Earnings Call: Q1 2018

May 4, 2018

Greetings, and welcome to the American Homes 4 Rent First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stephanie Heim, please go ahead. Good morning. Thank you for joining us for our Q1 2018 earnings conference call. I'm here today with Dave Singelin, Chief Executive Officer Jack Corrigan, Chief Operating Officer Diana Lang, Chief Financial And Chris Lau, Executive Vice President, Finance 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, May 4, 2018. 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 Singleton. Thank you, Stephanie. Good morning. Welcome to our Q1 2018 earnings conference call. I would like to begin by providing a few highlights on the single family rental sector, our recent performance and accomplishments, and an outlook for the balance of 2018. After my comments, Jack Corrigan, our COO and Diana Lang, our CFO, will provide more details on our operational results and financial activities. Let me begin that the single family rental home sector continues to enjoy very strong fundamentals, which separates our sector from most others across the real estate landscape. Demand for housing remains strong. It is driven by higher job and wage growth and the creation of more than 1,000,000 households annually. Even with the housing market showing signs of improvement, new housing supply is not keeping up with demand. In addition, many households continue to favor renting, which provides greater flexibility and affordability in many desired neighborhoods. The number of households renting single family homes continues to increase every year. This higher demand is evident by the significant increase in our website traffic. These strong fundamentals will continue to drive strong top line growth for the foreseeable future. As we discussed on last quarter's call, we came into 2018 with an inventory backlog, which we believe would take the better part of the 1st and second quarters to absorb. We put in place a series of initiatives and investments to improve portfolio occupancy levels during the first half of the year. As our success built during the Q1, we were able to accelerate our plan to achieve occupancy targets earlier, allowing us to take full advantage of the As a result, we leased nearly 6,300 homes during the Q1. Our total portfolio lease percentage at the end of the quarter was the highest end of period portfolio lease percentage in almost 2 years. Our same home portfolio end of quarter occupancy and lease percentage are the best reported results in our company history. Even more impressive, we accomplished our occupancy gains while also achieving a strong 3.7% blended rental rate increase, which is 20 basis points better than the leasing spreads captured in the Q1 of 2017. Our leasing spreads improved each month during the quarter. Looking forward, the improvement in occupancy and rental rate trends continued into April. I am proud of these results, and I thank my colleagues for their hard These results and trends are very encouraging for strong rental performance for 2018. To accomplish our objective of increasing occupancy and rental rates, we increased our spend on repairs and maintenance to make ready costs to improve the marketability of our elevated inventory levels. Our decision to increase our investment in our turn process permitted us to lease units more rapidly, reducing our vacant inventory, which should reduce future quarter spend on turn costs. This also puts us in position to further drive revenue growth this year. Although we compressed the timing of some expenditures into the Q1, We remain comfortable with the full year revenue and expenditure guidances that we provided last quarter. Jack will provide more details on the specifics of these investments and initiatives later on the call. Turning to our growth plan. We remain on track to invest $400,000,000 to $600,000,000 in new inventory in 2018. As we stated last quarter, most of the growth capital for the balance of the year is expected to be allocated to our newly constructed Built for rental product, which we believe provides the best risk adjusted returns in the near and long terms and is consistent with our objectives to grow both strategically and accretively. Regarding dispositions, This past March, we modified one of our securitizations to allow collateral substitutions, permitting us to expand our disposition program without incurring prepayment Most of our planned disposition activity is focused on markets and neighborhoods, which we have chosen to exit. While the homes in these markets have appreciated from the date of their acquisition, these markets generally have lower projected growth expectations than the rest of the portfolio. As a result, we have added about 1600 homes to the disposition pool, including homes in 5 markets that we have chosen to exit. Combined with homes previously identified for disposition, our current portfolio of homes to be sold now totals about 1900 homes, which are currently about 80% leased. We expect these sales to occur over the next 24 to 36 months, generating $300,000,000 to $400,000,000 of net proceeds. Our goal is to complete these sales as quickly as possible through one off and small portfolio transactions. Turning to the balance sheet. During the Q1, we issued $500,000,000 of End year, unsecured bonds at an interest rate of approximately 4.1% after reflecting the impact of an interest rate hedge put in place prior to the transaction. This was our inaugural unsecured bond offering and introduces an additional attractive long term capital option. At quarter end, our balance sheet remained strong. Our liquidity profile at March 31 included more than $200,000,000 