Greetings and Welcome to the American Homes 4 Rent First Quarter 2016 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. Thank you. You may begin.

Good morning. Thank you for joining us for our first quarter 2016 earnings conference call. I’m here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; and Diana Laing, Chief Financial Officer of American Homes 4 Rent. At the outset, I need to advise you that this call may includes 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 06, 2016. 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. You can find our press release, 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, and welcome to our first quarter 2016 earnings conference call. On today’s call, I will highlight our operating performance and results for the quarter, including an update on our acquisition of American Residential Properties, which was completed on February 29. Jack Corrigan, our Chief Operating Officer, will then discuss our portfolio performance in more detail and review our key operating initiatives. Finally, our Chief Financial Officer, Diana Laing, will review our operating and financial results and update you on our balance sheet, capital activity, and liquidity. After our prepared remarks, we will open the call to your questions. We are extremely pleased with our results to kick off 2016 as we generated another quarter of strong operating performance. When we spoke to you earlier this year, we indicated that 2016 would be an important year for AMH as we drive growth on our stabilized legacy portfolio, work to improve service and efficiency and maintenance and turn cost, and overlaying our operating, leasing and management best practices on the acquired portfolio of homes. We had an exceptional start to the year in every area and are on track with accomplishing our goals. During the quarter, we saw a very strong leasing market, enabling us to drive occupancy and rental rates across our portfolio. In addition, we continue to realize improvements from our operating systems and enhancements. The result is our third consecutive quarter with an increase in our same home net operating income after capital expenditures of more than 10%. Before I discuss our operations, I’d like to briefly address our acquisition of ARP. During the quarter, integration of ARP’s portfolio was completed and it truly could not have gone any better. This was our largest portfolio acquisition to date and demonstrates the quality and experience of our…

Thank you, Dave, and good morning everyone. I’d like to expand on Dave’s comments and provide a more complete review of our portfolio. In the first quarter, we acquired approximately 300 homes through one-off transactions for a total investment of approximately $50 million. With the homes added through our ARP acquisition, completed in February, we ended the first quarter with approximately 48,000 homes. These homes are broken down in several categories to better show our operating performance and progress on key initiatives. These categories are detailed on pages 6 and 9 of our enhanced supplemental. As a result of our efforts to stabilize our portfolio in the past year, we entered 2016 with few vacancies and a historically high lease percentage. This put us in a tremendous position to drive rates on new leases in the spring leasing season and we’ve aggressively pursued this opportunity. Re-leasing rental rate increases during the quarter were a healthy 4.7% with rental rate spreads increasing each month sequentially to a high of 6.5% in March. Average rental rates were up 4.1% on renewal leases. We achieved this renewal increase while maintaining a 68% retention rate. We have seen continued leasing strength in April. Turning to our portfolio results, which reflects the performance of 25,361 homes in our Same-Home portfolio. In the first quarter, we reported revenue growth of 6.6%, driven by a 140 basis point increase in occupancy to 95.8% at quarter end, a 3% increase in average contractual rents, higher fees and lower bad debt. Same-Home expenses were up primarily due to property taxes, but we expect this to normalize in the coming quarters. Our NOI increase was 4.9%. However, I would note that our NOI, after deducting recurring capital expenditures, increased in excess of 10%. This marks the third consecutive quarter in…

Thanks, Jack. In my comments today, I’ll review our first quarter 2016 financial results and discuss our balance sheet and liquidity. As a note, our results are fully detailed in yesterday’s press release and in our supplemental information package, both of which have been posted on our website, in the For Investors sections. I’d like to highlight that we’ve made several enhancements to our supplemental package this quarter, including computations of adjusted EBITDA and AFFO, and our definitions for these and other metrics are provided in the supplemental. I’ll refer to some of these added disclosures in my comments. Beginning with our operating results for the first quarter of 2016, we reported core FFO of $63.6 million, or $0.23 per share. On a per share basis, our core FFO was up 47.1% from the $0.16 per share we reported in the first quarter of 2015. This increase was driven by higher property net operating income from both our Same-Home pool and the other homes we leased in the past year, which is partially offset by higher interest expense and slightly higher G&A costs. Our adjusted FFO for the quarter was $55.6 million, compared to $31.7 million in the first quarter of 2015. On a per share basis, our AFFO was $0.20, an increase of more than 70% from the $0.12 of the first quarter of 2015. In calculating AFFO, we’ve deducted leasing costs paid and recurring CapEx from core AFFO. The computation of all of our FFO measures is shown on the Page 8 of the supplemental. We’ve added some disclosure on Page 9 of the supplemental to classify our core NOI from our Same-Home properties, other stabilized properties, ARP properties, and then others separately, so you’ll be able to monitor each of those categories going forward. With regards to…

Thank you. Ladies and gentlemen, we will now be conducting our question-and-answer session. [Operator Instructions] Our first question comes from the line of Jana Galan from Bank of America Merrill Lynch. Please go ahead.

