American Homes 4 Rent (AMH) 2014 Q4 法說會逐字稿

Greetings and welcome to the American Homes 4 Rent fourth-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Stephanie Hime. Thank you. You may begin.

Good morning. Thank you for joining us for our fourth-quarter and full-year 2014 earnings conference call. I'm here today with Dave Singelyn, Chief Executive Officer, Jack Corrigan, Chief Operating Officer, and Diana Laing, Chief Financial Officer of American Homes 4 Rent.

At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, February 27, 2015. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, the SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com. With that, I will turn the call over to our CEO, David Singelyn.

Thank you, Stephanie and welcome to our fourth-quarter and full-year 2014 earnings call. On today's earnings call I will provide a brief summary of our recent results and outlook for 2015. I will then turn the call over to Jack Corrigan to discuss the current operating environment and our progress with regards to operations and acquisitions. Finally, Diana Laing will review operating and financial results for the fourth quarter and full year 2014, update you on our balance sheet and liquidity and on our latest securitization transaction.

I am pleased with our growth and results during 2014, our first full year as a public company. While we had a few challenges, we worked to minimize their impact. Let me start with a quick summary of our accomplishments and as we continue to focus on our vision of building the premier company, focused on owning and operating single family rental homes.

During 2014, we acquired 11,331 homes for $1.9 billion, increasing our total portfolio to 34,599 homes at year end 2014. Including the homes purchased thus far in 2015, we now own 36,200 homes in 22 states. Our leased homes increased by 10,922 homes in 2014, bringing the total number of leased homes to 28,250 at December 31, 2014, resulting in total portfolio occupancy of 81.6% and 92.8% on our 90-day rent-ready portfolio. Our tenant retentions were 70% for 2014.

In addition to the numbers, during 2014, we continued building the best-in-class single-family rental company, accomplishing a number of strategic milestones that will benefit us in the future. First, with over 36,000 homes, we have built a company with sufficient size to provide economies of scale, permit us to enhance our brand name among the single-family rental community, and provide our investors with sufficient float amd liquidity in our equity securities.

During 2014, we began seeing and experiencing the early stages of consolidation within the single-family rental industry. I expect the consolidation experience of the single-family sector will be similar to other real estate sectors, including, most notably, the multifamily sector, where there were more than 40 public companies in the 1990s, the early days of the institutionalisation of that sector, and today there are just over a dozen public multifamily companies.

Today there are many private companies that own a few hundred or more single-family rental properties. Compared to the large institutional participants in this sector, most of these companies do not have the scale to effectively or efficiently operate their portfolios. As such, over the past year, we have had discussions with many companies about the opportunity of combining portfolios and operations. During 2014, two of such transactions were in July of 2014, we acquired a portfolio of 1,370 homes from Beazer Pre-Owned Rental Homes in a merger transaction.

From a quality standpoint, these homes are very comparable to our portfolio. This transaction made the markets in which these properties are located more efficient from a property management standpoint and provide a greater market awareness to the American Homes 4 Rent label. Second, in December of 2014, we acquired the Ellington Housing single-family rental portfolio, consisting of 914 homes. Like the Beazer transaction, this portfolio of homes is synergistic with our portfolio and located within our existing footprint.

During 2014, we demonstrated access to all forms of capital and their markets. We effectively accessed the capital markets for more than $2 billion in debt and equity capital. This included the issuance of preferred securities in early 2014 as the securitization market was developing, issuance of common equity and an overnight placement which permitted long-term institutional REIT investors the ability to accumulate a sufficient position warranting the inclusion in their portfolios, issuance of common securities in connection with the acquisition of assets, and three securitization loan transactions in 2014, including the only 10-year fixed-rate transactions in the single family-rental sector, raising total debt capital of $1.7 billion.

Most recently, we announced yesterday the pricing of our fourth securitization transaction. The transaction is a $552 million loan with a 30-year term and an anticipated repayment date after 10 years. The duration weighted interest rate is 4.13% and this transaction is expected to close next week. With this transaction, since May of 2014, we have completed four securitization transactions totaling more than $2 billion.

