Q2 2020 Front Yard Residential Corp Earnings Call
[music].
Call at this time all participants are in listen only mode leader School. Good question answer session and instructions will follow that the time if anyone should require assistance. During the conference. Please press Star then zero on her Touchtone telephone as a reminder, these conference calls being recorded I wouldn't rule.
Let's turn to conference over to your host Ms. Lisa.
During its head of Investor Relations. Please go ahead.
Thank you Jim Good morning, and thank you for joining us for front yard second quarter 2020 earnings Conference call. Joining me on todays call is George Alison Chief Executive Officer, Myles Adams Senior Vice President of property operations, and Robin Lowe Chief financial.
Oh officer I'd like to guide everyone to the earnings slide presentation available through the investors section of our website at <unk> YOD residential dot com. These slides were created to accompany our remarks and provide additional information investors may find useful.
I'd also like to inform you that our comments today may contain forward looking statements relating to future performance of our business. The Companys financial results capital allocation and other non historical information. These statements may involve risks and uncertainties that could cause the companys actual results to date.
From materially from those discussed in the forward looking statements, particularly in light of the ongoing Covidien 19 pandemic.
We describe some of these risks and potential differences in our earnings release as wells the company's filings with the FCC, including to form 10-Q, we filed today.
We may also discuss certain non-GAAP financial measures you can find additional information on these measures, including a reconciliation to GAAP within our earnings release and earnings presentation, located any investors section of our web site.
Now turn the call over to George Ellison, Chief Executive Officer George.
Good solution.
Good morning, everyone.
Yeah I wrote it go through with all of you Buck the news trading days those countries in the process of reopening we remain focused on the safety of the families that are home as well as the safety of our teammates around the world.
These are incredibly challenging times, but nonetheless, our teams are willing to determine the committed to the task.
Serving or families and producing results for our shareholders with that said I'm happy to report for the second quarter 2028 was very strong.
The fact that performance improved significantly even compared to our record first quarter.
We didn't do a clear macro trends supporting our business for the pandemic has only accelerated them.
We can see some of that positive impact in our keep your numbers traditionally miles and his team continue to tighten up operations and as good as things are we believe there's still room for improvement.
So let's get into a numbers.
If you look at page four.
A lot of information, but rental revenue of $55 million stabilize rental and alive $33 million.
Stabilize rental core NOI margin of 61.5% core FFO 18 cents per share.
Yes, AFFO nine cents per share stabilize rent growth 4.1%.
Stabilize lease percentage 98.3.
Stabilized rental turn over 7%.
Truly a very strong core.
I'll leave the details to miles, but as we start the third quarter July numbers continue to be strong as well.
The straight the dedication of our team and the resilience of our business.
Page five is our company snapshot compared to a year ago. This quarter's occupancy is up significantly turns are down and blended rent growth remained strong as a result improved on a lot.
Myles.
Thank you George and good morning, everyone.
The second quarter has been a story of continued progress with improvement in nearly every operating metric of our company.
We've hit record highs and occupancy grown rents at an accelerated pace.
Lowered expenses and turnover and improved in a while margins all while facing the ongoing global pandemic.
While we improved our operations it has been and continues to be Paramount that we protect our team members and the families in our homes.
In March we began to take steps to respond to the Kevin 19 pandemic.
Our highest priority was to take significant action to preserve the safety and well being of our employees and residents to.
To that end, we modified the way we interact with residents to limit physical contact limited maintenance to a central work orders and encouraged our employees to work remotely.
To further support our team we've provided our employees with enhanced leave and six Tom policies and additional kind of at 19 paid time off among other benefits.
In addition.
During these unprecedented times, we focused on helping our residents and need to stay in their homes and maintain their health and safety.
To that end.
For Q2, we offered residents payment plans waved late fees and have not pursued remedies for nonpayment of rent under our lease agreement.
Those actions, we're not without cost as it resulted in a reduction in other income and same store revenue growth of approximately 125 basis points.
However, we felt strongly about demonstrating our significant commitment to the social well being of the communities we serve.
The pandemic has also highlighted the value of and demand for our homes.
Our occupancy has increased substantially as since March.
In fact, our stabilized lease percentage rose from 97% at March 30, Onest up to 98.3% by the end of June.
With the average occupied days.
Record high of 96.7% for the month of June.
On a same home sequential quarterly basis.
Average occupied days improved by nearly 200 basis points from 94.3%.
Up to 96.2% for the quarter.
Compared with Q2, 2019, and improved 390 basis points.
As of July 30, Onest, our stabilized leased percentage continue to rise to 98.7%.
And our average occupied days for July climbed to 97.2% for them up.
These gains were driven largely by improvement in our Texas, Midwest and Tennessee markets.
From March to June.
Monthly average occupied days grew at DFW from 92.6% to 96.3% and in Houston from 91.3% to 97%.
For Minneapolis, our second largest Midwest market.
Average occupied days grew 420 basis points to 97.5%.
Thanks, Saint Louis grew 260 basis points up to 96.2% for the month of June.
Average occupied days for our portfolio second largest market Memphis.
Averaged an astounding 97.2% for the quarter.
For the month of June our top 10 largest markets all had average occupied days in excess of 95%.