of cash and $800,000,000 available on our credit facility. In addition, we retained approximately $250,000,000 of annual retained cash flow and will have proceeds from sales to reinvest. In closing, the single family rental business continues to enjoy underlying strength that cannot be matched by most other real estate sectors. We made critical decisions in the Q1 to lease up our available inventory and produce record setting leasing results. This will position us to capitalize on the strong single family rental home demand during the balance of the year. In addition, our strong balance sheet provides the capacity to capitalize on future investment opportunities and to fund our accretive growth plans this year and beyond. And now, I'll turn the call over to Jack Corrigan, our Chief Operating Officer. Thank you, Dave, and good morning, everyone. Beginning with operations, as As Dave mentioned, we came into 2018 with a focus on leasing and driving occupancy in the first half of the year. Early momentum encouraged us to temporarily elevate property expenditures for vacant and vacating inventory to refresh the cosmetic appeal of our homes. In addition, we increased our property management and leasing teams to accelerate the completion of turnover and upgrade work to facilitate our leasing success. This allowed us to absorb excess inventory earlier, positioning us to capture for the full benefit of the Key Spring leasing season. The results of our efforts were exceptional. I'm Extremely pleased to report that we leased nearly 6,300 homes during the quarter, resulting in an improvement in our total portfolio lease percentage by more than 320 basis points to 95.5 percent and a total portfolio occupied percentage of 94.3%, both of which are on par with record levels for any period end in the company's history. For our same home portfolio, we finished the quarter with an end of period lease percentage of 97.1% and saw tremendous occupancy momentum throughout the quarter, as evidenced by the monthly trend from December through March of 95%, 95.2%, 95.5% and 95.9%, and the strong momentum has continued through April with a pickup of another 20 basis points to a month end occupancy rate of 96.1%. As Dave indicated, our same home lease percentage of 97.1% and occupancy Percentage of 95.9 percent at March 31 are the best end of period same home reported results in our company history. Further, we captured solid rent growth while obtaining this occupancy gain. We achieved a total portfolio blended lease spread 3.7% in the Q1, which was 20 basis points higher than the prior year without the implementation of any specialized incentive or concession program. We also saw an acceleration in blended leasing spreads throughout the quarter, improving from 2.9% in January to 3.6% in February and 4.4% in March. This trend continued in April with blended rental rate spreads Approximately 4.8%, which included nearly 7% growth on re leases. Moving on to our Q1 operating expenses. Our increase in R and M and turnover costs when comparing Q1 2017 Q1 2018 was driven in part by $1,500,000 of non comparable costs due primarily to winter freeze damages in certain of our Southeast and Midwest markets. The remaining increase this quarter relates to carrying costs on above average levels of inventory and our expanded Investment to cosmetically refresh the inventory prior to the spring leasing season. While some of these elevated expenditures It should be noted that most of the first quarter increase represents a concentration of expenditures to absorb vacant inventory earlier than previously expected. With that in mind, we still expect total maintenance related expenditures for the year to come within our guidance of $19.50 to $2,100 per home and total operating expense growth in the 4% to 5% range. With the spring leasing season in full swing and with April's leasing results as an early indicator, I remain bullish on our topline growth throughout the remainder of 2018. Turning to transaction activity. During the Q1, we acquired 704 Homes for a total investment of approximately $170,000,000 which was in line with the expectations we communicated last quarter. 586 homes were acquired through our traditional channels with average pro form a cash flow yields, including provision for capital expenditures of 5.5%. We also took delivery of 118 newly constructed homes in 5 markets for a total investment of $28,000,000 81 of these homes were from our National Builder Program and 37 were from AMH Development. Our delivery schedule under both programs is constrained due to winter weather and a slower permitting process as many zoning authorities are not staffed for current levels of activity. However, we still expect approximately $300,000,000 in deliveries in 2018 from our National Builder and AMH Development Programs combined. For full year 2018, our acquisition targets remain unchanged at $400,000,000 to $600,000,000 with approximately $300,000,000 of newly constructed homes delivering during the remainder of the year, along with continued modest levels of traditional channel acquisitions. Demand for newly constructed rental product remains strong. We continue to believe these homes provide better near and long term risk adjusted returns with lower maintenance and capital expenditures and allows us to grow in markets where normal channels do not currently provide meaningful product at compelling returns. Further, we expect about half of our build for rent program to occur within targeted rental communities, which offer advantages, including Leasing and maintenance efficiencies, the potential for community level amenities and the ability to control curb appeal of the