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Invitation Homes Inc. (INVH 0.51%)
Q2 2018 Earnings Conference Call
Aug. 10, 2018, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the Invitation Homes' Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.
At this time, I'd like to turn the conference over to Greg Van Winkle, Senior Director of Investor Relations. Please go ahead.
Greg Van Winkle -- Senior Director of Investor Relations
Thank you. Good morning, and thank you for joining us for our second quarter 2018 earnings conference call. On today's call from Invitation Homes are Fred Tuomi, Chief Executive Officer; Ernie Freedman, Chief Financial Officer; Charles Young, Chief Operating Officer; and Dallas Tanner, Chief Investment Officer. I'd like to point everyone to our second quarter 2018 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 2017 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.
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, Fred Tuomi.
Frederick Tuomi -- President and Chief Executive Officer
Thank you, Greg. Good morning, everyone, and welcome to our second quarter 2018 earnings conference call. Supply and demand fundamentals remain strong in our high growth markets, which enabled us to achieve 4.5% year-over-year same-store core revenue growth in the second quarter, a full 40 basis points better than the first quarter's growth rate of 4.1%. Same-store average occupancy for the quarter of 96% was the highest achieved over the last six quarters, as turnover once again declined relative to the prior year. At the same time, blended rent growth remained strong at 4.7%. This robust top line growth helped drive year-over-year same-store NOI growth of 5% and core FFO per share growth of 19.3%.
Looking ahead, new housing supply remains muted and key indicators point to continued strong demand. In our select high-growth markets, household formations are forecast to grow at a rate 90% greater than the US average for 2018. Home prices in our markets are up almost 7% year-over-year. Higher construction costs are constraining new supply and move-outs to home ownership continued to track lower than last year. All of these key factors point to continued strength in revenue growth for the second half of 2018 and demographics in the US should only become more beneficial in the years ahead as the millennial generation continues to age.
Based on year-to-date results and our expectations for the remainder of the year, we are maintaining the midpoint of full year 2018 same-store core revenue growth guidance while narrowing the range to 4.3% to 4.7%. We're also pleased to report that the majority of integration milestones are now complete, allowing us to estimate merger synergies with greater certainty. We now expect total run rate cost synergies to be between $50 million and $55 million, which is $5 million greater than our initial expectations.
While we are excited about our revenue growth outlook and these additional long-term cost savings, property level expenses are temporarily running higher than expected. Charles will address this in greater detail, however, I'll summarize it by saying that we were overly optimistic in how quickly we would realize service technician productivity gains from our newly integrated repair and maintenance, or R&M management technology, and it will take longer than we initially thought to fully optimize this area.
Accordingly, we are updating our full year 2018 same-store expense growth guidance to 4.6% to 5.4%. Let me be clear that we do not view these projected 2018 expense numbers as normalized nor as representative of any fundamental change in the business. We would not be changing our previous 2018 same-store expense or NOI guidance if not for these temporary challenges. Given our updated revenue and expense expectations, we now forecast full year 2018 same-store NOI growth of between 3.8% and 4.8%. Importantly, we are maintaining the midpoint of our 2018 core FFO guidance and narrowing the range to $1.15 to $1.19 per share, which represents 13% growth versus last year at this midpoint.
As we enter the second half of the year, we continue to focus on widening our competitive advantages in the single-family rental marketplace. The first is locations. We believe we are already in the most desirable high growth single-family rental markets and have carefully selected our homes to be close in, high barrier sub-markets with proximity to employment centers, good schools, and transportation corridors.
With our substantially increased market density post merger, our investment management team is now leveraging even more robust data and analytics to further refine our locations through ongoing capital recycling. In the first half of 2018, we reallocated approximately $130 million of capital from lower rated homes and submarkets into more attractive homes and submarkets through acquisitions and dispositions.
Second competitive advantage we are focused on is scale. With almost 5,000 homes per market on average, we expect to provide even higher quality service to a greater number of homes with the optimal number of personnel. The next phase of our integration will be focused on bringing all of that to fruition as we roll out our new unified field structure and unique operating platform to leverage our increased scale and density.
The third advantage is our people and service, which we also expect to benefit from the next phase of this integration. As mentioned, we have completed the process of moving all of our field technicians and vendors onto one R&M management technology platform. In the second half of the year, we will be implementing even more advanced tools and expanding the ProCare best practices aimed at improving both the resident experience and the efficiency with which we provide them.
Looking further ahead, we also see an opportunity to expand into new products and services that residents will desire and value such as our current smart home technology offering. We remain excited about the growth prospects for this business in both the near term and the long-term and are focused on continuing to leverage our competitive advantages for the benefit of our residents, associates, and shareholders.
With that Charles Young, our Chief Operating Officer, will now provide more detail on our operating results in the second quarter as well as current operating trends.
Charles Young -- Executive Vice President and Chief Operating Officer
Thank you, Fred. I'd like to start by thanking our associates for their hard work and dedication. We continue to enjoy strong market fundamentals, but growth doesn't come without execution, and that all starts with resident service. Our teams are providing residents with a high quality living experience as evidenced by further improvement in turnover rate of 34.4% on a trailing 12 month basis. Resident satisfaction scores also remain high, averaging 4.3 out of 5 over 10,000 survey responses we have received year-to-date from residents regarding quality of service. Our dedicated field teams are committed to earning the loyalty of our residents every day.
I'll now spend some time walking you through the details of our second quarter 2018 operating performance. Same-store core revenues in the second quarter grew 4.5% year-over-year, in line with our expectation and up from 4.1% in the first quarter. The year-over-year increase was driven primarily by average rental rate growth of 4% and a 20 basis point increase in average occupancy to 96% for the quarter. The strong top line results drove same-store NOI growth of 5% despite higher than expected expense growth of 3.6%. Non-controllable expenses were in line with expectations, however, R&M expenses were higher than expected for the quarter due primarily to overages in June mostly concentrated in two markets.
