Greetings, and welcome to Invitation Homes First Quarter 2021 Earnings Conference Call. All participants will be 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 conference over to Scott McLaughlin, Vice President of Investor Relations. Please go ahead sir.

Good morning and welcome. Joining me today from Invitation Homes are Dallas Tanner, President and Chief Executive Officer; Ernie Freedman, Chief Financial Officer; and Charles Young, Chief Operating Officer. During this call, we may reference our first quarter 2021 earnings press release and supplemental information. This document was issued yesterday after the market closed and is available on the Investor Relations section of our website at www.invh.com. Certain statements we make during this call may include forward-looking statements relating to the future performance of our business, financial results, liquidity and capital resources and other non-historical statements, which are subject to risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated in any such statements. We describe some of these risks and uncertainties in our 2020 annual report on Form 10-K 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. We may also discuss certain non-GAAP financial measures during the call. You can find additional information regarding these non-GAAP measures, including reconciliations to the most comparable GAAP measures in our earnings release and supplemental information, which are available on the Investor Relations section of our website. With that let me turn the call over to Dallas.

Thanks everyone for joining us this morning. We hope you are well and have continued to stay safe. We're off to a great start in 2021 with strong fundamentals, steady progress on our growth objectives, and great positioning for the peak leasing season. We are seeing record demand for our homes and we're executing well to turn that into record high occupancy and capture market-driven rental rate growth. We are also driving growth through acquisitions as our tried and true multichannel platform and local investment professionals continue to successfully source accretive opportunities as home price appreciation accelerates. Before turning it over to Charles and Ernie, I'd like to elaborate on the macroeconomic opportunity we see and the strategy we've put in place to capitalize on it. To begin, we believe the tailwinds driving growth in our business and markets are stronger than they've ever been. The supply of single-family homes remain well short of growing demand, while the leading edge of the millennial generation is just starting to reach our average resident age of 39 years. As this large cohort of the population may increasingly seek out single-family homes, we anticipate that their preference for and participation in the subscription economy could continue to drive them toward home rental versus home ownership, further extending demand growth for our product in the years ahead. We also expect continued benefits from our homes compatibility with the work-from-home lifestyle and the relative affordability of our square footage compared to other housing options. We believe these benefits are magnified in a world where people rethink the way they use space to work and play. In addition, we're seeing strong continued growth in household formation within our markets, which are benefiting from the southward migration of the U.S. population. Put simply, we believe the growth…

Thanks, Dallas. Let me start by recognizing our teams for another quarter of exceptional care to our residents. Our approach is straightforward: we offer quality homes and easy process and friendly service. And when we execute well as we did this past quarter, it reflects in several ways. Let me tell you about four of these. First our residents continue to stay with us longer. During the first quarter, trailing 12-month same-store turnover decreased another 100 basis points to 25.3%. The second point is our ability to lease faster. Our days to re-resident dropped to 29 days for the first quarter down over 20 days from the prior year. Today over half of our new leases are being signed before a new resident has even seen their new home in person. This along with lower turnover helped drive our same-store average occupancy to 98.4% during the quarter 170 basis points improvement over prior year. The third point is our rental rate growth. New lease rate growth accelerated to 7.9% in the first quarter, up 610 basis points year-over-year, while the rate on renewals grew 4.4% in the first quarter. This brought same-store blended rental rate growth for the quarter to 5.4%, up 200 basis points year-over-year. The fourth and final point is resident satisfaction. As a reminder, we receive roughly 60,000 resident surveys each year and these continue to indicate record-high satisfaction rates. Our residents are particularly pleased with how we're using technology to add flexibility, convenience and time-saving benefits to their lives. For example, we recently rolled out an app to make service requests and appointments easier for our residents and more efficient for us. And we continue to install our Smart Home suite throughout our portfolio while also considering new ways we can continue to improve the resident experience. All of this leads to our same-store NOI growth in the first quarter of 4.4% year-over-year. This is comprised of same-store core revenue growth at 2.2% as well as a 2.2% reduction in same-store core expenses. On the revenue side, cash collections improved in the first quarter 98% of our historical average as we continue to work with residents to offer flexible solutions for those experiencing hardship. Lower expenses were mostly result of double-digit percentage drops in nearly all of our controllable expenses. As Dallas mentioned, we are now in our peak leasing season and demand for single-family housing is as strong as we've ever seen. This reflects in the current dynamics in the marketplace and is certainly impacting how we think about renewals and new lease rates. In summary, we remain in a strong position to continue delivering on our resident service and operational excellence and to capture the robust demand we're seeing across our markets. Many thanks again to our team for the genuine care they provide to our residents each and every day. That concludes my remarks. I'll pass it along to Ernie.

