Q4 2019 Earnings Call
Greetings and welcome to the American homes for rent fourth quarter and full year 2019 earnings conference call.
At this time, all participants are in listen only mode.
Quick question and answer session will follow the formal presentation.
That's a question press star one on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your hosts Stephanie Heim. Please go ahead.
Good morning, Thank you for joining us for fourth quarter and full year 2019 earnings conference call I'm here today with David Singelyn, Chief Executive Officer, Brian Smith, Chief Operating Officer, Jack Corrigan, Chief Investment Officer, Chris Clark, Chief Financial Officer of American homes for route.
Yeah, 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 are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in the state.
These risks and other factors that could adversely affect our business in future results are described in our press releases and in our filings with the FTC.
All forward looking statements speak only as of today February 28.
2020.
No obligation to update or revise any forward looking statements whether as a result of your information you care about or otherwise.
A reconciliation to GAAP non-GAAP financial measures. We are provided on this call is included in our earnings properly.
Oh, the note or operating and financial results.
Including GAAP and non-GAAP financial measures are fully detailed in our earnings release and supplemental information package.
Can find these documents as long as LPC reports on the audio webcast replay of this conference call on our website at Www Dot American home runs dotcom.
I will turn call over to our CEO David England.
Thank you Stephanie and good morning, everyone.
In my comments. This morning, I will first recap, our 2019 objectives and related results.
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 trust each work or.
The fourth quarter 2019 represented a strong finish to what was the fantastic your for American homes for right. As we entered 2019, we talked about four objectives.
Operational excellence.
Consistence, an accretive growth.
The actual strength and flexibility.
Superior customer service.
Now I'll highlight or if it's successful execution against each of these objectives.
First operationally, we generated excellent results, including strong core FFO per share growth of nearly 7% and 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.
The pipeline Atlanta and are ready to take this to the next level in 2020.
There are 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.
Well the I'd draw at 800 million dollar credit facility and have multiple other sources of capital, including eight new institutional JV.
And finally, our superior customer service continues to improve as our resident survey and our Google ratings hit their highest levels in 2019.
2019 was a great here, but it is just the beginning from a macro perspective single family rental fundamentals remain strong with high demand and limited supply.
We enjoy stable occupancy rising rental rates and increased showing per available.
We're extremely pleased with our diversified national portfolio, where the majority of our markets are characterized by favorable cost of living and taxes.
These areas are precisely those that are experiencing high levels of new population in employment.
Many of the households, and job moving from higher cost of living areas.
In fact population growth within our markets is more than three times, the national average, which is creating demand for new rental housing.
We will continue to be part of the housing solution by providing high quality homes through our development program and traditional acquisition channels.
Moving on to talk about growth expectations.
The day American hopes for Red is uniquely positioned to pursue with relevant plant through three investment channels.
First through our traditional channels of buying homes second through our relationships with national Homebuilders and lastly through our in House Bill program Development program.
As we looked at 2020 of the on these three channels provide us the ability to significantly ramp up our investment pace.
Over the past three years, we created a whole development infrastructure to control our long term external growth that provides flexibility and its sustainable through all housing cycle.
In fact, the success demonstrated our initial result convinced that our in house development opportunity is much larger than we initially thought.
This opportunity provides its high quality assets the best returns on investment it holds our <unk> our residents prefer.
We believe am age is uniquely able to do this for several reasons.
Let's start with we have an investment grade balance sheet.
<unk> cash flows from operations and ready access to capital, which provides us with the competence to make bold take your capital commitments necessary for a development programs that can require multiple years from sourcing and opportunity to delivering a project.
In order to take greater advantage to these opportunities that future. It's to provide additional diversified options of future capital yesterday, we announced a new joint venture with institutional investors abide by JP Morgan asset management.
This is an exciting relationship providing its that's a new sorts of attractive long term capital as well as another high quality partner.
The day or whatever kind development program is operating at 15 over 35 markets led by an experienced team of senior personnel with significant prior homebuilding experience. During 2019, we doubled our land inventory, providing us the pipeline for future deliveries.
Before I move on.
Let me share with you if you eat unique attributes of our development program.
It starts with amenities that residents desire in the whole and in that community.
Very design considerations, and energy efficient and durable materials reduce future maintenance needs and cost.
We believe the ability to build new rental housing that residence was at an attractive yield is a game changer for the rental home industry and the housing market.
And we have a big lead in this area.
Given the favorable economy and compelling demographics and the investments we have made to our platform. We start 2020 broadly as a driver Z and ready to accelerate our growth in other words were looking at a future with great opportunity, we've only scratched the surface.
This is driving our industry, leading core FFO growth per share guidance for 2020 to north of 7%.
Finally, I'd like to take a moment to discuss our recent announcement regarding our new trustee.
On behalf of the entire board I welcome that they used to our board of trustees.