I'd like to take a few moments to discuss the primary drivers of elevated R&M expense that were identified and the steps we are taking to improve our results. There are two key issues we are facing. First, market-specific challenges stemming from disruption to our local teams associated with integration. And second, our temporary challenges with our -- we are experiencing as we adapt to a newly implemented R&M management technology platform. First, I'll touch on the market specific issues.
The vast majority of our markets have seen very limited associate challenges through the integration process. However, Tampa and South Florida have experienced a higher level of personnel issues that have been detrimental to performance. These two markets alone accounted for 44% of the overall R&M miss versus our expectations in the second quarter. We have responded by moving swiftly to supplement and rebuild teams in these markets. We have also committed additional national resources to these two local offices to help restore performance to expected levels.
Second, I will turn into the areas of opportunity with our new R&M management technology platform. The implementation of this technology was completed ahead of schedule during the second quarter and over time, we are confident it will further increase service technician productivity. However, in retrospect, we were too optimistic in our initial expectations in assuming we would realize those productivity gains immediately. In fact, productivity temporarily declined out of the gate. This issue was amplified by the fact that we completed the roll out at a time when work order volume was seasonally the highest. We've already taken specific actions to restore and improve service technician productivity. For example, we have updated our service call center dispatch scripts and logic that determine who is best equipped and positioned to address work orders in real time, which will improve the percentage of work orders completed in-house.
In addition, we are nearing the roll out of a new version of our route optimization algorithm, which will improve the metric of daily average work orders completed per technician. As systems are fine-tuned and fully adopted, we expect to achieve even higher efficiency than in the past due to our enhanced scale, density, experience, and technology. However, we have reset our expectations to assume that it will take longer -- take more time to get there. Our revised guidance assumes that the challenges we have been experiencing will likely persist through the second half of the year, but we are working hard to do better and faster.
Next, I'll cover second quarter 2018 leasing trends. Same-store average occupancy was 96% in the second quarter, best in the last six quarters. Same-store blended rent growth, which we define as lease-over-lease rent growth, net of any concession or incentives, averaged 4.7% in the second quarter driven by a seasonal acceleration and new lease rent growth of 4.8% and continued steady strength in renewal rent growth of 4.7%. Furthermore, we saw acceleration into quarter-end with renewals increasing to 4.8% in June from 4.6% in May and new leases, increasing to 5.5% in June, from 4.5% in May.
Western US markets continue to lead the way for growth with Seattle, Phoenix, Northern and Southern California remaining our highest. Even with strong rent growth, turnover trends continue to be favorable, declining to 9.4% in the second quarter 2018 from 10% in the second quarter 2017. We believe this is a testament to the value that residents continue to find in our first-class service and high quality homes in highly desirable locations. And the strong leasing environment has continued into the third quarter. The year-over-year occupancy gained accelerated to 40 basis points in July with average occupancy coming in at 95.4% for the month versus 95% in July 2017. Blended net effective rent growth was 4.7% in July with renewal steady at 4.8%, and new leases of 4.6% meeting our expectation as we near the end of peak leasing season.
I'll close by expressing my excitement for all of the opportunities in front of us operationally in the second half of the year. We remain focused everyday on delivering the leasing lifestyle our residents desire while optimizing rent growth and occupancy to capture strong market fundamentals. We're working hard to restore and ultimately further improve R&M efficiency. And as integration nears the final phase, we will roll out more enhancements that will make our teams even better equipped to provide an outstanding level of service for our residents.
I'll now turn the call over to our Chief Financial Officer, Ernie Freedman.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Thank you, Charles. Today I will cover the following topics; portfolio activity for the second quarter, balance sheet and capital markets activity, financial results for the second quarter, integration update, and 2018 guidance update. I'll start with portfolio activity.
As we continue to recycle capital to further enhance the quality of our portfolio, total home count decreased by 85 to 82,424 homes. We bought 263 homes for an estimated $80 million and sold 348 homes for $77 million, keeping us on track for our full-year plan of acquisitions and dispositions each in the range of $300 million to $500 million. The average cap rate on homes we acquired was 5.5%. Net investment was focused in the Western US, and to a lesser extent, the Southeast, funded by net dispositions primarily in Chicago, South Florida, and Houston.
I'll now turn to an update of our balance sheet and capital markets activity. Debt markets continue to provide attractive refinancing opportunities in the second quarter. We took advantage by completing two, seven-year securitizations. One in May, with principal amount of $1.1 billion at LIBOR plus 138 and one in June with principal amount of $1.3 billion at LIBOR plus 142. Net proceeds and cash-on-hand were used to prepay $2.3 billion of floating rate securitizations maturing in 2020 and $200 million of floating rate securitization and debt maturing in 2021. Since the beginning of the year, our weighted average maturity has increased to 5.4 years from 4.1 years and our unencumbered pool of assets has grown by over 10% to approximately 38,600 homes.
We also entered into additional forward interest rate swaps to extend the duration of our hedges to match the extended duration of our maturities. We have added schedule 2D to our supplemental to provide additional detail related to expected changes in our weighted average cost of debt over time, based on our current debt and interest rate swaps in place. And finally, our liquidity at quarter end was almost $1.2 billion through a combination of unrestricted cash and undrawn capacity on our credit facility.
I will now touch briefly on our second quarter 2018 financial results. Core FFO and AFFO per share for the second quarter increased 19.3% and 14.5% year-over-year, respectively, to $0.29 and $0.24. The primary drivers of the increases were growth in NOI per share in addition to lower adjusted G&A and lower cash interest expense per share. Supplemental Schedule 1 provides a reconciliation from GAAP net loss to our reported FFO, core FFO and AFFO.
