Greetings, and welcome to the American Homes 4 Rent Fourth Quarter and Full Year 2019 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephanie Heim. Please go ahead.

Good morning. Thank you for joining us for our fourth quarter and full year 2019 earnings conference call. I'm here today with David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment Officer, and Chris Lau, Chief Financial Officer of American Homes 4 Rent. At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, February 28, 2020. 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 with 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 financial 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, and good morning, everyone. In my comments this morning, I will first recap our 2019 objectives and related results, then I will provide an update on the trends we're seeing in the single-family rental home industry, discuss our growth expectations for 2020, and finally, touch on our recent announcement regarding the addition of a new trustee to our Board. The fourth quarter 2019 represented a strong finish to what was a fantastic year for American Homes 4 Rent. As we entered 2019, we talked about four objectives, operational excellence, consistent and accretive growth, financial strength and flexibility, and superior customer service. Now, I'll highlight our successful execution against each of these objectives. First, operationally, we generated excellent results, including strong core FFO per share growth of nearly 7% in the industry-leading adjusted EBITDA margins. Second on the growth side, we accelerated our unique development program. We have built a team with extensive homebuilding experience, find the pipeline of land and are ready to take this to the next level in 2020, Third, our fortress balance sheet remains intact, and we ended the year at a net debt to adjusted EBITDA of 4.7 times. As we enter 2020, we expect to retain more than $300 million of annual cash flow, have a fully undrawn $800 million credit facility, and have multiple other sources of capital, including a new institutional JV. And finally, our superior customer service continues to improve as our residents survey and our Google ratings hit their highest levels in 2019. 2019 was a great year, but it is just the beginning. From a macro perspective, single-family rental fundamentals remained strong with high demand and limited supply. We enjoyed stable occupancies, rising rental rates, and increased showings per available home. We are extremely pleased with our…

Thank you, Dave. We are very pleased with our fourth quarter and full year 2019 results, where it takes to our team's hard work and consistent execution, we met or exceeded our operational targets for the year. Underpinning our strong results is our commitment to the resident experience. Due to our unique focus on engaging directly with our residents, we're able to provide responsive service, in great part because of our ability to see things the way our resident do. This focus has driven our improvement in customer satisfaction, as evidenced by our residents survey results and Google ratings. We are proud of this success and know that resident satisfaction is the key to our long-term strategy as we seek to establish American Homes 4 Rent as the brand of choice for single-family rental housing. For the fourth quarter, occupancy within our Same-Home pool continued to be strong. Our average occupied days percentage improved by 40 basis points to 95.1% and our average monthly realized rent increased by 3.3%, driving a 4% growth in core revenues when compared to the fourth quarter of last year. Beyond these historical metrics, we also track leading indicators for demand in our properties, which gives us perspective on the health of the market. In the fourth quarter, foot traffic as measured by visits per rent-ready property increased by 12% year-over-year. On the expense side, total Same-Home core property operating expenses were up 5.4% with property taxes increasing by 5.9%. Operating expenses excluding property taxes were up 4.9%. Overall, this drove a fourth quarter year-over-year increase in core net operating income in the Same-Home pool of 3.2%. For the full year 2019, on a Same-Home basis, a 40-basis point improvement in our average occupied days percentage and a 3.5% increase in our average monthly realized…

Thank you, Brian, and good morning, everyone. As Dave stated the big story of 2019 was our AMH Development program. We expect that to continue into 2020, as we ramp up our entire external growth program including our development program, our acquisitions from national builders and our traditional acquisition platform. Our plans call for investing $800 million to $1 billion in 2020. Put this in perspective, we expect to be net buyers of approximately 2,200 homes in 2020 compared to net sellers of 231 homes in 2019. In addition, we expect to continue to expand our land pipeline. Over the past three years, we have tested and rolled out our one of a kind development program in selected markets across our platform, primarily in the Southeast and Western markets. Our new development homes are built with the long-term renter in mind, including maintenance resilient features as well as floor plans, finishes and other upgrades known to be desirable to our residents. With the ability to build high quality homes, create neighborhoods and concentrate assets, we are opening new avenues to efficiently serve our residents and lower our long-term maintenance costs. We believe that American Homes 4 Rent is uniquely positioned to pursue a development channel for growth. We have tested the product and hired the talent, and we are encouraged by our results and resident feedback. This concept is gaining widespread acceptance as evidenced by our joint venture announcement. We have a pipeline of land holdings, with approximately 5,000 lots currently in place for future development and we expect to continue to grow this land pipeline going forward. Our experienced land acquisition team and our proprietary data analytics enables us to strategically identify ideal land opportunities that are within our existing AMH footprint in our high growth markets. This inventory…

