Q1 2020 Earnings Call
Screenings and welcome to the American homes for rent first quarter 2020 earnings conference call. At this time, all participants are no listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press stars zero on your telephone keypad.
I was reminded this conference is being recorded I would not like to turn the conference over to your House Stephanie Hime. Please go ahead.
Good morning, Thank you for joining our for our first quarter 2020, <unk> earnings Conference call I'm, Stephanie how I'm keep governance officer and I'm here today with David Sanguine, Chief Executive Officer, Brian Smith, Chief Operating Officer, Jack Korigan, Cheap investment officer, and Chris <unk>, Chief Financial Officer.
<unk> of American homes for rent.
At the outset I need to advise do that this call me and could forward looking statements all statements other than statements of a starter called back included in this conference call. Her forward looking statements that are subject to a number of risks and uncertainties that could cause actual results to defer materially from those projected in your statements. These risks and other factors.
That could adversely affect our business in future results.
Well I've got press releases and in our filing for T.I.C.C.
<unk> unexpected future economic impacts of the corporate 19 pandemic, including extraordinary increases and national unemployment may pose head ones to our future results.
Oh forward looking statements speak only as of today May 820 20.
No obligation to update to revive any forward looking statements, whether it's a resulted in your information future events or otherwise.
Reconciliation to gap at the non gap financial measures. We are providing on this call is included in our earnings practise as a note are operating in financial results, including gap. The non gap measures I fully detailed and our earnings release supplemental information package.
Couldn't find these documents as well as F.U.K. reports on the audio webcast replay of this conference call on a website at Www Dot American homes for rent Dot com.
And with that I will turn the call over to our T.E.L. David <unk>.
Thank you Stephanie and good morning, everyone.
To begin with I hope everyone on this call and their families are well as we navigate through the cold dead 19 pandemic.
It's been an unprecedented tie in our focus remains on the health and safety of our employees in our resident.
We have implemented comprehensive remote work policies and our management team members are coming to you. This morning from different locations as we follow our state and local government stay at home mandate.
The day I will briefly talk about our first quarter result.
I will then provide you with an update on activity so far in the second quarter in wrap up with thoughts about the balance of 2020.
I am proud of our strong operating performance in the first quarter with same home court that operating income growth of 3.8% and our core funds from operations was 29 cents per share.
The 7.4% increase over prior year.
Well I'm pleased with our first court that our first quarter was strong.
That is not today's story.
The story is the code that 19 crisis.
At the end of the first quarter, well same hallmark and see what slightly behind last year. We continue to experience good demand with a steady rate of showing and strong retention.
Throughout April demand for home significantly increased then we achieve all time record levels are showing setting up may well to have good leasing and I can see results.
Now moving to rent payment.
April was relatively strong is we collected approximately 95% of original.
<unk> yeah.
And it's roommate bit may rent payments represented approximately 82% of rent too.
This is approximately 94% of what we typically collect through the first five calendar days of the month.
Our property managers had been in constant contact with our residents during this crisis, including those who are having financial difficulties.
Blind will address our plans for that in his remarks.
As we look ahead.
And to provide a high quality homes for families across the country has never been more important.
Several attribute set us apart.
First compared to most other real estate asset classes housing or the Nondiscretionary neat and single family rentals are better position in the <unk> 19 environment and should benefit in both the near and long term.
Second strong demand for housing continuous we are seeing the traditional strong demand for single family rental homes increase as many families are postponing or cancelling home purchases during this downturn.
In many multifamily housing residents are choosing single family rental homes to escape high density community living in consideration of social Justice thing <unk> and personal safety reasons.
This is reflected in the increase showing activity in the second quarter that I previously mentioned.
Third our portfolio diversification across 35 market.
Makes us less susceptible to severe impacted market.
As our largest individual market represents less than 10 per cent of our total portfolio.
Or.
Our best in class operation in technology platforms also differentiate us during this time, although not originally designed with natural disasters in global Pandemics in mine these platforms in power.
<unk> <unk> uncertain times like these.
For a cane Harvey and the California wildfires have created a blueprint for remote field working in business continuity that is now in bad it in our D.N.A. as a company.
With our leading technology driven mobile platform.
All aspects of our operations remain functional, allowing us to meet the strong rental demand.
Proprietary let yourself in technology provides full functionality for prospective resident sure our homes mid application and execute leases all following social distancing guidelines.
We are still executing turns and servicing homes responding to a fairly consistent volume of customer service requests.
Field teams are following recommended social distancing in public safety guidelines as they meet with our residents in their home.
And finally, turning to our balance sheet and liquidity.
Our investment grade balance sheet at the major differentiator today, given the uncertainty in the capital markets are financial position was years in the making and reflects our conservative approach to running our business.
A quick no.
After a quarter and we upsized or previously announced joint venture with institutional investors advised by J.P. Morgan asset management.
$625 billion, providing additional capital to support our leading built for rental development program.
This is a big boat of competence in our company during these uncertain times.
We're well positioned to weather the storm and take advantage of opportunities today and going forward.
Are strong balance sheet allows us to maintain our flexibility through the sea bass.
Continuing our internal development in construction of new homes, but are temporarily differing acquisitions through our traditional national builder programs.
Before I turn the call over to Brian I'm pleased to announce it yesterday the board of trustees appointed Kenneth Willy as independent Chairman of the board.
Yeah. It has been a trustee since the inception of the company.
Ken.
<unk> is the founder and former C.E.O.O., the extra space storage, which he currently serves as its chairman.
Over the course of his career is developed and constructed over 18000 apart.
