American Homes 4 Rent (AMH) Q1 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the American Homes 4 Rent First Quarter 2018 Earnings Conference Call. [Operator Instructions] 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 first quarter 2018 earnings conference call. I'm here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; Diana Laing, Chief Financial Officer; 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 facts 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 Singelyn.

Thank you, Stephanie. Good morning. Welcome to our first quarter 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 Laing, 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 million 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 first 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 quarter, we were able to accelerate our plan to achieve occupancy targets earlier, allowing us to take full advantage of the spring leasing season. As a result, we leased nearly 6,300 homes during the first quarter. Our total portfolio lease percentage at the end of the quarter was the highest end-of-period portfolio leased percentage in almost two years. Our Same-Home portfolio end-of-quarter occupancy and leased 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 first quarter 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'm proud of these results. And I thank my colleagues for their hard work and contributions to these results. 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 and make-ready cost to improve the marketability of our elevated inventory levels. Our decision to increase our investment in our term process permitted us to lease units more rapidly, reducing our vacant inventory, which should reduce future quarter spend on turn cost. This also puts us in a position to further drive revenue growth this year. Although we compressed the timing of some expenditures into the first quarter, we remain comfortable with the full year revenue and expenditure guidances that we provided last quarter. Jack will provide more details on the specific of these investments and initiatives later on the call. Turning to our growth plan; we remain on track to invest $400 million to $600 million 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 penalties on our loans. 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 expectation than the rest of the portfolio. As a result, we have added about 1,600 homes to the disposition pool, including homes in five 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 1,900 homes, which are currently about 80% leased. We expect these sales to occur over the next 24 months to 36 months, generating $300 million to $400 million 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 first quarter, we issued $500 million of 10-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 remains strong. Our liquidity profile at March 31, included more than $200 million of cash and $800 million available on our credit facility. In addition, we retained approximately $250 million of annual retained cash flow and we'll 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 first quarter 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 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 expenses for vacant and vacating inventory to refresh the cosmetic appeal of our homes. In addition, we increased our property management 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 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% and a total portfolio occupied percentage of 94.3%, both of which are on par with record levels for any period and 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 leased percentage of 97.1% and occupancy percentage of 95.9% at March 31st 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 of 3.7% in the first quarter, 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 of approximately 4.8%, which included nearly 7% growth on re-leases. Moving on to our first quarter operating expenses; our increase in R&M and turnover cost when comparing Q1 2017 to Q1 2018 was driven in part by $1.5 million of non-comparable cost 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 will flow into the second quarter, 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 $1,950 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 opportunity to drive top line growth throughout the remainder of 2018. Turning to transaction activity; during the first quarter, we acquired 704 homes for a total investment of approximately $170 million, which was in line with the expectations we communicated last quarter. 586 homes were acquired through our traditional channels with average pro forma cash flow yields, including provision for capital expenditures of 5.5%. We also took delivery of 118 newly constructed homes in five markets for a total investment of $28 million. 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 million in deliveries in 2018 from our National Builder and AMH Development programs combined. For full year 2018, our acquisition targets remain unchanged at $400 million to $600 million, with approximately $300 million 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, of 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 built-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 curve 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 will briefly discuss our financial results for the first quarter and then review our recent capital markets activity and balance sheet metrics. For the first quarter of 2018, net income attributable to common shareholders was $5.8 million compared to a net loss of $1.5 million in the first quarter of 2017. Core FFO was $0.25 per share compared to $0.26 per share in the first quarter last year. And AFFO was $0.22 per share compared to $0.23 per share last year. First quarter core FFO and AFFO reflect growth in property operations, offset by higher preferred 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 36,645 homes last year. This reflects the addition of about 3,500 homes and the elimination of about 1,300 homes 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 provided five quarters of historical metrics for comparison. Turning to our balance sheet and recent capital markets activity. As Dave mentioned, in February, we issued $500 million of 10-year 4.25% notes in our inaugural issuance of unsecured bonds. The bonds were priced at a spread to 10-year treasury 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 programs. We were extremely pleased with the execution and believe access to the high-grade unsecured debt market provides us with another attractively priced option for long-term flexible capital. As the single-family rental securitization market has matured, in March of this year, we were able to modify one of our securitization loan agreements 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 5.1x. We have approximately $2.9 billion 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 million of cash and cash equivalents and 0 outstanding on our $800 million revolver. With annual retained cash flow of approximately $215 million and reinvestment of sales proceeds, we're well positioned to fund our growth objectives. Subsequent to quarter end, in April, we converted all 7.6 million 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 10.85 million 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 will not itemize them here on the call. Now I will open the call to questions. Operator?