That was president Chief Executive Officer in a member of the board of William Lyon, Suppose it publicly traded national Homebuilder have recently merged with one of his Oh its peers.
They have to appointment reflects our commitment to having trustees with strong relevant experience as well as our commitment to refreshing the board with diverse and independent perspectives.
That's experience leading what are the largest housing developers in the United States.
And his in depth knowledge of our industry will be invaluable as we expand this important growth area for our company and successfully advance our plans to further enhance shareholder value.
Overall over the past year, we've added three new independent trustees with diverse a complimentary experience.
When the web brings investor relations governance, and large scale branded real estate development experience from two decade at Disney.
Jay will be brings a deep investor perspective, and a keen high for shareholder value creation through his role as chief investment officer of what is the nation's leading investment managers.
It is a member of the sustainability and accounting standards Board.
And now that Dave brings executive and operational leadership and homebuilding experience to our board.
With that now I'll turn the call over to Brian.
Thank you Dave.
We're 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 result is our commitment to the resident experience.
Due to our unique focus on engaging directly with our residents were able to provide responsive service in great part because of our ability to see things the way our resident do.
This focus is driven our improvement in customer satisfaction as evidenced by our resident survey results and Google ratings.
We are proud of the success and know that resident satisfaction is the key to our long term strategy as we seek to establish American homes threat at the brand of choice for single family rental houses.
For the fourth quarter occupancy with it our same hope you'll continue to be strong.
Our average occupied days percentage improved by 40 basis points to 95.1%.
And our average monthly realized threat increased by 3.3%.
Right at 4% growth in core revenues when compared to the fourth quarter of last year.
The only to historical metrics, we also track leading indicators for demand at 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 properties increased by 12% year over year.
On the expense side total same whole 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 and the same store pool of 3.2%.
For the full year 2019 on a same home basis.
A 40 basis point improvement in our average occupied dates percentage at a 3.5% increase or average monthly realize threat.
Core revenue growth of 4.1%.
While our core property operating expenses were up 4.9 acres that expenses, excluding property taxes increased by 3.8%, which was inside the range of our expectations at the beginning of the year.
Most importantly, our core NOI was up 3.7%.
Or 20 basis points above the midpoint of our expectations.
Our positive top line performance continued into January with strong same home average occupied days.
95.2%.
And blended leasing spreads of 3.5%.
Occupancy was alive and leasing spreads improved by 40 basis points over January of 2019.
As we look ahead to 2020, we expect topline growth to be in the 3.2% to 4.2% range.
Driven by strong sustained occupancy and modest improvement in rental rate growth.
On the expense side, we expect operating expenses.
Excluding property taxes to increased 3.2% to 4.2%.
This reflects wage labor and material inflation offset by improvements in execution.
First of all put will provide additional detail later on the call.
As I mentioned in my opening remarks, creating a superior resident experience is at the center of our strategy.
And our ability to officially deliberate as a direct result of our extensive investment in technology.
Initially we were able to apply digital solutions to scale. It industry that was previously thought to be on schedule.
And by focusing on our mobile platform, we continue to enhance the resident experience through improved communication and self service solutions.
Further our expanded use of data and analytics allows us to optimize our platform while listening to what our residents war.
In fact feedback from residents and prospects has driven the design and layout of our and age development homes.
We are able to value engineer hope that closely matched resident preferences, and our efficient pro maintenance perspective.
Our analytics to drive both high level decisions such as location selection.
The ideal mix of three four and five bedrooms that community.
As long as lower level decisions like the types of features of appliances.
All the way down to the optimal horsepower or garbage disposal.
A perfect example of this is our steel force community in Atlanta.
Which was designed from the ground up using that data driven approach.
The homes with at least 12 days faster and that 10% premium to our neighboring traditionally acquired hubs.
Well. This is just one example, it shows the potential of our rapidly evolving platform.
Further our analytics have identified major property enhancing capex opportunities such as bedroom additions and kitchen renovations at our existing portfolio.
Many of our own started neighborhoods, where the market has a proven willingness to pay a premium for upgrades.
For example in certain Houston neighborhoods, we completed kitchen bathroom, and floria upgrades that drove incremental returns on investment of 10% to 20%.
These quantitative results don't fully reflect the improvement in the resident experience, which we expect will drive additional benefit through higher retention.
Including hard surface flooring, we plan to invest approximately $20 million to $40 million into our property and have been Capex program. This year.
Overtime, we expect it to expand and we believe these targeted capital expenditures, which had been leverage for years to great benefit in the multifamily industry.
Our yet another way for us to drive incremental growth.
Finally, our detailed acid reviews driver asset management process, including identifying appropriate disposition candidates.
Strategic pruning of our portfolio allows us to recycle capital into opportunities with better long term returns.