[Inaudible] behave differently and I guess I’m most curious about what you saw in Houston.

I’m sorry, Jana that you were cutoff for most of that question. Can you repeat it?

Sure. So I was curious on the re-leasing. Did you see that sequential improvement in most of your core markets and also I’m asking for Houston in particular?

Yes, in almost all of our core markets and Houston, we saw more move outs than we’d seen previously in Houston as a percentage of occupied homes. But we’ve been able to release most of those fairly quickly. The rate of change in releasing is lower than the rest of our portfolio. So there’s definitely is some effect in Houston, we’re working on it, and we’ve maintained pretty strong occupancy there.

Jana, this is Dave. If you look at the page 15 of the supplemental, you’ll see statistics by market. While there is a little impact, the market remained strong, 94% occupied, and the rental rate increases as Jack indicated are below the average of our system, but still positive and relatively strong.

Thank you. And then on the real estate taxes, I understand you expect those to moderate for the same store, but curious, what do you think will happen with the ARPI Home?

Well, we think overall property taxes will go up somewhere between 5% and 6%, and they are in similar markets, so I don’t see any reason to do that. I think it’s important to note that on the property taxes, we get – we don’t get the bills at the beginning of the year, and are able to accrue the actual amount. We have to make estimates, especially near the beginning of the year on how much they’re going to increase. So, last year, I don’t think we were as conservative as we were this year in making our estimates, which caused kind of a high fluctuation between quarters.

Thank you.

Thank you. Our next question comes from the line of Jade Rahmani from KBW. Please go ahead

Thanks for taking my questions. Wanted to ask if you could remind us your per home assumptions for R&M turn costs and CapEx?

Well, last year I think I said we would do about a $2,400 for the total, and I think we are slightly under that on Same-Home. I think, we should be able to achieve at least a 10% reduction in 2016. So, 2150 sounds like a pretty good target.

On a combine basis.

On a combined basis, yeah.

And what would you identify, as the main drivers of that reduction?

Well, there’s several reasons. I’d say, probably the biggest reason is in looking at what we were doing on turns, we were doing too many full repaying and replacements and now, we’re doing more repairs and touchups. The recurring CapEx drops but the turn expense may move up, but by a much smaller amount. So, the combined number will get smaller. We have a better subject matter experts, particularly in HVAC, which gives us a better control of our vendors. And then there is some effect not a full effect by any means, of our in-house capabilities.

And I would add one more and that is the shortening of the turn cycle means that, there is less holding cost utilities et cetera, that we pay during the turn. And so, shortening of the turn cycle, has some impact. To me, it’s all Jack and Bryan’s improvements are starting to show results, with the better standardization, better training and better execution throughout the system. And as we rollout in-house you’ll continue to see, more of those improvements.

In terms of your overall portfolio, have you stratified the portfolio by age of home and looked at the performance of say, older homes versus younger homes on CapEx? And I guess, could you – the main point is, could you address whether you think a couple of years from now given the young age of your homes you are likely to see a potential sort of step function uptick in CapEx as a result of that?

Well, we have stratified it and there is slightly more maintenance in CapEx, I haven’t looked at it probably in six to nine months, but in the stuff built in the early 1990s, we do see a little more CapEx and repairs.

But, I guess would you be worried about a step function higher in CapEx trends, based on the age of the home?

No. I don’t think it will materially alter that.

And just finally, can you address the difference between, I guess, stabilize recurring CapEx and total CapEx? What the main difference is relative?

The main difference is, if we are actually improving the house of we – one that comes to mind, because I – we’ve done it a number of times in Florida when I walk aged homes is sometimes a home will age, because they back up to a retention pond and it slopes towards the retention pond and we put in a fence that – so that kids won’t follow into alligator infested retention pond. So, that we would say was – would be non-recurring, in addition, if we’ve never renovated a house and we bought at least, that would be non-recurring. And then I would throw one other component in there. There is a number of homes, especially in the Salt Lake City area, where we have done improvements, building out basements, et cetera, improving and enhancing the house which allows to get higher rents in the future.