[Operator Instructions] Our first question comes from the line of Nicholas Joseph with Citi.

How do you think about share buybacks as part of your capital plan? And should we consider them in lieu of acquisitions if the stock continues to trade at a discount, you will 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 shareholder values. And we evaluate both of them as to which one we think the best allocation of capital at a given time is.

And can you provide some more color on the market and submarket analysis that lead into the additional dispositions? And what is it about the markets or assets that no longer fit with your strategy?

This is Jack Corrigan. We've looked at markets that we had previously identified to markets and submarkets and 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 identify them is, 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.

Our next questions come from the line of Juan Sanabria with Bank of America.

This is actually Shirley Wu on for Sanabria. So I have a quick question on same-store guidance. Your first quarter numbers were below the low end of guidance for revenues, expenses and NOI. Are you now leaning towards like your results coming at the lower end of the range? And what gives you the confidence to leave your initial range unchanged?

This is Dave. No, if you look at the guidance that we gave, that was intentionally for the entire year. If you look at the first quarter, 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 is, Jack went through previously, has become very, very strong as we have less inventory to lease. All of that 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, we're going to be a little bit disproportionate into the first quarter than other quarters. In addition to that, we did choose to spend a little additional amounts in the first quarter to assist in the leasing process. And then the other thing about the first quarter 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 first quarter 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 -- or of the expense trend in the first quarter. 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 concentration of expenses into the first quarter because of the elevated inventory levels.

And our next question comes from the line of Jade Rahmani with KBW.

This is actually Ryan [ph] on for Jade. 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 prelease those homes to avoid the vacant carry costs.

Yes, we -- I mean, we attempt to prelease them. But it's hard to hold up -- hold something for a lease that you don't own. It's actually easier to prelease, when you're building at yourself. So we -- because we don't close on the builder properties until the property is built.

Completed.

Completed, yes.

Okay, it makes sense. And then just on the M&A environment, are you seeing increasing consolidation opportunities both at the smaller book 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 -- but -- we don't see a lot of portfolios for sale recently. Actually that'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 new build and the in-house purchases through MOS?

Yes, it's basically the same markets we've been acquiring in the southeast in Nashville, Atlanta, to a lesser extent Charlotte right now because we're still absorbing there. And then on new builds, that allows us to grow in markets that we previously hadn't been growing in. 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 Sakwa with Evercore ISI.

I just wanted to circle back on the expense growth. I mean, I presume that the sort of $1.5 million 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 expenses, 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 nine or really eight months left in the year to see what happens. But I am comfortable that even with that, we'll fall within the range.

And 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 you sort of earmarked a 24 months or 36 months 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 leased properties in bulk sale form. But there is no guarantee we will find a bulk buyer. So as these properties just naturally vacate, then we will sell them on MOS. 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 to force people out to sell them vacant.

And our next questions come from the line of Dennis McGill with Zelman & Associates.

First question just has to do with the units that were vacant that you were trying to get leased 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% 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 cost 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 to stay there, it -- I think in over time that will prove to be a savings.

As you think about how your normal turns would look going forward, did this make you rethink what you were traditionally doing to units as far as what's required versus ideal for the tenant and did that raise turnover time...