Thank you, Charles. Today I'll cover the following topics: first, our recent announcements of our investment-grade ratings; second, acquisition and disposition activity; and third, our financial results and the increase to guidance we announced last night. Last week we announced that both Fitch and Standard & Poor's have rated us investment grade. And this week Moody's has as well. This recognition marks an important milestone for Invitation Homes. We believe it affirms our strong and flexible balance sheet and should also offer us improved access to additional forms of cost-effective capital, when we look to refinance future debt maturities. In the meantime, we anticipate the investment-grade ratings will reduce our annualized interest costs on our credit facility by approximately $0.03 per share. With this objective now complete we remain committed to: one, proactively managing our maturity ladder, which today, other than our convertible notes has no maturities prior to December 2024; two, continuing to focus on lowering our overall leverage to our long-term target of 5.5 to six times net debt-to-EBITDA; and three, over time transitioning more of our borrowings into unsecured financings. As for the current status of our balance sheet at March 31, our overall liquidity at quarter end was approximately $1.2 billion from unrestricted cash and revolver capacity. Net debt-to-EBITDA also declined from 7.3 times to 7.1 times during the quarter. Regarding our investment activity we purchased 696 homes during the first quarter for $233 million. 401 of these homes were wholly owned acquisitions for $138 million and 295 were bought by the JV for $95 million. Acquisition cap rates remain in the mid-5s. We also sold 248 wholly owned homes for $75 million. Last up our financial results. Core FFO per share increased 4.5%, year-over-year to $0.36, primarily due to higher occupancy, lower controllable expenses and…

We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Nick Joseph with Citi. Please go ahead, sir.

Thanks. Just given the elevated home price appreciation that we're seeing nationally is that having any impact on underwriting or initial yields on acquisitions?

Hi, Nick, this is Dallas. We're definitely mindful of the fact that we're in a rising price environment and being pretty disciplined around, where we're buying and why given that we are seeing so much growth. We've been able to sustain that – our cap rates – call our stabilized cap rates in the low to mid-5s. Large part of that obviously is we're seeing the acceleration in rate alongside home price appreciation. It's typically a pretty good proxy. But it's certainly something we're mindful of because, not all trees grow to the sky and so we want to make sure that we're measured be smart about what we're buying, where we're allocating capital and sticking to really our core disciplines that Ernie talked about being really kind of channel-agnostic but hyper-focused on making sure we're in the right locations.

Thanks. And then congratulations on the investment-grade rating. As you move more towards that 5.5 to six times target will further investment-grade credit increases impact your interest rate on the line?

Yes. We have – Nick, it's Ernie and the answer is – I want to thank you for mentioning that and I appreciate your congratulations too. And yes, we have a grid that's consistent with most companies in terms of investment-grade grid. So if we were to give you – able to go to BBB+, there'd be further increases in terms of the savings we have as well as if we would ever someday get into the A ranges. So, yeah, there is opportunity for us to have further savings going into the future.

Thanks.

The next question comes from Jeff Spector with Bank of America. Please proceed.

Great. Good morning. And congratulations on the investment-grade ratings, first question is on, collection of late fees. It seems like, it's still dragging on same stores, but if you could just comment on that please, when you expect to start collecting?

Yeah. Hi. Good morning. This is Charles Young. In terms of late fees, Q1 was more of a transition period for us, trying to get back to our normal course and communicating with our residents. And so, today, as we move into April, we're running more like our historical structure. However, keep in mind that, we're still prohibited in a number of states of charging late fees. So while we're back to our normal structure, we're not going to be all the way back, until some of those rules are pulled back. And then, at the same time, we still are working with residents who have -- who may have a hardship and are willing to go on some type of arrangement with us. And so if they reach out, we'll do that. But in the meantime, I think you'll start to see us move, towards our typical late fee collection, throughout the year. It should increase as the rules evolve.

Thanks, Charles. And then, second question is around, some of the tailwinds mentioned. There still seems to be some investor concern that some of those could fade with re-openings. Can you provide any color on, what you're seeing in April, as we've seen some of the coastal areas re-open? How are your retention rates in April? Anything you can discuss or share with us, please?

Yeah. I think all indications are -- we're really in a strong position. As you can see from our results in Q1, we have a really favorable position with occupancy north of 98%, accelerating rent growth on new lease and renewals. And as you -- we have a few months -- few days left in April. But if you look at the numbers that we have, we're going to be north of 10% on the new lease growth, which is further acceleration from Q1 renewals in the kind of mid-5s, a blend around seven. We'll see where we settle out. But all of that is really healthy. And that's also with strong retention and renewal numbers. Again, as you go into peak season, it's a little seasonal. We're going to try to push rate and balance that appropriately. So you may see a little bit of pushdown on retention renewal, as things turn. But we're as strongly positioned, as I've seen in my career in single-family. So I'm really excited about, the opportunity going forward.

Great. Thank you.

Thanks, Jeff.

The next question is from Rich Hill with Morgan Stanley. Please proceed.

