Greetings, and welcome to the American Homes 4 Rent second quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. A brief question- and- answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Stephanie Heim. Thank you. You may begin.
Good morning. Thank you for joining us for our second quarter 2019 earnings conference call. I'm here today with David Singelyn, Chief Executive Officer, Jack Corrigan, Chief Operating Officer, and Chris Lau, Chief Financial Officer of American Homes 4 Rent. At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, July 30, 2019.
We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. As a note, our operating and financial results, including GAAP and non-GAAP measures, are fully detailed in our earnings release and supplemental information package. You can find these documents, as well as SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com. With that, I will turn the call over to our CEO, David Singelyn.
Thank you, Stephanie. Good morning, and welcome to our second quarter 2019 earnings conference call. Beginning with operations, I'm extremely pleased with our results in the second quarter. Core FFO was $0.28 per share, up 7% from the second quarter of last year. This increase reflects our strong market fundamentals and a Property Management platform focused on controlling expenses while maintaining our assets and providing a quality customer experience. On a macro level, the single-family rental market is as strong as I've seen. Driven by robust population and employment trends in our markets, rental demand for our homes continues to be healthy, which supports our high occupancy rates and continued growth in rents. To highlight this point, let me touch on several metrics that support what we are seeing on the ground. First, our typical resident is a family with children and a head of household in their 30s.
Families often desire a single-family home. In today's environment, with high down payment requirements, a more transient job market, and reduced tax benefits from homeownership, more of today's households are opting to rent. While the national homeownership rate is flat or declining, the U.S. is on pace to add 2.2 million households this year, benefiting the single-family rental demand. Second, we've tailored our portfolio to focus on markets with outsized growth drivers. Employment growth in our markets is 25% higher than the national average, and the population growth in our markets is more than twice the national average. Third, we saw prospective resident showings for available property in our portfolio increase more than 20% year-over-year in the second quarter of 2019.
Fourth, according to recent research from John Burns Real Estate Consulting and Freddie Mac, 50% of older millennial renters prefer to stay as long as possible, and 71% of these renters think it is more affordable to rent than own. Further, over the last four years, the number of renters stating that they intend to purchase a home has trended down from 35%- 24%. This confirms the trend that many current renters do not see value in owning a home, even if they can afford to buy a home. Finally, our portfolio is diversified by design, operating in 22 states. Single-family rental rate appreciation has been more stable than home price appreciation. Since the mid-1980s, single-family rents have never declined on a national basis, while home prices have dropped at least six different years.
Additionally, during the Great Recession, single-family rents fell in some markets, such as Charlotte and Atlanta, and never declined in other markets like Tampa. Single-family rents proved to be far more stable than most other real estate classes. With regard to our strategic growth, we remain focused on our AMH Development Program as the best risk-adjusted opportunity to invest our capital for profitable growth. We believe this program is a game-changer for our industry, developing homes that are purpose-built for the rental market, designed for durability and lower cost to maintain, and providing near-term and long-term accretion to growth and net asset value. We are now nearly three years into this program, designing and fine-tuning our prototype homes, building our teams, establishing relationships with vendors, testing market acceptance, and piloting the cluster of rental homes within neighborhoods for additional market efficiencies.
Further, we are building homes in markets and neighborhoods where we currently operate, adding scale to our existing platform. From an economic perspective, we are building new homes at a lower investment cost than we could acquire a similar home. These new homes are built with our rental program in mind, which, combined with new appliances and systems, will result in future lower cost to maintain than the cost to maintain most existing homes. Our program continues to ramp- up, and we have yet to realize its full benefits. In summary, resident acceptance has justified our development product. Initial returns are in line or better than originally projected, and we continue to explore ways to expand this program while remaining vigilant on market selection and balancing our capital commitment and risk.
Perhaps the best evidence that building for rent is changing the housing market landscape is that we are now seeing traditional home builders developing purpose-built rental homes as an alternative channel and to meet the diversity of market demand in the current environment. As you may have seen, last week, we filed an amendment to the resale prospectus we filed in February. The sole purpose of the amendment is to update the prospectus concerning stock sales by the named executives made in connection with the repayment of certain loans previously made by company affiliates. To be clear, this filing is only related to the sales already announced and completed in the first half of 2019, and all affiliate loans have been repaid. Management retains a substantial ownership stake in the company and is committed to alignment of interest with shareholders.
In closing, I am very pleased with our results in the first half of 2019. Our portfolio is structurally full, our development growth channels are maturing, and our balance sheet is strong, positioning us to take advantage of opportunities that will arise. As we sit here today, we have huge opportunities in front of us, and I'm confident that we'll sustain our momentum over the long- term. We operate within a huge industry that is still in the early stages of transition to an institutional asset class. Professional ownership and management accounts for a tiny fraction of the overall single-family rental market, which gives us a long runway for growth. As previously mentioned, household formations remain strong, and new housing supply isn't sufficient to meet demand in most markets.
