Q2 2020 American Homes 4 Rent Earnings Call
Greetings and welcome to the American homes for a second quarter 2020, <unk> earnings Conference call.
At this time all participants are in listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
That's a writer this conference is being recorded.
This time I'd like to turn the call over to and Mcguinness manager of Investor Relations. Please go ahead.
Good morning, Thank you for joining us for second quarter 2020 earnings Conference call.
I'm here today with either singly Chief Executive Officer, Brian Smith, Chief Operating Officer, Jack Corrigan, Chief Investment Officer, Chris <unk>, Chief Financial Officer of American homes right.
Yeah, I need to invitees. This call may include forward looking statement.
All statements other than statements of historical fact included endoscopic calls are forward looking statements that are subject to a number of risks and uncertainties that could cause our actual results could differ materially from those projected and be statement.
These risks and other factors that could adversely affect their businesses teacher results are described in our press release, it and in our filings with the FCC.
The current and expected future economic impact as I told my thinking pandemic, including extraordinary increases in national unemployment Maple Heights headwinds trade feature myself.
All forward looking statements speak only as of today August 20, Twond, we assume no obligation to update or revise any forward looking statements whether as a result, as new information featuring or otherwise.
A reconciliation to GAAP non-GAAP financial measures were provided on this call is included in our earnings press release.
The note, our operating and financial results, leading GAAP and non-GAAP measures are fully detailed entering freely and supplemental information package.
By these documents I suppose.
Before the audio webcast replay of this conference call on our website at Www Dot American homes for right Dot com.
With that I will turn the call over to our CEO [laughter] singly.
Thank you I am and good morning, everyone I.
I hope that everyone joining us today, it's doing well.
Let me begin by saying that it's hard to believe that 10 years passed since Wayne you suggested we buy homes in Las Vegas in rent them out.
In just under a decade American homes for rent has transformed the rental home industry by providing housing options tailored to the modern lifestyle.
The day American homes for rest of the leader in the single family rental industry for three reasons.
One our strong second quarter operating performance during these Tobin pandemic time demonstrate the strength and resiliency of our platform.
Do.
The pandemic, there's also highlighted the strong demand for our single family housing.
In particularly are well located rental homes that provide residents with an environment, where they can live and work say what.
And third and finally, our strong balance sheet and consistent investment is.
And our one of the <unk> development platform.
But the ability and capacity to grow during these difficult economic times.
Our second quarter highlights the strength and resiliency of our platform well, many economic concerns do exist or leasing and occupancy reached all time highs.
During June we executed a record number of new leases.
And combined with our excellent retention. It resulted in June talked me see reaching all time high levels only to be surpassed by July results.
In the accomplishments do not stop on the leasing side.
Our collection levels for the second quarter were strong at approximately 98% of normal operating levels.
In July results track the second quarter.
Our maintenance program also deliver.
Probably continuing to serve our residents during this time.
And ending the quarter with no backlog in maintenance work orders.
Well I will provide more details on our second quarter operations.
Well, let me say.
That I'm so proud of our performance in these unprecedented times, it's a reflection of the dedication and focus of our entire team.
Moving on to rental demand.
The demand for homes, which was already high has never been stronger.
Our internal applicant data confirms an acceleration of the strong shifting consumer preferences towards renting a single family home over an apartment.
This shift of consumer demand that was already present before the pandemic is likely to remain in place after the pandemic is over.
The coated prices has signed a bright light on the attractive value proposition a bar well located professionally managed homes.
The day people are moving to less dense areas with diverse economy in high growth markets.
Now more than ever people value high quality accommodation and desirable amenity.
Like a yard with privacy.
Or an extra bedroom there can be converted into an office to facilitate their working from home.
We are providing the benefits of single family living to people, who appreciate flexibility and convenience.
We were taking advantage of the strong rental demand trends, we are experiencing the day to day and a number of ways.
First it starts with our diverse portfolio.
We strategically assembled the portfolio across 35 markets in area is characterized by strong population and job growth.
<unk> cost of living.
And low income taxes.
These areas are likely to see increasing household formation as people continue to move in the cobot era.
Importantly.
No single market and this diverse portfolio represents more than 10% of our footprint.
And 35 markets.
By the numerous opportunities for growth.
Also our diverse portfolio combined with the higher income levels of our residents and the fact that many households have two incomes provide a natural risk management hedge for our business.
The second factor positioning us to capitalize on the significant rental demand.
Our strong financial profile.
Today, we have the only investment grade balance sheet in the sector.
This is another risk management hedge in our conservative balance sheet enables growth in all economic cycles.
Which is a major differentiator for us in the capital markets.
Our balance sheet.
<unk> with our significant retained cash flow provides the capital to fund our growth initiatives.
And the third factor is our growth programs.
We are the only company that has teams in place to grow across three channels.
For additional acquisitions acquisitions from National builders.
In our one of a kind development program.
Our ability to expand our portfolio well compounding the benefits of scale remain significant and allow what's the opportunity to grow in this and all economic cycles.
As the leading national developer of purpose built single family rentals.
American homes for rounded revolutionizing the industry with our prime location new home communities.
Our unique ability to add new purpose built homes design for rentals generates better returns and drives consistent growth through economic cycles.
Jack will discuss the highlighting the progress of this exciting growth channel a little later.
Before I turn the call over to Brian I have a couple of announcements.
First the statement about our guide.
Well the cobot crisis has accelerated demand for single family rentals in American homes for rent has produced strong operating results to date, the extent to which the pandemic will ultimately impact us and our residents will depend on future developments that remain uncertain.
In light of such uncertainty, we continue not to be in a position to provide future earnings guidance at this time.
That said.
Long term drivers like the ship from multifamily to the suburbs and resiliency and benefits of single family living or all favorable to us.