During the fourth quarter, we sold 376 homes for approximately $69 million, which brought our full year 2019 disposition volume to 1330 homes or $248 million.
At December 31st we had 1187 loans held for sale.
The close I'm thrilled if the opportunity in front of us and I look forward to continuing our momentum throughout 2020.
Now I'll turn the call over to Jack.
Thank you, Brian and good morning, everyone as Dave stayed at the Big story of 2019 was our am age development program, we expect that to continue into 2020 as we ramp up.
Our entire external growth program, including our development program or acquisitions from National builders and our traditional acquisition platform. Our plans call for investing 800 million to a billion dollars in 2020.
But this in perspective, we expect to be net buyers of approximately 2200 homes in 2020 compared to net sellers of 231 homes in 2019.
In addition, we expect continued to expand our land pipeline.
Over the past three years, we have tested it rolled out our one of a kind development program 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 work 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 for rent is uniquely positioned to pursue a development channel for growth.
Tested the product and hired the talent and we are encouraged by our results in resident feedback.
This concept is gaining widespread acceptance as evidenced by our joint venture announcement.
We have a pipeline of land holdings with approximately 5000 lots currently in place for future development and we expect to continue to grow this land pipeline going forward.
Our experience land acquisition team and our proprietary data analytics enables us to strategically identify ideal land opportunities that are within our existing A.M. age footprint in our high growth markets.
This inventory and additional acquisitions of land will permit us to expand our future development activity.
Now moving on to other investment opportunities, while we believe the A.M. age development program is the best investment on a risk adjusted return basis, there are still great opportunities in our national builder and traditional acquisition channels.
Well, we're accelerating our investment activities, we will be mindful of the timing of inventory additions to align with market demand and to minimize the impact on other assets in our portfolio.
Now, let me update you on our expected investment activity for 2020.
First we expect to add between 3300 3700 move in ready homes to our system.
These approximately 500 are designated for joint ventures, and the remainder will be on our balance sheet.
Our total on balance sheet investment is expected to be between 800 million and $1 billion, representing new home additions of approximately 750 million and increases in.
Atlantic inventory construction and process of $150 million to feed our pipeline for 2021 and beyond.
With our investment of approximately $750 million, we expect at 2800 3200 homes to our inventory.
Rich between 1200, and 1500 homes will be from our in House development program and the balance will be split between our national builder and traditional acquisition channels.
In closing, we're extremely excited with the opportunity in front of us and believe that American homes for rent is the only platform that is positioned to take advantage of today's favorable market conditions by deploying capital through these three channels.
Now I will turn the call over to Chris.
Jack 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 2000, Nike, we generated net income attributable to common shareholders, a $23.6 million or eight cents per diluted share.
On an ethical shirt unit basis, we generated 29 cents of core FFO, representing a 5% increase over prior year and 26 cents 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 billion for 29 cents per diluted share.
On an ethical shirt unit basis, we generated $1.11 cents core FFO, which is inline with expectations, representing nearly 7% increase over prior year in 99 cents adjusted FFO also representing nearly 7% increase over prior year.
Turning to our balance sheet, we continue to remain in great shape with the only investment grade balance sheet in our space. If he ended the year, we had approximately $2.9 billion a total debt with a weighted average interest rate of 4.4% and a weighted average turn to maturity of 13.1 years are now.
To adjusted EBITDA is now 4.7 times comfortably below our internal leverage target five and a half times, providing us with meaningful debt capacity to support our 2020 expanded growth programs.
The liquidity and funding source is going into the new year, EUR 800 million dollar revolving credit facility remains fully undrawn. We're currently generating approximately $300 billion annual retained cash flow and we expect to generate between 100 million and $200 million recycling capital from our strategic disposition program.
In 2020.
Well she continues to be a key differentiator, which we plan to fully utilize in 2020 uniquely enabling us to accelerate our external growth programs. However, if date and Jack mentioned earlier, we believed that the external growth opportunity, especially from our image development program, even larger and we believe that now.
Time to capture as much of that opportunity as we can which is why we are very excited to announce our new development joint venture with institutional investors. It by like GE Morgan asset management.
We think our access to both public and private long term capital to expand our development pipeline to capture more of the growth opportunity the new GB, let's start with a 250 million dollar venture with opportunity for future upsizing and be focused on constructing and operating newly built rental homes image development.
You need to hold a 20% ownership interest with additional economic upside for fees and opportunity for promoted interest of note the venture structure with an evergreen term, reflecting the long term alignment of use with our high quality partner and provides for the opportunity to front I promoted interest after construction and initial operate.
One other benches properties, creating a unique efficient opportunity to monetize image development value creation process without the need to sell assets.
Throughout 2020 division will be focused primarily on called beating its own development pipeline designed to be incremental to our on balance sheet development program with construction deliveries beginning in 2021 and 2022.