Even with the recent decreases in home mortgage interest rates, we are seeing sustained rental demand as families value our well-located homes and the flexibility that renting provides. Finally, our sector is resilient, with recession-resistant attributes. Housing is a non-discretionary need, and our platform should produce solid results through all economic cycles. Now I'll turn the call over to Jack.
Thank you, Dave, and good morning, everyone. As we have mentioned previously, operational excellence is one of the four cornerstones of our company. From our leasing teams to our maintenance teams and throughout our entire organization, we are committed to establishing best practices to maximize efficiencies and drive bottom-line results. Our second quarter results are directly tied to this relentless focus. Demand for our homes remains strong, allowing us to push both occupancy and rental rates. For our same-home portfolio during the second quarter, we achieved a 95.7% average occupied days percentage, up 40 basis points from the second quarter of 2018 and up 20 basis points sequentially. Average monthly realized rent was up 3.7%, resulting in a quarter-over-quarter increase in same home core revenues of 4.4%. Additionally, our focus on customer service continues to provide benefits by reducing turnover.
For the second quarter, turnover was down 20 basis points compared to last year, and on a trailing 12-month basis, this represents our 10th consecutive quarter of improved retention. We are proud of this trend, but at this point, bear in mind that our portfolio is structurally full and frictional vacancy from the timing of move-outs and move-ins in any given month or quarter may vary. While July is not yet closed, we continue to see strong demand. However, move-outs have trended slightly higher than last year, which can result in downtime as homes are made ready for a new resident. Turning to operating expenses. Second quarter 2019, core property operating expenses from same-home properties were up 5.8% year-over-year. The most significant factor driving expenses higher was a 6.4% increase in property taxes, which Chris will discuss later.
For the second quarter, repairs and maintenance and turnover costs were up 4.7%, and recurring capital expenditures were up 18.6%. The above-average increase in capital expenditures was driven by two factors. First, our planned expansion of our preventative maintenance program relative to the second quarter of 2018, and second, storm damages, specifically higher roofing, landscaping, and fencing costs due to unusually high rainfall and windstorms in certain markets towards the end of the quarter. Year-to-date, our average repairs and maintenance, turnover costs, and recurring capital expenditures are $1,064 per home, up 4.5% over the first half of 2018 and within our range of expectations. Turning to growth. As Dave mentioned, our strategy is focused on our build-for-rent programs as the best risk-adjusted opportunity for accretive growth. These programs are ramping up, which should have increasing benefits to the bottom line as we move through late 2019 and into 2020.
Consistent with our expectations during the second quarter of 2019, we added 144 homes for a total investment of approximately $42 million. 136 of these homes, totaling approximately $40 million, were added through our build-for-rent programs. For 2019, we remain on track to take $300 million-$500 million of homes into inventory, with the majority still expected to be from our build-for-rent pipeline and the rest from our other channels. Further, we expect to invest an additional $200 million-$400 million into our development pipeline in 2019 for future year deliveries. Turning to asset management. We continue to evaluate our assets and strategically prune our portfolio where it makes sense for operational reasons and to recycle capital into opportunities with better long-term returns. During the second quarter, we sold 433 homes for approximately $83 million.
At June 30th, 2019, we had approximately 1,660 homes held for sale, which we expect to generate between $325 million and $375 million of net proceeds over the course of this year and next. In summary, it was a solid quarter and in line with our expectations. We look to finish out the remainder of the year strong, continuing to provide a superior customer experience for our residents. Now, I will turn the call over to Chris.
Thanks, Jack. In my comments today, I'll briefly touch on our second quarter operating results, update you on our balance sheet, and conclude with a review of our 2019 guidance. Before covering our operating results, I'd like to remind you that certain of our 2018 metrics are presented on a conformed basis, consistent with the new lease accounting standard that was adopted this year, and that you can find all applicable reconciliations in the back of our supplemental information package. Now getting into our operating results. For the second quarter of 2019, we generated net income attributable to common shareholders of $22.5 million or $0.08 per diluted share. This compares to a net loss of $15.2 million or $0.05 per diluted share for the second quarter of 2018.
Also, for the second quarter of 2019, Core FFO was $98.2 million or $0.28 for FFO share and unit, as compared to $91.9 million or $0.26 for FFO share and unit for the same quarter last year. Adjusted FFO was $86.8 million in the second quarter of 2019 as compared to $82 million for the second quarter of 2018. On a per share basis, Adjusted FFO was $0.25 for FFO share and unit for the second quarter of 2019, compared to $0.23 for FFO share and unit for the second quarter of 2018. Also of note for the quarter, I'd like to provide you with a further update on property taxes since our June investor presentation.