In January 2014, we completed our internalization of third-party property managers. As we discussed in prior earnings calls, throughout 2014, we have worked on centralizing many functions and enhancing our systems. That process continued in the fourth quarter of 2014, when we upgraded our accounting and property management systems to provide the capacity to handle future growth of our portfolio. In addition, in the fourth quarter we initiated a change to our process of managing utility after a three-month testing period in two states. It will take 12 months to fully implement this new program.

We will continue to make enhancements to our property management system throughout 2015. These changes will make our property management process more efficient and effective and I expect the impact will be seen in future quarters through better control of expenses, including property management costs. I am proud of our accomplishments and the results we produced last year, which is a testament to the hard work and dedication of the entire American Homes 4 Rent team.

Now moving on to 2015, we remain excited about our future for 2015. We continue to acquire high-quality assets that meet our financial underwriting. At the current pace for January and February, we expect to acquire 2,000 homes in the first quarter. In addition, we continue to have discussions with companies interested exploring a combination of our portfolios and operations. Not all portfolios will be attractive candidates, as we evaluate each opportunity on the quality of assets in the portfolio, the synergistic nature of such transaction, and the financial impact of the acquisition on the Company.

With respect to capital, we remain focused on maintaining a strong balance sheet to support and utilize multiple sources of attractive priced capital, which we can access at times of our choosing. This will allow us to take advantage of acquisition opportunities as they arise.

And on a personal note, I am pleased to announce that Brian Smith has been named Executive Vice President of the Company. Brian joined the Company in 2011 and was instrumental in building our acquisition program. Since 2013, he has been Director of our Property Management division and will continue to report to Jack Corrigan, our Chief Operating Officer. At this time, I will now turn the call over to Jack to provide more detail on our acquisition and operating activities for the fourth quarter.

Thank you, Dave, and good morning, everyone. I'd first like to expand on Dave's comments and provide a more complete review of our portfolio. At year end 2014, we owned 34,599 homes, an increase of 3,722 from the 30,877 homes that we owned at the end of the third quarter. The projected investment after renovation cost of the 3,700 homes we acquired in the fourth quarter is approximately $630 million, or $169,000 per home, about $85 per foot.

The 3,700 homes can be broken down as follows. The Ellington transaction accounted for about 900, auction purchases 800, broker purchases were 1,800 and approximately 200 other purchases. Our acquisition pace in the quarter was up from the third quarter and in line with our expectations announced on the third-quarter earnings call.

For the full year 2014, we acquired 11,300 homes, representing an investment of approximately $1.9 billion and increasing our portfolio to 34,599 homes. We renovated 2,200 homes in the fourth quarter, which brings our full-year 2014 renovation activity to approximately 8,800. This approximates the number of vacant homes we acquired during the year. The average renovation cost was approximately $17,000 per home and the average time to deliver completed homes for the rent-ready pool averaged less than three months. As we move forward, we expect our pace of renovation activity to meet or exceed our acquisition activity.

As of December 31, we had 28,250 leased properties, an increase of 2,089 leased homes from the end of the third quarter. On the rental activity side, we expected and experienced the seasonal slowdown in the fourth quarter. However, leasing activity has picked up dramatically in the first quarter of 2015. For comparison sake, we generated 3,200 new leases in the fourth quarter and net absorption was 1,200 leases. In comparison, through February 26, we've generated 3,300 new leases and net absorption is expected to be in excess of 2,000 by the end of the month, including all month-end move outs.

Leasing call volume averaged 30,000 calls per month in November and December and almost 60,000 in January and February. Entering the spring leasing season, we expect absorption to continue to pick up dramatically. We continue to see solid rental rate increases, which were up approximately 3% overall, including increases of 2% on new leases and almost 4% on renewals. Our retention rate was 67% in the fourth quarter of 2014.