Growth in demand has accelerated significantly this quarter.
In fact, one key measure of market demand that we track applications received per market at home.
We saw nearly a 100% increase in demand across our portfolio between the end of March as compared with the months of May through July.
Certainly seasonal summer demand does play a part in this increase.
However.
We believe there is a fundamental shift in consumer demand for suburban single family rentals relative to other more crowded housing alternatives that has been accelerated by the pandemic.
We believe with the continued uncertainty due to the pandemic that this shift is not temporary in nature and will continue for the foreseeable future.
While we continue to grow our occupancy we also improved and accelerated our rental rate growth.
Q2 blended rents grew at a rate of 4% up from Q1's, 3.2%.
This was comprised of renewal rent growth of 4.1% and release rent growth of 3.9%.
Which was up substantially from Q1's average release rent growth of 1.4%.
Blended rent growth further improved to 4.7% in July comprised of renewal rent growth of 4.3%.
While release rent growth accelerated further to 5.6%.
Overall, we're very pleased with collection rates given the uncertainty caused by the pandemic.
Although we did see an increase in bad debt during the quarter of approximately 0.6% as a percentage of revenue.
We suspended evictions and assessment of late fees for Q2.
Still June collections at 30 days were 99% of the trailing 12 month historical average may collections at 60 days in April collections at 90 days were in line with the trailing 12 month historical averages.
July collections remained in line with our Q2 collection rates and August is off to a similar star.
With solid collection rates, an increased demand for single family homes retention rates have continued to improve this year.
Even though the number of lease explorations during Q2 represents our highest quarter.
Stabilized rental turnover remained quite low for the quarter and actually fell.
From 7.2% for Q1.
Down to 7%.
We continue to believe turnover will remain lower than normal in the near term due to concerns related to Kevin 19.
This will benefit both physical occupancy rental rate growth and turn costs in the near term.
On a same home basis for the quarter year over year net operating income grew a very strong 8.7%.
Core revenue growth of 5% was driven by 390 basis point increase in average occupied days combined with strong rental rate growth of 4% on a same home basis.
Same home operating expenses declined by half a percent.
As controllable expense net of Chargebacks declined by 7.3%.
Partially offset by 6.2% increase in non controllable expense.
Cost to maintain homes net of charge backs declined by 12.3% over this same period.
Through a combination of additional staff and route optimization, we see an increase in the volume of it now in house performance of war quarters, and turns and a corresponding reduction in cost to maintain our homes.
Prior to the suspension of non essential work orders due to Kevin 19, we were performing approximately 47% of our work orders in house.
As a result of the increased efficiency, our NIM per home declined by 11.1% on a same home basis year over year.
So let's recap.
Demand has increased substantially with applications received for market at home up almost 100%.
Portfolio average occupied days was up almost 200 basis points quarter over quarter at 96.2%.
Stabilized lease percentage is at record levels and was 98.3% at June Thirtyth.
Each of these metrics continue to improve in July the 97.2% and 98.7% at July 30, Onest, respectively.
Blended rent growth is accelerating and improved from 3.2% for Q1 up to 4% this quarter with July coming in at a healthy 4.7%.
Even though we suspended late fees demands and eviction filings collections were strong during the quarter and were consistent with historical performance.
Turnover dropped to 7% for Q2 from an already low 7.2% in Q1.
Even though expirations this quarter were at their peak for the year.
In a while on a same home basis grew 8.7% year over year, driven by revenue growth of 5% and a 7.3% reduction of controllable expense net of charge backs.
To summarize.
This quarter's results reflect a sustained incremental improvement in our key performance metrics and a team that remain dedicated to serving shareholders residence and our communities and the Thomas significant uncertainty.
We look forward to continuing to raise the bar and are excited about the future of our company and industry.
I'll now turn the call over to Robyn.
Thanks miles and good morning, everyone.
Today I will cover the financial results for the quarter touched on off balance sheet can provide an update on the activity in our portfolio.
GAAP net income for the quarter.
It was $4 million, including the 25 million dollar payment received from us during the second quarter.
Rental revenue was $55.1 million up 1.5% sequentially on up 6.9% year on year.
[noise] stabilized rental net operating income was $33 million up 4.1% sequentially and up 9% year on year.
Stabilized rental core NOI margin was 61.5% up from 60% last quarter.
Core FFO was 18 cents per share an increase of six cents over last quarter, an up 13 cents over the second quarter 2019, reflecting the very strong operating performance milestones discussed.
Positive impact of lower interest rates on a flow San cap rate debt.
Lower ordinary course DNA.
The first time this quarter, we're presenting same home metrics.
Same home core NOI margin was 61.6% in this quarter up 1.7% sequentially and 2.2% year on year.
More details on same high performance can be found on slide 13 to 20 about supplemental deck.
Turning to the balance sheet approximately 805 million.
49% financing beside the capital flows tank, meaning that we saw an interest expense benefit juice the recent rate reductions.
In the second quarter, we saw an interest expense reduction of approximately $1.4 million compared to the first quarter.
During the second quarter, we extended on line with credit Suisse for another year 29 June 2021. This is our earliest debt maturity. The next big and 100 million dollar term loan agreement that matures in April Twentytwenty too.
