American Homes 4 Rent (AMH) 2017 Q1 法說會逐字稿

Greetings, and welcome to the American Homes 4 Rent First Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Stephanie Heim. Please go ahead.

Good morning. Thank you for joining us for our First Quarter 2017 Earnings Conference Call. I'm here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; Diana Laing, Chief Financial Officer; and Chris Lau, Executive Vice President Finance 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, May 5, 2017.

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 and supplementals.

You can find our press release, supplemental, SEC report 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 good morning, and welcome to our First Quarter 2017 Earnings Conference Call. I will begin today's call with an update of our business and industry and Jack Corrigan, our Chief Operating Officer, will then review our operating initiatives, our transaction activity and update you on our portfolio performed. Diana Laing, our Chief Financial Officer, will provide further detail on our operating and financial results for the quarter and review our balance sheet and recent capital markets activity. In addition, as Stephanie indicated, Chris Lau, our Executive Vice President Finance, is here with us and also available to answer your questions. After our prepared remarks, we'll open the call to your questions.

We had an excellent start to the year. During the first quarter of 2017, we continued to execute our strategic initiatives to improve operations through revenue maximization and platform efficiencies and to strengthen our balance sheet.

Maintaining a strong capital structure and ample flexibility and liquidity to fund our growth objectives has been a pillar of American Homes 4 Rent since our formation. We are and have been at the forefront of broadening the capital sources for our industry with the ultimate goal of obtaining access to the widest variety of capital options at the lowest possible price.

We recently accomplished a key component of this process. Both Moody's and S&P have announced investment-grade ratings for the company. We already have evidence of the benefit of these ratings. Last month, the company issued $150 million of Perpetual Preferred stock at a rate of 5 7/8%. This is nearly 1/2 percentage point lower than our last offering despite a significant move up in market rates.

With respect to capital raising, we have raised $500 million of new equity since the beginning of the year. During the first quarter, we issued approximately $350 million of common stock through an overnight placement and through our ATM program. These issuances facilitated our investment-grade ratings previously mentioned, and also as previously mentioned, subsequent to quarter end, we issued $150 million of preferred equity. We're extremely pleased with the execution of these offerings, which were both significantly upsized.

Proceeds from both of these offerings have been used to pay down outstanding debts. We intend to use our capital strength to continue to grow both through an acceleration of our acquisition program and our growing for rent development initiative. Jack and Diana will provide more details on our growth plans and balance sheet strength later on the call.

Moving on, our operating and financial metrics continue to show strength. We reported core funds from operations of approximately $77 million or $0.26 per share, up $0.10 compared to the $0.23 per share in the first quarter last year. Adjusted funds from operations, or AFFO, for the quarter was approximately $69 million or $0.23 per share, an increase of 13% from the first quarter last year. Our performance is driven primarily by growth of our core net operating income after capital expenditures from our Same-Home portfolio. That represents the majority of our total portfolio today.

For the first quarter of 2017, we reported Same-Home NOI after capital expenditures that were 9% greater than the amount earned on the same portfolio in the first quarter 2016.

Our NOI margins improved from 63.0% a year ago to 65.4% this year. These improvements resulted from increased rents and fees combined with lower operating costs primarily related to repairs and maintenance. In addition, our platform costs, consisting of our property management, leasing and general and administrative costs improved to a level equal to 12.7% of revenues down from 14.6% a year earlier. This industry-leading platform efficiency is a testament to the quality of our people, processes and systems.

Jack will provide more operating details, but clearly we are pleased with our ability to continue to lead the industry on operating and management efficiencies as we unlock the power of scale and implement and perfect innovative leasing and property management best practices.

And now as we move forward in 2017, we will continue to execute on our foundational principles: superior execution; strong and sustainable growth; and a long-term risk management through balance sheet strength and portfolio diversification in markets with growing neighborhoods and economies.

We believe our broadly diversified portfolio concentrated in growth markets can drive superior and more stable growth over time as well as provide enhanced opportunities to continue to further grow our portfolio. We will continue to pursue attractive growth opportunities and utilize our balance sheet capacity to accelerate our pace of acquiring new operating assets through our traditional acquisition channels coupled with newly constructed homes for rent.

