American Homes 4 Rent (AMH) 2015 Q1 法說會逐字稿

Hello and welcome to American Homes 4 Rent 2015 first-quarter earnings conference call. At this time, all participants are in a listen-only mode. After the Company's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

As a reminder, this conference is being recorded. I would like to turn the call over to Stephanie Heim, Counsel at American Homes 4 Rent. Ms. Heim, please go ahead.

Good morning. Thank you for joining us for our first-quarter 2015 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 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, May 8, 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 with the non-GAAP financial measures we are providing on this call is included in our earnings press release. You can find our press release, 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, Dave Singelyn.

Thank you, Stephanie, and welcome to our first-quarter 2015 earnings call.

On today's call, I will provide an overview of our Company and a brief summary of our recent results and initiatives for the balance of 2015. I will then turn the call over to Diana Laing to review operating and financial results for the first quarter and update you on our balance sheet and liquidity. And then finally, Jack Corrigan will discuss the current operating environment and expand upon my comments regarding 2015 initiatives.

The first quarter represented a solid start to 2015 for American Homes 4 Rent. But before I go into the details for the first quarter, I would like to take a step back and summarize where we are as a Company.

In 2015, our mandate is unchanged. That is to build the premiere owner and operator of high-quality, single-family rental homes across a national platform and to provide branding and operating scale efficiencies to drive superior returns over time for our shareholders.

Our tactical focus continues to evolve. From 2013, when our focus was to grow swiftly to obtain scale to provide operating and financial efficiencies, to 2014 where our focus was to continue building our internal platform to achieve enhanced performance, margins, consistency, and brand awareness. And now, 2015, where we are focused on stabilizing our portfolio and driving superior operating performance this year and beyond.

Looking at the first-quarter portfolio and operating results, we reported core funds from operations of $41.9 million, or $0.16 per share, on revenues of $131.7 million. On a GAAP basis, we reported a net loss of $8.3 million. With respect to property counts and statistical data, we have defined these terms in our -- this quarter's supplemental financial information. And the statistical data that I am about to provide is also provided on page 6 of the supplemental report.

Our portfolio increased by 1,989 homes, resulting in a total portfolio of 36,588 homes at March 31. Our stabilized homes, which we define as homes that have been renovated and initially leased, whether or not currently leased, or available for rent for at least 90 days, increased by 3,026 homes, bringing total stabilized homes to 32,987 at March 31.

Our occupied homes, which we define as those homes where the lease has commenced, increased by 2,657 homes during the quarter resulting in a total of 30,185 occupied homes at March 31, 2015. Our stabilized occupancy percentage remained consistent at 90.4% compared to year-end, but our total portfolio occupancy percentage increased from 79.6% at December 31 to 82.5% at March 31, 2015.

Our leased homes, which we define as occupied homes plus those homes for which we have an executed lease with a start date in the future for this portfolio primarily in early April, increased by 2,933 homes, bringing our total leased homes to 31,183 at March 31. Our leased percentage for stabilized homes was 93.4% at March 31 compared to 92.8% at December 31. And our total portfolio leased percentage increased from 81.6% at December 31, 2014, to 85.2% at March 31, 2015.

Now, with respect to lease renewal and retention rates. We have defined lease renewal rate as the percentage of tenants who have leases that run full-term that renew their tenancy, either on a term or month-to-month basis. Our renewal rate in the first quarter was 79%. We have defined retention rate as the number of renewed leases divided by the sum of expiring leases and early terminations during the period, and our retention rate in the first quarter was 68%.

A couple of additional items to highlight for the first quarter. In March of 2015, we closed upon our fourth securitization transaction. It was a $553 million loan with a 30-year term and an interest rate of 4.14%. The interest rate is fixed for the first ten years at which time we would anticipate repayment.

We are extremely pleased with this execution as we continue to take advantage of attractively priced capital to facilitate our growth. And, please note that we have enhanced our supplemental reporting information to include same-home portfolio performance. We believe this will provide you with greater detail on how our portfolio will perform over time. We also provided definitions for many of our terms, such as occupied home, leased home, retention rate, and renewal rates.