At the end of the second quarter, the combined weighted average times matures you about debt was 4.4 years.
On the weighted average interest rate was 3.46%.
Turning to liquidity at the end of the second quarter, We reported 100, a $9 million of unrestricted cash. In addition, we have access to a further $20 million revolving unsecured credit under the promissory note agreement.
We believe this puts us in a strong position not only to whether any potential short term challenges in our industry, but also to take advantage of any potential attractive opportunities.
During the quarter, we sold 13 noncore homes that did not fit our rental criteria.
Net sale proceeds were approximately $5.9 million with a gain of approximately point $3 million I forgot the carrying value.
Finally on slide 21, we provide details investment cost and home price appreciation by key markets. We believe provide support for a baseline value of our portfolio.
I'll now turn the call back to George.
Thanks, Rob Thanks models.
In conclusion, big truly excellent quarter for front yard residential.
We've seen tremendous progress in our operational performance over the last 12 months and we believe there's room for further improvement given the impact cope with 19 will still have one or both.
On a macro level the fundamentals of single family rental as an investment pieces are stronger than ever and they've continued to improve in the midst of this pandemic. We're now starting to see how defensive business. This is.
Before this was just the theory.
Now it's a fact.
Access to clean safe affordable housing is undeniably important, especially now.
Extremely proud to be able to serve our communities and our motivated by the huge potential that exists in the business going forward.
We look forward to speaking all of you and even more we hope to see you in person soup.
I'll now turn it back to the operator, and we can open up for culinary. Please.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchstone telephone. If your question has been answered or you guys to remove yourself from Q. Please press the pound key.
Your first question comes from the line as Anthony.
How late with JP Morgan you May ask your question.
Okay. Thanks, Good morning, and appreciate all the added disclosure.
In the packet.
First question is when I'm looking at the core revenue picture that you're showing like it looks like your rent growth was 3.6%. Your occupancy was up to 390 basis points you get somewhere in that mid Sevens just from those two numbers combined how do we reconcile that with the 5%.
Our same store revenue growth is the difference the bad debts or what sort of the drag there.
Well, we did spend.
As I mentioned in my remarks, we did suspend the.
Charging late fees that was about 125 basis points and I mentioned about US 60 basis point increase in bad debt.
As a result of the pandemic, so I would say that those two factors account for the difference.
Okay, and so what were the.
You can give the corrections on a relative to history base and the incremental bad debts can can you talk to just like what the.
Nominal figures were for the quarter in for July.
So you're talking about day 30, 60, 90 is that what you're looking for yeah, just how much of say Q2 rents.
Were collected as percentage of what what's built basically.
So very consistently April through July day, 30 were right at that 92% Mark.
You know each month.
Some a little over 92.
But very very tight pattern there at a 60 were in that.
Just shy of 96% and then from a terminal basis or 90, Dave.
Selections for April or right around that 97 and a half.
So that's that's where we are on on those collections.
Okay, and so it sounds like.
Bad debts for the second quarter that you took something around a couple points or a point or two in total.
Right around two and a half.
What I would tell you also is that.
On a net basis are a are.
At June Thirtyth as compared to December 31, actually went down.
We collected.
And or reserved.
More at June thirtyth than than at December 30, Onest, So feel very comfortable that are.
Finance team as appropriately consider the risk of collections and and provided for that.
Well I think the sound, but I think the combo Tony is.
Which is really pretty powerful.
For this asset class is where the started.
Miles Robyn.
We're modeling out with the team what we thought the changes in this.
Metric might be and as you know no one knew what was going to be.
With that two and half going to be five or 10, or 20 or 25, no one knew.
The most powerful news is that.
I would say usually around day 90 seed money stop coming in it's still trickling in past they might be.
As he said April So April was the first month enable actually didnt have a whole lot of help from the checks that sort of coming in at night.
Some states like Florida still below so southern good powerful soundbite is if we hit 2% or 100% bad debt that.
That's a great result.
April 90.
Revenue behalf.
You know very surprising very pleasing, but very surprising.
And made in June and July or August, saying vector.
Got it and I guess on that on there.
Checks coming and what have you all done or what kind of inside if you've been able to gather in terms of the effect of the stimulus checks on your resident base and any change there. So you see those checks like what would you think the effect might be.
Well I'll start the imperative for you, it's very difficult to tell.
Exactly we get that question all the time people say how much of an effect you think who checks have had on your business.
You can't sort of ask people got question directly.
Probably four or so so.
I think we'd all agree that they're incredibly helpful.
Obviously, pushing and shoving going on.
This weekend over over the continuation so I think.
Might tell us something as we move forward.
Is it at 600 200, there's a 300 plus 100 from the state.
As I read about all these different amounts so so.
It is how positive effect I'm sure, we can't really see and took a percentage of how much of the checks to come in or going towards our rent. We just don't know.
So I would say it's definitely been helpful.
But I think as we move throughout the year, which is what the industry and we all still need to be.
Prudent thing cautious is.
Theres going from six to four change things well the same time, there was a pretty positive unemployment report. So so maybe people are slowly getting back to work I think it'll sort of balance out miles would you would you agree with that.
Thats right and the only the only data point that we have thus far as that through day. Our collections are on the higher end of where they've been at that point over the past 12 months even looking.