Thanks, Jeff. In my comments today, I'll briefly review our operating results, update you on our balance sheet, provide additional color on our new joint venture and conclude with a summary of our initial guidance for 2020. Starting off with our operating results. For the fourth quarter of 2019, we generated net income attributable to common shareholders of $23.6 million or $0.08 per diluted share. On an FFO share unit basis, we generated $0.29 of core FFO, representing a 5% increase over prior year and $0.26 of adjusted FFO, representing a 4.7% increase over prior year. For full year 2019, we generated net income attributable to common shareholders of $85.9 million or $0.29 per diluted share. On an FFO shared unit basis, we generated $1.11 of core FFO, which was in line with our expectations representing a nearly 7% increase over prior year, and $0.99 of adjusted FFO also representing a nearly 7% increase over prior year. And turning to our balance sheet, we continue to remain in great shape, with the only investment grade balance sheet in our space. At the end of the year, we had approximately $2.9 billion of total debt with a weighted average interest rate of 4.4% and a weighted average term to maturity of 13.1 years. Our net debt to adjusted EBITDA is now 4.7 times, comfortably below our internal leverage target of 5.5 times, providing us with meaningful debt capacity to support our 2020 expanded growth programs. In terms of liquidity and funding sources going into the new year, our $800 million revolving credit facility remains fully undrawn. We are currently generating approximately $300 million of annual retained cash flow and we expect to generate between $100 million and $200 million of recycled capital from our strategic disposition program in 2020. Our balance…

[Operator Instructions] Our first question comes from Jason Green with Evercore ISI. Please state your question.

You guys talked about homebuilders as one of the channels to deliver more homes. I guess, previously, it seems like you had tried that route and it didn't really work. Has anything changed in your thinking in regards to working with homebuilders to deliver Homes?

I don't. This is Jack, and thanks for the question. I don't recall it ever not working. We've consistently acquired homes through the National Builder Network and continue to do so. We're just expanding that a little bit. We floated down because our primary investment during 2019 was our AMH Development.

Yes. Jason, this is Dave. Let me just add a couple of things to that. It's always been, as Jack said, one of our channels. We've used it consistently. I think what you may have heard is that our development program is our primary path. But as you see this quarter, through, at this time, the opportunity in front of us is huge. And we have the capital in place to take advantage of that opportunity and we're going to utilize all the channels available to us.

Got it. And then, just on the rate acceleration that we saw on the same-store pool in the quarter, is that attributable to anything specific that you guys are seeing in the market or is that really just a quarterly trend that we shouldn't really read much into?

Bryan, you want to take?

Yes, hi, Jason. It's Bryan. I think you're seeing the benefit of some improvements in our execution on renewals. Our renewal rates are really at an all-time high for the quarter. Part of that ties into the improvements and execution on the housing experience, and really listening to what our residents want and providing exceptional service. Not only did we improve our renewal rates, we did it in the context of improved retention as well. I think that -- that the main contributor to that improvement.

Our next question comes from Shirley Wu with Bank of America. Please state your question.

So my first question is a follow-up on Jason's questions on your rate. So the renewals were stronger, but the new leases were slightly down year-over-year. So, as you are setting up for January and you're seeing the blend of leases up 40%, does that -- has that continued to come from the renewable side or -- has -- you've only seen more strength in also the new side as well?

Moving forward to January, we've -- the improvement in January is largely attributable to improvement in the renewal rates. Our releasing rates were flat for January. But what it really shows too is that we came into this year from a position of strength on the occupancy side. And we expect that will translate into improvements in rate growth in 2020 as well.

So, just pivoting now to expenses -- your -- the taxes are 4.8% to 5.8%, lower than previous years on Texas. Just was curious in terms of how we should think about that line as I'm moving forward. And in terms of tax appeals, your success rate was slightly higher than historical last year, and how are we thinking about underwriting yours -- next stats for this upcoming year.