Although we don't expect any earnings from our new venture in 2020, we're incredibly excited about our new partnership at longer term contribution toward outside growth profile.
And finally, I would like to introduce our 2020 guidance, which was detailed in yesterdays release in supplemental information package for full year 2020, we expect to generate between $1.17 cents and $1.21 cents, a core AFFO per share and unit at the midpoint of $1.19 cents, we're expecting an annual increase of old.
Were 7% representing an acceleration over prior year growth.
Supporting arrange for several assumption, but I'll provide you with more Colorado.
14 High school, which will include about 45000 properties in 2020, we expect to core revenue growth between 3.2% and 4.2 person, which is bright already covered is based on our expectation for continued strong occupancy similar to 2019, and it's like acceleration year over year growth average must be realized threat.
Additionally, we expect core property operating expense growth between 4% in 5% driven by 4.8% to 5.8% increasing property taxes, which represents a deceleration in growth compared to 2019, as we expected benefit from the new Texas property tax reform and smaller proportion apart.
Properties undergoing multiyear reassessments in 2020.
Outside of property taxes, we expect all other expense line items to increase between 3.2% and 4.2% and to the bottom line. We expect 2020 same home core and why growth to be between 2.8%. It's 3.8%. Additionally, as Jack mentioned, we expect to invest between 800 million and one.
Billion dollars a total capital this year it takes into inventory between 700 million $800 million of homes from both our development and acquisition programs without that fits your capital deployment representing investment into our further expanded pipeline 2021 damage develop homes from a funding perspective, we expect to fund.
That's your growth through a combination of retained cash flow recycling capital from our disposition program and leverage capacity from our balance sheet and finally, we expect 2020 reported genie expenses to increase between 3% and 4% over prior year.
And before we open the call to your questions on behalf of the management team I'd like to quickly reiterate our exciting about 2020 over the years, we've been working hard and investing to build the most efficient operating platform in the industry development one of the Cline image development program and cultivate our industry, leading investment grade bonds.
She.
[laughter] are now paying off and we're excited to demonstrate the power of American home Brent firing on all cylinders in 2020 and with that that concludes our prepared remarks, and we'll now open the call to your questions operator.
Thank you ladies and gentlemen at this time, we will be conducting our question and answer session.
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You May press star to have you would like to remove your question from the Q for participants do you think speaker equipment and may be necessary to pick up your handset before pressing the star keys.
My first question comes from Jason Green with Evercore ISI. Please state your question.
Good morning, you guys talked about homebuilders is one of the channels to deliver more homes I guess previously it seemed like you had tried that route and it didn't really work has anything changed in your thinking in regards to working with home builders to deliver homes.
I don't a this is Jack and thanks for the question.
I don't recall, whatever not working we but.
Weve consistently acquired homes through the National builder network.
And a continued to do so we're just expanding that a little bit we slowed it down because our primary investment during 2019 was our MH development.
Yeah. Jason This is Dave let me just add a couple things to that to it's always been as Jack said one of our channels. We use that consistently I think what you may have heard is that our of our development program is our primary path but.
As you see this quarter for at this time.
The opportunity in front of is huge and we have be a capital in place to take advantage of a 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 in 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.
And Brian you want to say, yes, hi, Jason It's Brian I think you're seeing the benefit of some improvements and pair execution on renewals our renewal rates are really not all time high for the quarter.
Part of that ties into the improved execution, I mean has an experience and really listening to what our residents while providing exceptional service. So not only did we I approve our renewal rates, we did it in the context.
Improved retention as well I think that that's the main contributor to that improvement.
Got it thank you very much.
Thanks, Jason Thank Jason.
Our next question comes from surely Wu with Bank of America. Please state your question.
Yes, good morning out there.
Good morning Shirley.
So my first question a follow up on Jasons question on your right. So then we know for Sean African really as far as finally talking over here. So I just sitting in for January and you're seeing of let me point that does that continue to come something else side or have.
Have you seen or strengthen also.
Yeah.
Now moving forward to January we've proven January is largely attributable to improving in the renewal rates are releasing rates were flat for January I wouldn't really shows two is that we came into this year from a position of strength on the occupancy side.
And we expect that to translate into improvements and rate growth in 2020 as well.
Got it.
Okay. So.
<unk> expenses.
Right the taxes, a four eight to five days a lower than previous can I just.
Just curious in terms, how should think about that line item or and in terms of pack appealing.
That's right right plenty higher talk a lot.
How are you thinking about underwriting all right. Thanks, that's my upcoming here.
Yes, good question, Charlie it's Chris.
You're right expectation for this year, just as a reminder, as property tax growth in the low 5% range.
Which also as a reminder is about 100 basis points a deceleration from what we saw in 2019 largely coming from some.