For the fourth quarter, our core operating margin was 62%, which was up significantly from the third quarter. I'll remind you that our expenses do follow typical seasonal patterns and the third quarter's impacted by higher utility expenses and a higher volume of turns. We expect our core NOI operating margins to settle within the 61% to 63% range on an annual basis. And with that, I'll turn the call over to our CFO, Diana Laing.

Thanks, Jack. In my comments today, I'll review our fourth-quarter and full-year 2014 financial results and comment on our balance sheet and recent financing transactions. As a note, our fourth-quarter and full-year results are more fully detailed in yesterday's press release and in our supplemental information package, both of which have been posted to our website under the For Investors tab. These documents, in addition to our SEC filings, provide further information on our financial results and relevant definitions of non-GAAP financial measures discussed on our call today.

For the fourth quarter of 2014, we reported core FFO of $42 million, or $0.16 per share. On a per-share basis, our core FFO was up by 6.7% from the 15% -- I'm sorry, $0.15 per share we reported in the third quarter and up by 45% from the $0.11 per share we recorded in the fourth quarter of 2013. For the full year 2014, we reported core FFO of $144 million, or $0.57 per share. This was our first year as a public company, so comparisons to the prior year are not applicable.

With regard to our portfolio, NOI from our leased properties was $68 million in the fourth quarter of 2014, which was an increase of 14.5% from the third quarter and 70% from the prior-year period. Revenues were $116.4 million, an increase of 5.8% over revenues reported in the third quarter. For the full year 2014, our core NOI was $232.3 million and our revenue totaled $397.3 million.

For the fourth quarter of 2014, our core NOI margin was 62% compared with the 57% during the third quarter. As mentioned in Dave and Jack's remarks, our margins on a quarterly basis will fluctuate due to seasonality and leasing, turnover, and operating costs, such as utilities. On a full-year basis for 2014, our core NOI margin was 62% and we have projected that our annual core NOI margin will be in the 61% to 63% range.

Our G&A expenses for the fourth quarter were approximately $5.9 million and for the full year 2014, G&A totaled $21.9 million. As we mentioned last quarter, we internalized our acquisition and renovation personnel during the fourth quarter and going forward, we will incur all acquisition and renovation costs directly. This will result in a reduction of our total expenditures but these costs are now entirely expensed, where formerly they were partially capitalized into acquisition costs. In computing core FFO, we add back acquisition costs, which is consistent with prior periods.

As Dave mentioned in his remarks, we continue to take advantage of our size and our balance sheet to access a variety of capital sources. In November, as we reported previously, we raised approximately $528.4 million in gross proceeds through an asset-backed securitization of a loan secured by 4,503 homes. The 10-year loan has a duration weighted fixed coupon rate of 4.4%.

Yesterday, we announced the pricing of our fourth securitization transaction, which brings the total capital raised through these securitizations in the past 10 months to about $2.1 billion. The transaction is a $552.8 million loan. It has a 30-year term with an anticipated repayment date of 10 years. The duration weighted interest rate is 4.13% and the transaction is expected to close next week.

As of December 31, 2014, we had approximately $207 million outstanding on our $800 million line of credit. The total debt at year end was $1.8 billion, representing about 28.6% of the carrying value of our real estate assets. On a pro forma basis, including the impact of the announced securitization, our $800 million line of credit would be completely undrawn and our unrestricted cash balance would be approximately $450 million.

As we move forward, we intend to continue to maintain a strong balance sheet with sufficient capacity and flexibility to support our growth objectives. This allows us to utilize multiple capital sources and ensures the most attractive cost of capital within the sector. So now I'd like to turn the call back to Dave for closing remarks.

Yes. In closing, we are extremely energized by our accomplishments in 2014. We continue to grow with attractive acquisitions and as our portfolio expands, we are demonstrating the true power of an integrated platform within the traditionally fragmented single-family rental market. We look forward to continuing to execute on our growth plans moving ahead and driving cash flows and creating value for our shareholders in 2015 and beyond. With that, we will open the call to questions. Operator?