We will continue to look at ways we can provide expanded disclosures to help you understand our business and operating performance, and Diana will review many of these items in the supplemental report shortly. Also, Jack will provide color on our first quarter operations later in the call, but I wanted to first make a couple observations.

First, during the first quarter, we renovated approximately 3,000 homes and reduced the number of homes in the acquisition and renovation process by more than 1,000 homes. At March 31, there was 1,863 properties in the acquisition and renovation process compared to 2,886 at December 31, 2014. As we begin charging the carrying cost of properties to operations as soon as the renovations are completed, we experienced more earnings and FFO drag from vacant homes in the first quarter compared to the fourth quarter last year. The other side of this coin is that we are well positioned going into the second quarter amid the strong spring leasing season to make a meaningful impact on our portfolio occupancy percentage.

Second, as we mentioned on prior calls, we are actively focused on initiatives to control cost. While we have much more to accomplish, we are beginning to see improvements in our cost controls of utilities, landscaping, and maintenance costs.

And, third, on October 1 of last year, we transitioned to a new property management system to facilitate future growth of our portfolio and platform. Every system conversion comes with some level of distraction to operations as personnel focus on the conversion and need to learn the mechanics of the new system. Our conversion was no different. It caused its share of distractions in the fourth quarter last year. While there are still some areas that we need or desire to improve upon, most of those distractions are behind us today as we move into 2015.

And talking about the balance of the year 2015, we have slowed the acquisition pace of vacant homes from 2014 and first-quarter 2015 levels. This will assist in stabilizing our operations as the number of non-revenue producing homes in the acquisition and renovation functions continues to decline.

With respect to occupancy, we made significant progress to a fully leased portfolio in the first quarter as the number of occupied homes increased by more than 2,600 homes. With our construction team completing more than 3,000 renovations in the quarter, we are well positioned to continue this trend into the spring leasing season. In addition, we have commenced an initiative within our property management team to obtain a leased percentage on stabilized homes of 95% by June 30.

Although occupancy is the primary driver of maximizing revenues, we began late in the first quarter to push rates more aggressively on our releasing opportunities. While there is a small lag between the time rates are increased for marketing of homes to the time they are realized, I believe we will begin seeing the full benefit of the earnings in FFO benefits of faster rate increases late in the second quarter and more fully in the third quarter.

As we enter the second quarter, we had a large number of homes recently renovated that will continue to provide the vacant home earnings and FFO drag that we experienced in the first quarter. In a couple of minutes, Jack will expand upon these initiatives, but at this time I'd like to turn the call over to Diana to provide more details on our financial and operating results for the first quarter. Diana?

Thanks, Dave. In my comments today, I'll review our first-quarter 2015 financial results and comment on our balance sheet and recent financing transaction. As a note, our first-quarter results are fully detailed in yesterday's press release and our supplemental information package, both of which have been posted on 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 first quarter of 2015, we reported core FFO of $41.9 million, or $0.16 per share. On a per share basis, our core FFO was unchanged from our fourth-quarter 2014 results and up 33% from the $0.12 per share we reported in the first quarter of 2014.

The flat quarter-over-quarter result was primarily caused by the increased expenses from initially vacant homes. That's the drag that Dave mentioned. Those are the homes that have been renovated and await the commencement of their first lease.

During the first quarter of 2015, the vacant property portfolio consisted of about 1,000 more homes on average than during the fourth quarter of 2014. The year-over-year increase in core FFO per share was driven by a significant increase in our portfolio net operating income partially offset by higher interest expense, higher dividends on preferred shares, and higher G&A expense.

The G&A expense for the first quarter was approximately $6.1 million, which on an annualized basis represents 0.37% of total assets. This compares with G&A expense of $5.1 million for the first quarter of 2014, which on an annualized basis was 45 basis points, or 0.45% of total assets.

As we've mentioned in the past, we have internalized our acquisition and renovation personnel, and we therefore incur acquisition and renovation costs directly. While this will result in a reduction of our total expenditures, these costs are now predominantly expensed for GAAP rather than partially capitalized into acquisition costs. In the first quarter, we added back $5.9 million in expensed acquisition costs when we calculated core FFO.