Some of the benefit we're expecting from the new tax reform are coming out of Texas, and then a smaller proportion.
Our markets or properties experiencing multiyear reassessments in 2020.
We are still seeing a number of markets in states experiencing higher increases in assessed values I'd ever expected in 2020, I think it's really reflect seems to help them and strength of the local economic environment two of the markets that we're in.
But with that said you know hasn't been a year as you pointed out what will will challenge where appropriate and aggressively on values through the appeal process.
You know and it's not uncommon in any one year for us to challenge North of 20 to 25000 individual property values to our appeals process and I Wouldnt expect that to look too far different for this year, but it is early in the year.
And what will be monitoring it throughout the year and keep you updated on how the appeals process plays out.
[noise]. Thank you.
Our next question comes from Rich Hill with Morgan Stanley. Please state your question.
Hey, good morning, guys. Congrats on a what we thought was pretty solid quarter him and into good guidance.
I wanted to talk about two things in particular first of all the the development projects I completely recognize the benefits of Ah Ah Blayne capex spend or mitigate a capex spend should I say could you just walk us through sort of that development yield equation. I know you talked about this in the past my love to have a live.
A bit more color on what the development yields look like and how much the upfront costs for for adult developing a home or maybe up a a portfolio comps.
Yeah, I'll, the gilder pro forma yields that we come in with hurt our develop a much like our traditional home. So you know you have your pro forma ramps and and your anticipated expenses, including property taxes. His name one slow.
We've reduced repairs and maintenance actually heavily is the probably the first five years and we look at what the yield is after year. One and then ask had your five and then then at your 10, a bite by your Tam, we're getting to more normalized.
<unk> expenses on the repairs and maintenance.
Although still better because we're building on to be maintenance resistant.
Hey, Rich, it's Dave let me add a couple of things to the yield a the yield is obviously I've got two components. It's got the the cash flow that you're going to generate but it's also the investment equation when you're building Oh for your own account.
You are much more efficient and it's a much more efficient way for us to be able to invest a the cost is oh the project a the total that we need to invest is less there's no sales and marketing costs development profit is basically a reduction in the investment price. So the the denominator here is it's going to be lower.
It's not a therefore I'm translate into permanent a superior yields.
But I think the equations, even bigger than that or not only are the maintenance cost cheaper, but the desired the desirability of the product fire residents as part of superior just because it's built with the resident in mind.
Got it that that that's helpful. Dave. So so is it is their number you can sort of put around the development yield or is there or is it just yeah. There's a lot of different parts that go into it and you know you're still working through that.
Well, we're a initial yields including normalized expenses on the repairs and maintenance I didn't know below six is.
Okay helpful and I want to talk about some of the various different regions that your and Oh, we're catching some numbers and it looks like you had some pretty pretty.
Nice revenue growth upticks in markets like a salt Lake City for instance, I'm not San Antonio and even some of the markets that have maybe like a at least by all measures Nashville and Tampa.
So maybe just talk about Seattle, Salt Lake City, because it looks like it really strong market to us is there anything specifically happening there because you're you're one of the only.
As far reach that actually owns in that market.
Yeah. Yeah. This is this is Dave before Brian. It's just a couple of those detailed question, but you know you highlighted something that I think it's very important here and that is so we have a diversified portfolio and as time goes on we are see a number of our markets improve and we're not.
Reliant on any one market and you mentioned in Nashville, as a little bit of a laggard, but I would tell you know Nashville, we're I'm very very bullish on its one of them.
Wall Street Journal It was one of the top two markets for job growth a if you've been in the market Theres cranes everywhere and that's going to be a fantastic market for us in the long term I'm specifically a the performance in the fourth quarter for Salt Lake City or Brian you had some numbers on that yeah, it's always stays very strong.
Good for us it has no.
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.
It's that's why we're continuing to invest in that market, hopefully I'll really build that portfolio, while the fundamentals are fantastic.
There's a lot of growth and I companies moving their expanding some of the the tech companies.
Hi area for example, but again it has all the the wonderful fundamentals that you'd want to really drive continued investment.
Got it and Dave you mentioned about your diversified portfolio, which are completely gets as we think about 2020 in the guide is there any markets that are specifically driving that guy that we should focus on.
No I think you know our portfolio being is 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 Oh, you have the not only because you look at it from an operation standpoint, you look at from a growth standpoint than you have many many places that you can grow.
Uh huh.
When we built this platform I mean, it's not by accident that were in 30 markets that diversification, we're seeing the benefit of that right now.
Got it. Thank you guys. That's all very helpful.
Thank you.
Our next question comes from handle Sun Joost with Mizuho. Please state your question.
Hey, good morning out there.
Good morning warning.
So a few questions from me a first on the JV.
The.
New institutionally in <unk>, I guess Newman with JP Morgan I'm curious why you're retaining just a 20% and effectively seeding 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 is southeast focus JV.