neighborhood. Finally, we are reiterating the operational guidance metrics for 2018 that we provided last quarter. This guidance is outlined on Page 21 of our supplement. Now, I will turn the call over to Diana. Thank you, Jack. In my comments, I'll briefly discuss our financial results for the Q1 and then review our recent capital markets activity and balance For the Q1 of 2018, net income attributable to common shareholders was $5,800,000 compared to a net loss of $1,500,000 in the Q1 of 2017. Core FFO was $0.25 per share compared to $0.26 per share in the Q1 last year and AFFO was $0.22 per share compared to $0.23 per share 1st quarter core FFO and AFFO reflect growth in property operations, offset by higher deferred dividends and an increase in the weighted average diluted share count due to capital markets activity in the past year. Our 2018 same home pool reflects the results of 38,828 homes versus 36,600 and 45 Homes last year. This reflects the addition of about 3,500 Homes and the elimination of about That have been identified for sale as part of the company's disposition program discussed previously. The composition of this year's pool remains materially consistent with prior year and we've provided 5 quarters of historical metrics for comparison. Turning to our balance sheet and recent capital markets activity. As Dave mentioned, in February, we issued $500,000,000 10 year 4.25 percent notes in our inaugural issuance of unsecured bonds. The bonds were priced at a spread to 10 year treasuries of 158 basis points and included the benefit of a hedging transaction we entered into prior to the issuance, Our effective interest rate is 4.08%. Proceeds were used to pay down our revolving credit facility and for other general corporate purposes, including funding our investment program. We were extremely pleased with the execution and believe access to the high grade unsecured debt market As the single family rental securitization market has matured, in March of this year, we were able to modify one of our securitization loan agreement to allow us to substitute collateral without prepayment of the loan, avoiding prepayment penalties. This facilitates our ability to sell properties that are currently encumbered while preserving our low cost financing. We're currently seeking to modify the loan agreements related to our other three securitizations to allow collateral substitutions as well. At March 31, 2018, our balance sheet remains very strong. For the trailing 12 months, net debt to adjusted EBITDA was 5.1 times. We have approximately $2,900,000,000 of debt with a weighted average interest rate of 4.16% and a weighted average term to maturity of over 13 years. We had more than $200,000,000 of cash and cash equivalents and 0 outstanding on our $800,000,000 revolver. With annual retained cash flow of approximately $215,000,000 and reinvestment of sales proceeds were well positioned to fund our growth objectives. Subsequent to quarter end, in April, we converted all 7,600,000 Series C participating preferred shares into common shares. The conversion ratio was based on a calculation which factored in home price appreciation since their issuance and resulted in the issuance of approximately 10,850,000 Class A common shares. This transaction eliminated a financing instrument with a 9% annual cost and further improves the capacity of our balance sheet. Finally, as Jack said, we're affirming the 2018 guidance metrics we provided last quarter. The specific metrics are provided on Page 21 in the supplemental and we're not making any revisions, so I'll not itemize them here on the call. And now, we'll open the call to questions. Operator? Thank Our first question comes from the line of Nicholas Joseph with Citi. Please go ahead with your questions. Thanks. How do you think about share buybacks as part of the capital plan? And should we consider them in lieu of acquisitions, so if the stock continues to trade at a discount, you'll continue to execute instead of acquiring assets. Well, I think both are This is Dave talking. I think both are evaluated at any given time. We did do a little bit of share buybacks when we got down Into the $19 range. So we don't outline exactly where we would be Purchasing stock, but they're both strategic ways to enhance shareholders values and we evaluate both of them as to which one we think the best allocation of capital at a given time is. Thanks. And can you provide some more Color on the market and submarket analysis that's leading to the additional dispositions and what is it about the markets or assets that no longer fit with your strategy? Yes. This is Jack Corrigan. We looked at markets that we had previously identified To markets and submarkets that we previously identified to possibly exit And once we were able to substitute properties in for properties In the securitizations, then we decided that we would go ahead with that. How we identified them as they just typically underperformed our other assets And we had identified reasons that we hadn't identified obviously when we started purchasing in those markets Or submarkets, and we think we can allocate the capital better than those markets. Thanks. The next question comes from the line of Juan Sanabrio with Bank of America. Please go ahead. Hi, guys. This is actually Shirley Wu with Juan Sanabria. So I have a quick question on same store guidance. Your first quarter numbers were below to low end of guidance for revenues, expenses and NOI. Are you now leaning towards the results coming out at the lower end of the range? And what gives you confidence Leave your initial range unchanged. Yes. This is Dave. If you look at The guidance that we gave, it was intentionally