We believe this new initiative offers great potential to grow our portfolio with an attractive and accretive yield, limited risk and significantly lower maintenance and capital expenditures.

And now, I turn the call over to Jack Corrigan, our Chief Operating Officer.

Thank you, Dave, and good morning, everyone. I'd like to begin with providing additional details on our transaction activity.

During the quarter, we acquired 420 homes for a total investment of approximately $80 million. Our pace of acquisition was in the middle of the range that we discussed on last quarter's call. Moving forward, we expect to expand our acquisition activity to 500 to 700 homes per quarter through trustee auctions and traditional MLS channels. Our acquisition activity is currently focused primarily in our Southeast markets. Newly constructed homes and any bulk transactions will be in addition to this anticipated activity. In April, we took our first delivery of 33 newly constructed homes and we are pleased that we are achieving initial yields that are comparable or better to acquisition yields in the same markets.

During the quarter, we sold 504 homes for $24 million. 476 of these homes were acquired through the ARP merger. At quarter end, we had 704 homes held for sale and look to sell these properties through bulk sales as well as individual retail sales. Beyond that, we expect to continue to identify homes within our portfolio to prune and recycle capital as a normal practice.

Turning to leasing. For the first quarter, we signed a total of approximately 4,600 new leases, we achieved average leasing spreads of 3.1% on renewals during the first quarter and 4% on new leases. Leasing spreads began to trend up throughout the quarter as we expected and were within the target range we provided last quarter.

Within our Same-Home portfolio, reflecting the operational results of 36,813 homes, owned and stabilized in both 2016 and 2017, we reported revenue growth of 3.6% in the first quarter. This increase was driven by a 3.6% increase in average rental rates, combined with the stable occupancy rate averaging 95.3% for each of the comparable quarters.

Same-Home expenses, net of tenant chargebacks for the first quarter, decreased 3%, driven primarily by an 11.4% reduction in repairs, maintenance and turnover costs, and 9.5% decrease in property management costs and a 15.8% decrease in insurance expenses. This was partially offset by a 4.1% increase in property taxes. As a result of these factors, for the first quarter Same-Home core NOI increased 7.6% and our Same-Home core NOI after deducting capital expenditures increased 9%. Our Same-Home core net operating income margin was 65.4% for the quarter, up 240 basis points from the first quarter of 2016.

Moving on, I'd like to update you on our expenditure efficiency initiatives. In the first quarter, we continued to drive our overall repair, maintenance and turnover costs including expensed and capitalized costs lower. On a Same-Home basis, these costs totaled $394 per home, compared to $450 per home in the first quarter of 2016, a decrease of 12.4%. For the trailing 4 quarters, these costs totaled $1,967 per home, compared to $2,023 for full year 2016, reflecting our continued improvement.

As we have stated in the past, lower costs are being driven by several factors including the underlying quality of our homes and the powerful benefits of scale that accrue to a large and growing platform, but equally important is our maturing operational expertise. Over the last 4 years: We have implemented, analyzed and improved our operational and leasing processes and procedures; we've hired subject matter experts, ensuring consistent application of national standards on maintenance and replacements; and developed and standardized training procedures as we gathered experience.

We're extremely proud of the innovative and market-leading management platform that we have built, continued to yield benefits and improved performance at almost all levels.

Finally, I would like to provide color on some of our expectations for the remainder of 2017. Our in-house maintenance program was rolled out to markets covering 90% of our homes. We believe the benefit of this program will result in continued reduction in maintenance, turn times and turn costs as well as enhanced customer service and care for the homes over the long term. We anticipate full year margins across our Same-Home portfolio in the 63% to 64% range with quarterly amounts being affected by seasonality. Rent growth in the 3.5% to 4.5% range as rent growth from improvements in occupancy and bad debt reductions level off.