Back end.
2019 so.
So far so good in terms of August.
As George mentioned, we don't know how the actions that were taken this weekend will play out and what impact that will have.
And when the monies would be received in and what form but.
We're going to continue to reach out to our residents and have a dialogue and work with them as best we can as we did during Q2 and make sure that were.
Doing the right thing for them and for the company.
Okay and then just last question I think probably for Robyn. It's I think you guys called out about $5 million I want to say for just the various expense in the quarter related to dealing or whatnot.
Pull that out is that a fair overhead run rate for the rest of year or anything else. We just think about there.
Yes, I mean, if you pull that out did you see that on slide 11, the laundry costs legal and professional fees Fivethree fivei.
You actually see though.
The normalized she and I actually dropped by about 9% during the quarter. So.
We are very focused on that and continuing to become more and more efficient on all day to day operation. So yes, we're very focused on becoming more efficient in that respect.
Okay, great. Thanks for your time.
Great.
Your next question comes from the line Docklands harder with credit Suisse.
Your question.
Hi, Thanks, I guess, given the combination of the uncertainty we're just talking about.
Feature and collections combined with the improved performance you talk about how are you in the board or thinking about the dividends going forward.
Yes, I think that I was actually.
Sort of.
Segway into a topic or or giving you some foreshadowing on that obviously, the we've been tremendously focused on.
Getting that business type one three numbers still went away and we were starting to get stronger.
Into last years fourth quarter, if you'll remember that's really kind of predicted the third quarter was the low point. So all we are focused on is try to run the business tighter and tighter.
And so obviously that's happening so that's.
Good and that's a good question to get you know the to start thinking about the dividend again I would just say.
Obviously, the board decision, but I would say.
Hi.
Watching how these this whole issue, but I just talked about in terms of stimulation.
People coming back to work and who still getting Chuck I cant figure that we can't see it no one Kim.
No one knows what the Pandemics going to do as we go into colder weather again, so I think it's prudent to still hold off the great news is that.
We're going to start getting that question would be the operations in the earnings are coming I, just think we're probably going to hold off a little bit longer until we see how this year plays out.
Yes, and then sort of like yeah, well along those lines, obviously still have a strong.
Liquidity position now kind of what are your outlooks.
Why not liquidity.
Yes, either through home purchases buying back stock you know kind of what are what are your thoughts on that.
We we always look at the classic.
Two or three things that you just mentioned they're buying back stock.
Paying down debt acquiring things we balance the mall.
As I said I think.
Just as every industry right now is.
Pretty cautious about liquidity and and.
Taking.
Actions to spend money I think it's just.
We're just being very cautiously large shareholders to know what.
It comes along those packages that are out there, there's a pretty significant package that.
Floating around we looked at it.
An example of your which you're alluding to.
And particularly like the locations or the.
Sizable home, which is good fit or when miles were particularly didn't really fit the footprint. We're looking to continue to fill out in markets, where he's already so strong. So it's a good fit so we'll look at everything go we'll keep all options on the table, but I would still say the tone is you know yellow green.
Proceed with caution because we just you just don't know how this thing is going to play out.
Thanks George.
Thank you.
Your next question comes from the line have Jade Rahmani with KBW. Please ask your question.
Thank you very much can you give an update on what's going on with ready and AMC.
Yes, I mean.
We've been pretty.
Opened about that we'll continue to be I mean, we're looks looks like kind of take it from the top our job is to to increase shareholder value.
So the.
We are making sure the businesses running is job one that's good for most importantly, we have to do and obviously that.
Either thankfully going very well so so revisiting.
Outside asset management or internalizing is something I've said, we're clearly looking at and both boards are discussing so so we'll continue to.
Consider.
What needs to be done between the two companies.
And if we're supposed to internalize you know how do we do that when do we do that so.
So we're continuing to look at that it's very very high on our I think I sit on our last calls at the top wireless for things to focus on so.
I would reiterate that obviously, it's pretty much down the road. So so but it is still a top priority for both boards to consider.
And we'll see where that plays out.
Bad debt question.
Can you give that as a percentage of revenue was that asks.
And secondly, do you have any information on what the unemployment rate across the portfolio might be.
So that you cut out there a little bit, but I think you are asking bad debt as a percentage of revenues at the understanding that correctly.
Yes.
2.5%.
Okay, and then you're seeing any in for years.
Yeah on on that limit we haven't we haven't surveyed our residents das them if they.
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About their jobs current job status I don't.
I don't have any data on that that will be correct.
Without without doing a survey I'm not sure how we would know.
Okay, and just lastly, what do you think.
Recurring capex per problem is running at Oh basis.
So we did put in this quarter.
Cost to maintain metrics there.
In the slight compensated.
On slide four scene so.
So that's disclosed and.
On a.
For the quarter on a on a gross and net basis, we're running at approximately 20 724 50.
For a total costs to maintain.
Thanks.
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Now with your last question I'll now hand, the call back to the company for any closing remarks.
Great. Thank you very much thanks, everyone for for dialing in for our team for the job they've done in the field and to put these packages are ratios. So thank you everyone will be speaking to most of the analyst community throughout the day, if we look forward to catching up thanks, everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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Good morning, ladies and gentlemen, and welcome to the Funky article that's a directional corporation second quarter 2020 conference call.