No. I think that 95% -- 90% to 95% of the time, the clean, safe and functional leases is just fine. It's just that you really got to -- probably need to pay closer attention to stuff that's aging and then go and fix that stuff. Not -- you can apply that, the standard that we applied in the first quarter 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% 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 margins, something to understand kind of why they're exit points?

As far as markets, there is 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 of other markets that -- we have one market that where the home price appreciation has been fairly strong. Probably it has grown 35% over the last four years, but the rents haven't gone anywhere. So we're looking at it. We are 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 of 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. The -- these markets -- most of our other smaller markets are within one hour or just over one 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 manage.

Our next questions come from the line of Ronald Kamdem with Morgan Stanley.

The first one was just if you can touch -- 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 one is that, we did our inaugural bond offering and -- during the quarter. And the dollars that we raised there have not been fully invested and generating EBIDTA. We also subsequent to quarter end have converted the Series C preferred, which actually improve -- on a pro forma basis, improved 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 the fees, which were a 9% annual cost leverage instrument, has really benefited the balance sheet by adding capacity as well as giving us the opportunity to utilize less expensive leverage.

Our next questions come from the line of Drew Babin with Robert W. Baird.

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 just wondering if you could talk about dynamics in that market with supply and on 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 -- or we'll continue to buy there. There may be some impact of our newer product coming in. But I think we're 95% 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'll continue to grow in it.

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 fourth quarter and first quarter. 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 it 96%-plus by April.

And then Charlotte, Nashville, were two 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-ready's 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.

And then lastly, just on same-property occupancy. Obviously, it's at a high point as we stand at the end of the first quarter 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 attain 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 continued to increase occupancy and close to 7% increases on re-leasing. So we may have one month or two, where it slides but I expect that the occupancy will stay pretty strong.

Our next questions come from the line Douglas Harter with Crédit Suisse.

Will your disposition plan change or you want to dispose of increase if and when you get the approval on the other three securitizations?

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. One, we don't have a lot of this. But one is that if it's not on a sewer system, it's on septic. It's just difficult to -- and we don't have enough or we have a real good program for monitoring that. So we tend to sell those when we can. And others are just -- they're just kind of outside our normal circle. We just have a normal culling process. And we look at houses we've owned for four or five years and our normal occupancy is 95%. And if they are like 70%, then we know we have -- we just have trouble leasing it. Maybe it's the layout, whatever, we should probably get rid of it.

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 didn't 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 on, 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 is a lengthy process. I don't want to refer this as a short time process. But, no, there was no consideration given to bondholders.

Our next questions come from the line of Buck Horne with Raymond James.

Curious about the -- going back to the self-build program here. How much you're 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 for yourself offsetting the carrying cost of the land?

Yes, they are more than offsetting the carrying cost of the land. We expect to put another $100 million-or-so into land and construction.

The $100 million is what we have probably on the balance sheet in any given time and 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.

And going back to the disposition program; so if you were able to complete a bulk sale on chunk of that identified pool, how would you plan to recycle that capital -- what options would you have to not create an outside earnings drag if you were able to do a bulk sale?

We have the same options we always have; well, we could repurchase stock, we could buy more properties or build more properties.

I mean, you could obviously buyback 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?

It's -- again, we have the option to expand any of those programs depending on the circumstances at the time. Our current build an acquisition rate is in that $600 million plus or minus range, retaining about $250 million of cash flow means that in any given year we're going to need another $300 million plus or minus, $400 million 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. You look at the homes that we've identified for sale, and it's going is 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 a couple hundred -- $300 million. And so -- yes, it will go into our acquisition program primarily.

Our next question comes from the line of John Pawlowski with Green Street Advisors.

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 me 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 there is a number of channels that we can -- that we will be producing and you've identified one of them.

What are the expected transaction costs on the 1,900 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%. The 8% including some cost to get them ready.