for the entire year. If you look at the Q1, as we mentioned on last quarter's Call, we were coming into the quarter with lower than desirable occupancy levels. During the quarter, we have Brought those occupancy levels up, not only to where they were in the prior year, but to a level that is basically the highest in the company's history. That's positioning us to have very and our rental rate growth as Jack went through previously has become very, very Strong as we have less inventory to lease. All of that It puts us in a very, very good position for long term revenue growth throughout the balance of the year and strong revenue results for the rest of the year. On the expense side, expenses are tied a lot to the level of inventory that you have. And with the accelerated levels of inventory, the amounts of spend were going to be a little bit disproportionate into the first In addition to that, we did choose to spend a little additional amounts in the Q1 to assist in the leasing process. And then the other thing about the Q1 that should Not be extrapolated into the balance of the year is while it may not be technically one time, they are not Recurring type of expenses. And what I'm talking about is those unusual expenses that you do pay from time to time related to Things that occurred in the Q1, like the freeze. We've also seen it previously with hurricane expenses, But we didn't have any of those expenses in the prior year. So the comparisons when you do have them do look a little skewed, but they we don't We have no idea if we're going to have those in the balance of the year. It's really a mother nature event, but those kind of distort kind of the Appearance of the balance or of the expense trend in the Q1. So we're still comfortable. I think we've indicated that We're comfortable with our guidance, the ranges that are provided. And I think what you see is really a compression or Okay. Thank you. And our next question comes from the line of Jade Rahmani with KBW. Please go ahead with your questions. Good morning. This is actually Ryan on for Jay. Thanks for taking the questions. Just regarding the new construction product, I was wondering if buying homes from homebuilders Offers advantages in terms of more than just the obviously the yields, but also in terms of managing occupancy As it seems you could pre lease those homes to avoid the vacant carry costs? Yes, we I mean, we attempt to pre lease them, but it's hard to hold up hold something for lease that you don't own. It's actually easier to pre lease when you're building it yourself. So we because we don't close on the builder Properties until the property is built completed. Okay. Makes sense. And then just on the M and A environment, are you seeing increasing consolidation opportunities both at the smaller bulk level and Maybe middle market level. And then dovetailing off on that, are you seeing new entrants in some of your markets in terms of Smaller institutional players. We definitely see some, I wouldn't say new entrants, but Previous entrants that are growing their portfolio, portfolios fairly rapidly And we don't see a lot of portfolios for sale recently actually It's not been a real strong source of properties. And just lastly, in terms of the acquisition outlook, Can you just give us a sense of what markets you'll be expecting to deploy capital and how that varies between the newbuild And the in house purchases through MLS? Yes, it's basically the same markets we've Been acquiring in the Southeast and Nashville, Atlanta, To a lesser extent, Charlotte right now because we're still absorbing there. And then on new builds, it allows us to grow in markets that We previously hadn't been growing and we're looking at Las Vegas, Phoenix and Austin and Seattle, for example. So we are growing in those markets. And with the new builds, we're able to do it at a yield that makes sense to us. And our next questions come from the line of Steve Sakai with Evercore ISI. Please go ahead with your questions. I just wanted to circle back on the expense growth. I mean, I presume that the sort of $1,500,000 that you had that was kind of weather related And freeze related was not part of the original guidance. So if you kind of look at your same store It looks like it's about 60 basis points. So are there other savings that you think you might have or you're just comfortable saying that that would still fall in the range of 4% to 5%? Yes, I'm comfortable that it will fall in the range. We have 9 or Really 8 months left in the year to see what happens, but I'm comfortable that even with that will fall within the range. Okay. And then just turning to the dispositions, given the housing shortage and lack of homes available for sale in the country, I guess I was a little surprised that you sort of earmarked the 24 month to 36 month period to sell these. Is it Sort of more problematic that the homes are leased to actually bring them to market and sell and do you have to sort of de lease them over time in order to bring them to market or just kind of help us think through Why you might not accelerate that program? Well, we will accelerate it to the extent possible, but and practical for us. We are marketing, For us, we are marketing leased properties in bulk sale Form, but there's no guarantee we'll find a book buyer. So as these properties just naturally vacate, then we will sell them on Really vacate, then we will sell them on the MLS. One of the ways we market ourselves to our Potential tenants is we don't we're a rental company. We're not a mom and pop that Can wake up tomorrow and decide to sell the property and you don't have a place to live. So we don't really want Force people out to sell them