First of all participants are you know listen only mode later, well conduct questioning on first section.
Instructions will follow the that's fine if anyone should require assistance during the conference. Please press Star then zero on New York Touchtone called this out as a reminder, these conference calls being recorded I would know likes during the conference over to your host Ms. Oh you shop.
Jerry set up Investor Relations. Please go ahead.
Thank you your good morning, and thank you for joining us for front yard second quarter 2020 earnings Conference call. Joining me on today's call is George Alison Chief Executive Officer, Myles Adams Senior Vice President of property operations, and Robin Lowe Chief financial.
Officer.
I'd like to guide everyone to the earnings slide presentation available through the investors section of our website at <unk> YOD residential dot com. These slides were created to accompany our remarks and provide additional information investors may find useful.
I'd also like to inform you that our comments today may contain forward looking statements relating to the future performance of our business. The Companys financial results capital allocation and other non historical information. These statements may involve risks and uncertainties that could cause the companys actual results to differ.
Surely from those discussed in the forward looking statements, particularly in light of the ongoing Covidien 19 pandemic.
We describe some of these risks and potential differences in our earnings release as well as the company's filings with the FCC, including the form 10-Q, we filed today.
We may also discuss certain non-GAAP financial measures you can find additional information on these measures, including a reconciliation to GAAP within our earnings release and earnings presentation located in the Investor section of our website.
Now I'll turn the call over to George Ellison, Chief Executive Officer George.
Thanks Felicia.
Good morning, everyone. We had front yard residential wish all you, but I'm just trying days those countries in the process reopening we remain focused on the safety of the families that are home as well as the safety of our teammates around the world.
These are incredibly challenging times, but nonetheless, our teams are remain determined committed to the task.
Serving her family.
Producing results for our shareholders with that said I'm happy to report for the second quarter of 2028 was very strong.
The fact that performance improved significantly even compared to our record first quarter.
We think are clear macro trends supporting our business as a pandemic has only accelerated them.
We do see similar positive impact the Mercury two numbers traditionally miles are those team continue to tighten up operations and as good as things are we believe there's still room for improvement.
So let's get into a numbers.
If you look at page four.
A lot of information, but rental revenue of $55 million stabilize rental and alive $33 million.
It was real core NOI margin, 61.5% core vote 18 cents per share.
That's helpful nine cents per share stabilize rent growth 4.1%.
Stabilize lease percentage 98.3.
Stabilized rental turn over 7%.
Truly a very strong core.
I'll leave the details to miles, but as we start the third quarter July numbers continue to be strong as well.
Straight the dedication of our team and the resilience of our business.
Page five is our company snapshot compared to a year ago. This quarter's occupancy is up significantly turns are down and blended rent growth remained strong as a result improved on a lot.
Myles.
Thank you George and good morning, everyone.
The second quarter has been a story of continued progress with improvement in nearly every operating metric of our company.
We've had record highs and occupancy.
On rents at an accelerated pace.
Lowered expenses and turnover and improved margins all while facing the ongoing global pandemic.
While we improved our operations it has been and continues to be Paramount that we protect our team members and the families in our homes.
In March we began to take steps to respond to the covered 19 pandemic.
Our highest priority was to take significant action to preserve the safety and well being of our employees and residents to.
With that Ed we modified the way, we interact with residents to limit physical contact limited maintenance to central work orders and encouraged our employees to work remotely.
To further support our team we've provided our employees with enhanced leave and six Tom policies and additional covet 19 paid time off among other benefits.
In addition.
During these unprecedented times, we focused on helping our residents and need to stay in their homes and maintain their health and safety.
To that end.
For Q2, we offered residents payment plans waves late fees and have not pursued remedies for nonpayment of rep under our lease agreement.
Those actions, we're not without cost as it resulted in a reduction in other income and same store revenue growth of approximately 125 basis points.
However, we felt strongly about demonstrating our significant commitment to the social well being of the communities we serve.
The pandemic has also highlighted the value of and demand for our halls.
Our occupancy has increased substantially as since March.
In fact, our stabilized lease percentage rose from 97% at March 30, Onest up to 98.3% by the end of June.
With the average occupied days a record high of 96.7% for the month of June.
Our same home sequential quarterly basis.
Average occupied days improved by nearly 200 basis points from 94.3%.
To 96.2% for the quarter.
Compared with Q2, 2019 improved 390 basis points.
As of July 31st our stabilized leased percentage continue to rise to 98.7%.
And our average occupied days for July climbed to 97.2% for them up.
These gains were driven largely by improvement in our Texas, Midwest and Tennessee markets.
From March to June.
Monthly average occupied days grew at DFW from 92.6% to 96.3% and in Houston from 91.3% to 97%.
For Minneapolis, our second largest Midwest market.
Average occupied days grew 420 basis points to 97.5%.
As saying Saint Louis grew 260 basis points up to 96.2% for the month of June.
Average occupied days for our portfolio second largest market Memphis.
Average to astounding, 97.2% for the quarter.
For the month of June our top 10 largest markets all had averaged occupied days in excess of 95%.
Growth in demand has accelerated significantly this quarter.