Or is it more of a national.
Program and then maybe some more color on the fees if you would think.
Yeah, no handle that Dave good morning, I'll start and then speak on some of the specifics on the JV, Chris can a follow up but.
The JV.
First is a exciting additional form of capital for us. So so we hope we've been very intentional in building multiple channels of capital, which you know 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 20% ownership interest you're correct on that but to the control provisions. We are the manager we have the decision making authority on this joint venture or there are some.
Major events that are both parties weigh in.
But the other piece of this joint venture that is very unique is that is an evergreen venture meeting it doesn't have a cliff at a given time where assets have to be sold et cetera. So I I'm very excited to have JP. Morgan is one of our partners I think a they bring a lot to the.
People as well into the capital that did bring.
And then Haendel this is Chris.
Some of your other questions.
No. The a 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.
Two mile pipeline and the ventures in terms of geography, a project types and sizes et cetera, again, I would reiterate this strategy going into this or is that.
The venture we will be cultivating kind of an incremental is 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.
Terms of fees.
<unk>, probably its competitive reasons I, probably shouldn't comments too much on the fee specifics, but I would say there are a fee streams back to us for all the services that are being provided to the venture management development et cetera, so fees or a positive scale into positive, but again I would reiterate dave's point that some of the really.
Unique upside to this metric what is the fact that is evergreen capital, which is very very unfortunate and into really unique aspect of our ability to be able to crystallize the promote.
Inside the venture without needing to to sell or liquidate any of the assets, which is quite frankly, I'm going to be game changing for us in terms of our ability to monetize a portion of the tremendous value. That's that's 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 Ben planned for this year I think that's a bit higher than a 700 million outlined.
From last quarters 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 in it.
If there is a seized up in the transaction market. It sounds like you're comfortable using your bouncing levering up if need be so just any comments on those two fronts. Thank you.
Yeah, I know, it's Dave let me see if I can unpack that because that's like 10 questions.
Let's start with see sources the sources site Oh, Yeah, I mean, there's the one thing I'd like to.
You know just make sure you're clear on is that a in 2020.
We do have a and investment program, it's between 800 million in a billion dollars and all of that capital.
And 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 EBITDA.
Ratio I'm too hard to our desired pleased to be at 5.5.
As well as what you mentioned sales proceeds of 100 in that $50 million.
That's what our guidance is up for this year.
I'll, let Jack talk about our portfolio, we've got about 1200 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 a as you indicated there's a slight increase in may 2020 guidance. It. So it is between 800 and they a billion dollars through all three development or all three investment channels.
On dispositions, Jack you might want to go through yeah.
Hello and belt.
I think where you've got the 500 million, what's the total amount of dispositions that.
Sales proceeds from the homes are held for disposition, we expect that 200 million last year and 200 million this year.
We ended up with 250 last year and now we're expecting 150. This year. So we're just frontloaded at a little bit the other hundred million will come as homes vacate unless we sell them in a.
In a bulk sale, we generally wait till the homes vacate and then sell them. So they could you know could be 2021 or 2022, we don't we don't know when they'll stop renewing.
So I think that's where that's maybe a little bit of the confusion was.
The disposition market is fantastic ER.
Others pushes and pulls on that where we're able to sell them fairly fast.
But that said I think everybody seemed that the inventory of available homes for acquisition. It has shrunk a little bit yeah.
All the the $150 million a guidance is about two thirds or 800 of the 1200 homes that are there.
Is Jack indicated we do not sell occupied homes, unless we can sell it to another operator, so there's a little less clarity as to the timing of that to a 150, but that's that's our estimate for this year.
I appreciate that and just to clarify I think you people you talked about a cost of 275 case I think Jack last quarter for the development cost per home is that still the ballpark range supposed to be thinking there.
Yeah to 65 to 275 is pretty good range.
Okay. Thank you guys.
Thank you. Our next question comes from Rick Skidmore with Goldman Sachs. Please state your question.
Good morning. Thank you I'm, just going back to the development program looks like you delivered a little bit more than 100 homes in the fourth quarter.
Is that the rate number and what happened with regards to.
I think initial guide for 2019 was approximately 800 and then as you look at 2020 getting to that roughly 3000 homes delivered how do you think that pass looks through 2020 evenly over the over the quarters through the year or front or back end loaded I think just give a little color on that thank you.
Uptick.
Let me take the be getting this is Dave about the guidance for 2020, when you and then little bit about 23 nights team.
As we enter into 2020, the big difference between 2020 and 29 tea is our land inventories are significantly higher going into this year than they were last year or giving us clarity on our ability to deliver homes.
The 3000 homes that we talk about.
Are the 3000 homes through the three channels.
The majority of that is through the development channel, but not all of it.
The the deliveries will be basically pretty.