I will next provide an update on our merger integration. We are ahead of schedule on most major elements of the integration. Office space in 15 of our 17 local markets has now been consolidated. Implementation of our new R&M technology is complete and our new accounting platform was launched on August 1. As a result, the pace of synergy achievement is also running ahead of schedule by approximately $10 million versus where we had expected to be at this point. As of today, we have earned an approximately $34 million of synergies on an annualized run rate basis, almost entirely related to G&A and property management. Implementation of our unified operating platform and field configuration that combines the best of both legacy organizations is our final remaining major milestone. Work on the systems and technology to support this unified platform continues to progress and roll out to the field is expected to begin in the fourth quarter of 2018.
The last thing I will cover is updated 2018 guidance. For the same-store portfolio, we are narrowing our core revenue growth guidance to 4.3% to 4.7%, unchanged at the midpoint as fundamentals in our markets continue to be favorable. Our same-store NOI guidance is now 3.8% to 4.8% due to an increase in our same-store core expense guidance to 4.6% to 5.4%. I will give some additional detail to help bridge the increase in our same-store expense guidance.
Our initial 2% to 3% same-store operating expense guidance for 2018 assumed R&M costs would be lower in 2018 than they were in 2017, due to anticipated productivity gains. As Charles described, though, productivity instead declined out of the gate and is expected to take more time to optimize. For this reason alone, we now expect property-level expenses, excluding taxes, to be up 3.5% year-over-year versus down 1% in our initial guidance. Real estate taxes are still expected to increase about 6.5% this year, consistent with our initial guidance. 3.5% growth in non-tax expenses and 6.5% growth in real estate taxes leads to 5% overall expense growth, which is the midpoint of our revised guidance range.
And remember, we have a material increase in our property taxes in 2018 from one-time Prop 13 related reassessments in California, due to our merger. Without that increase, our new 5% same-store expense growth expectation would instead be 4.25%. As Fred mentioned, we have also raised our expectation for total annual run rate synergies to between $50 million and $55 million. This is $5 million higher than our initial projection, primarily due to incremental cost savings we have been able to drive in the areas of vendor and subscription services within G&A.
Taking into account our revised expectations for same-store results and synergy obtainment, we are maintaining the midpoint of our full year 2018 core FFO guidance and narrowing its range to $1.15 to $1.19 per share. Additional favorable changes in our forecast include lower expected interest expense and G&A. In summary, our full year core FFO and AFFO guidance at their midpoints imply a growth rate of 13% and 10%, respectively, from prior year.
I will close by reiterating that our teams are energized and excited for the second half of 2018. Big picture, fundamentals remain very strong, and we are making great progress on the priorities we laid out at the beginning of the year.
With that, operator, would you please open up the line for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) And today's first question will come from Juan Sanabria with Bank of America. Please go ahead.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Hi, good morning. Just hoping we could talk a little bit about same-store revenue. The guidance implies a modest reacceleration at the midpoint in the second half. Are you comfortable with the midpoint and what's driving that uptick in the second half? Is that driven by occupancy and rate and as part of that, how should we think about the impact of the hurricanes last year?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Juan, this is Ernie; happy to address that question. As you saw, we accelerated our revenue growth from the first quarter to the second quarter from 4.1% growth rate to a 4.5% growth rate. As we look at the second half of the year, as we've talked about in the past, we do have easier comps with regards to occupancy. And in fact, in the month of July alone, we are 40 bps higher year-over-year. So we get a little more benefit out of occupancy with regards to having an easier comp and we expect to have good rental growth rate as well in the second half, but with easier occupancy comp we do believe that we will get to that 4.3% to 4.7% range with regards to our revenue for the full year.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
And the hurricanes is a -- makes the comps easier in the fourth quarter or how should we think about that (inaudible) last year?
Frederick Tuomi -- President and Chief Executive Officer
Yes, bottom line is that part of the occupancy bottom line that Ernie talked about is that it's a little -- it was a little lower in the fourth quarter and that will give us a little bit of a lift as we can -- as we comp against it. So the hurricane pickup really started to comeback in occupancy in the first part of this year and we had some slowdown in leasing because of the hurricane in both Houston and Florida. So that's some of the comp benefit that we'll have.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Okay. And then on the expense side, you talked about -- it sounds like higher employee turnover in Florida. Is there anything you can attribute that to? Is it just people moving for higher wages and do you expect more wage pressure going forward?
Frederick Tuomi -- President and Chief Executive Officer
No, it really wasn't about wage pressure. As a reminder, as we said in the opening remarks, 15 of our 17 offices have already combined and we're really operating great across the majority of our markets. The Florida issues were truly isolated specifically to two markets in Tampa and South Florida and was around associate turnover, not really about wage and it was more around the integration. So we had a few unexpected early departures in a couple of key roles that created a distraction for us. And at the time that it happened at the peak work order volume, that was part of the impact. The good news is, though, we backfilled quickly, we're supporting the teams with national resources and we expect to get back on track for the second half of the year.
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Thank you.
Frederick Tuomi -- President and Chief Executive Officer
Thank you, Juan.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Thank you, Juan.
Operator
Next question comes from Douglas Harter with Credit Suisse. Please go ahead.
Douglas Harter -- Credit Suisse -- Analyst
Thanks. Just on correcting those two markets, can you just remind us kind of what is in your guidance for the back half as far as pace of -- kind of addressing those markets, and then just kind of help us think about the potential magnitude of as you get those addressed, what 2019 could look like with that improvement?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Sure, Doug, this is Ernie; happy to address that. I understand with when we had challenges in R&M, most of our R&M activity happens in the peak season, in the peak summer season. And so our opportunity to improve becomes smaller and smaller as we get to the end of the year because there is less work orders coming through the system and that's across all of our markets. And so we do expect that these markets will get better by the end of the year, but it won't have as meaningful an impact as we would like because those work orders aren't spread out evenly throughout the second half of the year. So our guidance does assume we continue to have challenges during the peak leasing season and of course in peak service season and of course we'll try to do better than that. But I wanted to make clear and we talked about it in the prepared remarks that our expectations around that is that baked into our guidance is those issues will get resolved, but it's going to take well into the end of the year to make sure and then we are going to do our best to see if we can do better than that.