And 600 single family homes.
And acquired and managed an additional 15000 apartment units.
His wealth up to diversify business experience is extremely valuable.
And I look forward to his continued service to the company as chairman.
<unk> former chairman of the board will continue to serve as a trustee.
Want to acknowledge your contributions as chairman enter supportive the company since its inception under her leadership and her family support the company has emerged as a leader in the single family rental space.
Oh now turn the color to Brian to provide greater operational details.
Thank you, Dave and good morning, everyone.
The past couple of months have been quite challenging what the covert 19 pandemic affecting everyone's way of life.
The current situation has driven us to closely evaluate our priorities.
Them at all aspects of our operations.
First and foremost I would like to reemphasize, but the health and safety of our team members are residents and their communities remains our main focus.
In March we quickly implemented comprehensive remote working and we initiated company sponsored assistance programs to support all of our team members.
Their dedication unresolved and adapting to this new environment I've been inspiring.
In particular, I would like to recognize and personally think our field team members, who continue to service our homes and residents in person.
They are currently the frontline face or the company and we are proud of the way they represent American homes for rent.
Today, I would like to start by talking about our first quarter results and then moved to some additional updates on the covert 19 implications to our business.
I will also provide a second quarter operational update and will conclude with a recap of our disposition activity.
Our first quarter results were strong as we continue to build on the positive momentum from last year.
Average occupied days for the same home cool was 95.3%.
Average monthly realize rent increase by 3.6%.
This resulted in growth of 3.9 per cent in same home core revenues when compared to the first quarter of 2000 a 19.
On the expense side.
Total same home core property operating expenses were up 4%.
Overall this drove a first quarter you're over your increase and coordinate operating income in the same home cool a 3.8%.
Well, our first quarter results were not significantly impacted by the spreading coded 19 pandemic.
We realized by mid March that we needed to adjust our day to day processes to add further protections for our residents and team members.
As a result, we immediately created a covert 19 task force focused on taking a long term socially responsible approach to the current environment.
And approach that prioritizing health and safety and ensures that we continue to do what is right for our residents and team members.
As they mentioned earlier or operating platform and it's extensive use available technology has allowed us to adapt without interruption to this unprecedented in challenging environment.
We continue to be fully operational and our teams are performing at a very high level, while implementing enhance safety measures.
Our ability to communicate directly with our residents to address maintenance requests and other issues through self service.
As well as our let yourself and leasing platform.
Enables us to continue to maintain a high level of service.
Operate our business in compliance with social distancing another health protection mandates.
This crisis is affecting everyone. So we are doing what we can to help those who have been hit the hardest.
Although we are not forgiving red we have suspended late fees and halted evictions.
Our team has been in constant close communication with our residents.
It is actively working with those who are experiencing significant hardships.
To date these hardship requests represent approximately four per cent of our total residence.
Each cases being reviewed individually to determine the best path for the residents.
Which had a few instances has resulted in the early termination of leases.
On the pricing side.
Illustrated our commitment to our residents by offering renewals with no rent increase.
And we expect to extend this offer three may.
Pricing decisions remain fluid and although there is a higher level of uncertainty the normal we expect the blended increase for releasing and renewals to be approximately 2% for the second quarter.
Finally, with an abundance of caution for our teams in the field and our residents.
We have adjusted are occupied maintenance and turn processes.
We were following C.D.C. guidelines regarding the use of personal protective equipment and social distancing.
The main question is how deeply well our residents and operations be affected by the pandemic.
During the second half of March leasing temporarily decelerated when the pandemic began to escalate.
This disruption resulted in an estimated 300 fewer leases during what is historically been the start of are busy season.
April though was a different story.
Man roared back and leasing regain momentum.
April showing activity was up five per cent per rent ready property and overall website traffic was up over 25% from last year.
As an example, despite corona virus related restrictions.
Over the past two weekends, we had over 9500 physical showings.
Which represents nearly six distinct tours per available home over just four days.
We continue to benefit from our technology different platform with more people utilizing our self service leasing option than ever before.
All of this drove higher than expected leasing volume and what was our best April since 2015.
In addition.
Attention was very good with move out down about 6% year over year on the same home pool.
Although the effects of the covert onset drove april's average occupied days percentage down slightly to 95.1%.
Are strong leasing activity positions as well for improved occupancy in may.
Please note that we were able to achieve April strongly some results without having to offer concessions on new leases.
The early second quarter leasing results have been strong, but we recognize the uncertainty of their current environment and are closely monitoring all operational metrics.
Now I will address second quarter rent payments.
As David mentioned earlier April rent payments have been relatively strong as we have collected approximately 95% of rent do.
Which is within 4% of our normal pace.
May rental receipts through the first five days of the month remains strong.
As we have collected approximately 82% of rent do which is tracking with the first five days of April and within 6% of our historical pace.
Please note that are recorded collection numbers reflect actual cash payments received without application of security deposits concessions are payment plans.
However, the longer this crisis continues the more difficult maybe for some of our residents to maintain regular rent payments.
On the expense side.
We have taken steps to minimize nonessential maintenance.
Added additional safety procedures surrounding turning homes.
Keeping everyone Safe May result, in some short term inefficiencies.
Some deferred maintenance to catch up on what's the crisis is over.
In addition, the crisis may create certain areas of elevated costs.
H.B.A.C. as a result of heavier usage during stay at home orders.
And increased utility in turn over costs.
As a result of covert 19 related collection issues on charge backs and move house.
Finally from a portfolio management standpoint.
We sold 410 homes in the first quarter for approximately $80 million.