As Dave mentioned earlier on the call, we have expanded and improved the disclosures in our supplemental information package beginning this quarter. First, we've clearly defined terms that we use in our disclosures. Notably, the distinction between leased and occupied properties and the terms renewal rate and retention rate.

We've provided comparable statistics for all periods presented in this quarter's disclosures. We have also included renewal and releasing spreads for the portfolio, which can be found on page 15 of the supplemental.

If you look at page 13 of the supplemental, we present same-home operating comparisons for the first quarter of 2015 compared with the first quarter of 2014. Our same-home property pool consists of 13,446 homes, which were stabilized for both periods presented. Occupancy at the end of the first-quarter 2015 was 93.1%, a 1.4 percentage point decline from 94.5% at March 31, 2014. Despite the reduction in occupancy, revenues from same-home properties increased 2.8% year-over-year driven by rental rate increases which resulted in average monthly scheduled rent per property increase of 2.5 percentage points.

Property operating expenses increased 3.2% with a core NOI increase of 2.6% during the first quarter of 2015 compared with the first quarter of 2014. Capital expenditures for the same-home pool were $3.3 million for the first quarter of 2015 compared with $3.6 million in the first quarter last year.

We continue to maintain a strong balance sheet, and we've advantageously accessed capital from a variety of sources. As of March 31, 2015, we have total debt outstanding of $2.2 billion with an average interest rate of 3.7%. The majority of our debt is fixed rate, and we have very little refinancing risk in the near term.

In total, our outstanding debt represents about 31% of our total market capitalization. At quarter-end, we had $116 million of unrestricted cash and only $45 million outstanding on our $800 million line of credit.

As we move forward, we intend to continue to maintain a strong balance sheet with sufficient capacity and flexibility to support our growth objectives which should allow us to utilize multiple capital sources and ensure the most attractive cost of capital within our sector. Now, I will turn the call over to Jack Corrigan.

Thank you, Diana, and good morning, everyone. I would like to expand on Dave's comments and provide a more complete review of our portfolio.

As of March 31, 2015, we owned 36,588 homes, an increase of approximately 2,000 homes from the 34,599 homes at the -- owned at the end of 2014. The projected investment after renovation costs of the 2,000 homes we acquired in the first quarter is approximately $340 million, or $170,000 per home and about $85 per foot.

The 2,000 homes can be broken down as follows. Purchased by trustee auction, approximately 800. Broker purchases, 1,100. And other of approximately 100.

Our acquisition pace in the quarter was down from the fourth quarter of 2014 and in line with our expectations announced on the fourth-quarter earnings call. We have slowed our acquisition pace to focus primarily on trustee auctions and bulk purchases. Therefore, we expect our acquisition pace for the second quarter to approximate 1,000 homes.

We renovated 3,000 homes in the first quarter. This exceeded our acquisition activity by 1,000. We accelerated our renovations pace in December 2014 to provide inventory for our leasing teams going into the peak leasing season.

As of March 31, we had 31,183 leased properties. This is an increase of more than 2,900 leased homes from the end of the fourth quarter.

On the rental activity side, we expected and experienced a pickup in activity from the seasonally slow fourth quarter. For comparison's sake, we generated 3,200 new leases in the fourth quarter and net absorption was 1,200 leases. In the first quarter, we have generated 5,300 new leases and net absorption was in excess of 2,900.

April continued our strong renovation and leasing pace with over 900 homes renovated and almost 2,100 move-ins and a record 2,270 new leases signed. Our net absorption was over 1,100 homes for the month of April. We continue to see solid rental rate increases, which were up approximately 3% overall, including increases of in excess of 1% on new leases and nearly 4% on renewals. Our renewal rate was 79% in the first quarter of 2015.

We began pushing the rates on new leases as we entered the leasing season. However, some of that was diluted by leasing of product put on the market in the fourth quarter before we began pushing rates. I expect the second-quarter releasing rates to be close to 4%.