Douglas Harter -- Credit Suisse -- Analyst
Thanks. And then, Ernie, the refinancings that you did in the second quarter and I guess, do you have any other debt that where you could see comparable savings kind of given where the financing markets are today?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Yes, we do have -- we were able to get ahead of some of our refinancing activity for maturities that we're coming up in 2019 and the capital markets team here did a fantastic job executing for us. We do have 2020 and 2021 maturities, they are couple years out, but those could be good opportunities for us to consider some refinancing activity as against the latter half of this year, or the beginning of next year where we could see some spread compression there as well. So, we'll be opportunistic like we've been, and we're pleased with where the balance sheet is at. We're pleased with the fact that we've been able to extend our weighted average maturity, but we are very committed to getting to where we want to, that is investment grade balance sheet. And so -- and the answer is, we could do some stuff here in the second half of the year, but, at this point, we're pretty pleased with what we've accomplished so far, Doug.
Douglas Harter -- Credit Suisse -- Analyst
Thanks, Ernie.
Operator
Next question comes from Jason Green with Evercore. Please go ahead.
Jason Green -- Evercore ISI -- Analyst
Good morning. Just wanted to circle back on same-store expenses. It looks like kind of looking at your guidance and what you did for the first half of the year that you do expect some slight acceleration in same-store expenses in the back half of the year. And I was wondering if that's more to the fact that there's more R&M spend in Q3 versus the other quarters or if there is some other factor there?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Yes, two things there with regards of our guidance. First is, what you did say, that in the third quarter we'll have the most spend between the two quarters and sort of that happened in the past, so we'd expect that again. The other thing is, remember, we are having more difficult comp in the fourth quarter, and you recall, we had some things bleed over into the first quarter of this year with regards to R&M from some of those markets that were impacted by the hurricanes. Most of the R&M activity that was occurring in the fourth quarter in those markets was related to hurricane cleanup and was not flowing through R&M. So we actually had a lighter R&M number in the fourth quarter of 2017 because of that, creating a slightly more difficult comp for us in 2018. Hence, you're exactly right, if you look at our guidance, year-to-date we're at 4.3%, but our guidance for the full year is 4.6% to 5.4%. So that's why you see that trend as we go into the second half of the year.
Jason Green -- Evercore ISI -- Analyst
Got it. And then on the renewal front, renewals are obviously still strong, but they're down 60 basis points year-over-year. And I guess if you could compare kind of the difference in pushback with tenants this time around versus last year and what might be driving any of the pushback, that would be helpful.
Charles Young -- Executive Vice President and Chief Operating Officer
Yes, it's not as much about -- this is Charles, otherwise not as much around pushback from tenants. Pricing power remains strong, supply and demand fundamentals are favorable and our demographics long-term are going to be tailwind to us. As we look at rent growth and it being slightly lower year-over-year, it's less about fundamentals and more really around the seasoning of our portfolio. As we did the bulk of our buying early on, we were focused on getting the homes leased. In the last couple of years, Dallas and team have done a wonderful job of optimizing and we're really seeing more of a trueup to market, which contributed to early on higher rents, but where we are now, we're kind of stabilizing in. And we've been very consistent at 4.8% to 5% and we think that's reflective of kind of where we are on market fundamentals for each of our markets across the country.
Jason Green -- Evercore ISI -- Analyst
Got it. Thank you.
Operator
Next question comes from Drew Babin with Baird. Please go ahead.
Drew Babin -- Robert W. Baird & Co. -- Analyst
Hey, good morning.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Hey, Drew.
Drew Babin -- Robert W. Baird & Co. -- Analyst
I was hoping to talk about the difference in the revisions to FFO and AFFO guidance. It looks like there's probably increased recurring CapEx expenses in there, and I was curious why that is. Is that higher materials costs? Does that have anything to do with the same factors that drove repair and maintenance costs higher in the second quarter?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Yes, Drew, it's actually the latter what you described. A lot of the impacts we saw in repairs and maintenance OpEx, where we're seeing the same challenge then as it carries over repairs and maintenance CapEx. So we're not seeing a material change in our costs or anything like that and in term -- but we are seeing that for the similar reasons with some of the challenges in those of couple of markets that Charles talked about that we are seeing pressure on our CapEx and wanted to make sure we reflected that in our guidance going forward, specifically for our capital replacement spending, which impacts the AFFO.
Drew Babin -- Robert W. Baird & Co. -- Analyst
And then also too, I was hoping if you could clarify what markets are now unencumbered by debt and the potential to possibly sell a market to a private bidder either later this year or next year, potentially to repay debt? And I was just hoping if you could comment on what those markets are and what the prospects are for something like that.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Yes, Drew, no market is unencumbered completely by debt, but some markets certainly have a lower proportion of unencumbered debt than others. That generally isn't an issue for us when we go to sell assets. With regards to all of our securitizations, almost all of them only have a one-year lockout where we have to pay yield maintenance on the floating rate securitizations. There's a couple that have two year, but they are almost at their point -- supporting [ph] time where they've expired, so other than our most recent refinancing activity. That won't be a hindrance to us and we have substitution rates in all those deals too. So we also have that flexibility there. Similarly, we do have flexibility with our Fannie Mae transactions as well for substitution rights. So if we did want to sell a market, that wouldn't be a hindrance for us with regards to how our debt is (inaudible) to have the ability to do that.
Drew Babin -- Robert W. Baird & Co. -- Analyst
Okay. And then just a related question, how would you view the bid rate now for portfolio transactions in this business?