And we had 960 homes help for sale at quarter end.
Closings in April continued to be strong as we sold 60 homes for approximately $14 million and have an additional $28 million of dispositions in escrow.
In summary.
While the early second quarter results are encouraging.
We recognize a significant uncertainty in this covert 19 environment.
And will remain vigilant as we move forward.
Well now turn the call over to Jack.
Thank you, Brian and good morning, everyone.
Let me start out by discussing our first quarter external gross activity and then I will provide some context for current plan and our longer term view in light of cold at 19.
In the first quarter, we added 656 homes to our platform.
A total investment of approximately $175 million.
Consisted of 401 home delivery through our proprietary M.H. development and national builder programs and 255 homes acquired via traditional channels.
Was in line with our project to case of 800 million to a billion dollars.
Total external investment in the full year 2020.
However, the world is cheap significant like in the past several weeks. So we have make some adjustments to our investment program in mid March we paused, our traditional acquisition and national builder channels as we felt it was prudent to preserve capital and liquidity at this time.
In the uncertainty in the housing market, there's less visibility on valuations.
We continue to monitor events and May reassess these channels in the future as circumstances dictate.
And we have the financial an operational flexibility to restart these acquisition channels quickly.
With regard to our proprietary M.H. development program, we're continuing activity.
Quality single family housing, that's under supplied and our new purpose built rental homes continued to be met with sustained demand.
As evidence during March and April we least almost 400 of our newly built homes, which exceeded the 350 homes, we added to the inventory.
Demand for built for rental product has surpassed our own expectations see brat from my residents supports our strategy that the ability to rent newly built home with amenities that residents desire and sought after communities is revolutionizing the industry.
Update you on our expectations for 2020 development deliveries. We now expect R.A.M.H. developed comes in 2020 will be between a thousand 1200 homes.
I'm from our original guidance 1200, 10 1500 homes.
This is primarily due to various delays relating to local permitting and inspection issues.
As we continue to monitor the economy.
We made a justice pace later in the year.
Over the long term are proprietary development program allows us to grow without being reliant on housing market conditions.
This program, we control quality designing finishes location.
Thing and volume of deliveries.
We are the only platform in the single family rental homes sector that his position to do this today.
Please note do we have added disclosure to our supplemental including details on market exposure average total investment cost an average monthly rent for home as well as are estimated delivery time.
We hope that helps you better understand this important initiatives.
Now I turn call over to Chris.
Thanks Jack.
My comments today are very briefly review our first quarter operating results update you on our balance sheet and liquidity position and conclude with some rabbit thoughts around our business in operations in the coping 19 environment.
Starting off with their operating results simply put we had a great first quarter, a 2020 generating net income attributable to common shareholder $20.2 million or seven cents per diluted chair.
Oh sure and get it basis, you generated 29 cents corinto, representing a 7.4% increase over prior year and 26th sense of adjusted SFL, representing a 7.3% increase over prior here.
Turning toward balance sheet as we discussed many times before we have the only investment grade rated balance sheet inner sector, which has never been more important than now we've maintains conservative leverage levels created a strong liquidity profile cultivated access to multiple sources up capital to our business over the years.
Well, it whether economic downturn.
Coming into the pandemic at the end of the first quarter, we had approximately $3 billion a total debt.
Weighted average interest rate of 4.3%.
Weighted average terms of maturity of 12.5 years.
<unk> two adjusted either dog was 4.9 times, well below our internal leverage target five and a half times and as a reminder, we don't have any debt maturities.
Occurring principal amortization until 2022.
And turning toward liquidity it'd be into the quarter, we had $33 million of cash on hand, and only $105 million outstanding on a revolving credit facility, which provides for toning revolving capacity of $800 million.
Additionally, during the quarter, we generated approximately $76 million, a routine cash flow, which we to calling as adjusting funds from operations. After common distributions and sold 410 properties generating $81 billion of net proceeds as a more current update at the end of April eight approximately 30 million dollar.
Cash on hand, with no changes to total debt outstanding during the month.
Also during the month of April we sold an additional 60 properties generating approximately $14 million net proceeds in a Dave mentioned, we've upsized or previously announced strategic joint venture institutional investors.
By J.P. Morgan asset management to now provide a total $625 million account.
In addition to being another great vote of confidence for development program. This upsizing brings additional high quality long-term capital ensuring our ability to continue fueling are wonderful calling development program.
And finally, turning to the remainder of 2020, it's covered in yesterday's release supplemental information package, given the unprecedented nature of the cobin 19 crisis and uncertainty surrounding it impacts toward residents in business. We've withdrawn are 2020 guidance until we have more clarity into the impacts.
<unk>.
Although much of the future is uncertain right now I'd like to remind you about a number of factors that we believe uniquely differentiate our asset class and American homes for rent ability to both whether the covert 19 story and be well positioned as we emerge from the payment.
For starters remember that we provide an essential product high quality housing the remains in need in in demand, which we see benefiting us in the near term, but last month being our strongest April leasing performance since 2015, and then the longer term as we expect a pattern d. urbanization if people seek housing alternatives.
From city centres in single family detached residences.
Second our portfolio diversified across 35 markets with no single market, representing more than 10 per cent of our footprint, which helps to insulate us as the shape of the pandemic recovery likely vary from work at the market based on links a local shelter and placed orders and composition of local employment industries.
Third relative to many other portfolios, we have a high credit quality and more recently attended base with the majority of our household having two working adults, providing greater employer diversification, one or more children and an average household income of approximately $100000 per year, which we can see benefiting or early collections results.