And then a question on the business model and the expense structure; so you own 50,000 homes, 50,000 driveway yards, edge back [ph] units, hot water heaters; I guess, help me feel better that these expense pressures aren't going to flare up every year or two when you get in inclement weather or you have access vacancy?

When we have inclement weather we're going to have outside the norm expenses like -- 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 -- be it in 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 that 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 the next year when we compare the first quarter we're going to look pretty good.

John, this is Dave. Just to add a couple other comments; from Day 1 we've been that we've owned single-family rental properties, so for the last six 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 worked 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 the stuff before, so it doesn't become a full replacement; external painting programs etcetera. All of that is there and in the numbers, weather-related matters that are 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 is already -- being taken care of those larger capital items.

[Operator Instructions] Our next question is coming from the line of Ryan Gilbert with BTIG.

So we're a month into the second quarter; would you say that the elevated turn spend that you incurred in the first quarter is normalized or are you still experiencing some elevated cosmetic expenses?

It's normalizing. I would say that there's still a smaller amount of cosmetics has been going and getting smaller every day.

And can you give us an idea of the cap rate spreads 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 are increasing in value while they are producing income, so we're not in any big hurry.

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 and 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 two groups of in-house maintenance; one, 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, performs work on what we call preventative maintenance, they do exterior home painting which can be occupied or unoccupied -- the big decks and wood stairs, and any wood trim around the house to just keep the house protected, that's what they did.

And I guess it's given the elevated one [indiscernible] this quarter, the preventative teams are still being rolled out?

There they were rolled out mostly in Q4, we piloted it for a while and then fully rolled it out in Q4.

Our next question comes from the line of Nicholas Joseph with Citi.

It's Michael Dorman [ph] here with Nick, I just had a few questions. As you think about the lease updated that you executed in the first quarter picking up the 300 basis points of leased percentage; is there any delays 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've 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 leased numbers do move in at month end in the first week or so of the next month. This year, April, may be a small aberration -- if you look at the calendar, April 1 or April 2, I don't recall it was Easter, and so I think we had a couple of extra days but nothing material enabled both, typically with the stuff you see is going to move in the next few days every month end.

Right. But just looking at your leased versus your average occupied -- if we go back to last year when you're 95% leased, you're only 93.5% call it occupied, right; you've got 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 or is it even tighter?

Generally it's somewhere between 100 and 150.

But I'm asking you -- I know it generally, but what is it going to be? What are you experiencing in the second quarter? 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 150?

Well, our current occupancy is 96.2% at the end of April and our leased percentage is a little bit higher than that, that's at the end of April. What we're saying is for the second quarter which is -- if we understand or I understand the question, right, what's the average occupancy going to be for the second quarter? It's probably going to be in the mid-95%. 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 months is going to be in the mid-95%.

And just so we're clear on which occupancy we're talking about; we're talking about total portfolio. So if you look [indiscernible], the 95.5% you're saying today is 97%?

I'm sorry, Michael; I was talking same hole. So the issue with portfolio occupancy is it does get impacted throughout the month, as well as at months 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 had the exact -- I don't have anything on portfolio as a result of -- I have the factor in acquisition deliveries. We should be able to get back to you.

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 externally 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 and 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 maybe 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 million or $4 million in the first quarter to get our leasing up', you should have that expense in your models. Same way here, now that we have the 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're 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 as a company, we still have deliveries they do impact it but we're very comfortable with our ranges.

This is Nick, just one final question. In terms of the leases you said in the first quarter, if you think about your optimal lease role going forward; do you need to adjust later this year or next year or the subsequent years to have more leases expiring in the second and third quarter to meet more peak demand?

Well, the problem is we do have a significant number of expiry 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, the six 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 by having the expiration changed.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

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 -- backer [ph] potentially applied to throw a number, 5% or 10% of the homes; and if this is sort of a new tool kit that you have -- so 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.

Thank you. That completes our question-answer-session Thank you. You may now disconnect.