In fact, one key measure of market demand that we track.
Applications received per market at home.
We saw nearly a 100% increase in demand across our portfolio between the end of March as compared with the months of May through July.
Certainly seasonal summer demand does play a part in this increase.
However.
We believe there is a fundamental shift in consumer demand for suburban single family rentals relative to other more crowded housing alternatives that has that accelerated by the pandemic.
We believe with the continued uncertainty due to the pandemic that this shift is not temporary in nature and will continue for the foreseeable future.
While we continue to grow our occupancy we also improved and accelerated our rental rate growth.
Q2 blended rents grew at a rate of 4% up from Q1's, 3.2%.
This was comprised of renewal rent growth of 4.1% and release Rev growth of 3.9%.
Which was up substantially for Q1's average release rent growth of 1.4%.
Blended rent growth further improved to 4.7% in July.
Apprised of renewal rent growth of 4.3%.
While release rent growth accelerated further to 5.6%.
Overall, we're very pleased with collection rates given the uncertainty caused by the pandemic.
Although we did see an increase in bad debt during the quarter of approximately 0.6% as a percentage of revenue.
We suspended evictions and assessment of late fees for Q2.
Still.
And collections at 30 days were 9% of the trailing 12 month historical average may collections at 60 days in April collections at 90 days were in line with the trailing 12 month historical averages.
July collections remained in line with our Q2 collection rates and August is off to a similar stark.
With solid collection rates, an increased demand for single family homes retention rates have continued to improve this year.
Even though the number of lease explorations during Q2 represents our highest quarter.
Stabilized rental turnover remained quite low for the quarter and actually fell.
From 7.2% for Q1.
Down to 7%.
We continue to believe turnover will remain lower than normal in the near term due to concerns related to Kevin Knight team.
This will benefit both physical occupancy rental rate growth and turn cost in the near term.
On a same home basis for the quarter year over year net operating income grew a very strong 8.7%.
Core revenue growth of 5% was driven by 390 basis point increase in average occupied days combined with strong rental rate growth of 4% on a same home basis.
Same home operating expenses declined by half a percent.
As controllable expense net of Chargebacks declined by 7.3%.
Partially offset by 6.2% increase in non controllable expense.
Cost to maintain homes net of charge backs declined by 12.3% over this same period.
Through a combination of additional staff and route optimization, we see an increase in the volume of et al in house performance of war quarters, and turns and a corresponding reduction in cost to maintain our halls.
Prior to the suspension of non essential work orders due to Kevin Knight team, we were performing approximately 47% of our work orders in house.
As a result of the increased efficiency RM per home declined by 11.1% on a same home basis year over year.
So let's recap.
Demand has increased substantially with applications received from market at home up almost 100%.
Folio average occupied days was up almost 200 basis points quarter over quarter at 96.2%.
Stabilized leased percentage is at record levels that was 98.3% at June Thirtyth.
Each of these metrics continue to improve in July the 97.2%, 98.7% at July 30, Onest, respectively.
Blended rent growth is accelerating and improved from 3.2% for Q1 up to 4% this quarter with July coming in at a healthy 4.7%.
Even though we suspended late fees demands and eviction filings collections were strong during the quarter and were consistent with historical performance.
Turnover dropped to 7% for Q2 from an already low 7.2% in Q1.
Even though expirations this quarter were at their peak for the year.
In a while on a same home basis grew 8.7% year over year, driven by revenue growth of 5% at a 7.3% reduction of controllable expense net of charge backs.
To summarize.
This quarter's results reflect a sustained incremental improvement in our key performance metrics and a team that remain dedicated to serving shareholders residents and our communities Thomas significant uncertainty.
We look forward to continuing to raise the bar are excited about the future of our company and industry.
I'll now turn the call over to Robyn.
Thanks miles and good morning, everyone.
Today I will cover the financial results for the quarter touched on our balance sheet and provide an update on the activity in our portfolio.
GAAP net income for the quarter.
It was $4 million, including the 25 million dollar payment received from us during the second quarter.
Rental revenue was $55.1 million up 1.5% sequentially up 6.9% year on year.
[noise] stabilized rental net operating income was $33 million up 4.1% sequentially and up 9% year on year.
Stabilized rental core NOI margin was 61.5% up from 60% last quarter.
Core FFO was 18 cents per share an increase of six cents over last quarter, an up 13 cents over the second quarter of 29 seed, reflecting the very strong operating performance milestones discussed.
Positive impact of lower interest rates on a floating cap rate debt.
Lower ordinary course gionee.
The first time this quarter, we're presenting same home metrics.
Same home core NOI margin was 61.6% in this quarter up 1.7% sequentially and 2.2% year on year.
More details on same high performance can be found on slide 13 to 20 about supplemental deck.
Turning to the balance sheet approximately 805 million.
49% financing side, the capsule floating meaning that we saw an interest expense benefit juice the recent rate reductions.
In the second quarter, we saw an interest expense reduction of approximately $1.4 million compared to the first quarter.
During the second quarter, we extended on line with credit Suisse for another year 29 June 2021. This is our earliest debt maturity. The next picking the 100 million dollar term loan agreement that matures in April 2022.
At the end of the second quarter. The combined weighted average times matures you about debt was 4.4 years and the weighted average interest rate was 3.46%.