(Operator Instructions)

Our first question is coming from the line of Jade Rahmani with KBW.

Good morning and thanks for taking my questions. I wanted to ask about the M&A environment and if you could share your thoughts on whether opportunities are increasing. Also, you mentioned specifically the word combination rather than acquisition, so I wanted to see also what your thoughts are about large-scale M&A potential in the sector.

Well yes, I think we've started seeing that pick up middle of last year and as we indicated, we did two relatively large transactions of about 1,000 homes. We did a number of small portfolios, or small acquisitions, of say 10 to 25 throughout the year that we don't even talk about.

Coupled with a couple of other transactions in our sector involving other companies, not ourselves, I think you are seeing more and more discussion and activity in the consolidation arena. A number of the discussions do revolve around trying to combine companies. As we indicated on prior calls, these are discussions that typically take time and they are going to be very lumpy.

Do we expect there to be transactions in this sector in 2015? Absolutely.

Great. Well, thanks for that. On the operations side, can you just give some more color on the utility process changes that you're putting in place?

Yes, we are outsourcing our utilities to a company that serves a lot of apartment buildings and some single-family homes. I think we'll probably be their largest single-family home customer, whereby they will pay the utilities and we will bill a tenant back for them rather than allow the tenants to pay the utilities on their own because if they don't pay it, it ultimately becomes our liability, so we would like to be more in control of that process.

Do you think that would positively or negatively impact the margins?

Positively.

Core margins.

Yes, core margins because it will go in as an expense and then it will go out as a chargeback in income so you're basically grossing up the revenue and expense line for non-core, but once we do our adjustments to get to core, it will positively affect it.

Jade, we do present the core computation in our supplemental, as you're aware.

Yes, great. And just on the expensing of acquisition renovation costs, can you say what percentage of the acquisition team you are insourcing and also what the aggregate impact could be on an annual basis in the income statement?

Well we absorbed 100% of the acquisition team effective December 10 or 11, I forget the exact date, and discontinued paying an [acquisition fee] to the sponsor. The acquisition costs will really depend on acquisition activity. I think that -- and it will be partially offset by fees we earn in our joint venture with Alaska for the high-end homes.

I haven't done a calculation of exactly what that is. Diana, do you have that?

No, it's kind of hard to say. The impact will be -- the total cost should be less because we were previously paying a fee based on the cost of the acquisition and there was some profit built into that fee. Number two, we were previously capitalizing acquisition costs associated with basically empty homes that we bought and we will now be expensing those, so it's very difficult to estimate what the difference is going to be because of the volume of transactions. It's also hard to estimate whether we are going to be buying them leased or empty.

Will this show up as increased G&A?

We actually, on the income statement, show acquisition cost in a separate line.

Okay, thanks very much.

Thank you. Our next question is coming from the line of Dennis McGill with Zelman & Associates.

Thank you. First question just has to do with the two deals that were done, given the relatively large scale of those versus the others you've done, had some time to digest. Can you maybe just compare and contrast, particularly, I guess, the operations, the expense structure, what you have internally versus what you found when you bought these companies and where the big gaps are and maybe identify where scale really shines through?

Yes, I can do that to a certain extent. On the Beazer portfolio, they were fairly well managed internally. They had probably more management costs relative to their portfolio, but the direct costs were pretty similar and they were pretty much different than Ellington, who had third-party managed their portfolio so Ellington probably had a less efficient structure than what Beazer had.

(Multiple speakers) I was just going to say on the first part for the Beazer, it was internally managed from a margin standpoint or a cost structure standpoint. Are you saying it was relatively comparable to your own structure?

Their management costs were higher per home because they only had 1,400 homes to spread the fixed cost of their structure out over, but they were recently efficiently managed. Ellington, we have just a little bit of operating experience with them but just knowing that they were third-party managed, I believe that the efficiencies and effectiveness of internal management far exceeds third-party management.

And how about outside of the fixed cost leverage on the turnover costs or the maintenance type costs? Any difference there?