People in the beginning of May.
As a reminder, I recorded collections numbers reflect actual cash payments received without application of security deposits compared to historic collection levels without any modifications for payment plans abatements or otherwise and lastly, as I already covered or investment grade balance sheet strong liquidity profile in <unk>.
Works access to capital or key Differentiators <unk> to safely whether the coping 19 story, while maintaining our current distribution level and continuing to invest into our one of a coin M.H. development program.
<unk> as we look for either the strength of our investment grade balance sheet double position us with the ability to maintain opportunistic flexibility as we all emerged on the other side of the code that 19 pandemic. However, until then we wish everyone health and safety and would like to extend especial. Thank you to our entire team including over 30.
100 employees across the country, all of whom are working tirelessly 'cause support our residents during this difficult time.
Fantastic team in a competent that their efforts and dedication well help keep our residents safe at home.
Concludes are prepared remarks, well now open to call to your questions operator.
Thank you at this time of the conducting a question and answer session. If you'd like to ask a question. Please press start on your telephone keypad.
<unk> indicate your line is in the question can you mean from start to if you'd like to remove your question from the <unk>.
Per participant using speaker equipment, it may be necessary to pick up your your handset before pressing the stocky.
Any interest of time, we asked that you each keep two one question in one file a lot. Thank you.
I first question comes from a lot of Jason Green with Evercore I.S.I. Please proceed with your question.
Good morning, I'm, just curious your insight into the impact of the cares Act on your 10 minutes have the majority of your 10 minutes receive funds from the government next so do you guys feel like it had any impact on their collections today.
Yeah. This date.
<unk> you know if you look at two or 10 at base are are 10 at Bay is.
Significantly individuals that are blue collar and I am at this point to believe that in a number of may have received that but we don't have actual clarity into each of our tenets that have paid rent.
Brian and his team have had a significant a conversation with those that and it's a very few number.
That have called in regard guarding hardships and we got a little more clarity there, but those that are paid rent no I don't have clarity on exactly how many of them have received.
Assistants to the <unk> do keep in mind that the stimulus payments did go to most of our tennis and most people in in the United States, but the other provisions no I don't have a straightforward clarity on it.
And then just on a development meal and the development schedule that you guys provided <unk>. If we were to throw a 65% margin on the data points you point out in nuts schedule. It indicates roughly a 5.6% yoga is that what you guys are seeing and.
Relative to you know those assets that you're developing I guess, where are deals pricing out on a cap rate basis.
Hi, This is Jack great question.
The which you have to understand on the development properties is that we build them to be maintenance resistant plus their brand new properties, so you're unlikely to see any H.B.A.C. or roofing or.
Much of any maintenance for the first five years. So many even then a lighter level of maintenance for from five to 10 years, when they going more towards normal after that so the the margin on those would be higher than that and we underwrite generally to a minute.
Them up a 6% return.
Got it then you very much.
<unk>.
<unk>. Our next question comes from line of Nicholas Joseph with City. Please proceed with your question.
<unk> appreciate the operating update for April and then come by and I think you talked about pointing at least three crime.
<unk> April between what was executed for you soon.
To date on the renewal side.
Hi, Nick this is Brian.
Are April results.
Yeah.
Red grew up on the renewal side, a 3.1% and on on the releasing side was 3.5.
And the offers for for renewal went out flat and they went out for a really for for renewables and and the May June that time period.
But on a under leasing you're still Saint positive positive leeson release pricing.
We are we are and and we've had fantastic demand in April in into May I think if you remember from the prepared remarks, we had record leasing volume in April at least as good as it's been since 2015 fantastic website activity a lot of distinct shoppers the demand sides very strong leasing lost.
<unk> is great that's continuing to be strong through may.
We're we're not pushing prices pushing rents on releasing as we might in the normal environment. We don't have you seen as gouging, but we are moderately pushing them in the 3% range.
Thank you.
Thanks.
Thank you are in next question comes from line corn with Raymond James place, especially with your question.
Mm Yeah, Hey, Thanks, right I wanted a follow up on Oh, so what percentage of the tenets that you're extending these zero percent least renewal offers what's the uptake on that worked for <unk> and is that.
Just releases that are coming up to the next couple of months or can't get anybody extend at that zero percent renewal option right now they they wanted to contact you.
[laughter].
Hi buckets Brian.
The up takes that have been been very good.
The the offers went out specifically to residents for the main June time period, we haven't had a lot of inquiries for expirations beyond that but we're going to be mailing the are distributing the July.
Renewal letter soon and we anticipate those going out zero percent as well.
Yeah.
Okay.
Alright fair to yeah. They also want to ask on the built for rent platform. So with this new capital commitment from the investors.
Well you'd be looking to immediately go out in in source nude land <unk>. What do you you know how quickly does that capital come in how does that excellarate. The development capability of the platform. You know you know do you go out an option a bunch of land or do you. How do you how do you source.
And.
That capital.
[noise] buckets, Chris <unk>, why don't I start with that in in in a Jack to provide better color of helpful. You know I'd I'd start by saying if you think back there wouldn't be first announced the joint venture last quarter.
You know we spoke to it is an initial side thing of about $250 million with your pen potential for growth. Further. So you know I'd say this upsizing you know who has been contemplated from the start so really no major change to to the strategy.
And if you recall some of our commentary from last quarter, you know one of the great things about this joint ventures. It provides us the opportunity to you know further increase the size scale and volume of our program incremental to what we're doing on our own in so I say this upsizing is right in line.