Yes. This actually, Shirley, it's Chris. You're right. Expectation for this year, just as a reminder is property tax growth in the low 5% range, which also as a reminder, is about 100 basis points of deceleration from what we saw in 2019, largely coming from some of the benefit we're expecting from the new tax reform coming out of Texas, and then, a smaller proportion of our markets or properties experiencing multi-year reassessments in 2020. But we are still seeing a number of markets in states experiencing higher increases in its assessed values they were expecting in 2020, which I think is really reflecting to the health and strength of the local economic environment of the markets that we're in. But with that said, as within a year, as you pointed out, we'll challenge where appropriate, and aggressively on values through the appeals process. And it is not an on in -- in any one year for us to challenge here north of 20,000 to 25,000 individual property values through our appeals process. And I wouldn't expect us to look too far different for this year, but it is early in the year, and we'll be monitoring it throughout the year and keep you updated on how the appeals process plays out.

Thank you. Our next question comes from Rich Hill with Morgan Stanley. Please state your question.

Hey, good morning guys. And congrats on what we thought was a pretty solid quarter and good guidance. I wanted to talk about two things in particular. First of all, the development projects, I completely recognize the benefits of delaying CapEx spend or mitigating CapEx spend, should I say. Could you just walk us through sort of the development yield equation? I know you talked about this in the past, but I'd love to have a little bit more color on what the development yields look like, and how much the upfront costs for developing a home or maybe a portfolio of pumps?

Yes. The yield or pro forma yields that we come in with are, develop much like our traditional home. So, you have your pro forma rents and your anticipated expenses, including property taxes as the main one. A slightly reduced repairs and maintenance, actually heavily reduced in probably the first five years, and we look at what the yield is after year one. And then, at year five, and then at year 10. By year 10, we're getting to more normalized expenses on the repairs and maintenance. Although, it's still better because we're building them to be maintenance resistant.

Hey Rich, it's Dave. Let me add a couple of things to the yield. The yield has obviously got two components. It's got the cash flow that you're going to generate, but it's also the investment equation. And when you're building for your own account, you're much more efficient -- it's a much more efficient way for us to be able to invest. The cost is -- of the project, the total that we need to invest is less. There is no sales and marketing cost. Development profit is basically a reduction in the investment price. So the denominator here is, it's going to be lower, it's going to, therefore, translate into permanent superior yields. But, I think the equation is even bigger than that. Not only are the maintenance cost cheaper, but the desired -- the desirability of the product by our residents is far superior just because it's built with the resident in mind.

Got it. That's helpful, Dave. So is it, is there a number you can sort of put around the development yield? Or is there -- or is it just, there's a lot of different parts that go into it, and you're still working through that?

Well, we're -- initial yields, including normalized expenses on repairs and maintenance is in below 6s.

Got it. Okay, helpful. And I want to talk about some of the various different regions that you're in. We are crunching some numbers, and it looks like you had some pretty nice revenue growth upticks in markets like Salt Lake City, for instance, San Antonio and even some of the markets that have maybe lagged at least by our measure, Nashville and Tampa. So maybe just talk about Salt Lake City, because it looks like a really strong market to us. Is there anything specifically happening there because you're one of the only SFR REIT that actually owns in that market?

Yes, this is Dave. Before -- and Bryan will answer this couple of those detailed questions. But you highlighted something that, I think, is very important here, and that is we have a diversified portfolio. And as time goes on, we are seeing a number of our markets improve, and we're not reliant on any one market. And you mentioned Nashville as a little bit of a lagger, but I would tell you, Nashville, I'm very, very bullish on it. It's one of the -- in Wall Street Journal, it was one of the Top 2 markets for job growth. If you've been in the market there is cranes everywhere and that's going to be a fantastic market for us in the long term. Specifically, the performance in the fourth quarter for Salt Lake City, Bryan, do you have some numbers on that?