Overall, repair, maintenance and turnover costs, including those expensed and capitalized to decrease to the low $1,900 per home range, and property tax expenses are estimated by our consultants to increase 5% to 7%. However, it is still early in the year to have a complete picture. Our remaining operating expenses are expected to be relatively flat-to-down slightly.

Now I will turn the call over to Diana Laing, our Chief Financial Officer.

Thank you, Jack. In my comments today, I'll review our first quarter 2017 financial results and discuss our balance sheet and liquidity. Our results are fully detailed in yesterday's press release and in our supplemental information package, both of which have been posted on our website in the For Investors section.

We've made a few changes in our supplemental financial information package this quarter and I'll point out a few of those. On Page 7, we disclosed a metric that we're calling platform efficiency. As Dave mentioned earlier, it represents property management, leasing and G&A expenses, expressed as a percentage of property revenue and -- or property rental and fee revenue.

On Page 8, in the statement of operations, where we previously broke out share-based compensation expense as a separate line item, those costs are now included in the property management expenses and the general and administrative expense line items. Also, this quarter's G&A expenses included about $700,000 of costs related to our initial corporate ratings.

On Page 11, our reconstituted Same-Home pool now consists of 36,813 properties, which represent 77% of our total properties, excluding those held for sale. The Same-Home pool does not include the former ARPI homes as we don't have a full year's prior results for comparison.

And finally, on Page 15, we're expanding our disclosure of credit metrics.

I'll also point out that we show the detailed calculation of all of our metrics in the defined terms and non-GAAP reconciliation section at the back of the supplemental.

For the first quarter of 2017, total revenues increased approximately 20% to $234 million from $195 million for the first quarter of 2016. Net loss attributable to common shareholders was $1.5 million or $0.01 per diluted share compared to net loss attributable to common shareholders of $4.4 million or $0.02 per diluted share for the same period last year. Core FFO was $77 million or $0.26 per FFO share for the first quarter of 2017 compared to $64 million or $0.23 per FFO share for the first quarter of 2016.

Adjusted funds from operations or AFFO was $69 million, $0.23 per FFO share compared to $56 million or $0.20 per FFO share for the same period last year.

As we move forward in 2017, our balance sheet remains extremely strong and supportive of our operational and growth objectives. We're proud of our recent news on the credit front that we received corporate investment-grade ratings of Baa3 from Moody's and BBB- from Standard & Poor's.

Also at quarter end, our liquidity position was exceptional with nearly $500 million of unrestricted cash and cash equivalents on hand; 0 outstanding on our $650 million revolving credit facility and positive retained cash flow of about $50 million for the quarter after payment of all expenditures, including dividends and mortgage principal.

During the quarter, we issued 14.8 million common shares through a public offering and a simultaneous private placement for total proceeds of $337 million, and we also issued approximately 630,000 common shares from the ATM for gross proceeds of $14.3 million. Subsequent to the end of the quarter, we issued 6 million of our Series F Perpetual Preferred Shares raising $150 million. And as Dave mentioned, the rate on the Series F Preferred was 5 7/8%, nearly 50 basis points lower than the coupon on the Series E Preferred Shares we issued last June, despite the fact that the 10-year treasury yield increased to approximately 90 to 95 basis points during that period.

Proceeds from all these sources were used in April to repay in full our $455 million floating-rate securitization and to repay approximately $100 million on our credit facilities. Subsequent to these transactions, approximately 90% of our debt is now fixed rate.

In terms of our leverage. Net debt to adjusted EBITDA was 5.2x for the trailing 12 months ended March 31. This improved to 4.9x upon completion of the preferred equity issuance in April and the repayment of the securitization and the paydown of the credit facility.

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

(Operator Instructions) Our first question comes from the line of Juan Sanabria with Bank of America.

I was just hoping you could give a little bit more color on the acquisition pipeline in terms of yields that you're expecting and give an update on the -- for development opportunities, what kind of yields you're getting there and kind of how the initial phases are going between partner with JVs. You're doing it on your own balance sheet. And just latest kind of cap rate expectations.

Yes, in general and there's some markets where we go a little lower cap rate and some a little higher, but in general, we're right around in minimum 5.5% yield based on our pro forma expenses and income, and we're achieving somewhere right around 6%.