At this point, we've now received assessed property tax values for over 50% of the portfolio and are continuing to see assessment increases in certain jurisdictions that are higher than our initial expectations at the start of the year. For reference, some of the notable states with outsized increases are Texas, Indiana, and Georgia. As always, we are already extremely active on the property tax value appeals front and have filed or expect to file over 20,000 individual property tax value appeals this year. As a reminder, our historical success rate on appeals has been about 40%-45%, but each year is different, and we won't begin to know the outcome of this year's appeals efforts until the results trickle in throughout the third and fourth quarter.
Additionally, keep in mind that we have not received 100% of our assessed property tax values and that any annual changes to local property tax millage rates are typically released in the third and fourth quarters. Based on currently available information and input from our local team of property tax experts, we now expect full year property tax expenses to likely increase in the high 5% range compared to our initial expectations at the start of the year, which was an increase of 4%-5%. In just a minute, I'll tie all of this into our full year guidance expectations. Before that, I'll give you a quick update on our balance sheet. At the end of the quarter, we had approximately $2.9 billion of total debt with a weighted average interest rate of 4.4% and a weighted average term to maturity of 13.6 years.
Our net debt to adjusted EBITDA was 4.7x , and debt plus preferred shares to adjusted EBITDA was 6.6x . As a reminder, we don't have any debt maturities other than regular principal amortization until 2022. In terms of liquidity and funding sources going forward, at the end of the second quarter, we had $119 million of unrestricted cash on the balance sheet, and our $800 million revolving credit facility was fully undrawn. We generate approximately $275 million of annual retained cash flow, and our disposition program is on track to generate approximately $200 million of recyclable capital this year. Our balance sheet continues to be a key differentiator, and consistent with our strategic cornerstones, provides us with an extremely solid foundation to continue accretively growing our portfolio.
Finally, I'd like to provide you with some current thoughts on our full year guidance ranges, which remained unchanged in last evening's release. First off, we are very pleased with our year-to-date operating performance and believe full year same home revenues are tracking at or above the midpoint of our full year guidance range. However, we are mindful of the fact that our heaviest move-out period being the third quarter is still ahead. Next, I mentioned previously that our current expectation for full year same home property tax expense growth is now in the high 5% range.
Taking this into consideration with other expense categories, we now believe full-year same-home core property operating expenses are trending towards the high end of our guidance range of 3.5%-4.5%. With that said, I remind you that property taxes, which represent our largest expense category, will continue to remain fluid as we receive our remaining assessed values, current year property tax rates, and the results of this year's appeals campaign. Overall, we are proud of our results so far this year. Taking into consideration our current views on same-home core revenues and property operating expenses, we remain confident in our bottom line full-year guidance ranges of same-home NOI growth, same-home NOI after CapEx growth, and Core Funds From Operations. That concludes our prepared remarks, and we'll now open the call to your questions. Operator?
Great, thank you. At this time, we'll be conducting a question- and- answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit to one question and one follow-up question and re-queue for any additional questions. You may also press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions. Our first question is from Nick Joseph from Citigroup. Please go ahead.
Thanks. Maybe start on the Development Program. Just looking for more color on the cadence of the deliveries. How many homes do you expect, and at what cost do you expect to deliver in the third quarter and then also in the fourth quarter?
Well, for the remainder of the year, we expect to deliver about 700 to 900 more homes. It'll be heavily weighted towards the fourth quarter. We currently have about 500 in vertical construction. All of those we expect to deliver by the end of the year. We have some in horizontal construction that we would also expect to deliver by the end of the year.
Hey, Nick, it's Dave. Let me just add a couple of things. Some of these things you've heard, but the history of our Development Program is we did a test, and once that test was done, we decided to roll it out. At that point, we had to go look for land. We had a little bit of a gap, because you have to get the land before you can start the process. We mentioned at the beginning of the year that we expected to be in that 1,000-home plus or minus for the year, but it was going to be very back-weighted, and that's exactly where we are. We're where we expect to be.
We are building the teams out in the marketplaces that we want to acquire and develop homes, acquiring the land, and are very well-positioned for the back half of this year, really towards the back half, and more importantly, for 2020 and 2021.
Thanks. How do you think about lease-up? Are you seeing an opportunity to pre-lease any of the development homes, or how long does it typically take for a renter to move in and begin paying rent after you deliver a home?
Once we deliver a home, the average leasing time is about 20 days, then another 10 days or so from signed lease to move-in.
Thanks.
Thanks, Nick.
Our next question here is from Shirley Wu from Bank of America. Please go ahead.
Hey, good morning, guys.
Morning.
Good morning. A follow-up on the build-for-rent . Given it's been almost three years now since you've started this program, could you give us an update in terms of, let's say, the premiums you get on these properties versus your traditional portfolio? Also, could you talk a little bit about the land bank you have for this program and how you intend to expand it over, call it, the next year to two years?