One negative effect of our accelerated renovation pace is the dilutive effect it had on first-quarter FFO. Once a property is placed in service, its carrying costs are an expense against the FFO of the REIT. With an average of almost 2,100 homes placed in service for the first time and not generating income, there was a drag from carrying the expenses and interest of about $0.03 per share in the first quarter of 2015, which compares to approximately $0.02 per share in the fourth quarter of 2014.

With the slowed acquisition pace we expect that the dilutive effect will moderate somewhat in the second quarter, but the real effect of declining acquisitions and renovations won't be seen until the third quarter. For the first quarter, our core operating margin was 63%, which was at the high end of our expectations.

Finally, I would like to address our capital expenditures. While our capital expenditures were in excess of our projections during the first quarter, it is important to note that over 80% of our repairs and maintenance and our CapEx combined in our same-home portfolio was generated by less than 15% of the homes. With our new accounting system in place, we believe we are in a better position to isolate our problem houses and deal with the root causes of these expenditures.

With that, we will open the call to your questions. Operator?

(Operator Instructions)

Our first question is coming from Haendel St. Juste from Morgan Stanley. Please proceed with your question.

Thanks for taking my question. I certainly appreciate the expanded supplement. It's a big step forward, and we look forward to more enhancements in the future.

So, I guess my first question is on operations. Your core margins came in as expected at the high end of the revised range you laid out last quarter, which was good. But, to be candid, some of your other operating results were a bit below our expectations. Particularly your same-store results.

First, can you provide more color on why your occupancy stabilized, and same-store was down so substantially year-over-year? Down 170 basis points and 220 basis points, respectively?

Well, it's primarily in the Midwest. Indianapolis is probably the biggest offender.

We have one sizable institutional competitor out there that, beginning around November, they reduced their rates dramatically and offered a blanket one-month-free rent. And we could have gone and competed with them and had a race to the bottom or held our ground until they finished that. That lasted through February. We decided to hold our ground. That lasted through February and leasing has picked up dramatically in Indianapolis.

In addition, in the Midwest, what you have -- it just takes a little longer to get -- because of weather issues and the winter, it takes a little longer to turn properties. But that's over with and Cincinnati, Columbus, Chicago, and Indianapolis are picking up activity very quickly.

So, why hold pricing so firm during, I guess, what's typically a seasonally slower quarter, especially in the light of those competitive factors? In retrospect, it certainly sounds like acquiescing or perhaps providing some concessions sooner might have been the more appropriate strategy?

We made a decision that, because of the level that they dropped their rates, that we weren't going to compete with that, and we'd let them lease up and then get our rates. And that's what we decided. I think it will bear itself out in the second and third quarter.

Okay. And then, what did your turn times average during the first quarter? And how does that compare to prior quarters? And then, do you think -- or can you help us understand perhaps what impact that might have had on first-quarter occupancy?

Yes, the turn times in the first quarter were impacted by homes that sat from November and December. So, if you look at turn times of product that we put into service or that turned in 2015, we were at approximately 55 to 56 days, tenant to tenant -- paying tenant to paying tenant.

But if you look at the whole quarter and everything that turned, it was substantially higher than that. It was probably 80 days. And some of that was the construction period, but the marketing period also was extended because of the November through December slowdown.

Okay. And then, looking ahead as we enter the -- go deeper into the spring and summer periods where there tends to be more traffic and interest. Curious on your operating strategy. Can we see you get more aggressive here on the rent side? And then, besides monitoring occupancy levels and keeping an eye on foot traffic, what are the other key items you are focusing on in gauging how much to push rents or not?

Well, we are -- we monitor what the activity was on the house the last time that it was marketed. We look at the rates in the area. There is a number of things that we look at. We are definitely pushing rates.

If you look at what we've put on the market so far in 2015, our releasing increases are about 3%. And if you look at what we've put on since February, it's about 4%. And if you look at what we've put on since March, it's about 5%. So, we're definitely watching it and moving rates with the added activity.

And, Haendel, we also are looking and we can see the velocity of the leasing pace through our call center. As that picks up, which we have basically outlined in the prepared remarks, that's picked up in the first quarter in April. And then, the other piece is the level of remaining inventory in each of these markets. Those all have an impact as well.