Which that strategy from the start but you know also bounce, but the fact that you know one of the other benefits we talked about last quarter of of this type of you know really high quality private long-term capital is it provides competence and we need from a long-term capital perspective to continue making the investments into our pipeline.
We have access to both public and private you know high quality long-term capital and so you know given where we are now I would say you know we're we're very very you know a.
<unk> this joint venture in what it provides to us from from a capital and predictability standpoint, but generally speaking it doesn't change anything with respect to the strategy that we communicated last quarter on the venture.
Okay.
Right. Thanks, guys.
<unk>.
Next question comes from online I've, Jade, where money with KBW. Please proceed with your question.
Thanks, very much nice to hear from you and hope you're all doing well regarding the tenant profiles wondering if you could give any color on perhaps employment industry.
So if you're aware of what the unemployment rate would be across the tenant base.
Okay.
Hi, Jane is Brian.
Regarding the the profile the employment profile of our resident base. The the top category is office professional business office professional.
If you take our top four categories. It represents almost two thirds of our tenant base those being office professional health care.
Trades people and public sector.
So we're we're pretty well protected at least from the results of the this data from some of the harder hit areas.
Okay. Thanks, very much secondly, I think in your comments you mentioned that there are there has been and I'm sick of folks, leaving a apartment dwellings first single family rental wondering if there's a possibility of quantifying that do you have any initial statistics of what percentage of the.
Increase relates to that segment.
Yeah.
Yeah, I don't have exact date on that but we have seen an uptick obviously an activity as I mentioned distinct shoppers people touring our homes and a dramatic upticking and website activity.
Anecdotally, we we're hearing a lot of people moving from from apartments, other people, who have delayed home purchases.
Who who originally we're planning on buying and I now have decided to read.
But it's really on anecdotal in nature, it's it's difficult to pin down the exact source of each of the leads but we are serving them. The the the data just just isn't clean enough for me to to report exact numbers.
Thanks very much.
<unk>.
Thank you are next question comes from the line of handle Saint just with MS do Huh.
Question.
Interesting just maybe airline is on mute.
Yes apologies.
So good morning.
<unk>.
So a a question on the expense that you got cold your your guidance, but I'm kidding.
I have to move from outlook for somebody P. expense Adams, whether it be some relief and maybe some come up plus just so much of the thinking 30 60 90 go 60 90 days ago.
Maintenance costs and it turns the punch in et cetera. Thanks.
I in Dallas, Brian.
Yeah, our retention been very good so we're hoping to have a little bit of relief on turn costs, but it's it's difficult to to see much difference. We we have as I mentioned in my prepared remarks.
There is an element of some deferred maintenance costs, we're going to have to address when this thing really starts to to wind down.
And most importantly, the thing that we don't know which makes this answer difficult.
Is what's going to be the impact of recoveries on residents, who can't pay and we're not going to know that till we really get into the to the workout period.
Impact is on Chargebacks for utilities in charge backs for turn so that that's probably the biggest unknown we're watching carefully.
On the other side, there's a little bit of relief from some expenses that we would normally incur surrounding travel and some other operational things, but but the most significant ones are going to surround chargebacks and be collection related to the covert 19 crisis.
Okay. That's that's helpful on the punching keys, specifically, yeah that number hovered around 70 as per cent near the last a few quarters.
You mentioned that picked up in April can you give us a 10th of how much and then look we'll have how much hide you think of attention can can get too and how long. It schools are giving some of the Packers you mentioned earlier <unk> 75 movies.
I know you already there in certain markets, but just curious on the overall a portfolio.
Yeah, I think our our April retention picked up by about 6%.
It's one of our key focus points, there's a combination of of a number of different things, there's obviously the economic environment.
The the customer service aspect.
Our customer service ratings through Google, We're at an all time high and April. So we're we're executing loan that end my expectation operationally, though is that there is a lot of room for improvement in retention.
The the difficulty during this time is it's hard to really define how many are staying because they they they because of the the current a virus.
Pandemic and how many are more healthy normal renewals.
But if you want to if you want to get to it to an absolute target.
It's hard for me to to say, but I didn't know that we have room for improvement.
Yes.
And then a one last follow up on stuff I missed it but did you guys mentioned if you offered any consistent anywhere in the court So April and made it so well how much but.
Yeah, we we did not offer any concessions in April or May.
When the pandemic had we had a little bit of of a slow down and leasing for a couple of weeks, we we moderated asking rents in reaction to that.
But again, we we still thought healthy three and a half per cent rent growth in April but that is that is without a offering any concessions.
Thank you.
Thank you are next question comes on line at first show with Morgan Stanley He's pretty.
Hey, good morning, and I look I I appreciate the the additional color on the leasing spreads <unk> question for you on that 2% that you mentioned for two Q., you break down what percentages renewals versus new leases.
Hi, Ratchets, Brian Yeah, It's it's roughly 70 70 32 thirds one third.
Okay, Great helpful. And then as we think about how much of your rent a is driven by leasing activity last year, what should that number what should that number be I guess, what I'm trying to ultimately get back at is how how much how much is how much of your a tenant basis rolling.
Two q. and maybe maybe for the rest of the year as well.
[noise], Hey, Britches, it's Chris what what could be helpful. Here actually you can see it's scheduled out by quarter. After you go to page 21 of the supplemental and you can get off numbers right. There, you'll you'll see our lease explorations by quarter for the balance of the year and even into next year and you can use that.