Also this morning, we announced that lend Swan was appointed to the board of trustees.
Lynn previously served as an age for our trustee from 2012 to 2016.
And I'm pleased to have you read joined the board and bring it significant public company board experience isn't its expertise and bath connections in the business World to our board room.
When currently serves on the board of evoke well water technology and he previously served on the board the floor Corporation.
Users entertainment.
First the entertainment at resort Ha high and the P.D.A. of America.
Linzess appointment as part of our ongoing board refreshment process, which has included the appointment of for independent trustees and beginning of 2019.
This year, Matt they pay homebuilding industry veteran was appointed to the board in February.
And can woolly was named our independent chairman in May.
In addition to limit the point that we also announced that we continue the selection process to appoint later this year, another trustee, who enhances the diversity and independent of the board.
Ordinary freshmen is an ongoing commitment for us.
The board continues to advance this effort to ensure the board has the right experience diversity and independent perspectives to oversee the continued successful execution of the company strategy to drive growth and value creation.
We have always been well capitalized.
And today, our strong balance sheet has never been more important as we continued to deliver greater shareholder value.
This financial flexibility combined with our operating and development platform allows us to grow in all economic cycle and enables us to innovate.
And execute where others cannot.
And now I'll turn the call over to Brian to provide greater operational details.
Thank you, Dave and good morning, everyone.
Over the past few months, the strength and resiliency of our platform has been tested.
I'm pleased to report that we are continuing to deliver strong result in spite of covert 19 related challenges.
Our continued investment and industry, leading system and our team's dedication and effectiveness have allowed us to capitalize on emerging trends that have driven record leasing and occupancy levels.
I would like to thank all of our team members for their hard work dedication and perseverance.
Today, I would like to start by talking about the recent demand trends that are driving record leasing across the portfolio.
Then I will discuss our second quarter results, including the covert 19 implications to our business.
And finally, I will conclude with a recap of our disposition activity.
As Dave mentioned demand for our homes has never been stronger with record leasing activity and retention.
Driving occupancy in June and July at all time highs.
These results were powered by our technology driven platform that allows our current and prospective residents to manage their entire leasing and rental experience online.
In the second quarter, our website traffic and user activity grew to record levels with the number of distinct users up over 25% from the prior year.
We were able to capitalize on this activity through our proprietary let yourself and mobile leasing technology, which allows prospective residents the tour homes without an agent.
That's a bit applications and execute leases digitally.
With more people utilizing our self service leasing option than ever before.
We saw significant increase in showing per rent ready home.
Drove a record volume of applications, including a 30% increase due to overdue.
The recent increase in demand is due in part to changes in consumer preferences.
Our second quarter applicant data highlights a clear trend that co that is driving more apartment renters to high quality suburban single family rental homes that are professionally managed with service similar to that of class a class a multifamily communities.
We saw an increase of applicants coming from multifamily over 20% across the portfolio.
We expect this fundamental shift in housing preferences to continue.
I will now turn to our second quarter same home results.
First we reported flat revenue growth.
As revenues were temporarily impacted by both an increase in uncollectable rents due to covert.
The waving a late fees and month to month charges.
If we exclude the approximately $6 million, an incremental kobin related bad that.
Revenue growth was 2.9%.
Second our reported same home expense growth of 6.1% for the quarter included $2.2 million of Kobin related costs that primarily consist of incremental utility reimbursement bad debt.
As a reminder, we maintain most of the utilities and our name and pass through the charges to our resident.
Excluding the pandemic related charges our expense growth was 3.2%.
And finally reported same home in Hawaii was down 3.4% for the quarter.
But adjusting for the aforementioned kobin related impacts.
Oh I growth was 2.6%.
Despite the fact that we suspended renewal rate increases and wave late fees a month to month charges.
Now I will go into more detail with some key second quarter metrics.
For our same whole pool average occupied days for the second quarter was 95.6%.
Our occupancy improved throughout the quarter and our June average occupied days was 96.1%.
For 60 basis points above June of last year.
In July this trend continued an average occupied days grew to 96.4%.
Which is 110 basis points higher than July of last year.
Please note that all of this was achieved without the use of rental concessions.
Further our average monthly realized rent increased by 3.1% for the same whole pool in the second quarter.
Rents on new leases grew by 4.4%.
And renewal rents increased by 1.3%.
The blended rate increase in the second quarter was 2.4%.
Which was above the 2% estimate we provided on the last call.
For the second quarter, we've collected 96.5% of reps.
Our rest receive reflect actual cash payments without application of security deposits for the benefit of future collections underpayment arrangements.
Collections continue to be strong in July with approximately 92% collected through the other them up.
Which is consistent with Q2 trends.
This crisis is affecting everyone and we're doing what we can to help those who have been severely impacted.
The day hardship request represent a small percentage of our total residents.
Each case is being reviewed individually to determine the best path for that resident.
Which in some instances has resulted in the early termination of leases.
Although we are not forgiving red we made the socially responsible decision to suspend late fees.
Faulted actions.
And offer renewals that no increase for leases expiring through July.
Today, we're confident in our operations and the performance of our portfolio as evidenced by the incredible demand and record leasing activity.
For this reason we resumed rent increases on renewals for August expirations.
Despite flat renewals for July leases.
We expect renewal rate growth to be one to one of the half reset in the third quarter.
More importantly, we expect renewal increases to accelerate in the fourth quarter.
Red increases our new leases in July was strong at 5.4%.
We expect growth of 4% to 5% for the third quarter as we entered the historically slower leasing season.
Further we have given notice to our residents that we are transitioning back to our normal business protocols by resuming late fees and month to month charges where appropriate.
Turning to maintenance.