Thanks for taking my questions.

Thank you. Our next question comes from the line of Greg Van Winkle from Morgan Stanley. Please go ahead.

Hey, guys. On the ARPI dispositions, you have less to go. What do you think the opportunity is for doing a portfolio sale with some of those assets versus just doing one-offs?

I think the majority will be sold through portfolio. Sales were in touch with a number of different buyers for those, mostly smaller operators.

Okay. And so now you’ve had a little more time with the homes and presumably you started working through somewhat deferred repairs and maintenances. Is there any change to that $8 million to $10 million that you guys initially underwrote for that? And I may have missed this, but did you give a number for how much you spent on that in the first quarter?

It would have been minimal. We only have one month and I’m sure there is some in there, but not very much. I wouldn’t change the estimate at this point. We don’t have enough history to change that estimate, but I don’t think it will be higher.

All right. And then last one here on buyback. Last quarter, you guys said, you’re pretty comfortable with your leverage even though it’s a bit above your long-term target and you seemed more inclined to buyback shares and pay down debt, which you did during the quarter. Are you still kind of thinking about it the same way or what’s your appetite now for share repurchases?

I think great, share repurchase is one of those things that’s opportunistic. We look at where are the share prices. We do keep in mind what our capital stack looks like at all times, but when you have that opportunity you need to take it when it presents itself and we – it’s a statement I believe that – we believe that where we were buying our shares back, it was in the mid 2015. So, it was a good opportunity and it was a good acquisition investment for the company to make at that time.

All right. Got it. Thank you guys.

Thank you. Our next question comes from the line of Dave Bragg from Green Street Advisors. Please go ahead.

Thank you. Good morning. The rent growth trends are encouraging perhaps to provide us with a bit of a sense for the long-term outlook. Can you please talk about the rent-to-income ratios that you are observing for the tenants that are moving in?

Yeah. The rent-to-income ratios are in the high 4%’s somewhere in the 4.8% range on average. We have a minimum of 3% and but on average we are at 4.8%.

So that’s income-to-rent, you are inversing this answer, right?

Right, right.

High 4%’s, okay. Thank you. And then on the assets that you are selling, can you please talk a little bit about why the quality standards of the ones that you are selling are different. What share of the 1,600 units held for sale are actually AMH legacy homes and please share a little bit about whether or not you plan to sell them occupied or unoccupied and what you think that cost might be?

Yes. For the most part, we plan to sell the market side. But on the quality issue, the way ARPI acquired homes was really two different ways. One was to partner with a – what they called a preferred operating partner. And have them acquire the homes and then master lease them back for – from – the preferred operator would acquire the homes for ARPI and then master lease them back and operate them. In order to achieve the master lease rate, they couldn’t buy higher quality homes because the higher quality homes have lower, ostensibly lower yields. We don’t believe that over time that actually works. But by formula, we’ll show that the lower quality homes have a higher yield and so they bought primarily cheap homes – cheap older homes that we don’t typically – in neighborhoods, we don’t typically operate in and there were about 1,300 of those that that makes up the bulk of what we’re selling out of ARPI and on the legacy homes, it really depends on the reason we’re selling. If we can group them a significant amount in an area and the yields are pretty good, but then we’ll try to sell them in bulk. Most of the ARPI stuff we’ll sell because some operators like that especially the smaller ones. And then if we’re selling other homes, primarily because of rental restrictions or it’s a non-core market, we usually sell them as they become vacant and then we’ll sell them in one-off transactions and the cost of those sales are about 6%.

On the one-offs.

On the one-offs.

Yes. Dave, I mean just to summarize, the ARP portfolio, as Jeff mentioned, the homes that ARP bought that – those 7,900 that we are keeping are very comparable age-wise and in value-wise and that’s $170,000 original purchase area, the homes that do not fit or substantially older, probably in the $100,000 area and below in many – in some cases. They are concentrated and we do have a lot of interest in these homes to sell them in both. I think we’ve closed on 50 or so – 45 or 50 to date, but we have a lot of interest in many of the homes to be sold as a portfolio. So...