Yeah, you know based on the spreads didn't we provided a on a rolling five quarter basis, as well a little bit earlier in the supplemental in the the same home section and you can use those kind of triangulate around you know how spreads or rolling on and off per quarter, and then use a little bit of Brian stocks for the second quarter.
And apply that to you or two q. expirations as well.
Got it that that that that's very helpful. Chris, let's let's follow up on that <unk> and just make sure I have a better understanding but thank you guys for their color that's all.
Thanks Rich.
Thank you are next question comes from line of Douglas harder with Credit Suisse. Please press you read a question.
Things can you talk about how long you might consider offering the two zero percent for dual Akron you know just kind of given given the balance you're trying to to strike between being you know of.
You know fair search your your existing times, but you know kind of thing not with a strong demand that you're saying.
Yeah, we're watching it very closely this is Brian.
And everything very closely at the market level.
The.
As I mentioned earlier, we're we're planning on offering zero percent renewals for July. These there there was a significant lead time for that offer because people need to start planning knowing that their leases are are coming due.
I I don't have perfect visibility into a anything beyond that a lot of it depends on how quickly. These markets get opened back up how quickly people get back to work and things start to to get to the new normal I guess I will watching it extremely closely but we're going to be responsible and and it'd be very targeted when we when we do.
Go back to a normal renewal increase offers.
Oh.
Thank you.
Thank you are next question comes in line.
ASCII with Green she advisors, especially with your question.
Yeah morning takes the time, Brian sticking on the releasing a in April and heading and a everything you see on the ground I acknowledge that the total portfolios strong right now are any markets would you expect any markets did put up negative releasing spreads these coming months.
There are a couple of markets that that are having a little bit more pressure I think Houston might be a good example, it's it's hard to predict where it will be in the coming months, but that's that's one where I don't I that will be pushing Reds very hard.
The what's interesting is a couple of the markets that.
We're pretty heavy in the hospitality.
Landow in Las Vegas, we're still getting nice nice rent increases I think that's a testament to the employment mix of of of our tenant base. We're just not that that heavily concentrated but but she used to would probably be the one that we're watching maybe most closely.
Yeah, well, we joined if I could just add this is Chris you know it really brings to mind again, the importance of a of a broader geographic diversification portfolio right and the fact that we don't have any single market you know greater than 10 per cent and you know as much as we talk about Houston, Houston's less than 6% of the portfolio.
So we watched things closely you know to the extent that there are you know one off markets here or there that are more you know significantly impacted whether it's houston or based on the shape of recovery at the local market level. You know, we feel good about and and really like the the diversification of the portfolio, helping to smooth out in insulate you know once it gets any of the single market.
Oops.
Yeah, no just understanding distress points in if if houston's not even flirting with negative territory right now it bodes well for the longer term outlook for for the portfolio, maybe Brian <unk> market like Vegas, and Phoenix, pushing relations spreads eight and almost 10.
Percent is it a fair read that there is given a long length to say, there's plenty of embedded gross and some of these hot markets and even if market rank growth fund flat for the next two years, you would still be pushing re releasing spreads would still be in caught mid single digit range as the just the homes.
Is that a fair interpretation of some of those I topping the strong relations prejudice connections I guess.
I I think it is I don't know the exact numbers, but.
There are there are cases, where we're offering healthy increases on the renewal side that may not be a complete mark to market.
So for example, if they're they're areas where rents have skyrocketed Phoenix in Vegas or two good examples and we may not push it all the way to the to the market level on a renewal we might be a little bit more a conservative dippers preserve occupancy so there might be a little bit to catch up there.
Phoenix is probably a better example in this environment.
Okay, great. Thank you.
<unk>.
Thank you are next question comes from line that's harder.
Right.
Please proceed with your question.
Hey, guys. Thanks for taking my question first of all you know great execution, you know one isn't difficult environment.
Transparency on the disclosure.
Well I want to ask about.
The changes the tone, but I want to ask about capital allocation. So obviously you have some spare a cop all you want to never planning on using equity.
Find any of the acquisition go developments and you have pared back on the National builder an acquisition pipeline.
<unk> your stock you know was at levels.
Haven't seen in a few years well is there an internal conversation ever about you know.
Buying back stock at some point I know you've talked about investing for the long term, but I'm pointing to the the spare capital you may have had.
The other question I have is on the preferred I know, they're not color bowl for like 2021.
There were a few those are for a period, where there was yielding almost nine per side.
Some from time to see where you can just buy them on hold them on your on your books.
Yeah, Hardick, it's it Dave and and those are all great question.
This this pandemic, it's gone through a number of cycles and a very very short period of time and you did a properly articulate that for a couple of days preferred we're at very very attractive price is I guess, we I would start with the fact that our capital allocation.
It is one of the the primary things that we are looking at on a day to day basis at the management level and we are in constant contact with our board as to strategy as well on on a weekly basis and and in person or on on the phone with.
Everybody at least once every other week and the primary discussions are capital allocations Nan Oh. This is a unprecedented time and the length of this <unk> EM event and the impact of this event. It was hard to measure in the various earliest days.
And so we have taken a couple of steps to preserve liquidity as we talked about in prepared remarks, we did.
Temporarily suspend the acquisition through our M.L.S. and through our.
National builder program.
As we've gotten more clarity and April and May.
It's given us the ability continue with a very <unk> attractive program to us nets or development program and today the opportunities on preferred and both sets of debt public debt as well as the C.M.B.S. debt, they're not trading at the same attractive yields but when they were.
We're in the early days and we were in really preserving liquidity at that time <unk> the tremendous uncertainty that existed in those days.
Oh, that's a great response day.