Yeah. We get approximately a 5% premium, some developments more, some less. As far as the lots, it really depends on whether you're buying vacant developed lots which are ready to build on or just lots, pretty much raw land that you've got to do all the horizontal work. Our total lots that we need to have to deliver the cadence we expect is we need about 6,000 lots in inventory, and right now we're at about 3,600.
Shirley, it's Chris. You can get this out of the queue from either past quarters' or this quarter's queue that'll be filed later this week. There's probably just about $150 million of land on the balance sheet, which translates into about 3,600 lots at the moment.
Got it. It's interesting because I think previously you mentioned that you would typically only buy a plot of land that you can build on vertically, but now you're also doing horizontals as well?
No, I don't think we ever said that. What we said is it would be entitled for development. You buy land or you go into escrow on land, and you make sure all the entitlements are there for you to build before you actually close on it. We don't buy anything without being sure of the entitlements.
Got it. A quick pivot to maybe Chris on expenses. You noted that your real estate taxes are now trending towards the higher end of the 4% or 5% range to 5%. Your success rate for appeals would typically be 40%-45%. Could you give us a rough estimate as to how much lower those appeals came down in your previous years for those successful appeals?
It's difficult to translate it into an exact dollar amount because it really does vary year to year. What I can say is, both when we start the guide at the beginning of the year and as we've recalibrated now, with all the information that we have in hand, we take into account kind of a reasonable and, I would say, conservative level of success rates on those appeals. That's all factored into our adjusted expectation. I would balance that by saying, as I mentioned in my prepared remarks, we have a very good track record on appeals, and I think a good experience in our ability to predict them. You don't actually have the result of those appeals back until kind of throughout the third and the fourth quarter.
Great. Thanks for the color.
Sure.
Our next question is from Ryan Gilbert from BTIG. Please go ahead.
Hi. Thanks, guys. Just another one on the Development Program. It looks like you're going to deliver around 20% of the total deliveries for the year in the first half and 80% in the second half. Looking to 2020, is it fair to kind of extrapolate that cadence broadly to the 2020 or 2021 deliveries?
Well, I would say that the 2020 deliveries will still be back-ended, but not as back-ended as 2019. By 2021, I think it'll be pretty even flow.
Okay.
Yeah. This is Dave. Let me just add, what we're saying is that we are still ramping up. It's a multi-year ramp- up, and you'll continue to see the ramp- up through 2020, but the first half of 2020 is going to be significantly higher than the first half of 2019.
Okay, great. On the increase in move-outs that you saw in July, we've noticed on the home building side that more home builders are accelerating the shift to entry-level products. I'm wondering if you're seeing any markets where you're being impacted from higher levels of affordable supply that would be competing directly with your product.
I'm sure there's some that competes, we aren't seeing an abnormal level of competition in that way. What we really saw was we went through a heavy lease-up period last year in February through May, and we just had a lot more of the Our biggest move-out percentages are on the first year after the first-year lease, and they usually, a lot of them go month- to- month until the kids are out of school when they want to move out. I think you just see more properties that had lease expirations in March, April, May, and they went month- to- month for a month or two. I don't think it's related to anything other than that.
Yeah. Just to add a little bit to that. The seasonality of our business is typically you're going to see a little bit more move-outs in the middle of the summer. It's kind of what we're seeing. We today are essentially full, and a small increase in the frictional vacancy of move-outs, in any one month, is going to have a little bit of an impact. Jack's comment, we did see a little bit more move-outs in July. I don't want it to be taken that it's a significant change. It's very comparable to last year's July move-out numbers. It is a slight tick-up, but it's pretty comparable.
Okay, great. Thanks very much.
Our next question is from Steve Sakwa from Evercore ISI. Please go ahead.
Thanks. I guess, Chris, just to circle back on the top line. You're trending, at least in the first half, above the high end of the range currently.
Your commentary was kind of midpoint or better. I'm just trying to sort of figure out how sort of worried are you about the occupancy trend. It seems like you've locked in a lot of good rent growth, both on new leases and renewals. I'm just trying to sort of play a little devil's advocate. To hit the middle of the range, you'd need to see about a 60 basis point, or more than that, maybe 100 basis point slippage in the second half of the year. I'm just trying to sort of reconcile that large of a decline with what you posted in the first half.
Good question, Steve. I would say a couple of thoughts come to mind. One. Even though we left the guide formally unchanged, I think it's important to keep in mind some of my commentary from prepared remarks in terms of where we think we're tracking in that range, and that we believe that we're tracking at or above the midpoint on a full-year basis. Then second, as we think about the top line throughout the year, I think it's really important that we keep in mind the prior year comp set, and the fact that we had some pretty soft occupancy comps in the first half of 2018, which normalized to more stable levels in the back half of the year. No surprise there, and that was all taken into consideration when we set the guide at the start of the year on a full-year basis.
We just need to keep that in mind, the prior year occupancy comps as we think about revenue growth first half of the year versus second half of the year. Lastly, as we're thinking about the guide overall.