vacant. Okay, great. Thanks a lot. Thanks, Steve. And our next question comes from the line of Dennis McGill with Zelman and Associates. Please proceed with your questions. Hi, good morning. Thank you, guys. First question just has to do with the units that were vacant, that you were trying to get lease Through the quarter, you noted investing in them to make them more attractive. What are some of the things that you did to make them more appealing? Well, there's a number of things, but I'll start with our general policy on turns is that the house has to be Clean, safe and functional. And in December, I told our team it's got to be clean, safe, Functional and 97.1 percent leased. So we if the House, if some houses are fenced, some aren't. If they thought that needed a fence, they put in a fence. If they thought it should be painted, The interior painted, they painted it. If they thought the carpet was 80% gone, they put in new flooring, which Typically, we wouldn't. And so they went and they did just more To get it to the lease percentage that we want, which reduces your maintenance costs in the future because we Pay utilities and landscaping on vacant houses and to the extent that we get them occupied, we don't have I think over time that will prove to be a savings. As you think about how your normal turns would look going forward, does this make you rethink what you were traditionally doing to units as far as what's Required versus ideal for the tenant and does that raise turnover? No. I think that 90% to 95% of the time the Lean, safe and functional leases just fine. It's just that you really got to probably need to pay closer attention To stuff that's aging and then go in and fix that stuff not you can't apply the standard that we applied in the Q1 all year long because you'll be painting stuff that doesn't need to get painted to lease And you just and I think what we were doing works 90% to 95% of the time. We just got to be Vigilant on the other 5% to 10% and fix it up quicker than we probably did. Okay. And then on the markets that you've decided to exit, can you maybe just go into a little bit more detail as far as What differed most between those markets and your other markets? Was it more on growth opportunity, rent growth or Subscale on the expense side, any color you could give us as far as maybe the differential in margin, something to understand kind of why they're exit points? As far as markets, there's a couple of markets and submarkets, just as an example, and They're all different reasons, but they're primarily or have a large part of the tenant base that is Military, and when you rent to the military, if they get transferred or something like that, they You're required to let them break the lease and it was just hard to keep those over 91% occupied because you're constantly dealing with unplanned turnover. And so Those markets we're generally selling out of. There's a couple other markets that we have one market Where the home price appreciation has been fairly strong, probably has grown 35% over the last 4 years, but the rents haven't gone anywhere. So we're looking at it. We're a rental company. And so we might as well sell, take the gain and invest it somewhere where rents are growing. And then last question on that. If You have a lot of other markets that you have fewer than 500 homes. Should we think about this portfolio review as being The last major announcement on any market exits or is this ongoing where you could see other exits in the near future? I don't visualize exiting other markets right now, but I'm not going to preclude it. These markets, most of our other smaller markets are within an hour Just over an hour of other big markets and so we can manage those fairly easily. These ones were Several hours outside of some of our bigger markets and were more difficult to man. Good luck, guys. Thank you. Thanks, Dennis. Our next question comes from the line of Ronald Kamden with Morgan Stanley. Please go ahead with your question. Hey, thanks for taking the question. The first one was just if you could touch on, I was just looking at, it looks like the debt to Preferred EBITDA went up a little bit quarter over quarter. Just what are your thoughts and how should we expect that to trend for the rest of the year and going forward. There are a couple of reasons for that. Number 1 is that we did Our inaugural bond offering during the quarter and the dollars that we raised there have not been fully invested and generating EBITDA. We also, subsequent to quarter end, have converted the Series C preferreds, Which actually improve on a pro form a basis, improve the debt plus preferred to EBITDA pretty significantly because We get sort of the double benefit of reducing leverage and increasing equity. So the decision to Convert to fees, which were a 9% annual cost leverage instrument, has really benefited the balance sheet by adding Great. Thanks. Our next question comes from the line of Drew Babinham with Robert W. Baird. Please go ahead with your question. Hey, good morning. Quick question on Atlanta. I noticed that same store occupancy was down about 60 basis points sequentially, kind of bucking the Overall trend among your markets. And I was just wondering if you could talk about dynamics in that market with supply and demand and anything kind of new taking shape there? Nothing new. Atlanta has been a strong market for us and I would expect that that will rebound. I don't even consider Atlanta a difficult market, so I didn't Focus on that one for the call. But there may be some impact of our we continue to buy there. There may be Some impact of our newer product coming in, but I think we're 90, 95 percent average days