Turning to liquidity at the end of the second quarter, we reported $109 million of unrestricted cash. In addition, we have access to a further $20 million revolving unsecured credit under the promissory note agreement.
We believe this puts us in a strong position not only to whether any potential short some challenges in our industry, but also to take advantage of any potential attractive opportunities.
During the quarter, we sold 30 noncore homes, the did not fit our rental criteria net sale proceeds were approximately $5.9 million with a gain of approximately point $3 million I forgot the carrying value.
Finally on slide 21, we provide details of investment cost and home price appreciation by key markets. We believe provide support for a baseline value of our portfolio.
I'll now turn the call back to George.
Thanks, Rob Thanks Wells.
In conclusion, big truly excellent quarter for front yard residential.
We've seen tremendous progress in our operational performance over the last 12 months and we believe there's room for further improvement given the impact coded might be we'll still have one or both.
On a macro level the fundamentals will single family rental as an investment pieces are stronger than ever and they've continued to improve in the midst through this pandemic. We're now starting to see how defensive business. This is.
Before this was just a theory.
Now it's a frac.
Access to clean safe affordable housing is undeniably important, especially now.
We're extremely proud to be able to serve our communities.
Motivated by the huge potential that exists.
Business going forward.
We look forward to speaking all of you and even more we hope to see you in person soup.
I'll turn it back to the operator, and we get it open book for culinary. Please.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Thats still telephone. If your question has been answered or you guys to remove yourself.
Can you please press the pound key.
Your first question comes from the line.
To me.
Alan with JP Morgan you May ask your question.
Okay. Thanks, Good morning, and appreciate all the added disclosure in the packet.
My first question is when I'm looking at the core.
Revenue picture that you're showing right. It looks like your direct growth was 3.6%. Your occupancy was up to 390 basis points. So you get somewhere in that mid Sevens just from those two numbers combined how do we reconcile that with the 5%.
Same store revenue growth is the difference.
The bad debts, or what sort of a drag there.
Well, we did spend.
As I mentioned in my remarks, we did suspend the.
Charging white fees I was about 125 basis points that I mentioned about US 60 basis point increase in bad debt.
As a result of the pandemic, so I would say that those two factors account for the difference.
Okay, and so what were the.
You can do you have the collections on a relative to history. This in the incremental bad debts can can you talk to just like what the.
Nominal figures were for the quarter in for July.
So you're talking about day 30, 60, 90 is that what you're looking for yeah. Just how much of say Q2 rents were collected as percentage of what what's built basically.
So very consistently April through July and day 30 were right at that 92% Mark.
Each month.
Some a little over 92.
But very very tight pattern there at day 60 were in that.
Just shy of 96% and then from a terminal basis or 90, Dave.
Elections for April or right around that 97 and a half.
So that's that's where we are on on those collections.
Okay, and so it sounds like.
Bad debts for the second quarter that you took something around.
A couple points or a point or two in total.
Right around two and a half.
What I would tell you also is that.
On a net basis are a are.
At June Thirtyth as compared to December 31st actually went down.
We collected.
And or reserved.
More at June thirtyth than than at December 31st So feel very comfortable that are.
Finance team as appropriately consider the risk of collections and and provided for that.
Moving to sound, but I'd like to Soundbite Tony is.
Which is really pretty powerful.
For this asset class is where this started.
Miles Rob.
We're modeling out with the team what we thought the changes in those.
Patrick might be.
As you know.
No one knew what you're going to be.
With that two and half going to be five or 10, or 20 or 25, no one knew.
The most powerful news is that.
I would say usually around big nine you seed money stop coming in.
Bill trickling in past they might be.
As you said April So April was the first month enable actually didnt have a whole lot of help from the checks that sort of coming in may.
Some states like Florida still below so so I think the powerful sound by those if we hit 2% or 100% about.
That.
That's a great result.
April's at 97 and a half.
Very surprising very pleasing, but very surprising and.
In June and July or on the same vector.
Got it and I guess on that on there.
Your next coming in.
What did you all done or what kind of inside if you've been able to gather in terms of the effect of the stimulus checks on your resident base and any change there ceasing those checks like what would you think the effect might be.
Well I'll start the imperative for you, it's very difficult to tell.
Exactly and we get that question all the time people say how much of that affect you think checks have had on your business.
You can sort of asked people got question directly.
Probably four or so so.
We'd all agree that they're incredibly helpful.
Obviously, there is pushing and shoving going on.
This weekend over over the continuation so I think.
That might tell us something as we move forward.
Is it at 600 200 is.
300, plus 100 from the state.
As I read about all these different amounts.
So so.
It is how positive effect I'm sure we can't really see given to carry a percentage of how much of the checks come in or going towards our rent. We just don't know.
So I would say it's definitely been helpful.
But I think as we move throughout the year, which is what the industry and we all still need to be.
Prudent been cautious is.
There is going from six to four change things well. The same time, there was a pretty positive unemployment report. So people are slowly getting back to work I think it'll sort of balance out miles would you agree with that.
Thats right and the only the only data point that we have thus far as that through day. Our collections are on the higher end of where they've been at that point over the past 12 months even looking.
Backend.