We need to also keep in mind that, as Jack pointed out, the third quarter in general is the toughest time of year just from a move-out perspective. We're right in the middle of that right now and still have that ahead of us in the third quarter. We're keeping that in mind, and we recognize revenues are tracking well, which we're happy with. We're also going to be very prudent in terms of how we evolve the guide throughout the year.
I guess, just to follow- up a little bit, are you doing anything differently on the renewal rates today in terms of trying to kind of manage that move-out or the turnover rate? Are you sort of pushing harder on rent and maybe creating a little bit more turnover and a little bit more vacancy in the portfolio to capture higher rent or?
No, I would say that we're taking the same approach that we have in the past. About a year and a half ago, we started pushing our renewal rates a little bit. We went from kind of the low threes to around four on average. That probably weighs a little bit on the re-leasing spreads because the rents are already high when they expire. Overall, we're pretty consistent with where we've been the last couple of years.
Okay. Chris, just secondly on R&M, I know it was up about 4.7% in the quarter. That can bounce around quarter-to-quarter just based on some of the timing. How do you think about that maybe in the back half of the year?
Yeah. I would say you're right. It can bounce around a little bit, but it's 4.7. Keep in mind, that's pretty much right on top of what we were expecting and what our thoughts are on a full year basis, which was kind of in the fours or so on the expensed component of our cost to maintain. I would put that kind of all into the equation as we think about expenses overall. If you recall, at the start of the year, we kind of spoke to our components of expenses in terms of two categories, one being property taxes, then two being kind of everything else, including the expensed component of cost to maintain.
Our thoughts around that component of expenses was kind of in the 3%-4% on a full year basis. We think we're tracking well in that piece of expenses. That's what's gone into kind of the thought process balancing with property taxes and our view on overall expenses on a full year basis now.
Okay, thanks. That's it for me.
Sure. Thanks, Steve.
Our next question here is from John Pawlowski from Green Street Advisors. Please go ahead.
Thanks. Continuing on that, Steve's expense question there. I would just like more color on Jack's kind of remark that unusually high rainfalls causing greater-than-expected, was it CapEx pressure? R&M and turn costs are in line with expectations and CapEx is higher. Is that fair?
That's right. Let me give you a little more color on the numbers, and then Jack can provide more operational insight if he likes. Good question. As we think about CapEx overall, in the quarterly year-over-year change, let's kind of unpack kind of the pieces here. The component that was attributable to the storm-related items that Jack was referring to was kind of in the ballpark of about $400,000 or so. If you separate that out and then look at the remainder of the increase, there's really two things going on there. Regular way increase in CapEx and then the planned investment into our preventative maintenance program. To give you a rough order of magnitude, the dollars into our preventative maintenance program for this quarter were about $500,000-$600,000, which was right on top of what we were expecting to expand into the program this quarter.
If you hold constant for that preventative maintenance and the storm damages, that leaves just under a 5% increase in kind of the all other regular way components of CapEx, which is right on top of what our expectations were.
I'll just add on the preventative maintenance program, just a reminder, that's our in-house maintenance program primarily for the exterior of the homes, which is mostly painting the exterior of homes that have gotten a little aged. That program we started in 2017 and completed the rollout of it in 2018. You're seeing a higher number in 2019 compared to what we had in the second quarter of 2018.
John, if I can just make one more point real quick. On the storm damages, I just want to highlight the fact that, I'm sure everyone recalls, at the start of the year when we initiated the guide. In that guide, we included a consideration for weather-type events throughout the year. Knowing that in each year, history would tell us that more often than not, there's some type of weather-related cost in that year. It's difficult to predict when they're going to fall and where they're going to fall, but this is the perfect example of things like that can come up in the portfolio throughout the year. I think speaks to kind of the importance of having that component in the guide at the start of the year.
Okay, this rainfall doesn't change the guide, is what you're saying?
That's right. This is just kind of a component of the weather-related kind of consideration in the guide at the start of the year.
Okay. Maybe just talk, maybe Dave, longer- term, as you and your peers learn how to operate this business, as you see just the revenue and the expense side evolve, is the current headcount in the field and the current salaries in the field for the current portfolio right-sized, or does anything structurally need to change for AMH going forward to keep revenue expense trends consistent?
Yeah. John, it's a good question, and one of the things that you've probably seen in this year's numbers. Execution is becoming much more consistent period to period. If you look at our Property Management areas, we've done a number of things, we've talked about it last year, to ensure that we have shored up what we need in the field area. As we get to a place where we're stabilized full, there is a couple of areas that we can become a little more efficient on the leasing side. With that said, we may actually add a couple of additional people on the maintenance side to respond quicker to a couple of things. All of these changes I'm talking about are very, very minor, and you're not really going to see much of it in the numbers. I like where we are today.
It's taken a number of years to stabilize our platform. There was no blueprint when we started, but There's opportunities to improve, but we've done a lot of work on systems and getting the right people in the right position. I like where we are today.