When the pandemic hit we recognize that occupied maintenance would never be the same.
In fact, our services would be more important than ever with our resident spending so much time at home.
We quickly adapted our mobile services technology to adjust to the changing safety requirements, which included the addition of health and safety checks for both our residents and our technicians.
This enabled us to keep our maintenance programs on track and we were able to continue to deliver excellent service and this changing environment.
We finished the quarter with no backlog of work orders at our residents recognize our service levels as our customer satisfaction scores reach all time highs.
One of the convenient features that are residents appreciate is our innovative utility management program.
Which allows them to avoid the hassle of utility activation when they move in.
From our perspective, the program facilitates the turnover process and gives us visibility into usage and our residents' ability to pay.
As I mentioned earlier, we saw cobot related increase in bad debt related to resident utility reimbursements in the second quarter.
Additionally, we experienced above average levels of H.B.C. system replacement.
Due to abnormally high Hvdc usage during stay at home orders.
This resulted in an estimated $1.3 million of incremental H.B.A.C. capital expenditures within the second quarter of 2020.
Which $1.2 million related to the same home portfolio.
Turning to dispositions, we sold 216 homes in the second quarter for approximately $48 million.
At the end of June.
We have 948 homes held for sale.
Closings in July continued to be strong because we sold 91 homes for approximately $20.1 million and have an additional $25 million of disposition that escrow.
In summary, we are excited about the resiliency of our platform and the record demand the single family rental housing demonstrated during the quarter.
We are well positioned to produce strong operating results as we move into the second half of the year.
I'll now turn the call over to Jack.
Thank you, Brian and good morning, everyone.
Four years ago, we pioneered a unique development program to meet the increased demand for single family rentals. This initiative features new home communities located within our existing footprint.
Since then we have become the nation's leading builder of purpose built single family rental home communities. We're building homes and communities that are tailored to the way residents want to lives and are designed to be efficient from a maintenance and management perspective.
Most importantly, these homes fit nicely into our leading property management platform, which drives many of the decisions around design and location.
Our proprietary and meets development program plays a critical role in our three pronged approach to growth that also includes our existing national builder program and our traditional MLS channel.
With control over our development pipeline, we have the ability to build better rental homes and drive consistent growth in various economic cycles. As an example, we've continued to deliver homes without interruption throughout the cold that 19 crisis.
In the second quarter, we added 504 total homes to our platform, including 64, new construction homes delivered to our joint ventures.
440 of the 504 homes were added on balance sheet.
Presenting a total investment of approximately $112 million.
Our am its development program delivered 327 homes. Many ahead of schedule as we were able to successfully accelerate some of our deliveries into our peak leasing season.
Complete our pro portfolio additions 98 homes were delivered through our National builder program and 15 homes were acquired via traditional channel.
Year to date, we have added 1200, 13 total homes to our platform, including 723 homes delivered to our AMITS development program of which hundred 17 were delivered to our joint ventures.
For our consolidated portfolio, we have invested approximately $385 million into our growth programs for the six month period.
This consist of a thousand 96 homes for approximately $285 million.
Approximately $100 million in land and development pipeline investment.
We remain on track to invest a total of $550 million to $700 million into our growth programs for the full year, which includes home addition, land and pipeline investment.
Now focusing on our new communities concept it has been extremely well received.
In fact, all new community homes that were delivered in the second quarter are now 97.8% lease.
We are providing a truly unique product that people love. In addition to the dependability of delivering new homes through our development program. There are several attributes that make this our preferred growth channel.
Yeah, I am H. developed homes are desirable deficient and durable.
Our communities offer amenities like clubhouses pools, playgrounds, and landlord provided landscaping designed to create a dedicated pleasing neighborhoods.
Our developed homes are created with the modern lifestyle in mind, featuring open concept floorplans granite countertops stainless steel appliances luxury vinyl plane flooring multi car garage is and our constructed for long term efficient maintenance.
We recognize the one of the benefits of operating our own home development function is that we're able to adjust quickly to emerging trends. For example, we are adding officemax and some new home designs to support residence increased need for remote working spaces.
The superior quality homes translate into premium yields and margins.
Good for us and good for our Red.
Now in its fourth year, our development program has adopted a consistent cadence of delivery for new home communities earlier. This week, we announced our 51st community and we're already seeing strong demand for these new homes.
Finally, our development platform is on track to deliver between 13 and 1600, new homes. This year on a full year basis, which a thousand to 1200 of these homes, representing $250 million to $350 million in total investment will be on the balance sheet with the remainder going into our joint.
Ventures.
Now I will turn the call over to Chris.
Thanks, Jack in my comments today I'll cover three areas.
One a brief review of our operating results, including a summary of how the pandemic impacted our second quarter earnings.
To update you on our balance sheet and liquidity position in three conclude with some wrap up thoughts around our business in operations and the ongoing cobot 19 environment.
Starting off with our operating results for the second quarter 2020, we generated net income attributable to common shareholders, a $15.4 million or five cents per diluted share.
On Oh shared unit basis during the second quarter 2020, we generated 27 cents of course that though and 23 cents of adjusted FFO, which compares to 28 cents and 25 cents during the second quarter of last year, respectively.
As disclosed in Yesterdays earnings release in supplemental information package. Please keep in mind that this quarter's financial results do not reflect any add backs or exclusions for the negative impact of the code at 19 pandemic in particular, the quantifiable negative impact of the Cobot 19 pandemic included in our.
Core FFO for the quarter was $9.4 million or three cents per FFO share in unit comprised of $7 million increased bad debt and rental revenues $1.9 billion, a bad debt on tenant utility reimbursements and approximately $500000 increased costs associated with it.
Enhanced cleaning in safety protocols.
