American Homes 4 Rent (AMH) 2019 Q4 法說會逐字稿

Greetings and welcome to the American Homes 4 Rent Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

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

Good morning. Thank you for joining us for our fourth quarter and full year 2019 earnings conference call. I'm here today with David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment Officer; and Chris Lau, 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 28, 2020.

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. As a note, our operating and financial results, including GAAP and non-GAAP financial measures, are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com.

With that, I'll turn the call over to our CEO, David Singelyn.

Thank you, Stephanie, and good morning, everyone. In my comments this morning, I will first recap our 2019 objectives and related results. Then I will provide an update on the trends we're seeing in the single-family rental home industry; discuss our growth expectations for 2020; and finally, touch on our recent announcement regarding the addition of a new trustee to our Board. The fourth quarter 2019 represented a strong finish to what was a fantastic year for American Homes 4 Rent. As we entered 2019, we talked about 4 objectives: operational excellence, consistent and accretive growth, financial strength and flexibility and superior customer service.

Now I'll highlight our successful execution against each of these objectives. First, operationally, we generated excellent results, including strong core FFO per share growth of nearly 7% and industry-leading adjusted EBITDA margins; second, on the growth side, we accelerated our unique development program. We have built a team with extensive homebuilding experience, find the pipeline of land and are ready to take this to the next level in 2020. Third, our fortress balance sheet remains intact, and we ended the year at a net debt to adjusted EBITDA of 4.7x. As we enter 2020, we expect to retain more than $300 million of annual cash flow, have a fully undrawn $800 million credit facility and have multiple other sources of capital, including a new institutional JV.

And finally, our superior customer service continues to improve as our resident survey and our Google ratings hit their highest levels in 2019. 2019 was a great year, but it is just the beginning. From a macro perspective, single-family rental fundamentals remain strong with high demand and limited supply.

We enjoyed stable occupancies, rising rental rates and increased showings per available home. We are extremely pleased with our diversified national portfolio, where the majority of our markets are characterized by favorable cost of living and taxes. These areas are precisely those that are experiencing high levels of new population and employment growth, with many of the households and jobs moving from higher cost of living areas.

In fact, population growth within our markets is more than 3x the national average, which is creating demand for new rental housing. We will continue to be part of the housing solution by providing high-quality homes through our development program and traditional acquisition channels.

Moving on to talk about growth expectations. Today, American Homes 4 Rent is uniquely positioned to pursue its growth plans through 3 investment channels: First, through our traditional channels of buying homes; second, through our relationships with national homebuilders; and lastly, through our in-house built-for-rent development program. As we look to 2020 and beyond, these 3 channels provide us the ability to significantly ramp up our investment pace.

Over the past 3 years, we created a home development infrastructure to control our long-term external growth that provides flexibility and is sustainable through all housing cycles. In fact, the success demonstrated our initial results, convinces that our in-house development opportunity is much larger than we initially thought. This opportunity provides us high-quality assets, the best returns on investment and holds our residents prefer.

We believe AMH is uniquely able to do this for several reasons. To start with, we have an investment-grade balance sheet, strong cash flows from operations and ready access to capital, which provides us with the confidence to make multiyear capital commitment necessary for a development program that can require multiple years from sourcing and opportunity to delivering a project.

In order to take greater advantage of these opportunities in the future and to provide additional diversified options of future capital. Yesterday, we announced a new joint venture with institutional investors advised by JPMorgan Asset Management. This is an exciting relationship, providing us a new source of attractive long-term capital as well as another high-quality partner.

Today, our one-of-a-kind development program is operating in 15 of our 35 markets, led by an experienced team of senior personnel with significant prior homebuilding experience. During 2019, we doubled our land inventory, providing us the pipeline for future deliveries. Before I move on, let me share with you a few unique attributes of our development program. It starts with amenities that residents desire in the home and in the community. Various design considerations and energy-efficient and durable materials reduce future maintenance needs and costs.

We believe the ability to build new rental housing that residents want at an attractive yield is a game changer for the rental home industry and the housing market, and we have a big lead in this area. Given the favorable economy and compelling demographics and the investments we have made to our platform, we start 2020 firmly in the driver seat and ready to accelerate our growth.

In other words, we're looking at a future with great opportunity, and we've only scratched the surface. This is driving our industry-leading core FFO growth per share guidance for 2020 to north of 7%. Finally, I'd like to take a moment to discuss our recent announcement regarding our new trustee. On behalf of the entire board, I welcome Matt Zaist to our Board of Trustees. Matt was President, Chief Executive Officer and a member of the Board of William Lyon Homes, a publicly traded national homebuilder that recently merged with one of its peers. Matt's appointment reflects our commitment to having trustees with strong relevant experience as well as our commitment to refreshing the Board with diverse and independent perspectives.

Matt's experience, leading one of the largest housing developers in the United States and his in-depth knowledge of our industry, will be invaluable as we expand this important growth area for our company and successfully advance our plan to further enhance shareholder value.

