from the line of Ryan Gilbert of BTIG.

Was wondering if you could add any color on the specific initiatives that you're undertaking to drive the controllable expense line down.

Sure. I'll take a couple of passes at that. So on the controllable expense line, we break our expenses between fixed and controllable. So on control, we've done a lot of work around repairs and maintenance and turnover in terms of how we procure, having consistent scope across the country. When you have 13 regions, you have a best region and you have a weakest region in terms of how they're doing with their cost. And we learn from the best and try to roll that out across the board and improve those that are struggling a little bit. We've been very focused on the personnel side throughout the year, being smarter on how we deploy resources. Importantly, providing a better customer experience, but we're also finding that we can do that by being more efficient, by centralizing some different activities, and we've had some great success with that. It's been led by our Chief Revenue Officer around our call centers and being more efficient there. But again, much more importantly providing better customer service to those who are calling in. And on leasing and marketing, we're looking at different things as well there in terms of working with the folks who work with us on that side and being smart about how we're deploying. So we continue to have opportunities there as we move forward.

Ernie, if I can add with regard to our maintenance performance, the ProCare Program continues to pay dividends. The fact that we don't just get into homes that request work orders initially. We get into all the homes, is helping us to deter the anomalous turn that could raise our costs. And it's also helping us to serve the residents better by addressing their issues early.

Okay. Great. And then as you look into the fourth quarter in 2018, what line items are showing the most opportunity to continue to drive expenses down or that continue to control expenses on those lines?

Yes. I want to be careful about getting too far ahead on 2018. So I would say all are available for us to continue to get smarter at. And as an organization, we've been doing this now for a little more than five years. So I think some have more opportunities than others. It'll probably appropriate for me to share details on that the next time we get together on an earnings call.

The next question comes from the line of Dennis McGill of Zelman & Associates.

When we look at the – just carrying on the cost side, when we look at the cost to maintain, if I'm looking at this right, the cost per turn actually went up year-over-year, but the overall cost to maintain went down because turnover was down. Just wanted to see if that backs out the hurricane cost. And if not, how you would sort of describe the increase on a year-over-year basis.

Yes. Sure. So it does back out the hurricane costs. So the costs associated with the hurricane are not are included in our repairs and maintenance numbers or our turnover numbers. So a couple of things. You pointed out correctly that our total cost to maintain has come down slightly and you've seen turnovers come down slightly as well. And turnover is up a few percentage points year-over-year. Hard to draw a lot of specific trends from that, Dennis, from first quarter. But the team continues to be very smart and very careful about how they're looking where to spend. We are choosing on turnover today to try to put some more long-dated items in the houses if we didn't do that initially. I know there's been some discussion on other calls about putting in the hard surfaces, for instance, for flooring. That's something we've been doing for a long time, but we continue to roll out in the turns. And so we are comfortable with investing. And you've seen our numbers, our CapEx numbers are up significantly more year-over-year and turnover relative to what's happening with the expense piece. Part of that is investing for the future and being a little bit smarter. So we think long term, that will bring down R&M costs as well as future turnover costs. So a little bit of investment, a little bit – it's kind of where it's been before and trying to be smarter about how we're doing each of our turns.

Okay. On the new lease side, Bruce, you were talking about having to balance occupancy this year a little bit differently than maybe last year. Could you give us any stats on where new lease rent growth was in October this year versus last year?

Sure. New lease rent growth in October came in at 1.9%.

And what was that last October?

I do not have last October's, but we can get that for you. Bear with me for one second. It was the high twos last year.

Okay. And then last question would just be on Chicago. Would that be in a market that's underperforming both from margin and growth? Dallas, is there an opportunity to close that gap organically? Or do you have to start thinking about changing the structure of the portfolio and what you own there?

Well, Bruce and his team have done a terrific job on the occupancy side of things. They continue to find ways to increase our efficiencies there from a management standpoint. In terms of – from an asset management perspective, look, we're going to consistently cull and rank our portfolio and look for ways to recycle capital. We laid that out at our IPO earlier this year, and we've held largely in line with that strategy throughout, call it, October of this year. We will look to find ways to make our portfolio better. That could include some culling and some selling. It could also mean that we will add properties into certain markets where we're seeing additional strengths. So I think it would be normal to say that we would look at all options to keep making our portfolio better and enhance overall shareholder return.

Dennis, this is John. One thing on new rent growth. I do want to point out. In October, where – it's one of our largest lease expiration months. And we were very purposeful to get our lease expirations off of October. So I wouldn't read too much into it. We move something like 600 leases off of this month for next year. So it's – we looked at October as an opportunity to sort of streamline that and make that a better month for next year.

And sorry, so you had more expiring this October than last October or vice versa?

We had more expiring last year than this year. Still this year, we had more. Next year, we won't. I'm sorry.

This concludes our question-and-answer session. I would now like to turn the conference back over to John Bartling for any closing remarks.

Thank you, operator. Thank you, again, for joining us today. We appreciate your interest, and the team looks forward to seeing many of you at NAREIT next week. And on a personal note, one more heartfelt thank you from me as I sign off. I'll be forever grateful for the experiences I've had and the relationships I've formed as CEO of Invitation Homes, and I thank you all for the trust you've extended to us along the way. Operator, this concludes our call.

The conference has now concluded. You may now disconnect.