Too early to tell. There hasn't been a lot of turnover.

Okay. And then separately, I think you'd mentioned that leasing activity and the way you were looking at it was up dramatically so far in the first quarter. Would your expectation be that the 90-day stabilized rate could actually be up year over year in the quarter?

It definitely could be. I don't know for sure but I think it was pretty high last year, so it won't be dramatically higher. We're starting from a lower point but--

(Multiple speakers) happen to have maybe February numbers to date? Would those numbers be up year over year?

They're giving me some numbers here. We were at 94.5% a year ago and we're at 92.8%, so we've got some ground to make up. I think we'll make up ground but we probably won't exceed last year. We ended up at 95.1% at the end of the first quarter.

Okay. Sorry, when you say 94.5% last year, that was as of (multiple speakers)? Oh, December. Okay. Got you. Thank you, guys.

Thank you. Our next question is coming from the line of Dave Bragg with Green Street Advisors.

Thank you, good morning. Just wanted to tie together the constructive outlook that you have for acquisitions in 2015 with your previously stated leverage targets. I believe that you're approaching that range, therefore, are you thinking differently about leverage? Or how might you fund acquisition activity in 2015?

Well, at this point, we have a significant amount of capital on our balance sheet. As Diana mentioned, with the last securitization, we not only have a line that is fully undrawn but we have cash on the balance sheet and that will take us through a significant period of time.

We continue to evaluate all sources of capital and we continue to monitor where our debt is and we recognize that we've now pierced over the 30% and we're monitoring that. We're not concluding that we are completely done raising debt capital, but we are evaluating other sources actively at this time.

Okay, thank you for that. Regarding the margin, you've said that you expected to stabilize in the 61% to 63% range, but you're already there and you've spoken about a lot of opportunities that will help you control costs, so do you see the margin going higher from here or do you need to do those things just to keep you where you are?

Yes, so presently, we're about 62% and we do think we can improve that into the 63% range, as we go. Again, we're at 62% in the fourth quarter of this year.

We also had, in the early part of 2014, we had few properties that were going through turn because our portfolio in 2012 and early 2013 was a lot smaller than it is today. Yes, we do think we -- we have increased our guidance from the last quarter where it was 61% to 62%. We've increased it up to 63% on this call.

Okay, thank you. Last question just relates to where you're sending out renewals as you enter the spring season and you send out renewals presumably for April and May. What are you asking for in terms of percentage increases?

We're getting, right now, right around 3.5% to 4%. I think we had 4% in Q4. It's not going to be higher than that, I don't believe.

Thank you.

Our next question is coming from the line of Haendel St. Juste with Morgan Stanley.

Hi guys, good morning.

Good morning.

David, you mentioned in your remarks that you're looking to make some property management changes in 2015. I was just curious if you can give us a bit more color on what some of those changes might be.

Are they more strategic in nature or pricing? Are they related all to the operational challenges incurred in third quarter and in the fourth quarter here?

No, I would put it more at this point into refinements of our operations. It's the smaller things, as opposed to the bigger things.

We've made some big changes, putting in new systems, changing our utilities last year, but there's just little refinements throughout the operations that we think will make processing and the flow of work and the delivery of the product to our tenants better. It's more in the fine tuning side as opposed to a wholesale or major changes.

Okay. Following up a bit on operations, how hard did you push rents on during the quarter to get to that 3%? Are you alarmed at all that, that 3% increase came at the expense of 130 basis points sequential decline in occupancy and another tic down of retention from the third quarter?

I would -- any time you raise rates, you probably lose somebody but at our current average rental rate of $1,400 that's a $42 rent increase so I believe that if somebody's happy with the home they're in, they probably aren't going to leave for $42. We did drop rates a little bit on releasing in the fourth quarter just because it's a slow leasing period, but I'd expect to pick those back up in the first and second quarter.