I'll I'll catch up with with the guys off line a little bit about some other opportunities on the capital side, but.
Just focusing on the development platform I think people talk about <unk> and that kind of money is the picture.
I like to think about it on our our basis, especially because the buy a home and 15 per cent of revenue could just be topics.
It could be a great home great location.
For renovation to could have a high Catholic flowed because it's 30 years old.
Can you walk us through the difference the the powerful overturned you can get on a brand new home.
What are the Catholic slow does not going to be that great for at least 10 yours versus a comparable acquisition.
Oh.
Yeah. If you look at our same home cost to maintain its its roughly I haven't reviewed it recently, but it's my recollection is about $2200.
Per year per home.
And if you reconcile back and take out most of the H.B.A.C. costs and roofing costs and <unk>.
Six and garage doors and all the things that you are likely not to see repainting exterior soon.
That type of thing you know you get to a plus the way we build them as to be maintenance resistance. So we're already putting in all hard surface flooring throughout the house and on the stairs.
And and and other items that we do for.
X. and things just to make maintenance resistant you you really get to a much lower costs to maintain a per house, particularly in the first five years and then at five to 10 years, and then thereafter to start migrating towards the 2200, but.
But it it is a much better return.
Say something about number could be like.
Isn't bucks versus 2200, 1500, what what's the range kind of.
If I had to put a number on it.
It's.
It'll be a different number 10 years from now both on the 2200 and.
Right right right on.
But I would say you know in the 14 or 1500 dollar range comparatively.
Wow, Hey harder.
Hardick, it's Dave and you know you you mentioned at the very beginning the concept of I.R.R. and the concept.
The cost of the acquisition.
M.L.S. is as we know you're buying typically close to market if not out market <unk>, what we have with the development program. In addition to the favorable economics on cash flow on to go forward bases, resulting from things that Jack just mention.
When we're requiring these assets that we have a lot more downside protection as well as the acquisition investment in these properties is significantly less than market. We have an embedded development profit in these properties that you don't see it it's just a reduction of our invest.
But the difference between your investment in market when the homes is completed.
It does exist and so there there's there's really two benefits here downside protection Weather's three downside protection, you got better economic and you got a better assets as long term that people and and perspective residents desire.
Okay. Thanks, guys, that's really comprehensive and if if you will indulge me I I really want to focus on.
You are proprietary you know so pleasing technology, because it's something that a lot of people struggle with and it looks like you've got it right, but it to Brian and his team can you talk about what makes it different than what is the problem that you're able to solve that others or other vendors have not been able to solve.
Hi articles Brian.
Oh, Yeah. We're we're proud of that platform just just as a a point of reference we we went to let yourself in the let yourself in platform back in 2013.
We have seven years of experience with this and the real value of the platform not only is it very easy to use.
It's perfectly integrated into our sales system.
And we're able to drive really good efficiencies with that.
I think the issue that some of the others have as they're just making it too complicated.
What happens with us as if you want to see our house you can drive up to the home there's clear instructions how to go in self service without speaking to anyone if you want to speak to someone we have alive agent prepared to available to talk you through the access process and then there's a very clean hand off to our sales team local sales team who's going to get into contact with you while you're in.
The home and we can really design kind of customize the the number of the level of touch that particular prospect wants some people like to go purely self service, we're seeing an uptick on that this year, especially over the last couple of months, where people are accessing without even you utilizing the call centre I, but we've designed it to be very convenient.
We've designed it to be to be simple.
And and it's perfectly integrated plus we just have a lot of experience doing it. We're we're nearly 100% on on self service access.
That's great. Thank you so much for a answering my question size appreciate it.
<unk>.
Thank you are next question comes from line a frame Gilbert with BTG. Please proceed with your question.
Hey, Thanks, guys first question on the development program can you tell me how much.
Cashew expecting best and the properties that are going to be delivering over the remainder of 2020 and.
And then how much you expect to invest in 2020 for the for future deliveries.
Yeah.
So I can I think.
Word checking some of those numbers, but oh jacking AD in his prepared remarks, yeah, we have reduced the number of deliveries in 2020, a slightly and today it says somewhere between a thousand and 1200.
But it looks like Chris me have gotten five pound the numbers per your direct questions, but there is a slight reduction a year over year and those will be those additional properties that we're not going to deliver this year will flow into a future years.
<unk> Yep.
And it it's Chris let me.
Just kind of a little bit of color to the full balance at the year. So everyone understand kind of what our expectations are right now for capital outlay.
Keep it might even though as we've commented on several times now that we you know have frozen new acquisitions, whether it's through our traditional channel or from buying a new to constructed product from other builders, yeah that that doesn't mean that there were not transactions that were already in in process either.
Under contract or in escrow and just to give you kind of earmarked for the dollar is associated with that that will go out throughout the remainder of this year, the probably about called $60 million to $65 million. There I'm, just finishing out acquisitions that were already in process in terms of dollars associated with the remainder this year.
Pipeline 022, $250 million or so something in that range and then <unk>, we'd spoken about before you know our earmarked for this year for investment into the pipeline for future your deliveries coming into the our expectation I was about 150 million.
Dollars or so into that component of the program.
You know, we deployed about $50 million, they're in the first quarter, which leaves us probably about $100 million give or take the balance of the year into you know or feature pipeline investment. So all told that summer right around $400 million for the balance of beer.
Okay.
Okay got it thanks very helpful.
And I guess, just you know back to rent collection.
You know, maybe just you know that the.
Details or color you can add on the conversations you're happy with your 10 loans.
Just that the.