Additionally, keep in mind that this quarter's financial results also reflect the impact of our various socially responsible policy decisions such as the leading up late fees and month to month lease premiums and offering a slight increases on newly signed renewal leases that were expiring throughout the second quarter.
Lastly, with respect we're operating results as we discussed last quarter I'd like to remind you that we've taken a conservative approach to recognizing revenue amidst the uncertainty of dependent.
The second quarter of 2020, we recognize the revenue on 96.5% of our rental buildings all of which has been collected in cash through the end of July without the accounting application of any existing residents security deposits or adjustment for deferred payment plans.
Which means as we continue to work with each of our delinquent residents on a case by case basis and pursue collection of their remaining balances additional second quarter collections will be recognized incremental revenues to future earnings.
Next I'd like to turn to our balance sheet, the key differentiator, which continues to position us for both resiliency throughout the pandemic an outsized growth is the need in demand for high quality single family rental housing across our country has never been clear.
At the into the second quarter, we had approximately $3 billion, a total debt with a weighted average interest rate of 4.2% in a weighted average term to maturity of 12.1 years.
Our net debt to adjusted EBITDA was just five times well below our internal leverage target a five and a half times and as a reminder, you don't have any debt maturities other than Berkery principal amortization until 2022.
Turning to our liquidity profile, which continues to remain strong at the ended the quarter, we had $32 million a cash on hand in $130 million outstanding on a revolving credit facility, which provides for total revolving capacity of $800 million. Additionally, during the quarter we generated approximately.
$64 million of retained cash flow, which we defined as adjusted funds from operations. After common distributions and sold 216 properties generating $48 million of net proceeds.
Throughout the month of July we continued to experience resilient collections similar to the second quarter in sold an additional 91 properties generating $20 million of net proceeds and at the end of July we had approximately $66 million a cash on hand, and $105 million outstanding under revolving credit facility.
With no weather changes to total debt during the month.
Interact things up.
Despite creating unprecedented levels of global uncertainty the pandemic has firmly reinforced a number of factors that uniquely differentiate our asset class and more importantly, the American homes for it strategy.
First the pandemic a changing the way people want to live with households, migrating away from urban apartments to detached suburban single family homes as they look to de densify from their neighbors and find more space for their families to live work and remote learn.
And when coupled with our best in class mobile leasing technology, which was pioneered by the American homes right management team nearly eight years ago, our portfolio occupancy levels are reaching new record highs.
Second the strategic decision we made in 2016 to begin creating are one of a kind MH development program has never appeared more valuable with a multi year head start. This foresight has positioned us for unique outsized growth as the only company in our industry with an integrated operating in development.
Hi for delivering high quality purpose built single family rental homes at a time when demand has never been stronger.
And third we continue to have the only investment grade balance sheet in our sector, which took us in years to cultivate and when combined with our strong retained cash flow profile becomes a unique competitive advantage to Accretively fund our growth programs and ensure we continue to see whether the code that 19 pandemic in before we.
Open the call to your questions, we'd like to wish everyone's family's health and safety. During this time and again say thank you to our teams across the country. It's because it's your hard work and dedication that we at American homes for rent and been able to continue providing without interruption over 50000 American households, with the safety and comfort.
At home, which had never been more important than now that concludes our prepared remarks, and we'll now open the call to your questions operator.
Thinking at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one of your telephone keypad.
A confirmation from the indicate your line is in the question Q You Me press star to if you'd like to remove your question from the Q for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star <unk>.
Our first question comes from the line of Nicked Okay.
Please proceed with your question.
Thanks, I appreciate the color on the demand drivers that you're seeing then I know you mentioned in your new residents survey seen an increase of people moving from apartments, the single family rental.
Curious, if you're seeing any trends across different markets charters apartment rankers or previous partner renters movie within the same market are you seeing kind of more mobility and people being between markets I just want to get some more color on on your direct or surface.
Hi, Nick it's Brian.
We look at the applicant.
Pool, well look at from a couple different perspectives.
First of all where they're coming from in terms of type of housing, which has the multifamily piece that we talked about before and that was a clear trend that there was a big migration from multifamily into into our single family homes.
The second piece was the out of state and not have area component.
And probably the most dramatic.
Data that we've seen there is the coastal movement. So if you look at movement outside of California for example.
We saw over a 50% uptick and movement from California to Boise.
15% of uptick and movement from California to Nevada, that's year over year. So we're seeing some nice migration from the West Coast and then if you flip it to the East Coast. We saw some dramatic increases and movement out of New York into Florida and into North Carolina. So we're seeing some pretty good moving that ties.
Unless the narrative and kind of the intuition and somebody other pieces that we talked about.
When you start to talk about movement within market, we have seen some movement outside of the city core, but it's a little bit more difficult to measure, but our data is real solid on the on the state to state migration.
Thanks, That's very helpful. And then maybe Chris just on the Baghdad appreciate the conservative policy wouldn't count security deposits or how does that change the equation sort of protection do you have to already off from a security deposits standpoint relative to the bad debt.
Got you wrote off this quarter.
Yeah. Thanks, Nick Good question on the balance sheet. So general policy is that we typically have one month, sometimes a little bit more than that in security deposit on each one of our tenants.
As a b ended the second quarter, we just about $90 million a security deposit cash on the balance sheet, which as a reminder, none of which has been applied.
For accounting purposes in calculating above our bad debt and then Nick what we're on the topic.
I want to reiterate a couple of points for people from an overall bad debt perspective.
Just keep in mind collections are tracking really well as a reminder, I just mentioned this in my prepared remarks, but through July be collected 96.5% of our second quarter Billings July and August are tracking very nicely very similar to the second quarter and keep in mind, the bad debt policy and approach we've taken this quarter versus.