Hey. Good morning guys. I wanted to talk about bad debt for a second. Bad debt was still a headwind in 1Q, which makes some sense. So two-part question, can you talk about -- and I think this is directed for you Ernie. But can you talk about what's embedded in your guide for the rest of the year for bad debt? And when we think that might switch to -- from a bad guy to a good guy?

Yeah. Rich, I appreciate, you asking that. The answer is yes. The bad debt does continue to be a headwind. The comp gets a little bit easier as the year moves forward. But it's really -- we're on the path that we talked about on the last quarter though. On a sequential basis, we anticipate that bad debt will get a little bit better each quarter. But we still think, for instance in the second quarter, it's going to run similarly to what you saw in the first quarter, somewhere between 200 basis points and 250 basis points. Hopefully, we get into the mid-to-high-100s, as we get into the second half of the year. And so for the whole year, when you compare full year 2021 to full year 2020, we're still anticipating at the mid-point of our guidance that it's a bit of a headwind, but it does get better each quarter. But we clearly don't get back to historical numbers that we saw in 2019 of somewhere between 30 basis points and 40 basis points until sometime well into 2022.

Okay. Helpful, hey, Dallas, I'm going to preface, what I'm about to say by giving you a caveat. This is especially annoying sell-side question. But walk us through why you're just not supposed to buy everything here. Some of your competitors are obviously being pretty aggressive with various different programs. We see a lot of new entrants in the space. There's tremendous tailwinds I recognize HPA is expensive. But -- and I fully appreciate the need to be prudent. But why not take your investment-grade bond rating, and just start buying as much as you can right now?

I'll try not to give you an especially annoying answer, Rich. But I would just -- I would say a couple of things. I mean, look, we're investors for the most part across all cycles. We want to be smart about, when and where. We don't disagree that we have a pretty good cost of capital. So if things make sense, we would certainly want to try to find a way to lean in. But with that being said too, we're also seeing pricing, especially on stabilized portfolios in the marketplace, trading well beyond what someone would deem a retail value. We're seeing cap rates compress and kind of the stability of that cash flow being extremely appealing to investors. So we're just trying to really weigh that all out in our approach. Now, also, let's just be cognizant of the fact that, there's very limited supply right now. It is a tight supply environment, but we're active. And look we went into the year feeling like $200 million to $300 million a quarter was pretty rational in a base case scenario, where we could generate really strong risk-adjusted returns for the shareholders. And through the first quarter, we feel pretty good about that. We haven't done anything special yet this year. We haven't picked up any big bulk deal or some opportunity like that. So we did – we agree on the sense – or on the side of your question that we are in a favorable position. So if things become available to us, we're certainly going to try to be aggressive. But at the same time, we also don't want to be overly aggressive and dilute what is an exceptional portfolio with really, really strong operating metrics. I just want to echo what Charles said, which is in 10 years of running and being involved in this business, we've never seen fundamentals like this to your point Rich. So we want to really continue to execute on the operational side, continue to add to the balance sheet through growth, but really emphasize that ancillary part of our business, which our residents are continually opting into, because that will be an enduring income stream for the business over the long haul.

Okay. Thank you, Dallas. Congrats on a good quarter.

Thanks really appreciate it.

The next question comes from Dennis McGill with Zelman. Please proceed.

Hi. Good morning, guys. Thanks for the time. Charles, you made a comment. I think you said that, the strength of the market is impacting, how you are thinking about new and renewals. And I just wanted to see, if you could elaborate on what you meant by that?

Oh, yeah. So as we look forward to peak season coming, we've been performing – the numbers we put up in Q1 are what we typically see in summer months when things are really strong. And so the position of our portfolio puts us in a really nice position. So when you think about our renewal ask out into the summer, we went out in May with an ask in the high six's. June we're asking around seven. In July, we're asking around eight. These are all on renewals, which is an indication of the healthy strength of our portfolio. And a lot of that is buoyed by our occupancy rate how we're executing the teams are doing a phenomenal job and the new lease rates that we're starting to see forward. And today as I mentioned, on the previous question that for April, we're north of 10% on new lease. So that gives us a lot of strength to think about how we want to go about positioning the portfolio and capturing the strong market that's out there.

So you just meant that, you're willing to be a little bit more aggressive than you normally would seasonally because of how robust occupancy is?

That's right.

Okay. Got it. And then Dallas on the acquisition side with the competitiveness out there, are you either forced to or more willing to take on homes that might require more upfront CapEx and utilize your redevelopment expertise on that to still achieve the same level of cap rate, or is that unchanged?

No. I'd say, it's unchanged, Dennis. We're certainly not afraid of a project, if it's in a great location, but no our view on that hasn't changed at all.

Okay. Great. Thank you, guys.

Thanks, Dennis.

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

Thank you, operator. So, good morning.

Good morning.