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Hey, Drew, this is Dallas. Generally we're seeing a ton of demand in marketplace when we -- even on the limited amount of dispositions we've done this year, taking something out. You find that there are lot of new entrants into the space today that are looking to try to acquire scale, it's pretty difficult given today's environment. So, the simple answer would be that we see that mark-to-market pretty tight. If someone were to come to market with a decent opportunity, it's just also dependent upon asset quality and the types of rents you're getting out of those homes today. So, for us, you look at some of our disposition activity this year, we've certainly been more active selling assets and parts of markets where we are not seeing as much growth. And I would expect that to stay consistent with our strategy going forward.
Drew Babin -- Robert W. Baird & Co. -- Analyst
Okay, great. That's all from me. Thank you.
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Thank you, Drew.
Operator
The next question comes from Haendel St. Juste with Mizuho. Please go ahead.
Haendel St. Juste -- Mizuho Securities -- Analyst
Hey, good morning.
Frederick Tuomi -- President and Chief Executive Officer
Good morning.
Haendel St. Juste -- Mizuho Securities -- Analyst
So, Fred or Charles, maybe this one's for you, a question again on the expense, the hike in the guidance, which is a surprise to many of us. I recall chatting with you guys at NAREIT and we focused quite a bit on the strong rental growth that was going on and how you felt good about your 2018 guidance. So I guess, I'm curious if you weren't aware of these integration expense headwinds at that time and if so, maybe why wasn't there more of a mention of it?
Frederick Tuomi -- President and Chief Executive Officer
So NAREIT, we were -- we had visibility into April and May at the time. June is really where we had the surprise. We had finished the integration into the R&M maintenance technology platform, and that's where we quickly saw that there was a -- we were off on our in-house tech utilization, so we quickly made the pivot as we talked about. And part of the challenge is that time of year, it's high volume and it's had an impact. So that's why we didn't see it then and ultimately, we're making the pivot and we think we're going to work our way through this at the end of the year, and we'll be in good shape going into 2019.
Haendel St. Juste -- Mizuho Securities -- Analyst
Okay. And then just a follow-up on the dispositions. I didn't catch the cap rate, I think you mentioned 5.5 on what you bought, so maybe can you tell me the cap rate there in any market. Did you exit any markets?
Ernest Freedman -- Executive Vice President and Chief Financial Officer
So I can answer that for you, Haendel. In terms of the cap rate, it was 0.7%. Now, all of our sales in the second quarter were through the end user retail channel where the home typically will be vacant for a month to two months, maybe a little longer sometimes. And that's why you typically see a much lower cap rate when we sell those homes. If we were to start selling some more homes to the bulk channels, you'll see a cap rate that would be at certainly a higher number and more in line with where we've been buying homes. In the second quarter, it was 0.7% and with the number of homes that we sold, we did not exit any markets, but Dallas will talk about where we concentrate some of those sales.
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Yes, we've had a number of sales in Houston throughout this year and also Chicago and we are really in line with some of the guidance we laid out earlier in the year in terms of where we want to be selling. Ernie talked about it earlier on the call, and we anticipate we'll sell somewhere between $400 million and $500 million worth of homes this year. And we're on target to achieve those targets.
Haendel St. Juste -- Mizuho Securities -- Analyst
Quick one on Houston since you mentioned it. That was one of the weaker revenue growth markets. Anything in particular you want to note that's going on there, lingering impacts of -- well, I'll let you explain. But can you give us a sense as to what's going on in Houston?
Frederick Tuomi -- President and Chief Executive Officer
Yes, really it's around supply challenges related to our own and other product from post Harvey coming back online. Occupancy stepped up temporarily when there was a void of housing as those homes were being rehabed. We had around 130 come in in the first and second quarter back online, so creates a little bit of a supply issue for us and then the other homes coming in as well as we're trying to compete against that. So it put some pressure on our new lease growth and we'll continue to have a little bit of that as we absorb. Going into the second half of the year, we expect we'll catch back up, now that volume is at peak season.
Haendel St. Juste -- Mizuho Securities -- Analyst
Thank you.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Thanks, Haendel.
Operator
Next question comes from John Pawlowski with Green Street Advisors. Please go ahead.
John Pawlowski -- Green Street Advisors -- Analyst
Thanks. A follow on to Haendel's first question there. So, at NAREIT, with three weeks to ago in the quarter, R&M and personnel-related issues pop up. So if R&M costs were up 15% for the quarter, it'd suggest they are up massively in the last three weeks of the quarter. So I guess, how do you get comfortable that -- with that little visibility with three weeks left to a quarter, how do you get comfortable with personnel related issues or call center queue scripts aren't going to pop up in September or October?
Frederick Tuomi -- President and Chief Executive Officer
Yes, I mean, look, we have to react to the information that's in front of us and we reacted quickly. On the R&M side, specifically, the call scripts are just part of what we are reacting to and part of the issue is, it's the volume of work that's coming through that time of year and our ability to make those pivot, so July also is high volume. It's actually the highest volume. August is high, and then we start to step down, so part of the challenge is, when you make the adjustments to take some minutes to get through the system and we have further enhancements that we're going to do. Ultimately, we talked about the in-house tech utilization, the call scripts is the big part of that.
As we go through the remaining field office consolidations, we're going to unlock more of that strength. The maintenance tech productivity is another one that we're going to roll in here shortly with the route optimization algorithm. So that will get the number of work orders that our in-house tech can do each day will help and then ProCare is part of what's not in the system right now, huge part, very beneficial, but one of the main benefits is the bundling of work orders that we do in that post 45-day move-in. That's not only convenient for the resident, but it is sufficient for our techs and our ability. So there is more to be worked in. Ultimately, as you put these systems together, we made the initial step, but we think we're going to see more benefits long-term.
John Pawlowski -- Green Street Advisors -- Analyst
Okay. The actual implementation and lot of the integration in the field level is going to happen in the back half 2018 and early 2019. So, are you comfortable that the personnel in the field are safer than the Tampa and South Florida market for the past month, how do you get comfortable with that?