System with what we outlined on our call last quarter and really the function of just.
Uncertainty and lack of history independent so far and so we've taken a conservative approach.
But very importantly, our teams are out there actively working with every single one of our delinquent residents on a case by case basis pursuing each of the dollars that are still outstanding from the second quarter in there already being successful on collecting some of those into the third quarter and so when those dollars are received they'll be recorded as incremental revenue in that period, but.
Just been prudent and cautious on the timing of when it's recognized and I think the key word to keeping in mind here is tiny.
Thank you, ladies and gentlemen, and the interest of time, we ask that you need to keep to one question and one follow up. Our next question comes from the line of Rich with Morgan Stanley. Please proceed with your question.
Hey, Chris I want to follow up on your comment about bad debt and make sure I was fully understanding.
How your policy and how you account for it.
So my understanding is that you account for all the rent, but you did not collect.
Cash and then as a result.
Any future collections.
So well.
There will be recorded.
In future quarters is is that correct.
Well, let me clarify one thing so art or approach to two calculating bad debt are always has been in continues to be to evaluate each tenant on a case by case basis and recognize revenue and bad debt if necessary based on the likelihood of collection. It's just that for purposes of the second quarter Weve take.
In a conservative approach to those estimates in the accrual that we originally booked in the quarter has now been fully collected in cash by the end of July. So just wanted to clarify that beginning part and then the second part is absolutely correct.
Think of it this way any dollar that is collected from August one on works that relates to the second quarter will be treated at incremental revenues in the period that its book or sorry receipt.
Understood. So just one.
One caveat to that or one clarification to that isn't affect me, saying that anything that's more than 30 days delinquent.
You automatically write off as bad debt.
No. We don't have a hard and fast 30 day or 60 day policy again, it goes down to individual payment patterns at the tenant level. So I wouldn't think of it as binary like that.
Thank you. Our next question comes from the line of handle things just with Mizuho. Please proceed with your question.
Hey, guys.
So.
It sounds like the operating strategy from here and take advantage of your all time high occupancy.
And favorable demand is about lines to push rent more aggressively deeper into the year into the fourth quarter.
You mentioned with I found in treating there could be the goal.
First of all the winter is occupancy retention. So understanding of all go to optimize revenue I guess I'm curious how much occupancy could you be willing to forego as you push rate or perhaps if you think you can see the push rate and maintain your current levels of occupancy. Thanks.
I handle it's Brian.
Good question that this is a unique position that were in going into the third quarter was phenomenal momentum we start to see slowdown generally a in August and September with families going back to school kids going back to school, but we're not seeing that this year. So we're in an excellent position occupancy wise there.
Demand is phenomenal if you look at the Delta on demand.
That I talked about in the prepared remarks regarding June it continued to accelerate into July.
Our applications per rent ready property in July were up 50% year over year and 30% sequentially. So we're seeing just phenomenal demand we're gonna if we're going to capitalize on that by.
Maintaining high occupancy and pushing rate were generally what we might back off going into the ended the third quarter I'm hopeful that we can maintain these occupancy levels and how to translate into into better releasing rate growth.
Clement activity more into 2021 as a result of the the strong demand. But then also curious on me B. What's your thing on the cost side and how that might be it back to meals.
Thanks for the question handle.
Yeah R. A.
When you say costs coming down the cost came down a bit.
In March and April and then when the builder saw the <unk>.
Demand actually increasing versus.
Versus going down they picked up their building and they picked up their land purchasing so I wouldn't expect cost to come down in fact.
Probably seen record lumber prices.
Which probably ads three or $4000 per house.
Won't affect the yield significantly but.
But it does add to the cost.
We have seen some cost savings in other areas.
Kept building through the pandemic. So I think we got some pretty good traction with a lot of the suppliers and subcontractors.
That we're going to.
Keep going no matter what.
And then when you talk about weird plan to continue to grow are pipeline in our.
Our production through 2021 and beyond.
But what were purchasing now and land unless we're buying.
Vacant developed already develop lots is really for 2022 production may be the end of 2021.
So.
I wouldn't expect anything we ramp up now in terms of land purchasing that to hit us until 2022.
Thank you. Our next question comes from the line of data mining Mosquito PW. Please proceed with your question.
Hi, everyone. This is Ryan on Virginia, Thanks for taking the questions I.
I wanted to get your updated thoughts on the company's technology, specifically the property management platform.
At this point would you characterize it as a proprietary and type of technology or is it mostly a hybrid of services providers by third party vendors like are you already.
Hi, Brian This is Brian.
It's a good question, it's a little bit of a combination.
Many of you know we do Youse you already is our backend accounting system.
But the system is as a whole is proprietary we've had we have custom applications that we built.
<unk> integrated other third party software solutions, it's a bit of a combination, but the real value to the system is how well it's integrated.
If you take the example.
If you take the example of our leasing platform.
Let yourself in technology, we've been using that since 2013.
And the value of that program is how well it's integrated into our leasing teams.
One of prospect tours of home.
One of our leasing team members is immediately assigned that particular prospect and can provide excellent service.
Digitally or via phone depending on what the the prospects preferences. So I think the value in the system. There are some some third party applications that have been integrated there are some custom applications, but the real value is and how well seamlessly integrated.
Something that we're continuing to work on and.
Utilizing kind of the backend foundation of you already.
Okay, Brian Thanks, a lot.
Ryan It's Dave Let me just add one thing to it that proprietary site.
Is.
Brian indicated and prepared remarks, we were able to pivot very quickly on our maintenance programs.
During the last three months.
As we indicated.
The last call the prior quarter.
As we entered into the pandemic I guess it was at a conference as we entered its pandemic, we did slow down maintenance, but we were able to.