I wanted to go back and ask the acquisition question – good morning – a slightly different way. Clearly, there's understanding that there's lots of competition tight supply you're being selective, but I guess I'm really wondering on getting at what's giving you the confidence to hit that $1 billion target for the year, right? We're off to a bit of a slower start in the first quarter than I would have thought. And given your comments about the market, I guess, I'm curious, is there anything special underway portfolios or anything meaningful under contract or LOI or something that's giving you a bit more confidence or something that could be helpful in us understanding the confidence that you're having in hitting that number?

Yeah. Haendel, just for fun. $233 million is pretty close to $0.25 billion –

Net is $150 million.

That's okay. Well we never – we don't – we didn't ever talk about gross to net. But I would say this, a couple of things. Like I said, it was a pretty base case quarter for us. Going back to Q4 and even kind of pre-pandemic our kind of normalized run rate has been right around I would say, $250 million a quarter. That has some ebb and flow. I think in Q3 or Q4 of last year, we had a bigger quarter, because we had a few other little things kind of come into our opportunity set. We feel good about it. I mean, look we're in call it a less than five weeks of supply in all of our core markets right now just from an available inventory perspective. There's so much capital coming into the space that everything is pretty competitive. We've done a nice job of building up and starting to build a pipeline with a lot of our builder partners. So we'll continue to emphasize that as another channel for us as we continue to grow going forward. And we're likely to see some mini-bulk and call it other kind of consolidation opportunities over the next couple of years. Now, all that being aside, we still feel like we can grow to the tune of $1 billion a year. And remember, we report on closings. It doesn't necessarily talk about pipelines, but we're on a pace that we're really comfortable with right now.

Okay. Fair enough. And then on to the ancillary income, I appreciate some of the commentary there. I think you mentioned you're halfway to your run rate of ancillary income by year-end 2022. So pet care – I think you mentioned pest control. So what's next? And what – is that back half of this year more next year? So kind of curious on, what you've accomplished on that checklist and what's remaining on the ancillary income front? Thanks.

Sure. So it goes back to our Investor Day a little over 1.5 years ago. We talked about wanting to be between $15 million and $30 million as a goal kind of by the end of three years. And remember back at that point, our ancillary revenue was basically zero. And we feel like we'll likely land somewhere between the mid and high point of that range over the next 18 months. But what we've done so far is really obviously revamped and enhanced our Smart Home technology platform and offering. Charles and the team have done a fantastic job of continually rolling out that product. That is now basically standard in our lease that we have people that are utilizing that service. We've added things around some enhancements to that profile, which we'll continue to adjust over the next 12 to 18 months. We've done things around filters and filter delivery services. That is now a standard feature that comes with all of our new lease signings and we're working on renewal structures through 2020 -- excuse me, 2021 as well. I talked about the fact that our pet program is being revamped through the end of 2021. That also includes a bit more of an enhancement around screening. We'll roll out -- we've rolled out and is rolling out across the country now our pest control partnership with Terminix. We've got a number of initiatives that are centered around landscaping that will start the pilot later this quarter. I would call most of that stuff table stakes. And then as part of our ancillary focus in creating a better mobile experience for our resident, we would view that kind of beyond those being kind of our core offerings that we'll continue to offer ancillary product offerings that are also both national and market-specific in the coming years. None of that is really weighed into our forecast for the next 18 months. So we view all of that as additional opportunity to grow our business and our footprint with the customer going forward.

That's helpful. Thank you. And one last one if I may. Just another one of these well maybe some possible answer, but like we have to ask it anyway. Occupancy and turnover hitting all-time best again. You're sitting here at 98.5%. You've got days to re-resident, I believe you said, 20 days in the quarter. So I'm not sure how much better that can get from that perspective. But just curious on how you're thinking about some of these levels you're hitting with occupancy and turnover. Is this as good as you ever thought you'd get? Can it be better? Just curious if there's anything -- any perspective you have to share on that.

Yes. I'm glad to jump in. Look, our teams are doing an unbelievable job at all levels. And it's been a very dynamic landscape. If you think about where we were a year ago to what the teams have been able to do and adjust in, we are controlling what we can control. The market is in our favor nice tailwinds. But in terms of our ability to control costs, move people in quickly, pre-lease homes by utilizing marketing and other tools as well as turning homes, rehabbing homes quickly, all those are just driving our numbers down. We were already moving down on days to re-resident prior to COVID and we continue to execute well. So look we're at heady numbers. But as I said before, we're going into the summer in really strong shape. And with the demand still there, we'll see where it ends and where -- how long it goes for. But the teams are ready and they're doing everything they can to make sure that we capture what's out there. Proud of them.

Great. Great. Thanks Charles. Thanks everyone.

Our next question comes from Rich Hightower with Evercore. Please proceed.

Hey, good morning guys. I'll echo everyone else's congrats on a nice quarter in several respects. Ernie, just on the investment-grade rating, I think last quarter you talked about that being a distinct possibility later this year at the earliest. And so just maybe walk us through for a second, what specific factors changed in such a short period of time maybe versus the timing that was originally expected on that if you don't mind.