Frederick Tuomi -- President and Chief Executive Officer
Yes, absolutely, as mentioned, 15 of 17 offices are already consolidated, the go-forward leaders are in place. We're working well with teams across all those. Like we said, we were isolated to a couple of markets that had impact and since these teams are working well together and the fact that we've already implemented the maintenance technology platform, the roll out in the second half of the year should be much smoother. We're going to be very thoughtful about how we do it in terms of implementing, measured roll out in -- slower seasonality season of Q4 and Q1, go through multiple rounds of testing and we had much of our training materials in place.So we really feel confident that -- and frankly, the teams are ready. They are excited and they are ready to get to the new platform. So we think it'll be a much cleaner and smoother roll out of the final integration.
John Pawlowski -- Green Street Advisors -- Analyst
Okay, last one for me. Charles, on the wildfires in California, I know some are popping up around the periphery of your portfolio. Do you have any initial estimate on how many homes either, one, could be damaged or, two, benefit from displaced renters in the area?
Charles Young -- Executive Vice President and Chief Operating Officer
Yes, we're watching it closely. We know those fires move fast. We've identified about 105 homes that are in the vicinity and we are working closely to notify and pay attention. We don't know more than that right now, but we're watching it very closely.
John Pawlowski -- Green Street Advisors -- Analyst
Okay. Thanks a lot.
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Thanks, John.
Operator
Next question comes from Rich Hill with Morgan Stanley. Please go ahead.
Richard Hill -- Morgan Stanley. -- Analyst
Hey, guys, thank you. Just wanted to maybe get an update from you, if you could, on trends in July and early August particularly on the revenue side. I think you've done a pretty good job of trying to address the expense side, but what are you seeing on the -- any trends that you can give us since the quarter end, particularly maybe renewals or anything?
Frederick Tuomi -- President and Chief Executive Officer
So, I think we highlighted in our script, the blended rent growth for July came in at 4.7%, renewal stayed steady at about 4.8%, new lease growth of 4.6%. While June was strong on new lease growth, but as we go into the end of the peak season, we want to make sure we maintain our occupancy and we did that. We moved up to 40 basis points relative to '17 in July and so we're paying attention to make sure we keep our occupancy and we still have strong demand now and we want to maintain that through the rest of the year.
Richard Hill -- Morgan Stanley. -- Analyst
Got it. And so as you think about occupancy versus pushing rate, you said -- you mentioned focusing on occupancy, some of your multifamily second, third cousins, if you will, have talked about maybe starting to push rate a little bit given where we are in the cycle and feeling a little bit more confident, are you still prioritizing rate and occupancy the same way as previously or are you thinking about any sort of change in how you're approaching that?
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Well, we're always trying to find the right optimization and balance of occupancy and rate. As we talked about, renewals are pretty steady throughout the year. It's the new lease growth that we try to take advantage of the summer months to maximize, but we've been through these cycles before and we're trying to pay attention to go into the slower leasing cycle fully occupied, which will allow us to keep some top line power in the slower months. But ultimately every quarter it's a balance of trying to find the right optimization between new lease growth and renewals.
Richard Hill -- Morgan Stanley. -- Analyst
Okay, guys, that's all I have. Thank you very much.
Frederick Tuomi -- President and Chief Executive Officer
Thanks, Rich.
Operator
Next question comes from Jade Rahmani with KBW. Please go ahead.
Jade Rahmani -- KBW -- Analyst
Thanks. Can you share your updated thoughts on Costa-Hawkins, where you think that's going to go, and although it's hard to predict if it was repealed, how you would react?
Frederick Tuomi -- President and Chief Executive Officer
Yes, Jade, thanks for the question. This is Fred. Costa-Hawkins, I don't know how familiar people are with it, but that's the potential repeal of the Costa-Hawkins law which is a -- pre-empts additional new rent control laws in the State of California. And just stepping back, almost every economist or housing policy expert across the country or perhaps even across the globe agree and have opined and have written many research studies that shows that the real solution to lack of affordable housing is not rent control but it's to build more housing. We just need more supply when it's needed and most importantly where it's needed and at the price points that it's needed.
So, they also agree that rent control has proven to further just dampen the construction of new housing and the further investment of existing housing. So Proposition 10 in California that would potentially repeal this Costa-Hawkins legislation that's been in place since 1995, is this the wrong answer for California's growing and long running and long developed housing shortage as it would likely make the situation worse not only in short run, but over the long run. So this is bad policy, however, it's on the ballot. And that the polls that we see, they have been constantly testing the likely voter opinion on this are showing mixed results. So the November ballot is going to be close for sure, but the industry and those on both sides of the issue will continue to make their case to the citizens of California.
If it does pass, it doesn't mean that you are going to have statewide rent control. All that means is that the prohibition on rent control will be lifted. So the jurisdictions that had rent control in the past will be able to update it, and those that do not have it at all could choose to implement it. So it's going to be -- it'll take a long time for this to be really reconciled. Each local jurisdiction is going to have to decide how -- do they want to have rent control or not, and many of them will decide not to. And if they do, what's the flavor of it, what's it going to look like, how is it going to be implemented. So if Proposition 10 is defeated, I think our industry will then take a step back and look, hey, we need to solve this problem together in cooperation with the legislature and try to find meaningful rational ways to just improve the situation in California that has taken many, many decades to develop.
So when we look at our portfolio of homes across the state, we're in Northern California and Southern California, we're not in really the hot beds of the rent control areas. We are not in the city of San Francisco or close by, we're not in Berkeley, we're not in Santa Cruz, we're not in Santa Monica. So when we look at our portfolio, we think a very small proportion of our homes would be potentially egregiously affected in a very small portion of the company's overall revenue. So we are just going to have to continue to watch it, see what happens in November and then we're prepared to react either way.