And we are starting to see absorption in a lot of these markets. I think you will start to see a repeat of what happened a year, year and a half ago in the Arizona markets where there was an oversupply, and once it got absorbed, rates were increased. And I think all of the operators have seen some pretty nice increases in Phoenix today.

Okay. I appreciate that. Dave, while I have you, one last before I yield the floor.

I want to go back to maybe a question I asked you a couple quarters ago about how much bigger you guys want to be. So, curious on your thoughts on that question today. Do you feel that perhaps your continued acquisitiveness and size, or heft, might be impacting your operational efficiency here?

I don't think the answer has changed at all, Haendel. I think it's still there is no predefined target.

I don't think size has an impact to our operational performance. I think what you see is, is more of what is the unabsorbed acquisitions, not only for us, but for the whole industry in various markets having more of an impact.

We are continuing to acquire. We are slowing down a little bit on the vacant home acquisitions, but we are still acquiring at auctions where we are getting very, very good yields. We have a framework, a platform, a new operating system that I'm confident that we can put more properties in without much stress to the operating platform.

Appreciate it. Thank you.

Thank you. Our next question is coming from Jana Galan of Bank of America. Please proceed with your question.

Jana, your line is live. Do you have a question today?

We'll move on. Our next question is coming from Jade Rahmani of KBW. Please proceed with your question.

Yes. Hi. Thanks for taking the questions.

The supplemental showed annualized CapEx per property of -- on I guess same-store owned homes of $983. Can you discuss your approach to long-term CapEx? What do you expect on a normalized basis per property? And also, if you could give any more color on the 15% of properties you said account for 80% of R&M and CapEx?

Yes. There is multiple answers to that question, but I'll give you the bottom line first.

We expect -- our projection is about $450 per home per year that we would reserve for CapEx, whether it's spent or not. The issue on the 15% varies. You can look at -- it may be that it's a bad house.

It may be in some cases in Salt Lake City, we went in, and it's really a capital improvement where we went in. And on the turn, we built out the basement because we found that Salt Lake City has a very high demand for built-out basements. It may be in Florida. We've made a decision for safety purposes to put fences around backyards that slope to a water retention pond.

So, there are certain things that are just capital improvements, and there is other things that are CapEx. And we are in the process of isolating if it's a bad house, we'll sell it. We are just isolating the problems and trying to figure it out and fix it.

Jade, one thing I'd add is what you are seeing here is one of the benefits of the fourth quarter when we went through and put in a new accounting system. We do now have more data, and we have abilities to isolate a little bit more of this stuff for operational purposes and allow them to focus on some of these items. You saw some of the benefits in our expenses, if you look at the same stores, in repair and maintenance. It's already come down a little bit in the first quarter, and we expect to be able to continue identifying, isolating, and remediating some of the higher cost items in the future.

And just in terms of the overall approach and way of thinking, it seems that right now yourselves and some of the other larger participants are approaching CapEx, recurring CapEx, on sort of an ad hoc basis as needed either through turnovers or as part of the repair and maintenance process. But do you expect eventually to move towards a return on investment framework where you approach CapEx spending much like some of the larger-scale REITs and evaluate on a return on investment standard?

Well, we always try to look at everything we spend on a return on investment standard. At least, that's what I try to do operationally. We believe that the houses that we put fences on return -- the amount that we invest gives us a return through quicker and better -- quicker leasing and better rates.

And when we put in a basement, we would look at it for what can we get in rent for the amount of dollars that we are going to put into it. So, I think every dollar I spend -- I'm not saying that always gets shoved down to the property level. But every dollar I approve of has a return on investment.

Just switching to the M&A environment. Are you seeing opportunities increasing? And can you just talk about what you view as the main benefits of combination? If it's operating leverage for better G&A coverage and more efficient property management? Or if there are other strategic benefits you see.

No. I think, Jade, you've probably hit some of the primary items. One is by putting properties in our platform, I think over time you're going to see operational efficiency. Again, over time, the ability to maximize some of the rent. But in the short-term, it is going to be in the expense consolidation side -- or expense elimination side.