Yes. Happy to Rich. You never know. It's not in our control completely obviously. It's up to the rating agencies. We started to build more confidence after we were able in December to close on our new credit facility, which really upsized the amount of unsecured financing we had. And earlier than that, we weren't certain we'd be able to upsize it as much as we were able to. So we were able to add another $1 billion of unsecured financings to pay off secured financings. And a couple of the agencies are very focused on how much unsecured you have versus secured. And then the other real question was Rich how are the agencies going to take to the current operating environment. Certainly the sector held up well during the pandemic, but we weren't sure how they would view things from a going-forward perspective. And so certainly I always try to err on the side of under-promising and over-delivering. But we felt good in engaging with the agencies later in December a little more informally that there might be a window for us to go forward here in the first quarter of 2021. We had some very good help from some advisers in the process as well and we decided it was the right time to try. And fortunately the agencies like the path we're on. They certainly recognize as you probably saw in the reports the strength of the industry, the strength of our company in particular from a credit perspective. And we were fortunate to get there. It's the second time they've taken the company through. So you never know exactly how that's going to go. And so that's why I want to make sure we're being cautious, but at the same time we had some optimism. And that's how we were able to get here maybe about a year earlier than we otherwise would have thought.

Okay, great. That's helpful color. For my second question, I know you've mentioned several times in the past, including on this call that, work-from-home is increasingly -- probably a net benefit for your business and your tenant base. But I'm just wondering maybe the flip side of that coin, as more and more companies are announcing starting to announce a return to office plan at some point later this year, clearly some portion of the workforce is going to have to be commuting into the office a certain number of days a week. And how does that change or factor into your underwriting criteria, in terms of geography and the distance from sort of the urban CBDs, respectively throughout the portfolio? And what's your comfort level or house view with the idea that more and more people might work-from-home permanently? And just how does that factor into the investment mix, if you don't mind?

Yes. Good questions. So a couple of things I just want to touch on, Rich. First and foremost, let's go back to pre-pandemic. We were 97%-plus going into the pandemic. So, call it all, the macro tailwinds that center around millennials wanting flexible lifestyle, boomers that are preferential that are making some of these choices. That demand profile was in the business pre-pandemic. Your point around the work-from-home component and the balance of people going back to the office or staying home, we've certainly seen that in our survey data that one of the bigger drivers over the last year on our new leases and move-in that was being influenced was by people's desire to maybe have a bit more square footage because of the work-from-home component. So we view that as purely just a net positive for our business call it, beyond the 97%-plus pre-pandemic. I think for us as a company, in terms of how we position into that narrative, it will be important that we stay current in terms of where those trends are going and other things that we can do that offer that flexibility. Charles and his team look at a number of these things, both from how we rehab a home, fit and finish standards. Certain offerings we can do with some of our partners in the marketplace whether it’d be Home Depot or office furniture companies, et cetera, where we can drive additional synergies for the resident experience. I think that's the key thing here. The occupancy was there pre-pandemic. The demand was there pre-pandemic, but how do we continue to capitalize on that theme, if it stays relevant for our business going forward.

Okay. Thanks, Dallas. Maybe just to drill down on one aspect of the question here. I mean, if increasing work-from-home is part of the house view of the business' strategy going forward, I mean are you increasingly comfortable acquiring homes farther outside the urban CBD? And does that open up investment opportunities that maybe you wouldn't have thought about if we were having this conversation two years ago? Can you go further and further out?

I mean not so much from our current vantage point or our view. Guys remember, at the end of the day, we're total return investors. So if the work-from-home component started to drive value in those neighborhoods that were much further out companies might look at it. But we all know how this tends to play out. The pendulum swings one way and then it starts to swing the other. I think we've always prided ourselves on being more focused on buying infill product, higher demand factors that are driving to that ultimate experience. And it centers around school districts and transportation corridors that go well beyond just whether you work-from-home or not. So, all of those demand factors Rich, from our current view aren't changing. We would view our approach in allocating capital as being -- as continuing to be very deliberate in where we invest capital and why. And so far, on a risk-adjusted basis, we're not seeing anything that's telling us to go further out.

Got it. Thank you.

Thanks.

Our next question is from John Pawlowski with Green Street. Please proceed.

Hey, thanks for the time. Charles or Ernie, hoping you can provide some kind of details on the path for two drivers of the business as COVID impacts normalize. How does occupancy trend once you're able to move through evictions? And what's a reasonable trajectory of cost to maintain once turnover starts to pick up a little bit?