2019 so.
So far so good in terms of August.
As George mentioned, we don't know how the actions that were taken this weekend will play out and what impact that will have.
And when the monies would be received in what form but.
We're going to continue to reach out to our residents and have a dialogue and work with them as best we can as we did during Q2 and make sure that were.
Doing the right thing for them and for the company.
Okay and then just last question I think probably for Robyn I think you guys called out about $5 million I want to say for just the various expense during the quarter related to deal and whatnot.
We pull that out is that a fair overhead run rate.
For the rest of year or anything else, we just think about there.
Yes, I mean, if you pull that out.
On slide 11, the laundry costs legal and professional fees Fivethree fivei.
You actually see though.
Normalized and I actually dropped by about 9% during the quarter. So.
We are very focused on that.
Moving to become more and more efficient on all day today operation. So yes, we're very focused on becoming more efficient enough respect.
Okay, great. Thanks for your time.
Thanks, Tony.
Your next question comes from the line has Douglas Harter with Credit Suisse. Please ask your question.
Hi, Thanks, I guess, given the combination of the uncertainty we're just talking about.
Future rent collections combined with the improved performance can you talk about how are you in the board or thinking about the dividends going forward.
Yes, I think that I was actually.
Okay.
Segway into a topic or giving you some foreshadowing on that obviously, the we've been tremendously focused on.
Getting that goes the tight once the numbers steel went away and we were starting to get stronger.
Into last years fourth quarter, if you'll remember that's really kind of predicted with third quarter was low point. So all we are focused on is try to run the business tighter and tighter.
And so obviously that's happening so that.
Good.
Good question to get the start thinking about the dividend again I would just say.
Obviously, the board's decision, but I would say.
Yes.
Watching how these this whole issue, but I just talked about in terms of stimulus and.
People coming back to work and who still getting Chuck I cant fit we can't see no one key item.
No one knows what the Pandemics going to do as we go into colder weather again, so I think it's prudent to still hold off the great news is that.
We're going to start getting that question, which leaves the operations of the earnings are coming.
I, just like we're probably going to hold off a little bit longer until we see how this year plays out.
Yes, and then sort of like.
Well along those lines, obviously still have a strong.
Liquidity position kind of what are your outlooks.
Deploying that liquidity.
Yes, either through home purchases buying back stock kind of what are what are your thoughts on that.
We we always look at the classic.
Two or three things that you just mentioned they're buying back stock.
Paying down debt acquiring things we balance the law.
As I said I think.
Just as every industry right now is.
Pretty cautious about liquidity and and.
Taking.
Actions to spend money I think it's just.
We're just being very cautious a large shareholders to know.
It's probably comes along those packages that are out there, there's a pretty significant package that.
Floating around we looked at it.
An example of your which you're alluding to we didnt, particularly like the locations or the.
Sizable hall, which has to fit or one miles looked particularly didn't really fit footprint. We're looking to continue to fill out in markets, where he's already so strong so.
So we'll look at everything.
We'll keep all options on the table.
I'd still say.
The tone is yellow Green proceed with caution because we just.
Don't know obviously is going to play out.
Thanks George.
Thank you.
Your next question comes from the line have Jade Rahmani with KBW. Please ask your question.
Thank you very much can you give an update on what's going on with ready in AMC.
Yes, I mean.
We've been pretty.
Open about that we'll continue to be I mean, we're looks looks like kind of bigger from the top our job is to to increase.
Sure holder value.
So.
[music].
Making sure the businesses running is job one, but most importantly, we have to do and obviously that.
Either thankfully going very well so so revisiting.
Outside asset management or internalizing is something I've said, we're clearly looking at both boards are discussing so so we'll continue to.
Consider.
What needs to be done between the two companies.
And if we're supposed to internalize you know how do we do that when do we do that.
We're continuing to look at that it's very very high on our I think I sit on our last calls at the top of wireless will face with focus on so.
I would reiterate that obviously, it's three months down the road. So so but it is still a top priority for both boards to consider.
And we'll see where the plays out.
Okay.
Bad debt question.
Can you give that as a percentage of revenue was that asks.
And secondly, do you have any information on what the unemployment rate across the portfolio might be.
So you cut out there a little bit, but I think you are asking bad debt as a percentage of revenues at the understanding that correctly.
Yes.
Two and a half versa.
Okay, and then you're seeing any input.
Yes on on ointment, we haven't we haven't surveyed our residents to ask them if they.
Other jobs current job status I don't.
I don't have any data on that that will be correct.
Without without doing a survey I'm not sure how we would know.
Okay, and just lastly, what do you think.
Recurring capex per problem is running at low basis.
So we did put in this quarter.
Cost to maintain metrics.
Sure.
And the slight counts at.
On slide four seeing so.
So that's disclosed and.
On a.
For the quarter on a on a gross and net basis, we're running at approximately 2700 and.
24 50.
For total cost to maintain.
Thanks.
No I wouldn't be your last question I'll now hand, the call back to the company for any closing remarks.
Great. Thank you very much so thanks, everyone for for dialing in for our team for the job done in the field and the book. These packages are ratios. So thank you everyone will be speaking to most of the.
Analyst community throughout the day, so we look forward to catching up thanks, everyone.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.