The platform, the environment right now for consolidation I don't think has changed significantly from where we were a few weeks ago when we had the year-end call. That's probably about three, four, five weeks ago.

We still see a lot of discussion occurring around potential transactions. We still see pricing and some social issues being some of the obstacles. But we can see the gaps tightening.

And I would expect that throughout the year, you have to be a little bit patient. This going to be a lumpy process. It's not going to be every quarter there is going to be consolidation.

But there will be transactions this year and next year, as there have been already. But they are going to be a little bit more lumpy on a larger scale. Small, small transactions of a few properties we'll do. We won't even announce those. We will only be announcing the larger ones that have an impact.

Okay. And just finally on the pace of acquisitions, do you think the 2Q 1,000 homes is a run rate that we should think toward?

I would say that's a -- the numbers that Jack commented on is a good run rate, with one caveat to that. And that caveat is that's really the day-in and day-out acquisitions. And any portfolio consolidation transactions that may surface would be on top of that. And again, those are very hard to predict when they are going to be.

So, I think that's a good, steady run rate of acquiring properties at the trustee auctions, vacant type properties that need to be absorbed. Portfolios will generally be more occupied homes being acquired.

Thanks for taking my questions.

Thank you, Jade.

Thank you. Our next question is coming from Dan Oppenheim of Zelman and Associates. Please proceed with your question.

I was wondering if you can talk about some of the stats in the same-store more in terms of the tenant retention there. Where it looks as though those tenants that were going month-to-month were counted in terms of the renewals. Just wondering how many of the nearly 4,000 renewals were tenants that were going from manual lease to a month-to-month.

I don't have that number in front of me, but we generally have about 1,000 to 1,200 month-to-month tenants in our tenant base.

At any given time. That's not the number that go to that status every month. That's approximately how many we have.

Right. But any change in terms of what was happening in terms of the leases this quarter versus prior ones?

Yes. Again, we don't have that information. If you look at page 15 of the supplement, you will see that at the end of March we had 1,200 month-to-months.

Okay. And then, I was wondering in terms of the -- looking at the reduction in bad debt, which is certainly favorable for this quarter, were there any changes in tenant screening that are helping that, and do you think that's going to continue? Anything that sort of was a change in that -- that drove that? Or did it just happen that you had less bad debt this quarter?

No, I think it's -- I wouldn't say there is any change in this quarter. But as we have been mentioning over a number of our calls, we have been seeing that number come down. So, we did change tenant screening in 2014. That definitely has a benefit to that number.

But also we have better data on it from the conversion that we did in the fourth quarter. And, as a result, we are able to basically deal with the issues at a little bit earlier time frame than we did before. So, we're addressing them much earlier in the delinquencies measured in just a few days as opposed to a month or so.

Got it.

Dan, I have, I think, an answer to your question -- the previous question. If you look at page 15 of the supplemental, we have Q1 expiration outcomes renewed, 3,936. And renewals in the table just below it, where we don't count the month-to-months on that, and it's 3,155. So, the difference would be the month-to-months.

Okay. Thank you.

Thank you. Our next question is coming from Jeff Donnelly of Wells Fargo Securities. Please proceed with your question.

Good morning. Dave, I just wanted to follow up on your comments about portfolio acquisitions. I am curious how you think about underwriting in those circumstances?

Is it sort of a traditional home-by-home analysis with pricing based more on underlying asset value? Or do you guys look at it more in terms of an enterprise value, if you will, thinking about the expense savings? I'm just curious of how you might narrow it down.

Are you talking about the portfolio acquisitions?

Yes, portfolios. To the extent you look at portfolios of 300 homes, 500 homes, whatever they are.

Yes. I'll let Jack pipe in as well. I think at the end of the day what you end up with is a little bit of where the cost savings is. But that's not the mechanics that we use.

The mechanics that we use is what would the underwriting of those properties be in our platform and what would they yield in our platform regardless of what they were yielding in the other platform. So the additional G&A in those items basically will fall out because we will burden it with our cost structure. And, at the end of the day, the benefits resulting from excess G&A, et cetera, will fall out at the bottom.