I I'd, just just any any color on on conversations you're having you know round by collection, but tenants and how that's changed from April to Bay, and then how about 5% rent non payment in April how we should be thinking about that flowing into Tibet expense ultimately.
Mm.
Alright, Yeah, I'll I'll start and then I'll, let Chris finish with with the relationship with with bad that expense.
Oh, one of the interesting things over I guess the past.
Month, and a half is that our property managers have been in very close contact with our residents. They're speaking with through wellness checks. We had a campaign, where we were calling those who who paid on time to take them for.
For for choosing to the house with us.
The feedback that we're getting is the fact that we've been flexible by relaxing the late fees and allowing people to kind of pay and match.
Some of their paycheck some of their their earnings with with rent payment.
It's been really well well received the the number of of real hardship a class I mentioned in the prepared remarks was about 4% of our resident base.
And a lot of those are.
Discussions on you know I I need a little bit more time I'm waiting for some unemployment checks I'm waiting for some stimulus. So <unk>, we're working very closely with the the extreme cases and they they're they're relatively few are the ones, where it's just better off for us and for the resident to to depart ways, we've been letting.
Them out of their leases, but that numbers fewer than than 200 cases.
So it's hard for me to say exactly what the collections are going to be on that remaining five per cent piece for April but we are working very closely with them to to to determine the best resolution.
And then Ryan just in terms of how we treat things from a bad debt perspective, you know look our our our policy always has been to recognize both revenue and then bad debt if necessary.
Based on the the likelihood of collection, which is done on a specific tenants by tenant basis, and I don't see any changes to that going forward I think what that means just more practical standpoint is that as we continue to work through the collection process with each of our 10. It was like Brian was just talking about well, we'll use that data to inform our view on whether or not it's appropriate to recognize the related.
Revenue, you know, but that that given the level of of uncertainty out there right now will will likely take a a conservative approach and it wouldn't surprise me if our revenue recognition in bad debt ended up tracking yeah somewhat similar to cash basis collections.
Got it thanks very much appreciated.
<unk>.
Yeah.
Thank you are next question comes from online I've, Todd standard with Wells Fargo, especially with your question.
I think so just ones for me.
Haven't given concessions over the near term.
But if that stance where to change.
I guess over the course the next couple of months what are some examples of concessions that you would use to help leasing activity.
Yeah.
I thought this is Brian.
So I think you're you're referring to concessions on new leases there there have been.
Emotions that we run in the past $500 off.
Month's rent for for example, we've used it sparingly a lot of times, it's in reaction to kind of some other market forces. Some of the things that are competitors are doing based on the demand statistics. The way things are shaping up for for May I I would be surprised if we ended up going using.
Concessions as a tool.
But again, it's it's difficult to see too far ahead in the future.
With with all the changes that we habit.
It's always been market based it's always been very focused in some cases, it's it's down to the neighborhood our our our pricing. It's it's lived into our pricing.
Analytics team and their their assets specific so I don't I don't see a a widespread use of it in the near term. Okay. So dollar amount and then it would be by market by market.
Yeah neighborhood by neighborhood even okay.
It's awful thank you.
<unk>.
Thank you I next question is how often the line or job.
Advisers. Please proceed with your question.
Hey, Thanks for taking my follow up Jack I could just talk a bit more about this slippage into degrees. This year I guess I'm surprised with the magnitude of the the delays are given that most of these states for slower to lock down in there quicker to come back on line. It sends a shelter in place.
Ordinances and a lot of the construction should have been pretty far along for 2020 delivery. So I'm a little bit more a color in terms of what is it all inspection timing or you know what's going on with supply chains would be helpful.
Yeah, well, it's a good question one of the I mean, Washington, the state of Washington was the only state that we operate in that determine that building houses was a non essential business and we had to completely shut down.
In that market for.
A a period of time other than securing.
The construction sites.
And then in other markets, especially in the first month to a month and a half of the pandemic, where a government workers were moving from office work to working from home and trying to.
Determine the.
Know how to how to do their job functions, while working from home and then in other cases, you have a public hearings that have to happen that got delayed.
So there there is some delay on.
On the projects and as far as supply chain, where we are seeing a little bit of that right now, but I'm really minor type things aluminum fencing is one thing, but we can still rent the house and put in aluminum fencing later, so I don't like.
Supply chain has been a big issue today.
Hey, John Dave, but let me just follow up on that Yeah. You you made an imprints that most of these homes are in a development today and that would be delivered this year. They the vertical construction timeline is 120 to 150 days. So some of these homes.
Had not convinced there vertical construction and the the delays in the municipalities both had the inspection level and and to some extent in the permitting office have caused some of these delays.
Okay.
The <unk> roughly thousand homes, you you need to get across the finish line 2020.
Per cent do you think are in the bag and what percent or you losing sleep overnight on.
I.
Wouldn't say any things in the bag Intel until their complete and rented but.
I wouldn't say that either that I'm, losing sleep I'm kinda in inbetween.
Those too.
Alright, thank you.
Yeah.
Thank you ladies and gentleman that concludes our question and answer session I'll turn the floor back to management for any final comments.
I think you operator took close I want to reiterate that while uncertainty across the economy remains high I'm confident that American homes front as well positioned to whether these current challenges.
Single family rental fundamentals remain solid and we have the portfolio operational platform growth strategy and balance sheets continued execute today and emerge stronger in the future I think you for joining us. This morning, and we all look forward to talking to you next quarter have a good unsafe day.
Thank you to this country today's coffins. She may disconnect. Your lines at this time. Thank you for your participation.
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