Yes, Salt Lake City is a very strong market for us. It has been -- we're one of the few major owners in the market, but it's performed very well from an occupancy perspective, and from a rate growth perspective. And that's why we're continuing to invest in that market, and hopefully, really build that portfolio out. The fundamentals are fantastic. There's a lot of growth, and companies moving there, expanding some of the tech companies and the rehiring, for example. But again, it has all the wonderful fundamentals that you need to really drive continued investment.

And Dave, you mentioned about your diversified portfolio, which I completely get. As we think about 2020, and the guide, is there any markets that are specifically driving that guide that we should focus on?

No, I think, our portfolio being as diversified as it is, not any one market is going to move the needle. And that's one of the benefits that you have is that you have the -- not only does -- you look at it from an operation standpoint, look at from a growth standpoint, and you have many, many places that you can grow. When we built this platform, I mean, it's not by accident that we are in 30 markets. That diversification, we're seeing the benefit of it right now.

Our next question comes from Haendel St. Juste with Mizuho. Please state your question.

So, a few questions from me. First on the JV, the new institutionally, I guess, new one with JPMorgan, I'm curious why you're retaining just 20% and effectively ceding control to your partner on that front? And then, as part of that, is this JV going to be region specific? I recall your last JV, I think, it was a Southeast-focused JV, or is it more of a national program. And then, maybe some more color on the fees, if you would? Thanks.

Yes, Haendel, it's Dave, Good morning. I'll start, and then, I think on some of the specifics on the JV, Chris can follow up. But the JV, first is a exciting additional form of capital for us. So we've been very intentional in building multiple channels of capital, which looking at this week is very -- I'm very grateful that we have those channels. The current JV in the discussion about control, yes, we have a 20% ownership interest. You're correct on that. But the control provisions, we are the manager, we have the decision-making authority on this joint venture. There are some major events that both parties weigh in. But the other piece of this joint venture that is very unique is that is an evergreen venture, meaning it doesn't have a clip at a given time where assets have to be sold, etc. So, I'm very excited to have JPMorgan as one of our partners. I think they bring a lot to the table, as well as the capital that they bring.

And then, Haendel, this is Chris. Just to some of your other questions, no, the -- there are no geographic restrictions with respect to this venture. With that said, there are mechanisms in place in the venture as we think about allocating future projects to ensure that we have appropriate levels of diversification to our pipeline and the ventures in terms of geographies, project types and sizes, etc. Again, I would reiterate the strategy going into this is that the venture we will be cultivating kind of an incremental, as I would think about it, development pipeline to feed the venture, that is on top of everything that we're doing on our balance sheet. In terms of fees, for obvious competitive reasons, I probably shouldn't comment too much on the fees specifics, but I would say there are fee streams back to us for all the services that are being provided to the venture, management development, etc. So, fees are positive, scale is a positive. But again, I would reiterate Dave's point, that some of the really unique upside to this venture for us is the fact that it is evergreen capital, which is very, very important. And then, the really unique aspect of our ability to be able to crystallize to promote inside the venture without needing to sell or liquidate any of the assets, which is quite frankly, going to be game changing for us in terms of our ability to monetize a portion of the tremendous value that is created by our development program.

Okay, fair enough. Appreciate that. And then maybe some more on the external growth and capital deployment comment. You mentioned, I think, $750 million of development spend plan for this year. I think that's a bit higher than a $700 million outlined from last quarter. So I'm curious what the driver on that front is? And then, you also previously talked about $500 million of dispositions in 2019 and 2020, as a key source of funding for that development spend. I guess I'm curious what your view is on the disposition market and what the backup plan is, if there is a seize-up in the transaction market? It sounds like you're comfortable using your balance sheet and levering up, if need be. So just any comments on those two fronts? Thank you.

Yes, Haendel, it's Dave. Let me see if I can unpack that because that's like 10 questions. Let's start with the sources. The sources side, yes, I mean, there is the one thing I'd like to just make sure you're clear on is that in 2020, we do have an investment program. It's between $800 million and $1 billion. And all of that capital and its funding is already in place, whether it's going to be retained cash flow, or our ability to tap the debt market between where we currently sit at a 4.7 times EBITDA ratio to our desired place to be at 5.5 times, as well as what you mentioned, sales proceeds of $150 million. That's what our guidance is for this year. I'll let Jack talk about our portfolio. We've got about 1,200 homes in the disposition pipeline right now, but we're very comfortable in our ability to be able to fund all of our investment opportunity. And as you indicated, there is a slight increase in the 2020 guidance. It's -- it is between $800 million and the $1 billion through all three developments or all three investment channels. On dispositions, Jack, you might want to go through.