Yes. So first question, as we go into peak season, there's always seasonality around demand and turnover as well as occupancy. We're at that high 98%. I don't think we'll be here forever. But, given our turnover numbers, we were trending in the high 20s prior to the pandemic. We do think and expect that second half of the year we may see a little bit more turnover. But our execution on days to re-resident should mitigate that. So I think we'll settle somewhere in the 97% -- mid-97% high 97%. But at the same time, we're going to capture with the demand that's out there. With that comes -- what we're seeing is really high demand for our homes in locations, as Dallas was talking about and we're able to capture that in the rent growth. So, our investment management team and ops team have always tried to optimize for the environment and they're doing that right now. And as things change we'll do the same. But our general execution with days to re-resident in Q1 of 29 days, that's really phenomenal. That's down 20 days. We're keeping that going. And at the end of the day, I think we're going to end up in a kind of solid position that captures the market.

And John, on the cost to maintain question that you had, yes, we certainly are seeing some positive impacts with the low turnover in our overall cost to maintain. As a reminder, in our cost to maintain numbers, the repairs and maintenance of our homes is roughly about two-thirds of that cost and about one-third of that cost is turnover. It's actually a little bit -- it's changed a little bit because the turnover is lower at this point. Our guidance does assume that in the second half of the year we get to a higher turnover number, as we're able to work through some of the challenges we have in the portfolio. But we think on a long-term basis, we kind of normalize back to the kind of what we saw in the 2019 range, which is probably between around $3,000 maybe $3,100 per door. But of course, that grows with inflation, John. So if you're indexing back to 2019, you have to grow that with inflation for two or three years and once we get back to a more normalized environment. But we're not seeing any additional pressures, but you certainly will see some short-term pressures possibly, if turnover gets elevated in the second half of this year or into early part of next year, as we get back to a more normal operating environment.

Okay. Understood. And then just last one for me. Understood, bad debt is fairly stable across the portfolio. Charles, have you seeing any kind of sequential deterioration in payment trends across markets?

You broke up a little bit. But, no, you're asking about bad debt or collections, specifically within the markets?

Yes. Any sequential -- any market jumping out as deteriorating sequentially?

No. We really haven't seen any of that. There's more challenging markets that we've talked about in the past with California, a little bit of Chicago. But I can’t say that some of these third-party rental assistance programs are helping in those markets. And our teams are doing a great job of really advocating on behalf of our residents to try to get some of those rental assistance. And so some of that is starting to show up, but to your base question, no, we're not seeing any real sequential demand market by -- or region by region. And as we have looked at, in general, March was a good performance on collection. In April, we have a couple of days left, but we're coming in fairly strong as well.

All right. Great. Thanks for the time.

Thanks, John.

The next question comes from Jade Rahmani with KBW. Please proceed.

Hi. This is Sarah on for Jade. My first question is, with the surge and home price appreciation are you pursuing rent-to-own strategies with customers in any market?

Not officially, no. What we've been doing is, fee-simple buying with anywhere from a one to two-year lease.

Thank you. And my second question is, what are the most promising offerings within ancillary revenues?

Well, we think there's a few things that we do really well, including smart home technology that allows people to manage their home mobilely, both from ingress/egress issues, as well as managing their thermostat. We certainly are excited about some of these pilots I talked about earlier, that we think deliver in a better way on a worry-free leasing lifestyle. And things like landscape and being able to offload or ancillary product offerings, discounts with some of our biggest vendors are all going to add to that value experience for the customer. So I think, as we continue to find things that are sticky and maybe more importantly things that our customers can take with them. Our pest control partnership, for example, is a great avenue for that, where somebody comes into the portfolio, maybe stays with us for a couple of years, has a subscription-based service. As I mentioned before, the subscription economy that we're all part of. And then they take it with them, in their walk of life beyond maybe their stay with Invitation Homes. That continues to be an ancillary income generator for our business. So we're really excited about, not only piloting, but figuring out how to enhance some of those offerings, so that they can be perpetual income for the business going forward.

Got it. Thanks for taking my question.

Thank you.

Thank you.

The next question comes from Brad Heffern with RBC. Please proceed.

Hey. Good morning, everyone. Another question on the, sort of, acquisition angle. Has the sort of amount of work that you've had to put in to get a similar acquisition number changed over time? Like does the hit rate on the $233 million that you acquired this quarter, is that significantly lower than it has been in the past?

It's been more or less about the same for the last couple of years. With certainly less supply, there's not as much to look at, albeit we do look at everything in the marketplaces. But it's generally been from a, call it, a macro perspective on supply, the same number for the last couple of years. And at this point, our data and our -- what we call our AcquisitionIQ technology, has become so much more sophisticated and robust, because every year it gets a year smarter. So well over, call it, a million-plus homes underwritten in the last 10 years. And our view on anything from a ZIP code to a submarket continues to evolve and get smarter and smarter with time and distance, as we've seen things happen, both at the marketplace and as we've seen things happen within our portfolio. So our ability to make quicker decisions has probably gotten faster, but the data continually enhances and makes that experience even better for underwriting team.