And on the development front, any update in terms of where the best opportunities are there?

Yes, on the development side, again, we're primarily in the Southeast but we've been able to acquire some in markets that had previously been shut off to us. For example, we acquired 5 houses in April, in Seattle, which we had not been able to acquire for quite some time and got, again, a little lower yield than the 5.5, but right around 5 in Seattle, which is tough to do. And based on what we're -- how fast we rented those houses and we exceeded pro forma on each of those houses, we probably will achieve greater than 5. So I think it's a good program. It's still in the early stages. We've acquired 33 houses so far through that method but would expect somewhere in the 150 to 200 homes by the end of the year, and I think we'll in general exceed what we could do just acquiring existing houses in terms of yield.

And are you seeing any portfolio opportunities out there that -- you seemed a lot more bullish on the acquisition front than you have been in the last few quarters.

Well, we see it's pretty much similar to every quarter. There's lots of portfolios out there. It's going to be lumpy based on willingness to sell and agreement on price and we're going to continue to look at both small and large portfolios.

And just one last quick question. There was a bump up in the bad debts in the first quarter same-store results. Anything noteworthy there? Are you guys seeing more move-outs to buy homes maybe in the Southeast where we're seeing a lot of apartments applying discounting?

I think it had more to do, and I'll let Chris answer if I'm wrong, but I think that had more to do with a lower than normal bad debt expense in last year's first quarter. It's trending about where we expected.

Yes. No, I agree -- Juan, this is Chris. Nothing abnormal. Both of them were comfortably below 1% of rents and fees and I would attribute it just to timing.

Our next question comes from the line of Douglas Harter with Crédit Suisse.

Can you talk about your leverage plans and how you've gotten the 2 investment credit ratings that have changed kind of your target leverage levels?

This is Diana. I don't know that it changes our targets much. I think we, obviously, are very cognizant of credit metrics now and fully intend to maintain a balance sheet that's supportive of the investment-grade ratings.

Great. And now that you have the 2 investment-grade ratings, when do you think you might start to kind of utilize that and maybe issue unsecured debt?

Well, this is Dave. I think we've already utilized it to some extent. We issued a preferred stock immediately after the receipt of the second investment-grade. As Diana indicated, we lowered the cost of our funds 50 basis points at the same time the market had already increased 90 basis points. So we're seeing the benefit of that. We will look at all opportunities in the capital stack as time goes on and just to reiterate Diana's point, I think we're comfortable in the -- operating in the area where we are. We may go up a little bit, down a little bit based on acquisition pipelines and other factors.

Our next questions comes from the line of Rich Hill, Morgan Stanley.

A quick question on maybe the margin expansion and looks like you had some nice healthy improvement this quarter. How should we think about that going forward maybe in light of you not increasing guidance, or maintaining your guidance on the margin side. So maybe just some thoughts on trajectory going forward and what's going to drive those margins.

You want to take that? You want -- Jack?

Yes, I mean, we're going to continue to push on controlling our expenses on the operating side. I think we'll continue to get more efficient on the property management side as well as pushing down I think, to the low $1,900s maybe, further on expenses. We had 4.1% property tax increase and we're projecting 5% to 7% for the quarter, otherwise I might be a little more bullish on pushing the margin guidance for the year.

Yes, Rich, just to reiterate, in Jack's prepared comments, for the year, we're looking at 63% to 64%. Let me reiterate also the seasonality of this business so that's not going to be consistent quarter-to-quarter, but for the year we believe it will be in the 63% to 64% and we did have some very nice margin expansion first quarter compared to prior year and we expect to have margin expansion compared to -- comparable quarters for the balance of the year.

Got it. And so if I'm hearing this, a lot of it's still going to be driven by reduction in the expenses, which I think has been, obviously, a big focus of yours over the past quarters and years?

Yes. I think we'll continue to get solid rental increases and combine that with flat-to-reduced expenses, it should result in margin expansion.

Our next questions come from the line of John Pawlowski with Green Street Advisors.