Okay. Thank you.
Yeah.
Thanks, John.
Our next question is from Rich Hill from Morgan Stanley. Please go ahead.
Hey, Chris. I wanted to come back to the comments that you made about property taxes. I think you said that they were coming in around 6.5% or so for the quarter, which maybe surprised me a little bit given what we're seeing for HPA across the United States. That seemed like it was towards the high end. I'm wondering if there's anything specific to your markets that's driving the tax increases to the high end of what we're seeing nationally, and do you expect that to trend lower over the next couple of years?
No. Morning, Rich. Good question. A couple of things. If you go back to one of my comments in prepared remarks, our recalibrated view of property taxes on a full year basis are now expected to be in the high fives, not the mid-sixes that you see in the quarter. The reason for what you're seeing in the quarter, if you just think about kind of the way that property taxes get accrued throughout the year. In the first quarter, we had accrued one-fourth of what our expectation for property taxes was on a full year basis at the start of the year. Then as we needed to adjust up that expectation in the second quarter, you essentially have a little bit of a true-up, if you will, from the first quarter that was accrued at the beginning of the year property tax expectation.
I would expect that 6.4% to trend down as we get through the back half of the year. On a full year basis, as I mentioned, we're expecting something in the high 5s.
Okay. That's helpful. Your preventative maintenance program, obviously, you have to spend money now to save money in the future. How much on sort of a same- store expense basis going forward do you think that preventative program will help you? Is there any way you can maybe quantify that without giving guidance?
That would be difficult to quantify, but if you didn't do it, one of the things that we were doing is doing the exterior work on the turns, and sometimes you catch it too late when you're doing it on the turn. We're categorizing which homes have more immediate need as we make visits to the homes, and trying to catch the work before it gets to be a problem. It should, in the long run, save us. In the short run, you're pushing up the expenditures, but you're maintaining the house in, I think, a more effective way and a more cost-effective way.
Okay. Got it.
If it-
And then it's just-
Go ahead.
I'm sorry, go ahead.
I mean, yeah.
No, I just-
A couple things that we're talking about, it's paint and decks. Paint is on wood product. It's a lot cheaper to routinely paint it, and as opposed to get it dry rotted and have to replace it. There's also a second benefit here. That second benefit is it keeps the houses looking fresh, and it helps marketability. There's two pieces of benefit to the preventative maintenance program. The other benefit to it is, we can do the exterior work without having to schedule it with tenants, so we don't have to wait till the house is empty. A lot of the tenants like us coming out and fixing up the home without being asked.
Got it. David, just one quick follow-up question from your prepared remarks. We get a lot of questions about this, but I think you said single-family rental rates have never declined in the market. Did I hear that correctly?
On a national basis, rental rates, on average, have not declined any time since the 1980s.
Okay
We can direct you to some of the sources for that.
Let's follow- up offline. Thank you very much. I appreciate your time, guys.
Yep.
Thanks, Rich.
Our next question here is from Haendel St. Juste from Mizuho. Please go ahead.
Hey, A quick easy one first. Phoenix, what's going on there? What drove the big jump in the new lease rate growth?
Phoenix has been pretty strong for quite some time, and one of the advantages to Phoenix is that it has relatively low rents compared to the rest of the market. A $50 or $75 increase is a higher percentage.
Okay. 14% certainly a standout number, but not a number that, maybe a number that we could see again, some double- digit type of figure in the. It seems like it's a number that's, I wouldn't say recurring or recurable, but it's not given the absolute level of rates, certainly an opportunity for outsized rate growth versus the rest of your markets.
Right. I think last year, I'm looking at a schedule here. Last year, re-leasing rates in the second quarter in Phoenix were 11.5% higher. I don't expect double- digit growth in perpetuity, but we've had pretty good success there the last few years.
Okay. What percent of the portfolio today is on a month-to-month basis? Meaning, leases have, I guess, technically expired, but the tenants remain in the homes. What type of rate growth are you contractually getting from those leases?
Just about call it 4% of change of the total portfolio currently.
Yeah. About 2,000 homes. Our current program is when they go month- to- month, they're whatever we would've raised them to if they signed a renewal year lease + 10%.
Got it. That's in the same- store. Okay.
That number was overall, Haendel, and if you're interested in tracking it, you can get it in the back of the supplemental, on page 20 in the lease expiration schedule.
We do not include that 10% premium in the renewal spreads, and nor do we include it on either side. We don't include the 10% premium in the spreads.
Okay. Thanks for clarifying that. I guess back to an earlier question on the retention and the portfolio, the outsized growth, the favorable dynamics, household formation. I guess I'm curious, why aren't you guys pushing rates a bit more? I see you getting about 6% on average on new leases, at least during this quarter, understanding you're not wanting to necessarily force turnover, how much of a bar, perhaps, are you willing to test pushing rates? Are you doing that in any given market? I guess I'm just curious on how much more you could perhaps be getting on rents here, given the strong turnover in the industry dynamics.