Retool the development or the technology platform quickly.
Get the P. P N E and serve all of our residents in a timely manner. We ended the quarter with no backlog in our maintenance.
As a result, so the technology is very flexible and nimble, it's proprietary and that's how we react as fast as we can.
Great I appreciate I appreciate all that color and then.
With the increasing demand for a single family housing that we're seeing.
Are you interested in pursuing additional JV opportunities.
To expand into maybe adjacent home types of markets in order to further scale.
The business overall.
Yeah, Brian date.
This one.
You're 100% right the demand as extremely strong.
For a single family rentals and the opportunity to provide additional.
Additional inventory, whether it's through our development program, which is our primary desire because of the superior economics that we get out of it or to supplement it through national builder inventory or even the MLS inventory is something that we're looking to do.
Jack talked about.
Ramping up the development program, we are looking to acquire born more land, we've ramped up on land acquisition program. It will have more benefit and the ladder part of next year in more than 2022, but <unk> also we are in discussions with a number of national homebuilders to supplement as well whether we.
Take them on our books.
Directly or three joint ventures will determine that when the opportunity Sir.
Thank you. Our next question comes from the line of Jeff Specter with Bank of America. Please proceed with your question.
Great. Good morning, Thank you I guess, one follow up to that topic.
On markets.
Based on the strong demand and <unk>.
Surveys applications are there certain markets that are surprising you when you're seeing move in trends.
Markets that you are considering to enter any changes from your prior strategy on markets.
Hi, Jeff It's Brian.
When you look at the individual markets I think the takeaways there's some.
Markets. Some changes that you would expect and the current environment.
There's been a little bit of softness in Las Vegas because of tourism.
But across the board, we've just been really impressed with the high level of demand.
Within the existing footprint and what I really like about it too is we have great portfolio diversification. So we're not so.
Relying on one particular market or relying on a particular industry and its effect on that market.
From the side of what's been maybe.
A little bit surprising.
We have seen.
Really good payment from the Orlando Orlando market really good collections.
Get a little bit of softness and occupancy.
The Las Vegas market has been has recovered completely from a slight depth at the beginning of the crisis too to post really strong occupancy numbers towards.
June and July, which I think as evidenced by the Interstate migration.
So I think things are moving along.
As we would expect on the on the market by market side, but with strength almost across the board.
Jackie this is.
Jeff. This is Jack I would also add to that that we chose we're basically growing and 15 markets that we.
Have done a lot of work on the demographics, including.
Including population growth and.
And.
Job growth, so we really like those markets the best but we keep monitoring.
The demographics and our other 20 markets to see if maybe we should add.
Growth to those also.
Thank you and my second question I'd like to focus on the work from home, it's given it's such a key topic.
And clearly.
The demands and applications you mentioned one of the.
Positives of your product is let's say that extra room to work from home I guess can you provide any details on.
Your current renter base, how many are actually working from home on the applications. Her website traffic like can you talk a little bit more about that and just trying to get a feel for how permanent just shift is.
Yes.
It's difficult to.
To quantify exactly but I mean, we have to stay at home orders and most of our markets.
And so the vast majority of people then would be would be working from home.
One of the things that was interesting is even prior to the pandemic we built.
<unk> for example outside of Seattle that had.
Relatively long commute to the core but the demand was incredible when we put the new units up.
It was immediately filled up we were very excited about.
The demand levels, and we took a very close look at.
There are prospects and ultimately residents were working.
And these were characterized by technology employees, who were either working remotely entirely or spending one day commuting into the Amazon or Microsoft offices. So we saw the trend before code even started.
And then once Cove it hit it really really accelerated some in some cases by by law.
But I think there are some trends that will end up being permanent if you look at the news.
Around Google Google's working home through middle of next year.
Zillow made the announcement up and up in Seattle kind of a.
Tech real estate company, so we're seeing a pretty big trend.
I think you're going to see.
A lot of big portion of this work from home component staying so it plays really well into our place nicely into our strategy is Jack mentioned, it's affecting how we're designing the homes and some of our model.
Lay out and plans.
But we are benefiting from having that extra space.
Extra bedroom and the feedback from the from the prospects over the past few months has been.
Very high preference for that extra space.
Thank you. Our next question comes from the line of Buckhorn with Raymond James. Please proceed with your question.
Yeah, Hey, thanks, good morning.
I was wondering if you could go through maybe the economics of operating an entire community that you purpose built for yourselves.
How did the economics, an operation of that differ from if you're maybe doing a smaller part of more infill homes in a market <unk>.
<unk>, what what the economic differential is if you're buying.
Some units from a national builder, maybe in one of their Masterplan communities, how how did how does the numbers differ between those types of development.
Yes, hi, but good question.
In terms of.
The maintenance.
When we buy from national builders versus when we build them ourselves.
A lot of cases, when we bye bye from National builders really two ways, one where we.
Have a size sizable enough order, where we can dictate the specs.
In that case.
The maintenance isn't tremendously different or we buy when they're doing quarter closeouts or.
Where they want to sell existing product.
At some discount to us.
In those cases it'll be.
Kind of a hybrid between are typical purchases and.
And.
R R new homes development as far as communities large community of say 82 100 versus.
20, lots and and Phil location.
I wouldn't say, there's a tremendous amount of difference is clearly some.
Some ability to especially during lease up to have somebody at 115 unit.
Development and that will facilitate that getting least up.
It's just what we are able to do on the larger.
Really 20 and above.
We were able to do the landscape maintenance, which keeps everything looking fresh and new and so that.
It's a big benefit to us.
Yeah.
If I could just add a couple of things too.
The larger communities, especially when we're facing in the deliveries give us some really nice pre leasing opportunities visibility into exact dates when when homes will be delivered we're still working through that program, but I think that there's going to be a lot of upside on that going forward.