Different than last year, there will be a more equalize between the first half in the second out of 2020.
With that said, we do tries to deliver as best we can a 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 20.
21st 2019 is 2019, when we entered the year, we're as I said left less land and at that time there.
Appear to be more availability of vacant developed lots to be able to acquire which you can develop quickly.
Today, the bet, if we get better yields a with with land itself and now that we have to land and have a land developed a there's a lot more clarity on her ability to deliver into 2020 with that said one thing just to mention a when we talked about EUR 802 a billion dollar.
As 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.
Yeah, what one other thing I'm not sure where you've got the 500 homes delivered them.
The fourth quarter, we we'd have added a 341, new homes 108 through our national builder program in 233 through a image development.
Got it. Thank you 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 also in terms of the rent that you expect thank you for the rents are slightly.
Better than we expected their leasing up but.
Faster than our existing.
Inventory on turns and.
And the construction cost her right right, where we expected it to be.
Thank you.
Thanks, Rick.
Our next question comes from John Polasky with Green Street Advisors. Please state your question.
Thanks for the time that Dave do you expect any additional changes to the board over the next year.
John it's.
Hard to say, we will be a evaluating the board for a potential additional trustee whether it happens in 2020 or in 2021, I'm not sure, but when we went out to this time, we were looking for a two things one individual too.
Complement to the skills. So what we already have on the board and that was in the home building arena in mass stages is excellent addition, he was in the boardroom yesterday and whose contribution was a was very valuable or the other oh, yeah. There were looking for is as you know.
So the state of California Corporation or entity over trust actually but entity and we will need to add another female to our board and the next two years, so whether that happens this year next year I don't know.
Understood and Brian I wanted to get your thoughts on the market like Charlotte, which has in terms of rent and occupancy trended as lagged in the last several quarters versus.
The same store average from an outsider view the Charlotte economy is still very strong so structurally in your opinion, what makes Charlotte a bit weaker market, then like Phoenix or Vegas right now.
That's right. It's a very good market I think what you're seeing is the effect of a lot of supply there's competition there from others institutional players and there's also relatively a reasonably high amount of new development.
Charlotte, we've we've seen some nice improvement coming into 2020 in Charlotte, we had good momentum there.
But it takes a little while for that that growth and supply to be absorbed [laughter] as we've mentioned before in other markets.
Over the long run we're very.
Very bullish on all the Charlotte economy and in our portfolio there.
I guess why hasn't supply picked up and competitive supply re purposing, having your competitors started to.
Try to still Samir launch in Phoenix and Vegas, one rent growth has been so so darn good for the last few years.
The question why why the supply not affecting the group occupancy in those two markets.
Yes, if supplies pick up in Charlotte lies in supply picking up in Phoenix and Vegas whenever the results have been really good.
Yeah, I guess is fairly supply constrained due to the just the geography and the heavy deal I'm a land holdings.
Oh, there's tremendous amount of growth coming from California to Vegas in Phoenix as well I think that that's the the demand for housing is really outpacing supply in those two markets, where it's not exactly the same case in Charlotte.
Okay. Thank you.
Thanks, John.
Our next question comes some hard the goal with Zelman <unk> Associates. Please state your question.
Hey, guys. Thanks for taking my question.
I I heard a couple off.
On the just on the revenue guidance right. So if I look at your own last year's guidance. You said three two to four to your coming in at 41.
Now I see your renewals are probably the best they'll spend since IPO.
Correct me, if I'm wrong on that the four eight is pretty high it's been a goal to get that up even if I assume that for it comes down a little I have to assume a lot of deceleration I'm not flow that sort of the same from pull to get too.
Oh to to make sense of your revenue growth guidance I'm I'm coming in closer to the high end. So can you give me some color on why that is.
Sure part to get that it's Chris here, let me start with some color.
You're right. A 2019 was was it really strong year in one that we're proud of.
I would also keep in mind, though we do you think about the various different components driving the revenue line one piece in 2019 or what's the fact that we had about 40 basis points in occupancy pickup or improvement over 2018, <unk>, which was simply just a function of the fact that a portion.
2018 was below a stabilized level on occupancy that we picked up a year over year from 18 to 19.
You were to normalize for that 40 basis points, you would see that 2019 <unk> revenue growth was at 3.7% still very strong at very healthy a in very similar to what we're expecting in 2000, 23.7% at the midpoint with China is a strong level of growth.
Got it that's helpful.
Just a second one.
If I look at the second quarter transcript I have Jack saying to you guys will deliver.
700 to 900 homes in the back half of 29 team.
As we sit here today and it's coming in below the low end of that even with the 340 or so homes you does this quarter.
Now, you're telling us that there's gonna be 3000 homes nextera.
Which is almost more than triple.