Thank you. That was very insightful. I appreciate all of that detail. One last question. We know that you don’t provide formal guidance, but as it relates to the 5% core NOI growth you achieved in the first quarter, what’s the outlook for the rest of the year relative to that 5% figure?

I think the outlook is good for the rest of the year.

The 5% is a fair betting line for the rest of the year?

Yes. I think, last quarter, I got cornered into answering that question, and 5% to 6% was a good target and I said, I think, it’s a good target, but I prefer 4% to 5%, it’s easier to hit.

All right. Thank you.

Thank you. Our next question comes from the line of Patrick Kealey from FBR. Please go ahead.

Thanks for taking my questions. First question, I was hoping you guys could give us some insight into the acquisition market. Obviously, you had talked about, there is demand for portfolios with what you’re selling. Have you seen maybe more or less volume of portfolios out in the market, kind of after the two large transactions that we’ve seen with you and your competitor and maybe what the overall opportunities that looks like maybe compared to a year ago?

This is Dave. The market is probably about the same as it was previously. Large transactions, if you’re looking at both ours, as well as a couple of the others, our long time in the making as I mentioned in our prepared remarks, we negotiated with ARP for more than a year before we announced the transaction. There is a lot of negotiating and both parties have to be ready. I think, there is multiple markets out there. There is the markets of the large operators, there is different markets based on quality and all of them have activity. Most of the activity though is in the smaller portfolios that people don’t see. They’re not flashed across ticker tapes and things like that. So, there is some activity going on every day. But in the large transactions, there is not that many large transactions to be had at this point, but I think all the parties, all the major players do have discussions frequently with all of their peers and time will tell.

Okay. Thank you. That was helpful. And then also, you mentioned kind of building out your in-house maintenance platform that was about $800, 000 worth of expenses this quarter, how much more expenses can we expect from that build out, maybe over the next few quarters understanding that, the difference in kind of cost per ticket is much lower for an in-house versus kind of your traditional means?

Yes. We’re kind of rolling this out in several phases. The first phase is to rollout tax that will go out and do maintenance and interact with the tenant app at occupied homes. And in addition we have once that are doing it in turn homes and we’ve got it in several markets, but we’re probably going to double that, the number of tax and trucks over the next quarter or so. And then the next phase of the rollout will be other services that we wanted to do, it’s like bulking up exterior services, tree trimming that type of thing that power washing that kind of thing that cause a lot to do in one-off, just on the turn and you don’t really have to schedule it with tenants. So, you can just kind of bulk it up, notice it on the turn, put it in the notes and then do it all at once. It’s a lot cheaper to do. So, we’re not sure, we’re going to do that ourselves [indiscernible] vendors, but we’ll need somebody to manage that process. So, those are the first two items we’re moving towards and then we have some other plans that I won’t get into at this point.

Okay, great, thanks for the time.

But, I think the bulk of the costs are – bulk of the costs are setting up the schedulers and getting the software and all that, that set up and hiring the people, that’s where the bulk of the infrastructure costs come in.

Okay, great, thank you.

Thank you. Our next question comes from the line of Buck Horne from Raymond James. Please, go ahead.

Hey, good morning, guys. Going back to the ARPI portfolio, I’ll caveat this question just knowing that you’ve only got one month of data broken out here, but I mean, the margin here, the NOI margin reported is 64%, that’s pretty big step, is there any big change or lever that you guys are able to identify within the ARPI homes that allowed you to improve that NOI margin so quickly?

Buck, I think the main consideration here is that in the first month of our ownership, we just haven’t had an opportunity to incur a lot of expense. So I don’t think that this margin is realistic on an ongoing basis.

I would change that, I think, it’s realistic on an ongoing basis. Once we’re – once we fully integrated the portfolio into our plan, it will approximate our margins which we expect to be in a low 60%s.

Okay, but so, how do we think about the next couple of quarters, I mean as it progresses through the year. So I guess we will have a little bit of cost to incur before you get the stabilization. So how does that flow for the rest of the year?

I thought Diana was going to answer that. Okay. I think we’ve done a fantastic job of integrating the portfolio and I think some of the costs that will come in, there will be more bad debt expense than it’s in this quarter for ARPI, the ARPI Homes, we made an effort to get rid of most of those in February that were bad and we will have a little bit of extra turn costs in the second quarter because as we got rid of the ones that were bad, we got to put in the turn and get them ready, but I think by the third quarter, we should be coming along pretty good with them.