Jade Rahmani -- KBW -- Analyst
And just on the final point you made, can you give any percentages perhaps of those select markets where your homes could be impacted, if it was repealed?
Frederick Tuomi -- President and Chief Executive Officer
Yes, we looked at that, and it's -- again, it's just a theoretical assessment of likelihood of certain areas. There's been some research, some article on that. So we think, at the most, it's going to be around 15-ish percent of our portfolio might be impacted and again, in California, of the California homes, which is 12,000 homes total in California. And then, there's no way of really estimating at this point the revenue impact. Near term there would really be none. I don't think any areas will be rolling rents backwards mandating that. So it will be a gradual kind of shift. And then the other nice thing about single-family rentals is that if we had to -- if long-term prospects were such that there is a value diminution, I believe the one of the consequences of rent control is that existing home prices will be -- could go up because there's going to be another shortage of housing. There will be a lack of building of housing, generally. So we could -- single-family we have the option of selling homes to homeowners on a one-off basis if we choose to at very good pricing.
Jade Rahmani -- KBW -- Analyst
And just in terms of broader demand trends, do you have any statistics you could share on the percentage of move-outs to buy? I noticed an improvement in turnover ratio which we've seen in the industry and also home sales have declined. So do you think that that is a function of home sales declining in the market and some affordability constraints or anything else?
Charles Young -- Executive Vice President and Chief Operating Officer
Jade, similar to the first quarter, we've seen a year-over-year decline and the reason for move-outs around home purchases last year in the second quarter is about 27% of our move-outs, this year was 25.7%. So we've seen that trend now for two quarters in a row. And I think it's a little bit of all the above, but I think most importantly we have residents. We also see our turnover going down because residents are satisfied with the service that they're receiving from us. They like the homes that they're in, they're well located, they are convenient and they're seeing that in today's economic environment, it's even a better opportunity for them and maybe a better answer for them to stay in our homes.
Jade Rahmani -- KBW -- Analyst
Thanks for taking the questions.
Charles Young -- Executive Vice President and Chief Operating Officer
Thanks, Jade.
Operator
Next question comes from Ryan Gilbert with BTIG. Please go ahead.
Ryan Gilbert -- BTIG -- Analyst
Hi, thanks guys. Just I guess following up on the last question, it seems like demand trends have stayed strong in July. I think we are seeing an increase in resale inventory in some markets, particularly in higher price point or higher home price appreciation markets. And I'm wondering if that -- if you're seeing that impacting your ability to raise either new or release rents or if it's impacted your unit, your traffic or rental interest at all?
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Hi, Ryan, this is Dallas Tanner, I'll take this call -- I'll take that question. In terms of demand, no, we haven't seen any real change in the fundamentals. As Charles mentioned earlier, we've been able to go out to market at rates that are pretty aggressive especially in parts of the country where we own real estate. If you look at some of our numbers, for example, on the West Coast in quarter two and we had blended average rate growth of 6.5%. Most of those markets are less than two months of supply on the MLS. And then as you start to look at some of the macro data in terms of price points and affordabilities with housing in general, builders are developing much less inventory at 1,800 square feet or less in their current pipeline. It's just down somewhat from 33% in the late 1990s to like 22% today. That is all favorable fundamentals for us in terms of how we think about the supply and demand factors benefiting our business. So we haven't seen some of that necessarily in the markets that we're in, because as a proxy for that growth we are seeing it in the rents that we're achieving. And to Charles' earlier point, turnover has remained consistent at around 30%.
Frederick Tuomi -- President and Chief Executive Officer
Yes, just, Ryan, I'll just add to that. I think you may be referring to Seattle as an example, very tight inventory, very high house -- home price appreciation over the last several years. I think it just got to a price point where people just couldn't pursue homeownership at -- in same numbers, but if you look at our portfolio in Seattle, the move-outs for home purchasing actually was one of the markets that fell year-over-year. So again, it's not impacting our level of the market, not impacting our demographic and people really enjoy the leasing lifestyle.
Ryan Gilbert -- BTIG -- Analyst
Okay, great. Thanks. And then I guess regarding service tech productivity, are you seeing a productivity improvement I guess quarter-to-date in the third quarter? And then it sounds like you're expecting productivity to be back to levels that you expected going into the year by the end of 2018. I guess what do you think the timeline is for achieving your initial productivity forecasts?
Charles Young -- Executive Vice President and Chief Operating Officer
Yes, Ryan, this is Charles. We expect to get back to our normal levels of productivity over the second half of the year here. We're confident because both companies operated at that level before, but what also makes us excited is the combined power of our scale, density, the technology that we are implementing and our experience. It's a real advantage. What happens in the peak season here as we have our highest work order volume is, the productivity of the techs is not always at its highest, and we're at a place where we're still -- as we put the technology and unlock all that and get the proximity and density advantages, that's where we'll have shorter distance between our homes for our techs to be able to do more work orders.
So as I talked about before, as we think about the route optimization software, as we get to a unified operating platform in the second half of the year, that's where we'll start to see the really advantages. To get back to our prior levels and possibly overachieve as we go into 2019.
Ryan Gilbert -- BTIG -- Analyst
And I guess just a follow-up. Are you -- as you work on this issue, have you started seeing an improvement in the third quarter, or do you think that's going to -- do you think the improving in productivity is going to happen later in the third quarter and into the fourth?
Charles Young -- Executive Vice President and Chief Operating Officer
We've already started to see the improvement with the changes that we made, but we know there is more that we are going to do and it's going to get even better.
Frederick Tuomi -- President and Chief Executive Officer
Yes, Ryan, this is Fred. I would just add to that that this platform is in place, we completed the implementation and integration across all of our markets, that part is done. And when we initially noticed in June that the productivity measures on a daily basis were starting to trend down instead of up, we were able to make some adjustments to the technology platform immediately. So Charles was able to get the team together, tweak some of the dispatch logic scripts and literally in the next day we can start seeing some improvements. So we're seeing gradual improvements but they have already begun. It's not that we have to retool, it's just adjust some of the parameters on this platform that impact things such as in-house dispatch and then the route optimization certainly helps the other metrics of productivity, such as the number of homes in our work orders per tech per day.