And then finally another thing that we've been working on that I think is facilitated by the larger communities.
Opportunity for ancillary revenues surrounding connectivity.
And some smart home features that are more difficult to apply to the to the regular portfolio of disparate assets. So we're working on some some technology there that I think it'll be very valuable to the residents.
Hey, bucket Staib, you'll get all three of us on this one.
So.
Let me just contrasts.
Your question the national builder to our in house development, because the benefits that Jack and Brian outlined are absolutely true on the operation side much better for.
The maintenance side as a result, because we are building them.
With maintenance in mind.
Let's see benefits are also on the investment side.
For us to build we can build a better home at a lower investment costs to us we're not paying the developer is development profit. There is no sales and marketing costs that needs to be incurred and paid to the developer and so we are getting a better at home.
With better economics, because a better maintenance, but also because the lower investment when we develop a home ourselves.
Perfect really appreciate all that that's great color.
The second question on renewals and I'm wondering if you could provided a little bit.
How you were thinking about pricing renewals what kind of offers do you have outgoing into maybe September and October at this point, how are you thinking about ramping up the renewal increases from here.
Hey, buckets, Brian. So we went out flat as you know in July and then and started.
Instituting increases for August.
Didn't do it in every market there were a couple of markets, where we had some softness that we we really wanted to kind of tests, the environment and get more information as to.
Whether people are going to be economies, we're going to be opening up or whether there was good news coming.
We got some additional confidence in operations to to continue to push those rates into.
September October and November and.
Although we're not back to kind of pre covid levels were moving in that direction. So September for example had increases in all markets on average and as you move into the.
October November timeframe, I think you can think of it in terms of.
Offers and the high 3% range.
Thank you. Our next question comes from the line of Dennis Haga with credit to me. Please proceed with your question.
Oh, Thanks, Chris first off thing.
So it's kind of the one time.
Impacts this quarter.
Can you talk about kind of how those are going to progress over the next quarter or to kind of based on.
Where we are in reopening and various that Ah.
Rules and regulations.
Sure, let me kind of colgan back out for you again.
The three largest components.
The first two really.
Coming down too.
Collections impacting both who rents and then obviously hour charge backs and expenses as well.
I think it's a function of how collections training from this point forward as I shared or as we all Sheridan are prepared remarks.
July as tracking very.
[noise] nicely similar to a second quarter in the beginning of August is as well.
But from this point forward I think it's going to be function of how collection continue to trend also recognizing that we should be seeing some benefit and are expecting already beginning to see some benefits from recovery of our of our second quarter.
Standing receivables.
We took a conservative position on from our revenue recognition standpoint in the second quarter. So I think it's gonna be relevant continue to watch collections to rent and then also charge backs.
But it's going to be a function of the ongoing collections environment, but as I mentioned as tracking well so far but there's still uncertainty ahead of us as well.
Okay.
Thank you. Our next question comes from the line of John <unk> with Green Street advisers. Please proceed with your question.
Hi, Thanks for the time.
The bill to rent pipeline, the economics of it or going well into the total port portfolio I'd, just like to better understand case studies and project level economics of when things go wrong, because I think it's important as the pipeline ramps to understand the risk behind it. So could you give some color Jack or Brian.
When communities go sideways and you guys by what margin or your yields missing original underwriting and how slow or at least have pieces.
For the projects that are kind of laggards within the pipeline what does that look like.
Hi, John This is Jack thanks for the question.
We haven't had very many goes sideways we've had.
When you say sideways <unk>.
<unk> had some go where we had we had over over underwritten our rent's by 10%.
And.
So we haven't really had any significant.
Blow ups and expenses, but.
I'd say, we've we've had two or three projects that I think once they got least up.
Where the rents were 10% lower.
Then we expected once we've had some are there 10% higher so they kind of balance out.
But once they get least up then you start bringing the rents back to normal and like one of the things that we.
Did in the beginning that was.
My mistake.
As in some cases, we were building.
From back to front instead of front to back well that that requires the.
The potential resident and the resident to drive through a lot of construction traffic. So.
And those cases, where we made that are they least up slowly and we kind of had pioneer pricing for people who are willing to put up with that.
But but once.
Once they got least up.
Rent started going back right up to pro forma.
We're pretty good and underwriting stuff.
Okay, Great and then the.
Roughly 5000, a lots that'll deliver beyond this year.
If you dropped opinion, all those homes and there's lots how would the kind of some market kind of demographics density location compare versus recent vintages.
Compare.
Almost exactly the same on where we work with.
Brian who property management when we're.
When we're choosing our sites and make sure he's happy with.
The overlap of with existing product.
And.
When we expect to deliver these and.
And so we're not going.
Far if at all past our footprint.
And the other night, John is we're able to control the delivery cadence to match the demand expectations.
So it's really nice it effects.
When and how much we're getting and a particular marketplace. So we're real thoughtful on that as well.
Yeah, Hey, John It's Dave again will get three comments on this one one other thing keep in mind as when you have 15 markets that you are doing construction in.
And.
Think about 5000, it may sound like big number better on a per market basis, we're talking 300 homes.
And.
As we continue to ramp up.
5000 next year.
5000 is over next year and the following year.
So it won't be 300 next year, but 300 and the market is easily absorb the whole and as we continue to ramp up this program and get over 5000 deliveries.
The band is there and having enough markets to spread it over.
Sure is that you're not going to negatively impact yourself.
Thank you. Our next question comes from the line of Dennis Mcgowan with all my name.
Please proceed with your question.
Hello, Thanks for taking my question.
First of all I think it would be for Chris can you on the 92% of July collected in July and you tell US a year ago July was that's all set to clarify.