Yes, I guess a bit more on that, Jack, if I could, because we've seen in the apartment space historically has been that the fourth quarter we know is seasonally slower, so the apartment REITs tend to play a bit more defense, right? They push less on rate, preserve occupancy. That's why I guess the angle of the question I was trying to get at is, how you are strategically thinking about balancing the two coming into the quarter.

Perhaps, does it -- was there any signal at all that concerned you, perhaps weakening demand or pricing power? Because again, you only got 3%, which is as you point out, isn't a big absolute number, but you lost over 100 basis points of occupancy and your retention ticked down.

Yes, I would and I'm not sure exactly the cause of the drop in occupancy. We had a big degradation in our conversion rate per call in October and early November. That was right in the middle where all of our guys were learning a whole new computer system and that probably affected us more than any rate increase.

Okay, a separate question. The stock lagged a bit since last quarter's call and now trades about 10% below what our mark-to-market value of your portfolio is. But no matter whose number you're using here, it's hard to deny that your stock's cheap.

Curious on what the current thoughts are on stock buybacks. We've seen some of your peers do it. And then how the economics of that would compare to -- or your interest level versus buying homes?

We recognize where our stock price is and your suggestion is definitely a valid suggestion and something that we do consider. This point, we believe that it is a temporary thing. While we have been building a company, we don't have a fully stabilized portfolio and it's hard to completely understand where our earning power is until that portfolio stabilizes.

There are still very, very attractive assets out in the marketplace to acquire. Acquiring those assets has benefits more than just the acquisition itself to our platform in keeping -- spreading our fixed cost, whether it be property management or G&A, across the portfolio.

We are aware of where the stock price is at this point. We have had discussions about repurchase. At this point, I think the opportunities, which I think will be of limited time, and exactly what the measurement of that limit is, I don't know, but to acquire these high quality assets, I think we are still looking to acquire assets.

Great, thanks. One last one, if I may. You guys are bolting on new securitizations at a more rapid clip than I think many of us expected here. Just curious, the psychology, perhaps, behind that is that. Is it tied to the acquisition of buying more soon or is there a concern perhaps about slowing HPA?

And then also, we've heard multi-borrow securitizations are getting closer. Is that a concern as well, and is that perhaps tied to buying more sooner?

Well, the acquisition market right now is, there are not a lot of buyers in the marketplace. That's one of the reasons that we have the opportunity to buy very attractive assets. If we can get the money today and get out there while others don't have money, it's very beneficial to us.

Part of the program on securitizations right now is, the interest rate environment is very attractive to us. I think we're going to find that a loan at a 4.1% interest rate, is it actually an asset? It's not a liability in the future. Part of it is just the timing of what the market is offering us is, I think, driving a little bit of the decision-making.

Any insight into the multi-borrower side? Any sense of where that is, how soon we could be seeing some of those deals at the market?

There's a lot of rumors out there. It's probably, we know they are working hard to get it to the market. It's probably a better question for those guys as to where they are.

Okay. I know you care too, but thank you. I appreciate your time.

Thank you.

Our next question is coming from the line of Buck Horne with Raymond James and Associates.

Thanks. I just wanting to dig in a little bit on the occupancy. Given where you finished the year and how you have the -- I saw the scheduled lease expirations, how would you guide us to think about how occupancy will ebb and flow throughout the course of the year, given the lease expiration schedule you have?

Well we're going to try to manage it so that it's more consistent than last year, but I think that the occupancy will pick up. Where we end up at the end of June, I'm not sure but I think it will pick up through the end of second quarter, and then we're going to work like heck to lease up any vacancies prior to the fourth quarter of next year and we'll probably see a little bit of degradation in the fourth quarter.

Okay, helpful. Just on the strong demand that you seem to be seeing so far in January and February, I'm just wondering which markets are you seeing maybe the strongest signs of inquiries or pricing power this spring? Do you have any idea what's bringing out so many renters? Can you give us a reference on how many calls you were getting this time last year versus what you're getting this year?