Yes, Haendel, I think where you got the $500 million was the total amount of dispositions, that sales proceeds from the homes held for disposition. We expected $200 million last year, and $200 million this year. We ended up with $250 million last year, and now we're expecting $150 million this year. So we just front loaded it a little bit. The other $100 million will come as homes vacate, unless we sell them in a bulk sale. We generally wait till the homes vacate and then sell them, so they could be 2021 or 2022. We don't know when they'll stop renewing. I think that's where, maybe a little bit of the confusion was. And the disposition market is fantastic. I think there is pushes and pulls on that. We're able to sell them fairly fast, but I think everybody has seen that the inventory of available homes for acquisition, it has shrunk up a little bit.

Haendel, the $150 million of guidance is about two-thirds or 800 homes of the 1,200 homes that are there, as Jack indicated, we do not sell occupied homes unless we can sell it to another operator. So there is a little less clarity as to the timing of that $150 million, but that's our estimate for this year.

Got it. Appreciate that. And just to clarify, I think you briefly had talked about a cost of $275,000, I think, Jack, last quarter, for the development cost per home. Is that still the ballpark range for us to be thinking here?

Yes, $265,000 to $275,000 is a pretty good range.

Thank you. Our next question comes from Rick Skidmore with Goldman Sachs. Please state your question.

Good morning. Thank you. Just going back to the development program, it looks like you delivered a little bit more than 100 homes in the fourth quarter. Is that the right number? And what happened with regards to -- I think the initial guide for 2019 was approximately $800 million. And then, as you look at 2020, getting to that roughly 3,000 homes delivered, how do you think that path looks through 2020, evenly over the quarters through the year or front -- or back-end loaded? If you can just give a little color on that. Thank you.

I'll take -- let me take the beginning. This is Dave. About the guidance for 2020, when you -- and then, little bit about 2019. As we enter into 2020, the big difference between 2020 and 2019 is our land inventories are significantly higher going into this year than they were last year, giving us clarity on our ability to deliver homes. The 3,000 homes that we talk about are, the 3,000 homes through the three channels. The majority of that is through the development channel, but not all of it. The deliveries will be basically pretty different than last year. They'll be more equalized between the first half and the second half of 2020. With that said, we do try to do deliver as best we can into the rental season. So, maybe weighted a little bit in the second and third quarter, but I think you'll see a lot more even distribution in 2020, than you did 2019. The other piece about 2020 versus 2019, is 2019, when we entered the year, we had, as I said, less land. And at that time there appeared to be more availability of vacant developed lots to be able to acquire, which you can develop quickly. Today the better -- we get better yields with land itself and now that we have the land and have land developed. There's a lot more clarity on our ability to deliver into 2020. With that said, one thing just to mention, when we talked about $800 million to $1 billion of investment, a piece of that investment is to grow our land inventory even further. So, 2021 will be at a higher delivery pace than 2020, because land is the key.

Yes, one other thing, I'm not sure where you got the 100 homes delivered in the fourth quarter. We have added 341 new homes, 108 through our National Builder Program, and 233 through AMH Development.

And then, just on the new homes delivered and the ones that you're building, how are those leasing up? Are they leasing up relative to your expectations? And then also in terms of the rent that you expect? Thank you.

The rents are slightly better than we expected. They're leasing up faster than our existing inventory on turns, and the construction costs are right where we expected it to be.

Our next question comes from John Pawlowski with Green Street Advisors. Please state your question.

Thanks for the time. Dave, do you expect any additional changes to the Board over the next year?

John, that's hard to say. We will be evaluating the Board for a potential additional Trustee, whether it happens in 2020 or 2021, I'm not sure. But when we went out this time, we were looking for two things, one individual to complement the skills of what we already have on the Board, and that was in the homebuilding arena. And Matt Zaist is an excellent addition. He was in the boardroom yesterday and his contribution was -- it was very valuable. The other we're looking for is, as you know, we're a State of California corporation or entity or a trust actually, but an entity, and we will need to add another female to our Board in the next two years. So whether that happens this year or next year, I don't know.