And, in general, in all our acquisitions what we look at is -- whether it's portfolio or otherwise -- we look at a minimum yield and then are we buying below market and are we buying below replacement cost. We value it at the lower of those three metrics to come up with pricing of any deal. Of course, we always try to get our best price.

Okay. That's understood.

Actually sticking of you, Jack, I am just curious on I guess in oil-heavy markets such as Houston. Any sense that weakness in oil-related industries is translating to leasing velocity or pricing even as you look beyond the end of Q1?

Well, Houston is interesting because Houston -- in all of our oil markets or oil-related markets -- Bakersfield, Houston, Oklahoma City -- you saw some loss of jobs and some fallout in occupancy. But Houston in particular has -- and Texas has such in-migration that those houses are getting picked up, and at higher rates.

So, it's kind of muted the issue in Houston. It's a little worse in Bakersfield, but we don't have that many homes there. And Oklahoma City is a little slow.

That's helpful. Thank you. And just a final question just about the same-store numbers on page 13. This might be an apples-and-oranges question.

But, overall, I think same-store occupancy, average occupancy is down a little over 2% and your same-store revenues are up 1.5%. I guess implicitly your revenue per unit would be up almost 4% in the period. But your rent per unit at the end of the period is showing an increase of just 2.5%.

I know it's sort of a measurement issue there, but I guess I'm just trying to reconcile the difference between those results. Maybe it's just because you are presenting rents at the end of the period rather than revenue over the period?

Jeff, that is primarily the reason. The revenue numbers or the rental rate numbers are the end of the period, and the occupancy numbers are really the average during the period. So, that's -- we're hopeful that this data helps folks in their modeling for future, but it will never be perfect.

Okay. Understood. I just wanted to make sure I was clear on that. Thanks.

Thank you. Our next question is coming from Patrick Keeley of FBR. Please proceed with your question.

Good morning. My first question, you talked about focusing more on broker acquisitions in 2Q. Just kind of curious how the proportions, you expect them to look versus 1Q? And why are you favoring this channel going forward?

I think maybe you misheard or maybe I misspoke. But I am pretty sure, since I was reading the script (laughter). We are -- right now we've suspended broker purchases. So, we're focusing on trustee auctions and bulk deals. The reason we're doing that in the slowdown is because we believe that those give us our best returns.

Sorry for the mix-up there. Second question. Looking at your releasing trends, Tampa and Jacksonville kind of stand out with the declines year-over-year. What was different there, and should we expect to shift back to portfolio average over time?

I believe it will shift back to portfolio average over time.

Thank you.

Thank you. Our next question is coming from Dave Bragg of Green Street Advisors. Please proceed with your question.

Good morning. Just looking for some more clarification on the CapEx disclosure on page 13. The average quarterly CapEx per property of $246. That ties to the 13,446 same-store homes, correct?

Correct.

So, that would imply, as you annualize, $1,000 in CapEx per property. Can you reconcile that to your reserve of $450?

Yes. As I mentioned, some of that $983 is actual capital improvements versus what I'd call recurring CapEx.

And, secondly, I think that, and probably most importantly, is that 80% of our -- or 80% of our expenditures were in 15% of our houses, and that usually has a root cause to that effect. And so we're investigating the root cause.

We think that we will improve upon that, whether it's changing vendors or changing something else that we're doing. Or if there is a particular house that has -- or particular homes that have just -- had a bad builder and you are going to have issues with them. And we will cull it from the herd.

So, that's the plan. I think it will be successful. Some of the capital improvements that we're doing over time we won't need to do any more.

Okay, so you are suggesting that that's not an appropriate run rate of the $983 for those reasons?

Yes.

Okay.

I am.

Next question just has to do with leverage. Can you please update us on your leverage targets and incremental plans for more debt?

Yes. So, as Diana mentioned, we are in the very low 30% today. We do have capacity on our revolving credit facility of about another $758 million or so, and we do have a little bit of cash on our books. As we also discussed, our acquisition pace is a little bit lower, or maybe a lot lower than in prior quarters.

And so, the velocity of our securitizations that we have seen in the past, we will be slowing those down. We do not have one planned at this time in the pipeline. And the acquisitions can be financed for probably, if not the balance of the year, the majority of the year, through both the line of credit and retained cash flow.