I'm curious as to why you chose to issue Preferreds in April. I understand you got a great rate relative to your last Preferred issuances but when your stock's trading at a pretty large premium to NAV and a low-5% implied cap rate and you get the new unsecured rating, why not issue equity or put your unsecured rating to use instead of going the Preferred route at a high-5% coupon?

Well, during the quarter, we did issue a fair amount of common equity. We did take advantage of that opportunity. We issued about $350 million of common equity and part of it was -- there's a number of different variables that we look at when we decide how to put a little leverage into the company and based on all of those variables, we chose to do a small issuance of Preferred.

Can you take us through those variables?

Well, it's a function of the long-term nature of the permanency of your Preferreds versus the refinancing risk of some of the other securities and the time to get to market as well.

Okay. Jack, on hand, do you have the what would have been the 1Q '17 revenue expense in NOI growth of the old 25,000-unit same-store pool?

I don't, but Chris, do you?

Not off the top of my head.

No, I don't have it. I don't think it would be significantly different but I'm sure Chris can get back to you on that.

Yes, but I agree, in general, John, the old pool and the new pool are pretty similar. There's a little bit of market mix differentiation but in terms of general trend, of performance and profile of the 2 pools, they're pretty similar in terms of performance.

Okay, great. And then last one for me. I guess, what would you peg the odds of you landing a large portfolio in 2017? Large being 1,000 homes-plus.

Oh, around 0 to 100. We don't typically comment on that, John, while we're -- until it's done. So. . .

Our next questions come from the line of Jade Rahmani with KBW.

On the M&A side, has the dialogue level increased in terms of frequency of conversations?

I would say it's pretty even and it's always been pretty lumpy. We have some portfolios out there where we've had discussions and then 6 months later, we have discussions again, and then 6 months later, we have discussions again. So if you don't agree on price the first time, doesn't mean you can't the second or third time.

What's your appetite or interest in doing something of significant scale and size similar to ARPI?

We have a big appetite for doing something like that.

For the right deal, we would love it.

Okay, and is there any capacity constraint within your existing platform? How many homes do you think potentially you can manage?

Oh, I don't think there's a limitation long term. I think that we stress tested our systems to double in size and we don't see any performance issues.

And the other benefit of the way we're structured with the significant piece of our management platform being centralized, it allows us to scale up and down very, very quickly. And we saw that with American Residential, 7,000, 8,000 homes coming into the platform. And all our -- all the properties had our signs in the front yard within a day, they were all on our system and we really didn't have -- lose a step in marketing those properties or managing collections in acquiring them. And I don't believe there's a portfolio out there that I'd be concerned about the integration issues coming into our portfolio.

Are there any markets you're in currently where having had a same-store portfolio for some time of scale you've decided the market dynamics are not presently attractive and you could identify a potential exit from an entire market?

We have a couple of. . .

And how would you feel about, say, Chicago?

Chicago, we're fine with. We got 25, I think, about 2,500 homes in Chicago, and that's 5% of our properties and I think that you'll see some years they're going to lag a little bit on rent growth, other years they're going to go up. We saw that in Phoenix and Tampa where we're getting 1%, 2% rent increases for a while, and now we're getting significantly better than that. So it's -- at any one particular point in time, I don't want to -- I'd like to see it over the long term before I make that kind of a decision on a market we've invested that much in our people and our properties.

Could you talk about the asset management process you go through to identifying underperforming homes and how you decide about whether to add improvements or dispose of the homes?

Yes, we regularly go through anything that ages and doesn't rent, and determine whether it's a property pricing, whether we just didn't do a good job in turning the house. We don't have a lot of those houses, fortunately, today. I think we have about 100 that are 90 days or more and then we also take a look at values versus current rent. So -- to see if it makes sense, the yield based on current values makes sense to hold them. So those are a couple of the metrics that we look at.

And is it typically determined from a bottom-up local basis that feeds up through the infrastructure or are you having data analytics identify using statistics?

Both.