Understood. And Bryan, I wanted to get your thoughts on the market like Charlotte, which has in terms of rent and occupancy trend, it has lagged in the last several quarters versus the same-store average. From an outsider view, the Charlotte economy is still very, very strong. So structurally in your opinion, what makes Charlotte a bit weaker market than like a Phoenix or Vegas right now?

Yes, Charlotte is a very good market. I think what you're seeing is the effect of a lot of supply. There is competition there from other institutional players, and there is also relatively a reasonably high amount of new development. At Charlotte, we've seen some nice improvement coming into 2020, in Charlotte. We have good momentum there. But it takes a little while for that growth and supply to be absorbed. As we've mentioned before, in other markets, and over the long run, we're very, very bullish on the Charlotte economy and our portfolio there.

I guess, why hasn't supply picked up in, or competitive supply, repurposing. Why haven't your competitors started to try to steal some of your launch in Phoenix and Vegas when rent growth has been so darn good for the last few years?

Is the question, why is the supply not affecting the growth in occupancy in those two markets?

Yes. If supply is picking up in Charlotte, why isn't supply picking up in Phoenix and Vegas when the results have been really good?

Yes. Vegas is fairly supply constrained due to the -- just the geography and the heavy BLM land holdings. There's tremendous amount of growth coming in from California to Vegas, and Phoenix as well. But I think that the demand for housing is really outpacing the supply in those two markets, whereas it's not exactly the same case in Charlotte.

Our next question comes from Hardik Goel with Zelman & Associates. Please state your question.

I actually had a couple. On the -- just on the revenue guidance, right, so if I look at your last year's guidance, you said 3.2% to 4.2%, you're coming in at 4.1%. And now, I see your renewals are probably the best they've been since IPO, correct me if I'm wrong on that, the 4.8% is pretty high. It's been a goal to get that up. Even if I assume that 4.8% comes down a little, I have to assume a lot of deceleration and then flow that through to the same-store pool to get to make sense of your revenue growth guidance. So, I'm coming in closer to the high end. So can you give me some color on why that is?

Sure. Hardik, it's Chris here. Let me start with some color. You're right, 2019 was a really strong year, and one that we're proud of. I would also keep in mind though, if you think about the various different components, driving the revenue line, one piece in 2019 was the fact that we had about 40 basis points in occupancy pick up or improvement over 2018, which was simply just a function of the fact that a portion of 2018 was below a stabilized level on occupancy that we picked up year-over-year from '18 to '19. If you were to normalize for that 40 basis points, you would see that 2019 revenue growth was at 3.7%. Still very strong and very healthy, and very similar to what we're expecting in 2020 at 3.7%, at the midpoint, which is a strong level of growth.

Got it. That's helpful. And just a second one. If I look at the second quarter transcript, I have Jack saying that you guys will deliver 700 homes to 900 homes in the back half of 2019. As we sit here today, it's coming in below the low end of that even with the 340-or-so homes you did this quarter. And now you're telling us that there's going to be 3,000 homes, next year, which is almost -- is more than triple what you did this year. So, what gives you confidence that that is achievable? Should that guidance range be wider? Is there more volatility than we're -- am I just thinking about this wrong?

Yes, this is Jack. Thanks. Thanks for the question. As Dave mentioned earlier, the back half of the year was burdened a little bit by the lack of availability of what we call VDLs or Vacant Developed Lots, which is basically lots ready-to-build that you can deliver within 90 days to 120 days. And so, we were -- and we had -- I had some field people that were maybe more optimistic than they should have been. Then if you look at the 2020 guidance, we're not delivering 3,000 homes that's through all three channels, including the National Builder Program, which is about 700 homes to 800 homes, our traditional acquisition program, which is about 900 homes and then the balance through our development program, our in-house development program.

Got it. And if you'll indulge me on R&M just really quickly, what's going on there? Because as a percentage of revenue, it was higher than both '18 and '17 on the same-store pool.