Well, it's really looked at house by house, market by market. If you have three houses that are being leased by other competitors, if you place yours as the highest rent in the group, you're gonna be the last one to lease. You really are judging these things house by house, market by market, and that's why you see the differential in the different markets on what the spreads are. As far as renewal rates, we try to be a little conservative. You see a 6% increase on renewals in Phoenix versus 14% on re-leasing. Yeah, we might be able to get a little more on renewals, but you're probably gonna leave a pretty sour taste in your residents' mouth.
Okay. Just one more, Chris, if I can go back to just the OpEx guidance. We've talked about the issue of real estate taxes. I guess I'm more curious, just bringing in last year's experience and the year where I remember around this point in time, there was questions on the guidance. You subsequently raised the same-store expense guidance later in the year. I think you actually missed on the third quarter, ended up raising the guidance the same-store in that third quarter period. I guess I'm curious, given all that's going on around us, how much confidence do you have that you won't need to raise that same-store expense guidance? At least just a lower portion of it, in light of last year's experience and the ongoing industry headwinds.
Yeah. I would say two thoughts there. I think that this really applies to our approach to the guide overall, not just with respect to expenses. I think you're hearing from us in our tone that we're very comfortable and confident in our ranges and we're approaching this year how we evolve those ranges throughout the year very prudently. I think that applies to both the top line and expenses as well. I think it's also important to keep in mind that some of the comments in prepared remarks around where we believe we're tracking within those ranges. Just again, to remind everyone on the top line, we believe we're tracking at or above the midpoint. Then on expenses, taking into consideration the recalibration on property taxes, we believe we'll be in the upper half of our expense range.
That total range is 3.5%-4.5%.
Thanks, Chris.
Thanks, Haendel.
Our next question here is from Hardik Goel from Zelman & Associates. Please go ahead.
Hey, guys. Thanks for taking my question. I wanted to focus a little bit on just overhead costs. If I look at Property Management and G&A as a percentage of revenue, those are both up year-over-year, more so Property Management. I know you guys have put in a program to increase efficiencies. What's going on there? It's 8% of revenue, roughly. It was 7.5% last year.
I'll take part of it, and then Chris can answer anything else that he sees. One of the things we had, we were poached quite a bit last year, and it cost us in our turn times. We have a more generous pay package for our people this year. That's probably a good portion of the percentage increase. The other thing that we did this year versus last year, and I think we talked about it on last quarter's call, is we hired basically a SWAT team so that when we do get poached and people leave in the field, we're not left with nobody there. We move the SWAT team in to pick up the slack. They were fully utilized in May, June, and July.
Yeah. Hardik, let me give you a couple of other thoughts also. I think you're looking at the numbers in the back of the supplemental that we calculate in the platform efficiency percentage. In terms of understanding them, I think it's helpful to also break them apart and think about Property Management and G&A separately. I would say on Property Management, especially if you look at it on a same-home basis and you look at it on a full year-over-year basis, you'll see that we're up 40 basis points year-over-year. Even though we are making some of those investments in the platform that Jack mentioned, overall, we're tracking pretty well on a full-year basis.
On G&A, it's been a couple of quarters since we talked about this, but I think it's helpful to go back to some of our commentary when we initiated the guide at the start of the year. Recall that one of the components of this year's G&A on a year-over-year basis was the exec comp reset that we had at the start of the year. As a reminder, the cash impact to this year's G&A is call it about $2.5 million or so. If you hold constant for that implies kind of a 1%-2% increase in comparable G&A year-over-year. On a full-year basis, again, if you go back to our comments at the start of the year, we are expecting full-year G&A to be $37 million-$38 million. This is excluding stock comp.
If you take half of that through the first half of the year and compare that to where G&A is running year to date, we're right on top of what our expectations were.
All right, thanks. That's all from me.
Thanks, Hardik.
Our next question is from Douglas Harter from Credit Suisse. Please go ahead.
Thanks. Given the attractiveness of the build to rent, can you talk about what it would take to kind of want to ramp the number of homes and the size of that portfolio and whether that capital could come in the form of JVs or raising additional capital?
Yeah. It's Dave. There's a couple things about the Development Program and ramping up. One is, as we've mentioned earlier on this call, it does take a little longer to ramp- up this program than it does the acquisition program. You really have to look at your ability to execute, and then you look at the capital. On the ability to execute, we are ramping up. We have staffed a number of markets after our initial test and have been out actively acquiring the land. On the joint venture side, there is a lot of interest in the investment community on growth programs in single-family rentals. It's in all three channels of acquiring existing assets, national builders, as well as in-house development. We are seeing interest in all of those areas.