Yes. Okay. Got it. And then, just thinking about the guide, some of the commentary earlier about the renewal rates that you're asking in the coming months, I mean, it sounds really robust. So I'm curious how much of the April new lease growth of 10-plus or the July renewal of 8-plus, like, how much of that is actually in the guidance and how much of it's upside?

Yes. I would say, Brad, if we're able to achieve close to those numbers that Charles said, there's always a little bit of a give and take on the renewal asks, so we don't get all the way to our number. But if we're able to continue with the numbers that we had in April, in those numbers that Charles laid out, there we'll certainly have an opportunity in toward the high end of our guidance range or maybe even a little bit better. But we'll just have to see how that plays out.

Okay. Thank you.

The next question comes from Keegan Carl with Berenberg. Please proceed.

Hi, guys. Thanks for taking my questions. I guess to kind of take a different point of view from earlier questions, what's stopping you guys from, kind of, clearing out the bottom 2% to 5% of your portfolio that's performing maybe below average and then taking advantage of the current housing level and then kind of recycling that into markets you think you're going to perform better over time?

That's a good question. And we have a pretty good track record of consistently culling the bottom 1% to 2% of our portfolio any given year. This year we're off to I would say a similar pace. I think we had what 200 -- how much do we have in dispositions?

75 million.

Yes, it was about $75 million about 250 homes in the first quarter. So at that run rate we would call it cull through 1% to 1.5% of our portfolio this year if my math is right in terms of say 1,000 sales or so on the current portfolio base. So you're right in that pricing is really good. Now taking a step back when you're in these types of moments you definitely can see a value proposition on maybe what your sale prices are, but you've got to weigh that out with some of the growth that we're seeing as well. So in our West Coast markets where in just the first quarter we're seeing new lease rate growth between 15% in Phoenix, 12% in Vegas and another 11% in Seattle it makes it hard to want to sell much of anything with this kind of momentum. And the portfolio as Ernie mentioned before has been pretty consistent in terms of operating expenses and our expectations around retention. So we're weighing that all out and we certainly would start to cull if we saw an area or a part of the market that we thought we could maximize pricing. But we've done quite a bit of selling in the last three years to five years as well to be prepared for this moment. We're really excited about how the portfolio is behaving and we'll look to maximize those returns going forward.

Got it. Thanks. And then specifically when looking at Florida have you guys experienced any significant insurance premium increases? And do you think this will kind of influence your decisions on transacting in the state going forward?

Keegan, it's a great question. It's something we look at very, very carefully in the property insurance market, which has been very difficult for the last few years in the residential space. And I know the multifamily guys have been talking about insurance increases each of the last two years of anywhere between 20% and 40% for each year. We've actually had some pretty good luck down there because the risk of our assets are so much different because they're so spread out and each of our individual assets have an insurable value that's relatively small. It's not a large multifamily community it's not a large office building things like that. And so with that two years ago we had our insurance renewal. And our insurance renewals happen in March. So our March 2020 insurance renewal we actually had our rates flat across the portfolio. And this year they were only up about 7% or 8%. So over two years we're only up about 7% or 8% combined where I think, multifamily is up potentially 30 to 40 over that same period of time. It's something we watch really closely. It's something we're very cognizant of. But to-date we've been fortunate that we -- the property insurance market understands the risk profile of our portfolio is significantly different than anything else you would see in the commercial space and it's played out well for us.

Great. Thanks for your time, guys.

Welcome.

Our next question is from Ryan Gilbert with BTIG. Please proceed.

Hi. Thanks, everyone. First question, Dallas I was hoping you could add some detail around just your acquisition channels in the quarter. Did the mix between channels change at all from prior quarters? And how are you thinking about the opportunity I guess between -- sourcing acquisition volume between the MLS channel, iBuyers, homebuilders or anywhere else you can buy homes?

Yes. Good question and it always varies quarter-to-quarter. So I certainly can report on what we did in the first quarter. As I mentioned before we had very little bulk in Q1. But we -- probably 80% of our homes came through what we would call traditional kind of one-off channels. We had call it 10% to 12% coming through our builder partners and another say 5% to 6% coming through iBuyer channels as well. So that can tend to vary based on any given quarter, kind of, the course of what we have going on whereas in Q4 it was roughly 30%, 40% that came through what we call mini-bulk just for some comparison. So I would call this like -- I hate to use the word vanilla, but it was kind of a pretty vanilla quarter nothing too exciting outside of just consistently buying one-off properties at the local level.

Okay. Got it. And looking ahead has there been any change in deal flow, or how does the pipeline look by channel? Any changes?

Without giving too much forward guidance, I would just say, we feel really good about where the pipeline is both from the partnerships I talked about earlier on the call with our builder partners as we look to expand those channels. We've talked about that for well over a year now. And those opportunities take time to come to fruition. We're really excited about the work that the team have been doing on some of the smaller -- really smaller consolidation opportunities that are out there. But again this is more of an aggregators environment right now with low interest rates and the amount of capital that's coming in the space. I think we will be really well-positioned over the next call it two years to five years for some good consolidation opportunities.