Yes, Hardik, if you want to talk specifically about the fourth quarter and the increase that we posted, it goes back to our evaluation going into that fourth quarter. One of our main objectives was to preserve occupancy during, really, traditionally the slow season, where we lost occupancy in the past. And we had a couple of different levers to pull on the leasing side. For example, you could increase commissions, you could introduce a concession program, which was a strategy employed by some of our institutional competitors or third, we looked at improving some of the cosmetic feel of our homes. We chose to do that, and it helped drive our improvement in occupancy. The pickup of 40 basis points about half of the increase in R&M was due to an incremental paint and landscaping work to improve the aesthetics of these homes. We're really managing it toward the ultimate improvements in cash flow. So that program was successful. I liked it because it not just preserved rate and put us into a really good position coming into 2020. But more importantly, if you tie it back to the full year expense performance, both our increase in R&M, and more importantly, our increase in operating expenses accepting property taxes were right in line with -- or in line with our expectations at the beginning of the year.

Our next question comes from Jade Rahmani with KBW. Please state your question.

Thanks very much. I was wondering, if you could talk about how occupancy and rent growth might perform in a modest recession? Have you gone back and looked at any precedents to give some kind of baseline of expectations? I would assume that there would be a modest uptick in bad debt expense, pressuring occupancy and that rent growth would moderate to maybe low 1% to 2% range.

Yes, Jade, it's Dave. Thanks for the question. The benefit of having a diversified portfolio, if you look back at history is that over the last 30 years that we've looked, we have never seen in one year where rental rates have declined on a national basis. And occupancy on a national basis has always been in the 90% range. It can't be said necessarily on in the individual market because some markets have had some dips, but not on a national average. And the benefit of having a diversified portfolio is that we have spread that risk across the entire nation. And as you indicated, I know there is some concern in some of the residential companies right now, with some of the potential impacts on the coastal states. And on the East Coast, yes, we have a little bit of exposure there, but we've got exposure spread across the entire country. And so on the top line of having the occupancy there, and the ability to maintain our rate and even grow our rates, history tells us that we will do fine there. On the collection side, and there potentially will be a small uptick in that, but let me remind you that our tenants are -- have the ability to pay, I mean, our average household is $100,000 of income, and that is more than our three times as our guidelines, it's closer to five times. And will there be one or two that we need to work with, yes, and we will work with our tenants, that's -- our general goal is to work with them and not evict them. But there will be a little more bad debts potentially. Again, we haven't gone through the cycle. But history does tell us that the rent line will be fine on a diversified portfolio.

Turning to the joint venture, is the joint venture going to be pursuing a different build-to-rent strategy than what you were doing on the balance sheet? And how big does that capital pool have the potential to be? Will you also be using financial leverage?

Yes, it's Dave again. No, it's going to be the same development strategy. However, we look at our capital needs and first fill up our balance sheet. And then what we do is, look and make sure that we've got adequate capital to meet our investment goals in total. It is going to start in the $300 -- $250 range, and yes, it does have the ability to upsize, and it will have leverage at some point as we build out that joint venture.

And then, lastly, a question I get a lot from investors is about dividend growth. Do you anticipate increasing the common stock dividend this year? And over what time period would you expect there to be steady growth in the common stock dividend?

Dividend discussion is an interesting discussion. And one of the benefits that we have on our growth program is that we are retaining $300 million or a little more than $300 million of cash flow from operations. And so, today, we have very, very good opportunities to grow our portfolio, which is enhancing the value to our shareholders. So that reinvestment program is a very good use of the funds. You're aware, as we all are aware that there is an obligation to pay out a minimum level of distributions in order to retain your REIT status, and it's tied to your taxable earnings. The taxable earnings for us is not significantly different than our book earning, but it's partially sheltered by net operating losses, which are disclosed in the footnotes to the financial statements.

Ladies and gentlemen, there are no further questions at this time. I'll turn the call back to David Singelyn for closing remarks.

Thank you, operator. To close, I just want to reiterate that we're excited about our opportunities in 2020. Let me remind you that the single-family rental fundamentals remain very strong, and our investment-grade balance sheet, and best-in-class operating platform, and our one-of-a-kind development program give us the ability and momentum to continue our strong growth, regardless of the economic cycles that we're in. Thank you for joining us this morning, and look forward to talking to you next quarter. Have a good day.

Thanks. This concludes today's conference. All parties you may discount. Have a great day.