We are considering that, as well as the fact that we have a significant pipeline of capital ourselves through retained cash flow. We're about $280 million for this year is the target, as well as we have additional debt capacity as our EBITDA grows. We have the additional debt capacity even with the credit rating restrictions that we have or guidelines that we have. We have a lot of different ways to finance it. It is a program that we do want to ramp- up. We are ramping up, and you'll see the results of that towards the latter half of this year and primarily in 2020.
Thank you.
Yep.
Our next question is from Jade Rahmani from KBW. Please go ahead.
Hi, everyone. This is actually Ryan Tomasello on for Jade. I was wondering if you're seeing any discernible impact in your markets from the iBuyers, whether that be in terms of competition for new acquisitions or using them as an attractive channel for efficient disposition of your assets?
Yeah, we've used them for efficient disposition of assets. We don't see that much in terms of competition other than for people.
Yeah. Remember that we are still acquiring through the channel of existing homes, but a lot of our growth is coming through new homes. We don't have a lot of competition for product in acquiring assets that they're impacting us.
On the new build program, can you tell us what percentage of the portfolio is new construction today, and over time, if you have a target for the percentage of the portfolio or where you, in general, could see that going?
Yeah. It's a very small percentage at this point, probably in the 2%-2.5% of the portfolio range. I would expect that to grow, and we're currently staffed to grow at a level of about 3,000 homes a year.
Just one last one, if I could. I'm not sure if you gave it in your prepared remarks, but can you discuss the trends you're seeing in turnover times, where those are running today versus a year ago, and if you have any internal targets for that metric over time?
Yeah. Ryan, it's Chris. I can give you where we tracked in the quarter. Jack can speak to the targets. For the second quarter turn days, keep in mind, any time we quote turn days, this is full cash to cash, ran, call it, in the mid-40s, 44 days or so. A year ago, we were kind of higher 40s. Trending favorably on a year-over-year basis.
Yeah. The marketing times are coming down. Lease to sign is pretty close to where it was a year ago. The move-out to rent-ready date has moved up a little bit. The more we exercise our resilient flooring program, it's going to weight that up a little bit because it, on average, takes about seven days longer to contract that out.
Where do you expect that average to go over time?
Over time, I would expect it to be, depending on time of year, because the marketing time later in the year is not as fast as it is this time of year, anywhere from 30-35 days during the peak leasing season to 50 days in the non-peak.
Great. Thanks for taking the questions.
Thanks, Ryan.
Next question here is from Drew Babin from Robert W. Baird. Please go ahead.
Hey, good morning. A good percentage of your inventory additions year to date have been in Jacksonville. I wanted to touch on that market. Obviously, it's a large market geographically. I imagine there's a decent amount of affordable home inventory, at least on the outskirts. Sort of what are you seeing there? Is your investment maybe more infill? Is that going to continue to be a big investment market for the remainder of this year?
It will continue to be a big investment market, but I think the main reason you're seeing a little outsized investment there is it's one of the first markets that we entered into in terms of development. It's further along, and we've delivered more houses there than in the other markets.
Okay. Can you remind us from a demand growth perspective, kind of what's attractive about the market? Any employers that are adding jobs there, sort of what the long-term play is?
Yeah. It's got significantly higher than average population growth, job growth, and fairly low unemployment rate. It's got all the demographic growth characteristics that we like. Within the portfolio, the demand has been strong there consistently for six years.
Okay, thanks for that. Just one more for me. Kind of on the opposite end of your development spending, the $200 million-$400 million that you're spending this year on deliveries that'll come in 2020. What markets are sort of the tail end of that, where we might see more deliveries next year relative to this year?
We hired somebody right at the beginning of 2018 to open up markets on the western part of the United States. The ones that are a little later to open that where we're going to be building or are building are Salt Lake City, Las Vegas, Denver, Boise, Seattle. We have a fairly sizable development in the Austin-San Antonio region. You'll see some there. For the rest of the year, it's probably going to be primarily the Southeast, which is where we started our Development Program.
Great. Thanks for the color.
Our next question is from Ryan Gilbert from BTIG. Please go ahead.
Hey, thanks for taking the follow-up, guys. Just a quick one on the National Builder Program. I know the preference is to negotiate wholesale prices on bulk sales, I'm wondering if there are any markets where the rent growth has been strong enough for overall rents are just high enough that you can walk directly into the sales center and buy just at list price from a salesperson?
We could. It's just the economics on the way we're doing it are much better. The finishes, when we negotiate it far enough in advance, we can get our hard flooring in and set it up the way with our specifications to a greater extent than just buying off the rack.
Ryan, it's Dave. Let me just add. The home builders, and we have had discussions, it's becoming a much more viable partnership for both of us, and it's in a development stage where we are working well with them. They are now working with us on our finishes. The closeout of some of the developments, we can help them there. We do get some significant discounts. It's a program that was slow to get going, and there's a lot of interest by a lot of home builders today, and we're looking to take advantage of that as well.
Thank you.
This concludes the question- and- answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.