That could change if we have any significant portfolios to acquire -- or the opportunity to acquire -- and if we do then it's an analysis of matching the benefits of the acquisition and the cost of the capital. And that's an analysis that you really have to do at the time of the acquisition. There are a lot of variables that go into that as to pricing of the acquisition versus the cost of the capital. At this point, we do not have another securitization on the horizon.

Okay. Thank you.

Our next question is coming from Buck Horne of Raymond James. Please proceed with your question.

Thanks. Good morning. Just additional kudos for the same-home data. I think it's much needed and I think helps investors maybe answer a lot of questions we have been trying to get to for a long time. So, congrats on that. But of course, the downside is it's going to open you up to even more questions from us.

I wanted to dive into the expenses a little bit that were reflected here. Things like the property taxes. It looks like you caught a really big jump in property taxes at least in the same-home portfolio. Did that -- was that just in the same-home portfolio? Did you have an issue with taxes across the broader portfolio?

And also on the property management expense line, it looks like that's still running at a fairly high level as a percentage of revenue. Should that normalize to a lower level? And what would that be?

Buck, this is Diana. One of the challenges/drawbacks of the same-home disclosure is going to be the explaining we have to do about some of these what may be aberrations in changes in expense line items. And, property taxes is perfect example of that. Last year we had credits coming through the first quarter that we didn't have this year.

Credits being refunds.

So, we had recorded expenses previously that ended up getting credited on certain assets. It was -- throughout the portfolio, this is I think a portfolio that's indicative of the whole on that measurement. So, I wouldn't expect to continue to see property tax increases of 10%. In fact, over the year, it will probably balance out to a much lower number in the 2% to 3% range.

Property management costs, yes, were up a bit. And this is a little bit of a function of how we allocate costs between leased and vacant properties. It's also an indication of total costs. But, over time, those property management costs will go down as we get the portfolio stabilized and larger.

And, Buck, also on the property management, we really staffed up because we were missing calls last year at the beginning of the leasing season. So, we really staffed up our call center and our lease writing teams, which will also add to the expense this year versus last year. But it has been extremely productive.

And, let me -- and this is a little bit of an enhancement of Jack's comments on the property management. The cost of property management -- the significant effort in property management is when properties are vacant and they are becoming -- going through the leasing process or coming out of the leasing process.

And, when you look at a stabilized portfolio where you've got 20% to 30% turning, that number of properties is significantly less than what we are dealing with today because we basically are doubling up on our efforts in property management because we are putting -- this quarter we put 3,000 new homes into property management out of our renovation group. So, that's not a long-term property management thing when you become stabilized.

There is additional cost and additional effort to handle the acquisition side. It gets reflected in expense in property management. We are also coming into the leasing quarter. So, this is -- you will see those numbers come down as we continue to stabilize our operations.

All right. Very helpful.

A follow-up just on the competitive landscape that's out there and just thinking about the vacancies that you are seeing either among institutional competitors or just in the industry at large. Are there any big potholes in the road that need to be dealt with?

I am thinking along the comments you made about what happened in Indianapolis where a competitor had a lot of houses that came on the market and wanted to get leased up. Is there any other areas or markets where you are seeing something that may be an issue to be dealt with this quarter or next?

We have had a couple markets, and it has been relatively rare that it occurs. We definitely had it in Phoenix. We had it for a little while in Tucson about a year ago. And Tampa was one market where we had it. And then Indianapolis was the fourth one.

I think there will probably be others that -- where it happens. But I think it will be less and less because most of the institutional buying has slowed up.

And I like your term, Buck, potholes. Because they are really temporary absorption issues, not long-term, permanent occupancy issues. And so, we go into them and come out of them.

Okay. All right. Thanks, guys. Good job.

Thank you, Buck.

Thank you. At this time, I would like to turn the floor back over to Management for any additional or closing comments.

Thank you, Donna. And thank you everyone for joining us today. We look forward to speaking with you later and on next -- our next quarterly conference call.

Have a great day. Bye-bye.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.