Ryan Gilbert -- BTIG -- Analyst
Okay, great. Thanks very much.
Operator
Next question comes from (inaudible) with Zelman & Associates. Please go ahead.
Unidentified Participant -- -- Analyst
Hey, thanks for taking my question, guys. I just had a couple. One was, could you share what the year-over-year increase in repair and maintenance expenses was by month, so we can get a sense for the cadence and how much it went up in June?
Frederick Tuomi -- President and Chief Executive Officer
Yes, we're not going to provide monthly financial results, there is noise between months, accruals get caught up, don't get caught up. So we're not prepared nor will we provide that.
Unidentified Participant -- -- Analyst
All right. That's fine. On the inventory side, just in terms of supply and just taking a step back and looking across your portfolio, are there any markets where you anticipate your supply over the next couple of years to pressure your pricing power in particular, some markets that you find less attractive than others?
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Good question, (inaudible) Thank you. This is Dallas. As I mentioned earlier, certainly not in our West Coast markets where we see really just an incredible amount of demand for our product in very limited new supply. And the important part to remember is that you want to be higher barrier to entry. So that it's difficult for, call it, new supply to enter into those submarkets and parts of the market where we invest. It's in line with our price point around average rents being north of $1,700. Those are typically properties that are located in much higher barrier to entry.
So in our markets, we don't see a ton of that. I'd be more concerned if we had massive exposure in the Midwest in some of those areas, parts of the country where you have lower barrier to entries for, call it, new entrants, new development, but we don't have much of that in our portfolio, little to none. So, we're pretty bullish in terms of the areas we're in and being a bit insulated from some of those supply constraints. The only other thing I'll add is, if you look at the macros in the US, we are only developing about 1.3 million, 1.35 million new units per year right now and we need somewhere around a 1.5 million demand 1.6 million, so the next 12 to 18 months feel pretty safe as we look forward to the supply demand fundamentals generally.
Unidentified Participant -- -- Analyst
Yes, we're totally with you on that. Thanks for answering my questions. You guys have a good weekend.
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Thank you.
Operator
And the next question comes from Wes Golladay with RBC Capital Markets. Please go ahead.
Wes Golladay -- RBC Capital Markets -- Analyst
Yes, this Wes Golladay. Hey, good morning, guys. Could we go back to the repair and maintenance issues? I was just curious if they had a impact on your same-store revenue guide. Did you have longer days to turn a unit and maybe you could provide an update on how long it does take to turn a unit versus your expectations?
Charles Young -- Executive Vice President and Chief Operating Officer
Yes, I'll jump in real quick. Repair and maintenance is really on occupied [ph] homes. So on our turns, we haven't really seen any impact and this time of year is a high turn volume and we typically range in kind of 10 to 12 days to turn a house, which is about where we are. It steps up a little bit because of the seasonality and the volume coming in this time of year, but we're on pace will where we were last year and have been pretty consistent.
Frederick Tuomi -- President and Chief Executive Officer
Yes, and I'll add. One metric we track is the days to reresident, the downtime between occupancy and vacancy and quarter-over-quarter, a year ago we are exactly at the same number.
Wes Golladay -- RBC Capital Markets -- Analyst
Okay. And then when you do these initiatives in the back half, I think you said you're going to do a more methodical -- maybe that was a word you used. Are you going to do it by maybe one market at a time or is it just going to be just a more methodical process in general?
Charles Young -- Executive Vice President and Chief Operating Officer
Well, we're going to work through the exact kind of roll out plan, but -- and it really depends on kind of speed of how many homes you can put on the platform at once, but the idea for now is, there's couple of markets that we piloted unified operating platform and then we rolled by week, being really thoughtful -- when I say methodical, being really thoughtful around the time and month that we do it. So it's not during the early rent payment side and then how much can our teams take on in terms of training, getting them ready, being thoughtful and then rolling it out. So we have a plan in place and we expect to start in the fourth quarter of this year and based on all that we've done to-date in terms of our website, revenue management has been working on one platform. This is really the last piece and we think it will roll pretty smoothly.
Wes Golladay -- RBC Capital Markets -- Analyst
Okay, thanks a lot guys.
Frederick Tuomi -- President and Chief Executive Officer
Thanks, Wes. Thank you.
Operator
At this time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.
Frederick Tuomi -- President and Chief Executive Officer
Okay, great. Yes, this is Fred Tuomi, again. Thank you all very much for your time today, your questions. We appreciate your interest as always, and we look forward to seeing many of you at the upcoming September conferences. Thank you.
Operator
The conference has now concluded. We want to thank you for attending today's presentation. You may now disconnect.
Duration: 56 minutes
Call participants:
Greg Van Winkle -- Senior Director of Investor Relations
Frederick Tuomi -- President and Chief Executive Officer
Charles Young -- Executive Vice President and Chief Operating Officer
Ernest Freedman -- Executive Vice President and Chief Financial Officer
Juan Sanabria -- Bank of America Merrill Lynch -- Analyst
Douglas Harter -- Credit Suisse -- Analyst
Jason Green -- Evercore ISI -- Analyst
Drew Babin -- Robert W. Baird & Co. -- Analyst
Dallas Tanner -- Executive Vice President and Chief Investment Officer
Haendel St. Juste -- Mizuho Securities -- Analyst
John Pawlowski -- Green Street Advisors -- Analyst
Richard Hill -- Morgan Stanley. -- Analyst
Jade Rahmani -- KBW -- Analyst
Ryan Gilbert -- BTIG -- Analyst
Unidentified Participant -- -- Analyst
Wes Golladay -- RBC Capital Markets -- Analyst
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