Okay. Got it. Second question is on build-to-rent. We've heard a lot about it. I'm wondering if you're noticing an increase in competition from build-to-rent operators and if there's any markets you could where you're seeing maybe a bit of pressure on either turnover occupancy blended rent. I mean it doesn't seem like it's showing up in your quarterly numbers, but maybe any color you could provide would be helpful?

Yes. No. So, good question. We don't get any pressure generally speaking from build-to-rent operators as they’re -- typically those neighborhoods are much further out relative to our portfolio. But we're always being approached by build-to-rent developers, other landowners to see if we'd be interested in parts or whole sections of communities. We apply really the same thinking that we do to buying an individual home which is, do we like that location and are we long-term believers in the fundamentals around that neighborhood? We certainly own parts or whole neighborhoods around different markets in the country, but generally they're much more infill in nature.

Okay, great. Thanks so much.

Thanks, Ryan.

Our next question is from Rich Skidmore with Goldman Sachs. Please proceed.

Ernie just a quick follow-up on guidance just to make sure I understood correctly. You raised guidance by $0.03 and benefited from the IG rating by $0.03, but you took up same-store NOI which would probably add another couple of pennies. Just -- I'm just trying to make sure I understand the what might be the offset. Is it just the $0.03 on interest expense is an annualized number? Can you just clarify that?

Yes that's exactly right. The $0.03 is an annualized numbers for the rest of the year. It's about $0.015 maybe a little bit better of benefit and the rest of the benefit comes from the increase in the same-store NOI that you called out you got it exactly right.

Got it. Thanks guys. Appreciate it.

The next question comes from Sam Choe with Credit Suisse. Please proceed.

Hi guys. Congrats on a great quarter. So my question is similar to I think the portfolio turn question you had before. I'm just looking at the blended rent spreads. And the Midwest has been lagging your -- the rest of the portfolio. And I know you've become and always been Sunbelt-focused. But kind of just wondering what your thought around that area is, and how it factors into your commuter location local strategy.

Yes. I think – Sam, it's Ernie. Certainly we have a portfolio of 16 markets you're going to have your better-performing markets and your weaker-performing markets. And you've certainly seen we've had outsized sales out of some of our weaker-performing markets. But even our weakest-performing markets are doing pretty darn well. And we're talking about some record high numbers we're seeing across the portfolio that the markets that may be lagging a little bit are still putting up really solid numbers. But we'll certainly look at the opportunity. And if it makes sense to cull a few more homes because it's a really new time and a unique time in the market we're real estate investors first and we'll certainly consider that. But we also have to weigh against that what additional home price appreciation or rental growth we may be giving up if we sell today versus selling sometimes in the future. But we do recognize there's a good opportunity and there's a good market out there. And as you guys have seen in the past we've done bulk transactions to other institutions more than half of our sales we've sold over 10,000 homes since we started and over half of our sales have been to other institutions. And I think everyone is aware there's certainly capital available, if we want to pursue that. And then the other half we've sold roughly on a one-off basis back into the end-user market. So it's a good observation that folks have had on the call today, as well as yourself and it's something we certainly will -- we think hard and long about.

Got it. And then I want to touch again on the ancillary revenues. I mean the $15 million to $30 million, I mean that's helpful. Just wondering how much of the resident population do you think will pick that up? I know you guys probably did a lot of studies around this. So, just curious as to what you're expecting when you're kind of factoring that into guidance?

Let me take a swing at that and let Charles way in. Look I think each one is going to be a little bit different. So as Dallas mentioned, the Smart Home device is going to be something that's mandatory going forward. So at some point that's going to get very close if not all the way to 100% compliance as leases turnover and people who are renewing add that to the program. Other things like pest control certainly will be more popular in certain parts of the country than others depending on just the nature of where they're at. Pets we think is universally will be accepted because pets are generally -- there's equal dispersion of pets throughout our entire portfolio. And in landscaping again, for some markets it's going to be more prevalent than in others. Some of our markets -- we're very cognizant of things like drought conditions and do a lot of hardscapes. So landscape is not going to be as prevalent in some of those markets Sam as it would be in other markets. So we do have a pretty good sense across the board on a product-by-product basis what that could look like. But the answers are going to range somewhere in the to 1/3 of the portfolio to maybe all the way up to 100% of the portfolio depending on the product.

Okay. That’s helpful color. Thank you so much.

Got it.

At this time I'm showing no further questioners in the queue and this concludes our question-and-answer session. I would now like to turn the call back over to Dallas Tanner for any closing remarks.

Thank you. We appreciate everybody joining us today. We have a great business with excellent fundamentals. We wish you all the best. We look forward to seeing many of you soon. Thanks.

Thank you again for joining us today and we wish you all the best. We look forward to seeing you again soon.