And just finally, can you comment on the turnover ratio, which was a bit higher than what we expected and I think yourself and peers overall, I feel like we've seen a bit of an uptick in turnover. You're seeing an increased number of move outs to purchase homes.

Yes, I think last year we had about 8.8% of our houses turn in the first quarter. This year was 9.1%. My expectation -- I mean, we had last time -- a year ago, when we looked at how many were moving out to buy new homes, it was in the 30% range, last time we looked at it, it was in the 40% range. So that probably accounts for most of that increase, if not all of it.

And is this something you're worried about or you feel like it's a manageable trend because demand remains strong?

I think it's a manageable trend. Demand remains strong and as interest rates go up, there's probably going to be less people moving out to buy houses.

Our next questions come from the line of Haendel St. Juste with Mizuho.

Just a question on the acquisition yield in Seattle. So you're buying there at about a 5 and it sounds like from the comments, you expect greater growth from those assets over time. So I guess, help me understand the math there. If you're buying there at 5, you mentioned that your overall portfolio average yield is about a 6. So implying that what you're seeing in the Southeast is north of a 6 so help me understand why it makes more sense to buy in Seattle at those levels versus what you're seeing in the Southeast given your higher yields and already established platform there?

Yes, we -- the houses that we bought in Seattle through a homebuilder, we were offered a portfolio of houses and we chose certain houses in each of their developments that were in our markets. And the blended of all the markets was right around 6 and -- but somewhere north of 6 and Seattle, obviously, was lower than that. So we were fine with taking the whole thing and adding a little bit to our Seattle portfolio with really no additional management costs.

Okay, and assume that, that's a market where you want to establish a presence similar to some of your other larger markets or you're just going to be opportunistic and see what comes along?

We have 5 -- a little over 500 houses in Seattle and we also have a presence in Portland and they're managed basically together. So we'd love to buy more if it's economically feasible.

Okay, and have you talked about the turn times during the first quarter? I didn't catch it so I don't know if you can run through that for me, please?

Yes, the turn times, I think I talked a little bit about this last quarter, but the fourth quarter and particularly, the first quarter will be seasonally long because from November through about Martin Luther King Day, leasing is a little slower than other times so you end up leasing the aged homes, not aged because there's anything wrong with them, just aged because of demand, in the first quarter and that extends the marketing period in the turn times. And if you remember, there's really 3 components to turn times, it's what happens between move out and rent ready and we continue to see compression on that. Our guys are getting really efficient at that in the 6- to 7-day range. And then there's the marketing time, that expands in the first quarter and will contract in the second and third quarters. And that, I think, was -- that was approximately 47 days, the marketing period in the -- but again that's skewed upwards by the fourth quarter and then there's the lease sign to lease start date and that typically is anywhere in the 8- to 10-day range and it was 9 days in the first quarter.

Got it, got it, okay. And then you kind of alluded to an earlier question but just curious on the near-term trajectory for same-store expenses. The first quarter obviously, you guys are doing a lot of things in terms of increasing overall efficiencies, bringing certain things in house, but also is helped by a pretty, I guess, easy comp in the first quarter of last year where you had expense growth over 9%. The next couple quarters are much more difficult, flattish to minus 2%. So curious how we can expect to see that line item fluctuate the next couple of quarters. Again, it's not only what are tougher comps but balanced a bit by some of the efficiencies and improvements you've been now seeing in the upside?

Yes, I think we gave guidance to the low $1,900s for all that. I think I would stand by that if not achieve a little better than that but I'll leave the guidance where it is. Insurance expenses, I think, are going to be relatively...

They'll be flat. They'll be flat to slightly down from where they are.

Yes, and then property management costs. We're not -- I think we're going to get more and more efficient as time goes on, whether that results in a 10% reduction, I haven't done that calculation. I just focus on getting better and better.

Our next questions come from the line of David Corak with FBR.

The move out to home ownership stats, remind me how that is -- how the data is collected and then the percentage of departings that you actually get an answer from?

Yes, we get an answer from 10% to 15%. We do a survey whenever anybody moves out and we get 10% to 15% and that's -- it's as reliable as 10% to 15% can be.