occupied, which is one of the highest in our portfolio. So, And it has one of the highest rent increase rates too. So it's Still a very strong market and we continue to grow in it. Okay. Just to add a little bit more context to that, this is Chris. In Atlanta, we acquired a little over 300 units in that market between Q4 and Q1. So, you have a little bit of just timing of inventory absorption there, and that inventory continued to trend up post Quarter end and is at 96% plus by April. Okay. That's very helpful. And then Charlotte and Nashville were 2 markets with Still kind of tough pricing on the new leasing. Is that a direct reflection of higher inventory or is anything changing on the demand front in those markets? It's a direct reflection of higher inventory. I think in Charlotte, from December to March, we went from about 350 Vacant rent readies to at least through April, I think last I checked, we were about 130. So we're still able to Rent them up and we're starting to see better increases in those markets now. Okay. And then lastly, just on same property occupancy. Obviously, it's at High point, as we stand at the end of Q1 and into April, do you expect that that same property occupancy number may come down a little bit, just kind of being managed down to better rate or should we expect it to remain relatively stable for the next couple of quarters? Well, the plan is to have it Remain relatively stable and we're getting good rate increases, while April, we continue to increase occupancy and close to 7% increases On re leasing, so we may have a month or 2 where it slides, but I expect The occupancy will stay pretty strong. Great. That's all very helpful. Thank you. Our next question comes from the line of Douglas Harter with Credit Suisse. Please go ahead. Thanks. Will your disposition plan change or the amount you want to dispose of increase if or when you get the approval on the other It's likely that we continually evaluate our portfolio. I don't think it will change in terms of markets, But we continually evaluate our portfolio for a number of Characteristics that we've determined are significant for Determining whether to dispose of them, 1, we don't have a lot of this, but one is if it's not on a sewer system, if it's on septic, It's just difficult to and we don't have enough where we have a real good program for Monitoring that, so we tend to sell those when we can. And others are Just kind of outside our normal circle, we just have a normal calling process And we look at houses we've owned for 4 or 5 years and our normal occupancy is 95%. And if they're like 70, Then we know we have even we just have trouble leasing it and maybe it's the layout, whatever, we should probably get rid of it. Yes. No, this is Dave. Just to add a little bit, the majority or the market exits were really encumbered by the ones that we wanted out of We're really involved in this one. Individual properties, yes, there will be a few additional properties as Jack indicated for reasons he outlined. And did you have to give anything to the securitization bondholders in order to get this change? No, we did not. So I think it's just more reflective of the fact that The securitization market for single family rentals is maturing when we did our inaugural securitizations very early There was a little bit more conservatism. Some of the more recent securitizations that have been done In the marketplace, do have substitution rights and they're basic we're basically going back and asking for the rights that are in the new deals. So there's a lengthy process. I don't want to infer this as a short time process, but no, there was And our next question comes from the line of Buck Horne with Raymond James. Please go ahead. Hey, thanks. Good morning, guys. Curious about the going back to the self build program here. How much are you planning on spending for just land acquisition and development this year? And I guess I'm curious, are the savings you're getting from building yourself building the homes yourselves offsetting the carrying cost of the land? Yes, they're more than offsetting the carrying cost of the land. We expect to put another $100,000,000 or so into land and construction. The $100,000,000 is what we have probably on the balance sheet at any given time in the sum of land and construction and process. It may go up a little bit, but it's just the whip that's out there before the deliverables. All right. It's helpful. And going back to the disposition program. So if you were able to complete a bulk sale A chunk of that identified pool, how would you plan to recycle that capital? What options would you have to Not create an outsized earnings drag if you were able to do a bulk sale. We have the same options we always have. We could repurchase stock. We could buy more properties or build more properties. Okay. So I mean, you could obviously buy back stock fairly quickly, but it's hard to accelerate the delivery of to be built product That much faster. Would you just put it into more traditional acquisitions? Again, we have the option to expand any of those programs Depending on the circumstances at the time, our current build and acquisition rate is in that 6 100 plus or minus range, retaining about $250,000,000 of cash flow Means that in any given year, we're going to need another $300,000,000 plus or minus $400,000,000 to fund our acquisition channel. We have a number of avenues to do that through capital markets and debt markets. One of them is Recycling of capital from sales. If you look at the homes that we've identified for sale, it's And it's going to take some time to sell them and maybe it's going to be lumpy in our favor and we're lucky and we find a buyer quickly, but it's going to be $300,000,000 And so yes, it will go into our acquisition program primarily. All right. Thanks, guys. Yes. Thanks, Luke. Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your questions. Thanks. Dave, is the private market interest from institutional capital sources robust enough At this quality tier to do a bulk sale on nearly all of the properties? Well, There are a few larger private companies out there, and we'll be in discussions with them. Their footprints may not be exactly on every one of our markets. So we may not be able to get them all sold, but we're going to talk to everybody. We also have other channels that we can talk to. But no, there's a number of channels that we can that we will be pursuing to dispose of the properties, and you've identified one of them. What are the expected transaction costs on the 1900 Homes. So if we sell them in bulk, it will be relatively light, about 1% to 2% probably. And If we sell them on the MLS, it's going to be closer to 8%. 8% including some costs to get them ready. Okay. And then a question on The business model and the expense structure, so you own 50,000 homes, 50,000 driveways, yards, HVAC units, hot water heaters. I guess help me feel better that these expense pressures aren't going to flare up every year or 2 when you get some inclement weather or you have excess vacancy. When we have inclement weather, we're going to have outside the norm I have no way of giving you any assurances that that's not going to happen. In terms of the other houses, we've had a number of quarters The other issues we've had a number of quarters where we've fallen in this range or below this range and Hopefully, that gives you some assurance, but there are going to be quarters if you compare one against the other that you had A really good quarter the last year and you're going to have outsized increases. And then my guess is next year when we compare the First quarter, we're going to look pretty good. Yes. John, on this is Dave. Just to add a couple of other comments. From day 1, we've been That we've owned single family rental properties for the last 6 years. We've been replacing water heaters. We've been replacing Air conditioners servicing many, many air conditioners. We each and every period have roof work in That we are incurring fence work that we're incurring. We have a preventative maintenance program that we do deal with treating some of this stuff before, so it doesn't become a full replacement External painting programs, etcetera. All of that is there in the numbers. Weather related matters that Our non recurring and not necessarily inside your control where you have pipes bursting or wind blowing things around, Those are going to be aberrations in the normal trends. And so I think a lot of that It is already being taken care of those larger capital items. Okay. Thank you. Yes. Thank you. Our next question comes from the line of Ryan Gilbert with BTIG. Please go ahead. Hi. Thanks, guys. So we're a month into the Q2. Would you say that the elevated turn spend that you incurred in the Q1 has normalized? Or are you Still experiencing some elevated cosmetic expenses? It's normalizing. I would say that there Still a smaller amount of cosmetics and going and getting smaller every day. Okay. And can you give us an idea of the cap rate Spread between selling properties in bulk versus selling individually on the MLS? It's really not much different. I think we may be More negotiable on price in bulk because we save so much in transaction costs, but overall I think You evaluate them and if the offer is insufficient to Get us to make the deal, then we won't make the deal. If we think we can keep it rented and then just sell it when it vacates, it's In general, they're increasing in value while they're producing income. So, we're not in any big hurry. Okay. And then just lastly, can you give us an update to your local in house maintenance technician program just in terms of how many technicians you currently have hired? What markets they're operating in and then what percentage of your maintenance work orders are going through your in house team? Yes. We have What I would call 2 groups of in house maintenance. 1, primarily performs work on Occupied homes and that I think we have about 140 Technicians operating in all of our pretty much all of our markets with more than 500 homes, And they handle about 35% currently of our work orders. Then the second group, I think we have about 60 of them now is performs work on It's what we call preventative maintenance. They do exterior home painting, which can be occupied or unoccupied decks and but the big And decks and wood stairs and any wood trim around the house just to keep the house protected, that's what they do. And I guess just given the elevated winter freeze costs this quarter, the preventative teams are still being rolled out? They were rolled out mostly in Q4. We piloted it for a while and then fully rolled it out in Q4. Okay. Thank you. Our next question comes from the line of Nicholas Joseph with Citi. Please go ahead with your questions. Hey, it's Michael Bilerman here with Nick. I just had a few questions. If you think about the lease up that you executed in the Q1 picking up The 300 basis points of leased percentage, is there any delay to those residents taking occupancy? So as you think about The spread between leased and occupied, how should that trend in the second quarter? Well, we did in Q4, We typically don't allow between lease sign and occupancy date, we our maximum allowance was 14 days for the last Couple of years in Q4, we extended that to 30 to get fully leased And then we reduced it to 21 and now