Yes, last year we were probably in the 45,000 range in February and this year we're closer to 60,000. I think we'll have -- and we have less rent readies this year than last year, so on a call-per-house basis, it's definitely exceeded my expectations.

Probably the hottest market that we have is Denver. As far as a call per house, we have the most vacancies in the Midwest, so we can get the bulk of our calls from the Midwest.

Okay, that's great. Thank you.

Thank you. Our next question is coming from the line of Steve Stelmach with FBR and Company.

Hi, good morning. Dave, you talked a little bit about competition for assets. I was wondering more specifically what's the competitive process right around the portfolio acquisitions, particularly as a lot of your competitors are running short on capital and you aren't necessarily in that position. Is there a lot of folks bidding these portfolios or is there just a couple, one or two? Any color would be helpful.

Well it is a limited number but it's more than -- there's always a few at the table. It's not you're just negotiating by yourself.

It's three and four at a time, but it's more than just the bidding. It's whether the seller receives a bid that they want to sell at.

There's a lot of fishing that's going on out there both ways, where people are trying to determine what their portfolios are worth. But there is a couple people at the table, some of the individuals that you would probably think of being at the table, some of the larger players and potentially some individuals that you may not think of that could be at the table as well.

Got it. And then, the Beazer transaction was done with stock, if I remember correctly, when you were trading a little bit better valuation. Ellington, you used cash.

Is that largely your preference, given sort of valuations, or is that more on the part of the seller? How should we think about cash versus stock in these transactions?

The way I look at it, in a way, is if we're trading our assets for their assets and we're trading at a discount, unless I'm getting their assets at a better discount, it's not that good a deal, so probably if we have cash, prefer to use cash in that circumstance.

Got it. Okay. Thanks, guys. I appreciate it.

Our next question is coming from the line of Jack Micenko with SIG.

Hi. Good morning, guys. How are you guys doing?

Doing good, thank you, Jack.

Just one, I had a couple of quick questions. Are you guys seeing sort of increased weather-related expenses in your Midwest markets?

No, relative to last year its been mild, even though I know the last few weeks have been bad, but we had the whole polar vortex hit last year. We haven't seen, I'm not aware of any busted pipes or things like that, that have affected us.

Got you. And then, my second question is you mentioned securitizations right now is pretty attractive, given the low rate environment. Have you guys factored in any sort of rate hike in second half of this year or what not into your assumptions?

Jack, our last three securitizations have been fixed rate for 10 years, so the interest rates are locked. We did our very first one, so we do have 25% of our securitized debt in a floater structure, but the last three transactions that we have done, we eliminated that interest rate to a risk by fixing the interest rate for a 10-year period.

Got it. Okay. And then my last question is just in terms of overall macro perspective, are you guys -- there's been recent FHA premium cuts, the GSEs are making 97% LTV loans again, there's better clarity in terms of the banking industry with the boards putback mortgages. Do you guys think about how this overall macro environment, which seems to be more conducive towards mortgages, how this might affect, I guess, your business model?

There's a number of points on that, Jack. One is the regulations have loosened up at the FHFA level, but not necessarily all throughout all the banking systems. It's still, you need to have very, very good credit to get a loan. They have loosened up a little bit on the down payment requirements but the credit is not the way it was pre-2008.

With that said, if it does loosen up, remember the size of the single-family rental market that we're in. It was historically about 13 million homes. That's a number of decades old numbers, so that's a very consistent number. A little bit higher today at 15 million.

We own 35,000 homes. The industry owns maybe [150,000]. It's 1% and we have the institutional category in American homes in particular, have homes that are recognized as better maintained, better quality homes than the typical mom and pops offer so I believe we will be in demand even if a couple percentage points more of people acquire homes.

Great. Thanks for taking my questions.

Thank you, Jack.

Thanks you. We have reached the end of our time for the question-and-answer session. I would like to turn the floor back over to Management for any additional concluding comments.

Well, we thank you for taking the time and participating in our earnings call today and we look forward to speaking with you next quarter. Have a good day. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.