Okay.

On the positive side, the rental rates on their portfolio we are getting pretty sizable increases from what we underwrote and from what they have, so north of 5% on increases on ARPI portfolio thus far.

Okay. That’s great. And speaking of rental increases, can you give us some information on, now as you are basically effectively full, what your renewal offers on leases are going out for say June, July, and August in terms of rent increase?

Yes, we don’t push our renewal rates that hard. So it’s going to be in the 2.5% to 4% range, we probably push it a little harder earlier in the year than we do later in the year, because if they do leave. It’s easier to fill them up in May, June and July. So as we get towards June, July, August, we tap on the brakes here on renewal rates.

Okay. Thanks guys.

Thank you. Our next question comes from line of Brock Vandervliet from Nomura Securities. Please go ahead.

Hi, good morning thanks for taking my question. So, I was just referring to the – I guess, it’s 8.8%, your management fee percentage of total reps. Over a longer term period of time, say you’re two out, what kind of flex do you think you have in that ratio? And number two, in your most concentrated markets like Dallas, for example, how does that ratio look? Thanks.

Yes. That – if you look at the historical numbers, those – that percentage has continually come down. Right now, I think the first quarter and second quarter we’ve got some additional people in there as part of the acquisition, but also going into the prime leasing season. We are continually making efficiency improvements throughout our system, I think the in-house – the roll out of the in-house maintenance will also have benefits. We don’t necessarily peg numbers, but I would tell you I have confidence that, that number will continue the percentage as a percent of revenues will continue to trend downwards.

And how differentiated is that in the most concentrated markets, where you do have the highest number of homes?

You know, that’s a hard question to answer because of the way that, we are – we operate. We have a significant amount of our operations centralized. Whether it’s call center or maintenance, supervision it’s all centralized in Las Vegas. There is some benefits obviously, to scale but not as much as you would think, due to the fact that, we have the efficiencies in the centralized operations.

Got it. Okay. Thank you.

Thank you. Our next question comes from the line of Dennis McGill from Zelman & Associates. Please go ahead.

Hello. Thanks for taking my questions. First one, just ask to do with when you look at your current tenants and think about them relative to maybe your current underwriting criteria if you will. How do you feel about the quality of those tenants and thinking about it from the aspect of turnover? Do you feel like this any type of turnover, as you’ve had in the past and maybe exclude ARPI residence on this? But are you in a position today where you feel comfortable with the quality of the tenants?

We feel very comfortable with the quality of our tenants. So I think the improvement over the last couple of years in terms of bad debt kind of demonstrates that once, we went away from third-party managers and underwrote and got control of the underwriting and centralize the underwriting we’ve made some big improvements and the tenants from the third-party managers, we fully integrated that in December of 2013. So I don’t think there is a ton of them left.

Okay. So, when you think of that turnover, which had been running higher than maybe industry stats, would you suspect that going forward you’ll be more normalized relative to historical numbers for the industry?

It’s hard to say that the biggest reason for people turning is buying a new house, which is about 30% and the next biggest is price to think is about 12% to 15%, and I don’t think we’re going to cut into the number of people buying houses must house prices get too high. So, I just don’t know, I think maybe having the higher quality tenants may lead to more of our tenants buying houses, but that’s the only thing I can think of that would do that and I don’t think I want to go down and quality of tenant, just to get a couple of extra points and tenant retention.

Okay. Separately on the property taxes, you mentioned essentially, you’re accruing today not having known the full increases across the country. What do you have accrued for the full year as a percentage increase?

That’s 5% to 6% is...

Our current expectations are that relative to the full year 2015 will experience 5% to 6% increases.

Okay, perfect. And then, Diana, what is with respect to the AFFO adjustment, the lease cost, what lease costs are not expensed immediately?

We capitalize and amortize over the period of the lease, the leasing cost, broker fees and so forth.

Okay. And that’s it. That’s true for every lease.

Yes.

Okay. Got it. . Thank you guys.

And not because we want it, it was because of our auditors tell us we have to.

I appreciate it. Thanks guys.

Thank you. Ladies and gentlemen, that does now conclude our question-and-answer session. I would now like to turn the call back over to Mr. David Singelyn for closing comments.

Thank you again for joining us today and we look forward to speaking with you on our next quarterly earnings call. Have a good day.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.