Oh.
Good question I don't have exactly a year ago off the top of my head.
But keep in mind you can use.
Second quarter as a proxy of what we've collected there at this point in July through the end of July we're tracking it over 99% of second quarter levels.
And second quarter would be about 300 basis plain Hello second quarter 19.
Okay.
No keep in mind that bad that typically runs 9200 basis points, but also the other thing to keep in mind here that.
Payment times in cycles had elongated a bit so I don't think it's perfectly fair comparison to look at.
July in July compared to a year ago, and I think it's more relevant to look at how we're tracking against the second quarter and recognized it as I said payment cycles have elongated a bit and so I will provide another update as we get further into the quarter, but so far I think we've been real pleased with payment.
Patterns and.
Experience so far.
Okay, I'll I'll I'll follow up on that because.
Second question is your thinking about Avenue located in but you talked to a few minutes ago stretching out to October and November and just maybe also thinking about what you're seeing as far as credit quality African credit quality on the application like you also noted how are you thinking about the potential of.
Having a weaker environment with stimulus pulling off and the uncertainty that that bring.
Second quarter had a lot of funds out there for people to bridge with and if that were to diminish.
Whether it I'm I'm, a resident base or the applicant how would you manage that with potentially renewals right in until weaker.
Backdrop.
Dennis This is Brian we're paying very close attention to what's happening in the markets and and we're pricing renewals I gave kind of broad ranges, but we're pricing renewals down at the neighborhood level.
We don't have 100% clarity into how much government assistance is flowing through our residents now but.
Couple of points that I want to make.
Our resident base and the collection trends that we've seen through covered.
It's very stable the incomes are high over 100000.
Majority of the households have dual earners.
Income to rent ratios is very high and we've got very good portfolio diversification too. So we're watching it very closely but with the level of demand that is in the marketplace for the new product, which would imply very limited supply we're confident that our our residents will hold up.
Well.
But we're cautiously confident and we're paying very close attention to it. So in the event that there were other shocks to the system. We would we would work with the residents for a good resolution to keep them in homes.
Thank you. Our next question comes from the line of Tyler Batori with Danny Capital markets. Please proceed with your question.
Good morning, Thank you.
One question for me on turnover and retention.
Trends in those metrics I've been quite good but any sense how much the pandemic is driving that more recently and additionally, your comments on demand or obviously, encouraging but any thoughts about whether there could be some pent up desire to move out once we get past the pandemic, especially given bow mortgage rates and.
Increases that are going to be coming on the renewal side of things as well.
Hey, Tyler this is Brian.
We look at the changes Dakota induced changes, it's kind of an acceleration of people really understanding the value proposition of the while located single family home. So we've talked at length today about the uptake in demand people coming from multifamily people migrating from maybe the higher cost.
[noise] postal postal states.
There's also the aspect of supply in our markets too so.
Carefully selected our markets to be characterized with.
Hi, employment job growth population growth.
And I think our residents who are in our homes are are really appreciating that as well. So I think it's kind of two pronged the.
Value proposition of our homes as being.
Really appreciated by our existing residents and that's translating into better retention.
Second there aren't a lot of alternatives. If you do want to work from home or have the remote learning for your children.
Any extra space.
Has never been more important so we think thats factoring into the retention peace.
As well.
Okay I'll leave it there thank you.
Thank you. Our final question. This morning comes from the line of Ryan Gilbert with <unk>. Please.
Hi, Thanks, guys.
Sure. It all the details that you provided and the time.
First question for me is just a point of clarification on that bad that expense. So if you've got let's just say that that branch selection trends in three Q.
At a similar pasted <unk> than we would see bad that expense and the third quarter it around that 3.5% range, but the the net effect to court revenue would be much less than than <unk>, because you'd be getting some at the second quarter collections.
Can be back and benefiting revenue is that is that the right way to think about it.
Yeah, it's great.
Politically held all else equal in constant.
That is the right way to think about it but keep in mind one of the factors that has influenced hour conservatism here is just.
Having only three to four months of history with independent mix. So far by the time, we get to be in the third quarter, we're going to have four more monthly data points.
Will help any form hour accrual for that quarter as well. So I think there is a number of different factories, but all else equal you're correct as we continue to collect additional.
Receivable balance is from the second quarter beyond August 1st those will contribute to third quarter revenues that's correct.
Okay, great. Thank you and then.
Second question on the development program.
We are hearing a fair amount of interest from from other parties to increase or I should say to you joined the bill to rent.
Investment idea and I'm wondering if you're seeing it I mean, it doesn't seem like Lisa has been impacted by increased competition, but I'm wondering if you're noticing other players entering the market.
A single family rental development and if that's impacting out of your <unk> or or any sort of impact your you're seeing it any market. Thanks.
Yeah. Good question.
One of.
One of the things I think we mentioned and are prepared remarks, as we started this for years ago.
It's not something where somebody's going to ramp up overnight.
Even if they bought lots today.
<unk> in 2022.
And they're going to go through a lot of learning curve just like we did.
The other part to remember is.
Very few of the ones I here talking about it.
Can match it with a property management platform, that's as advanced as ours, So I think that.
That level of competition, we haven't seen it we've heard a lot of talk about it but.
I don't <unk>.
<unk> hitting us for at least two or three years, if there is.
Thank you ladies and gentleman that concludes our question and answer session I'll turn it off my back to Mister Sandlin for any final comments.
Alright, Thank you operator to.
To close let me just say that.
Remind you single family rental fundamentals remains solid and we have the portfolio. We have the operational platform the growth strategy balance sheet to continue to execute today and emerge stronger in the future.
Thank you for joining us this morning, and I look forward to talking to you next quarter have a good day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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