Right, right. It's just for us there's obviously some sampling area there so it's how much do we actually rely on that number. So anyway, and then moving on, kind of bigger-picture question. I'm hoping you guys can give us some color on your strategy on increasing renewal rates at this point? Just again bigger picture, you have a fairly long average duration of your stay compared to other types of residential properties. Does that mean your customers are actually stickier? But -- and so releases have kind of exceeded renewals several of the last quarters. So I'm just curious on how we're supposed to view this going forward, maybe just some color on that strategy. And is there a point where you guys feel comfortable pushing renewals more aggressively?

3% to 4% is pretty healthy growth on the renewals. But I think that on the margin, we can increase it through improving our customer service. I think we're taking some large steps towards improving customer service through our in-house maintenance rollout and continue to work on that aspect. We also get surveys whenever we do a maintenance call on any of the occupied homes and the surveys seem to be improving. So people don't always move out because of price or service, but we can certainly help change that and the best way I think is through customer service.

Okay. Would you mind sharing what those numbers are, the growth rates are, what they were in April? Renewals and the releases?

The growth rate, it's continued to increase. They continued to increase through the first quarter. I think it was, on releasing -- I would say they're about the same on renewals. But on releasing, it went from 2.7% in January to 3.7% in February to 5% in March. And if history is any indicator, it will continue to increase through probably July.

Okay. And then just lastly, can you give us an update on the in-house maintenance platform? You said 90% of market, so that's super helpful. But just some of the metrics that you've quoted in the past, like the work order protect and maybe what percentage of actual eligible orders have gone in-house and how has that changed since you've initiated the program?

Sorry, Dave was throwing something in my face and I couldn't read it. Yes, our work orders protect is getting -- we haven't crossed the 5 protect yet but we're right up there. I think if I round it, I can say 5, but we were at 4.1 last year. I think we're at 4.9 last month that I looked at, so we're getting better and better at that through route optimization and a number of other technologies. They're about -- they get approximately 20% to 30% of our current work orders for occupied houses.

In those 90% of markets?

Yes.

Our next questions come from the line of Dennis McGill with Zelman & Associates.

Just going back to the leasing comments. I think I heard you say earlier that the leasing trends improved through the quarter and was consistent with your expectations. But I think quarter end occupancy was below the average for the quarter. So can you just maybe clarify that?

Well, leasing -- the leasing season is also the move-out season. So your move outs, or your biggest move outs are going to be May and June and those are going to be your biggest leasing months and you really have very few move outs in November and December and then -- so it kind of matches up, the timing of the various move outs. Some markets, for example, Las Vegas, you have one big move-out month, then the next month you're going to have one big leasing month, and so it doesn't always match up at month end.

Well I guess, I'm just thinking there should be seasonal improvement in occupancy during through first quarter. And we don't know this for sure but the data implied the other -- the trend went the other way.

Yes, I wouldn't infer that there's a negative trend in leasing. I think you'll see in the second quarter that the leasing season will be very, very strong. It appears to be starting that way.

Okay, that's helpful. Going back to the Preferreds. As you think about the go-forward capital structure, do you have a bias to having Preferreds, as a percentage of that stack, stay relatively constant? Is that a part of the thought process or is it open-ended as far as how much of the capital stack will be Preferreds?

At this point, I'd say it's open-ended. I think we'll look at all of the different components and make a decision at each and every time we need to access the market. The ability to reset the coupons of our Preferreds was -- as well as just the strength of that market at the time we were looking to issue capital, the preferred market was very, very strong so we took advantage of it.

And then, Dave, I wanted to clarify the comments you made on the new construction yields as well. I think you said there's only 30 houses right now that you've purchased that are new, so it's a small sample. But what is the actual yields you're achieving today and can you clarify whether that's -- or what's inclusive in that on the CapEx side, if that's the yield today or if there's some sort of longer-term underwritten CapEx that you're assuming there?