What you did this year. So what gives you confidence that that is achievable <unk> guidance range would be wide or is there more volatility them or <unk>.
I just thinking about this wrong.
Yeah.
This is Jack thanks, Thanks to my question.
As Dave mentioned earlier.
You know the back half of the year was burdened a little bit by.
The lack of availability of what we call Vbls or Bacon developed class, which is basically lots ready to build.
You can deliver within 90 to 120 days and Ah. So we were and we had the I had some feel people that were maybe more optimistic than they should have been.
Then if you look at the.
2020 guidance, we're not delivering 3000 homes, that's through all three channels, including the National builder program, which is about seven seven to 800 or traditional acquisition program, which is about 900 and ER and.
And.
And then the balance through our development program our in House development program.
Got it and if you'll indulge me on our and I'm, just really quickly and what's going on there because as a percentage of revenue was higher than both.
18 on 17 on the same store pool.
Eric you want us to talk specifically about the fourth quarter.
And increase that then we posted.
It goes back to two our evaluation going in that fourth quarter. One of our main objectives was to preserve occupancy right really traditionally the slow season, where we lost occupancy in the past.
And we had a couple of different levers to pull that leasing side. For example, you could increase commission.
Oh, you could introduce that I concession program, which was the strategy employed by some of our institutional competitors.
Our third we looked at improving some of the cosmetic a few overhauls.
He chose to do that and helped drive our improvement and occupancy.
Pickup on 40 basis points about half of the increase in art EM was due to incremental paint and landscaping work to temper. The a set exit these homes were really managing it towards ultimate payments and cash flow. So that program was successful I like that because it help us.
Reserve rate and put us into a really good position coming into 2028.
More importantly be tie back to this full year I expense performance, both our increase in our them.
[music].
More importantly, our increase in operating expenses accepting property taxes were right in line with time Warner inline with expectation beginning of the year.
Got it. Thank you so much guys friends from my questions.
It's hard.
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 and they are a modest recession have you have you gone back and look at any.
Precedence to give some kind of baseline of expectations I would assume that there'd be a modest uptick in bad debt expense pressuring occupancy and rent growth with moderate too.
Maybe low low a 1% to 2% range.
Yeah, I'm Jade its state.
Thanks for the question Oh, you know the benefit of having a diversified portfolio. If you look back in 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.
This is all we did in the 90% range can be said necessarily on any individual market because some markets have had some dips, but not on the national average and the benefit of having a diversified portfolio is that weve spread that risk across the entire nation.
And as you.
Indicate I know, there's some concern in some of the residential lot 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 topline of having the occupancy there and the ability to maintain our rates and even grow our rates a history tells us that.
We will do fine there.
On the on the the collection side and they're there potentially will be a small uptick in that but let me remind you that our tenants.
Or have the ability to pay I mean, our average household is $100000 of income.
And.
That is a more than our three times that as our guidelines is closer to five times.
And will there be one or two that we need to work with yes. It will work with our tenants that's her general.
Goal is to work with them.
And not a victim, but there will be a little more bad debts potentially again, we haven't gone through the cycle, but history does tell us that trade the red line will be fine on a diversified portfolio.
Turning to the joint venture.
Is the joint venture and going to be pursuing a different built around strategy than what you are doing on the balance sheet.
And how big does that capital pool have the potential to be will you also be using financial leverage.
Yeah.
It's it's Dave or again, no it's going to be the same development strategy. However, we look at our capital needs in first still up our balance sheet and then go we do is look at and make sure that we've got to adequate capital to meet our.
Estimate goals in total hit its going to start to me a 302 250 dollar 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 got a lot from investors is about dividend growth.
Do you anticipate increasingly common stock dividend this year and over what time period would you expect there to be steady growth in the common stock dividend.
Well you know dividend discussion is an interesting discussion and one of the benefits that we have the on our growth program is that we're retaining 300 million or little more than $300 million of or cash flow from operations and so today, we have very very good opportunity.
These to grow our portfolio, which is enhancing the value to our shareholder so that reinvestment program is a very good use of funds a you're aware of is we are aware that there is no obligation to pay out of a minimum level of distributions in order to retain your read 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 a personally sheltered by a net operating losses, which are disclosed in the but those for the financial statements.
Okay. Thanks.
Thanks, Jade [noise].
Ladies and gentlemen, there no further questions at this time I'll turn the call back to David Singelyn for closing remarks.
Thank you operator, that's a close I just want to reiterate that we're excited about or opportunities. In 2020, you know, let me remind you that a the single family rental fundamentals remain very strong and our investment grade balance sheet and best in class operating platform.
And are one of a kind development program give us the ability and momentum to continue our strong growth regardless of economic cycles that we're in so thank you for joining us. This morning, I look forward to talking to you next quarter.
Good day.
Thanks. This concludes today's conference all parties may disconnect have a great.