we're going back to 14 in the markets where we're pretty much Only have frictional vacancy. But that doesn't mean they're all 21 or all 30. The average went from 9 to 12 between lease sign And occupancy. Typically, the people that are in the lease Numbers do move in at month end in the 1st week or so of the next month. This year, April maybe a small aberration. If you looked at the calendar, April 1 or April 2, I don't recall, it's Easter. And so I think we had a couple of extra days, but nothing material In April, but it's typically with the stuff you see is going to move in, in the next few days after the month end. Right. But just looking at your lease versus your average occupied, If we go back to last year when you were 95% leased, you're only 93.5%, call it, Occupied, right, so you had 150 basis point spread. Today, you're sitting 95.5 leased. What should we expect average occupancy to be in the second quarter? How big should that spread be? Should it be 400 basis points or should it be 150 basis points or is it even tighter? Generally, it's somewhere between $100,000,000 $150,000,000 But I'm asking you, I know it generally, but What is it going to be? What are you experiencing in the Q2? What should we be modeling in effectively as revenue growth and revenues in the second quarter? I would say 95 ish. I mean, that's what our guidance has been. So that's only a 50 basis points spread to 95.5%. You just said it was 100, 150? Well, Our current occupancy is 96.2 at the end of April. And our lease percentage is a little bit higher than that. That's at the end of April. What we're saying is for The Q2, which if we understand or I understand the question right, what's the average occupancy going to be for the 2nd quarter? It's going to be in the mid-ninety five percent s. We're a little bit higher than that At the end of March, we're a little bit higher than that at the end of April, but the average throughout the month is going to be in the mid-95s. And just so we're clear on which occupancy you're talking about, we're talking about total portfolio. So if we look on Page 7 of the sup, the 95.5 percent you're saying today is 97%? No, no, I'm sorry, Michael, I was talking same home. So the issue with portfolio occupancy is it does get impacted throughout the months as well as at month's end based on deliveries of new homes coming into our system. And those are sometimes a little bit lumpy. So I don't know if I have the exact I don't have anything on portfolio As a result of I have to factor in acquisition deliveries. Okay. Okay. So as we step back just from a guidance perspective, and I know this has evolved since you came public where it started off extraordinarily light, Then went to stuff that was disclosed on calls and now you at least put some details on some line items in the supplemental that were previously communicated on the call. As you think through what happened this quarter where clearly you spent a lot more money to stimulate the leasing activity and get to 97% In the core of the same store portfolio, do you think about and I know you're not going to give us per share numbers, maybe one day you will, But would you start thinking about breaking out the excess revenues or excess expenses that may be impacting things on a quarterly basis So that the market is well prepared for those things rather than talking in generalities, but being a lot more prescriptive of saying, look, We expect to spend an extra $3,000,000 or $4,000,000 in the Q1 to get our leasing up. You should have that expense in your models. Same way here, now that we have this stuff leased up, you should expect revenue growth sequentially to go up by 5% or whatever that number is. Do you think about maybe being a little bit more forthright with The Street in terms of those numbers? I think We are providing guidance. We're doing it on an annual basis. We're still comfortable with our ranges. We're not at this Point prepared to be breaking out things down to the dollar on a quarter by quarter basis. We're still growing this company. We still have deliveries that do impact it, but we're very comfortable with our ranges. Thanks. This is Mick. Just one final question. In terms of the leases you signed in the Q1, if you think about your optimal lease roll going forward, Will you need to adjust either later this year or next year or the subsequent years to have more leases Well, The problem is that we do have a significant number expire in May, June, July typically. But the problem with having them expire, we typically don't when we send renewal notices, they have an option of month to month, 6 month lease or another annual renewal and at different rates. So if they go month to month and They want to move in June. Even if they expire in January, they're going to move in June. So it doesn't really flatten it out Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please go ahead. Hey, I just had one quick question Going back to the leasing volumes during the quarter and if I'm understanding correctly, when you talk about the extra spending and To get the houses to be able to lease a little faster, that could potentially apply to throw a number 5% or 10% of the homes. And if this is sort of a new toolkit that you have, should we think about is there an opportunity for leasing volumes, Just the rate to increase the run rate to just increase from what you've done historically, given that you have this kind of new tool to apply? I think so, but I'm not going to Predict it until we're through it for several quarters. Got it. Okay. That was all. Thank you so much. Thanks, Ryan. Okay. Thank you. That completes our question and answer session. Thank you. You may now disconnect.