The yield is right around 6 and we're assuming -- what we're doing with the new-build homes is making them more rental friendly. We're putting in resilient flooring throughout so you're not changing carpet. We think we'll get a little lower CapEx and maintenance over time and especially in the first year where you're under warranty, it will be 0 but we're writing in slightly less than we're writing in for our existing homes. I think we're in the $1,200 to $1,500 range for all-in CapEx, maintenance and turn on the new houses versus the $1,900 range on existing houses.

Okay, and the delta there is large, or the structural piece that is essentially 0 for the first handful of years?

That and the fact that we're building them and spec-ing them for less maintenance.

Potentially less on the turns.

And also realize that property management costs per home are virtually nonexistent as far as increasing that cost item on these new homes.

Okay, and then just last question on the retention rate for the quarter. I didn't see it in the supplemental. Do you have that for first quarter?

No, we've really moved to the convention that multifamily follows and using turnover, and so we're doing turnover. We used, for a transitional year last year, we had both but we're -- we've moved to the turnover metric.

Was there any material change or any change relative to a year ago?

No. It correlates to the change from the 30 basis points change in turnover. They're really the same metric looked at inversely.

Our next questions come from the line of Buck Horne with Raymond James.

I just wanted to follow up on the build-to-rent strategy here a little bit. So in terms of operations, maybe which types of markets do you think that this strategy would fit best in? Are you looking to acquire clusters of homes in certain neighborhoods or do you want them to be spaced out fairly evenly or how do you think about managing the homes that you're buying? And also, I guess lastly, just- how do you see the rent growth potential for newly built homes relative to retail homes?

I think that will be market by market on the -- and submarket by submarket on rental growth. But right now, we've only done it in kind of spaced out in various subdivisions where the builder is building. That doesn't mean that's where we'll stay but that's what we're doing right now.

Okay, in terms of the rent growth potential, would you say it's comparable to...

Yes, it's very comparable. We're buying in extensions of communities that we've always bought in for the most part. So I don't see that it will be significantly different.

And with your expected savings on R&M and CapEx, do you think the yields are comparable to what you can find in the retail market or slightly under the retail acquisitions?

I would say comparable or slightly better.

Okay, okay. And did you mention -- in terms of renewal offers, on renewal leases, what you've sent those out in terms of the upcoming months for, call it May, June, July, if you've got any data on the renewal offers out there?

No, I don't have that data in front of me.

Our next questions comes from the line of Anthony Paolone with JPMorgan.

You may have touched on this but you're working through your held-for-sale pretty quickly here and I think those were largely from the ARPI deal. When you're done, is there another round that you think you'll bring into the mix now that you've ramped up the investment side of things?

Not a wholesale disposition unless we acquire a portfolio like ARP and have homes that are noncore. But we do add homes periodically as we go through and review homes but they're typically one-offs or maybe a neighborhood of 4 or 5, but nothing wholesale like you saw when we acquired ARP and added about 1,400, 1,500 homes at one time to our held-for-sale.

Okay, and then, a big part of the pitch used to be on the acquisition side, the discount to replacement costs. Can you talk about where that it is now when you're out there, either on the courthouse steps or off the MLS? Because you're also making acquisitions obviously, at replacement costs, I guess, on the build-to-rent side. So just trying to -- wonder what that spread looks like given that the yields are kind of comparable.

Yes, I think the acquisitions in the traditional acquisition channels, the acquisition price to discount has significantly narrowed. We're buying instead of in double-digits discounts, in that 0% to 5%, 0% to 8% range. But our acquisitions of the -- from the builders are at a small discount as well. We are negotiating volume discounts there. So it's a little bit less than retail on that side as well but your statement is correct, the prices have come up significantly and we're buying closer to retail -- or closer to replacement costs. But at the same time, we've seen some significant increases over the last few years in rental rates, we've seen cost of capital change. As was mentioned, the yield on our commons in the 4s. So acquisitions today, even though the prices have gone up, are still very accretive.

Thank you. This concludes our question-and-answer session. I'd like to turn the call back to David Singelyn for closing comments.

Thank you, everybody, and thank you for joining us today, and we'll look forward to speaking with you on our next quarterly conference call. Have a good day.

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