Overall, over the past year, we have added 3 new independent trustees with diverse but complementary experience; Wendy Webb brings Investor Relations, Governance and large-scale branded real estate development experience from 2 decades at Disney; Jay Willoughby brings a deep investor perspective and a keen eye for shareholder value creation through his role as Chief Investment Officer of one of the nation's leading investment managers and is a member of the sustainability and accounting standards for. And now Matt Zaist brings executive and operational leadership in homebuilding experience to our Board.

With that, now I'll turn the call over to Bryan.

Thank you, Dave. We are very pleased with our fourth quarter and full year 2019 results, where it takes to our team's hard work and consistent execution, we met or exceeded our operational targets for the year. Underpinning our strong results is our commitment to the resident experience. Due to our unique focus on engaging directly with our residents, we are able to provide responsive service in great part because of our ability to see things the way our residents do. This focus has driven our improvement in customer satisfaction, as evidenced by our resident survey results and Google Ratings. We are proud of this success and know that resident satisfaction is the key to our long-term strategy as we seek to establish American Homes 4 Rent as a brand of choice for single-family rental housing. For the fourth quarter, occupancy within our same-home pool continued to be strong. Our average occupied days percentage improved by 40 basis points to 95.1%. And our average monthly realized rent increased by 3.3%, driving a 4% growth in core revenues when compared to the fourth quarter of last year. Beyond these historical metrics, we also tracked leading indicators for demand in our properties, which gives us perspective on the health of the market. In the fourth quarter, foot traffic, as measured by visits per rent-ready property, increased by 12% year-over-year.

On the expense side, total same-home core property operating expenses were up 5.4%, with property taxes increasing by 5.9%. Operating expenses, excluding property taxes, were up 4.9%. Overall, this drove a fourth quarter year-over-year increase in core net operating income in the same-home pool of 3.2%.

For the full year 2019, on a same-home basis, a 40 basis point improvement in our average occupied days percentage and a 3.5% increase in our average monthly realized rent drove core revenue growth of 4.1%.

While our core property operating expenses were up 4.9%. Expenses, excluding property taxes increased by 3.8%, which was inside the range of our expectations at the beginning of the year. Most importantly, our core NOI was up 3.7% or 20 basis points above the midpoint of our expectations. Our positive top line performance continued into January with strong same-home average occupied days of 95.2% and blended leasing spreads of 3.5%. Occupancy was in line and leasing spreads improved by 40 basis points over January of 2019.

As we look ahead to 2020, we expect top line growth to be in the 3.2% to 4.2% range, driven by strong sustained occupancy and modest improvement in rental rate growth. On the expense side, we expect operating expenses, excluding property taxes, will increase 3.2% to 4.2%. This reflects wage, labor and material inflation, offset by improvements in execution. Chris will provide additional detail later on the call.

As I mentioned in my opening remarks, creating a superior resident experience is at the center of our strategy and our ability to efficiently deliver it as a direct result of our extensive investment in technology. Initially, we were able to apply digital solutions to scale an industry that was previously thought to be unscalable. And by focusing on our mobile platform, we continue to enhance the resident experience through improved communication and self-service solutions.

Further, our expanded use of data and analytics allows us to optimize our platform while listening to what our residents want. In fact, feedback from residents and prospects has driven the design and layout of our AMH Development homes. We are able to value engineered homes that closely match resident preferences and are efficient from a maintenance perspective.

Our analytics drive both high-level decisions, such as location collection and the ideal mix of 3, 4 and 5 bedroom homes in the community as well as lower-level decisions like the types and features of appliances, all the way down to the optimal horsepower of our garbage disposals.

A perfect example of this is our steel force community in Atlanta, which was designed from the ground up using this data-driven approach, the homes within at least 12 days faster and at a 10% premium to our neighboring traditionally acquired homes. While this is just one example, it shows the potential of our rapidly evolving platform.

Further, our analytics have identified major property enhancing CapEx opportunities, such as bedroom additions and kitchen renovations in our existing portfolio. Many of our homes are in neighborhoods when the market has a proven willingness to pay a premium for upgrades. For example, in certain Houston neighborhoods, we completed kitchen, bathroom and flooring upgrades that drove incremental returns on investment of 10% to 20%. These quantitative results don't fully reflect the improvement in the resident experience, which we expect will drive additional benefits through higher retention.

Including hard surface flooring, we plan to invest approximately $20 million to $40 million into our property-enhancing CapEx program this year. Over time, we expect it to expand, and we believe these targeted capital expenditures, which have been leveraged for years to great benefit in the multifamily industry, are yet another way for us to drive incremental growth. Finally, our detailed asset reviews drive our asset management process, including identifying appropriate disposition candidates. Strategic pruning of our portfolio allows us to recycle capital into opportunities with better long-term returns.

During the fourth quarter, we sold 376 homes for approximately $69 million, which brought our full year 2019 disposition volume to 1,330 homes or $248 million. As of December 31, we had 1,187 homes held for sale.

To close, I am thrilled with the opportunity in front of us. And I look forward to continuing our momentum throughout 2020. Now I will turn the call over to Jack.

Thank you, Bryan, and good morning, everyone. As Dave stated, the big story of 2019 was our AMH Development program. We expect that to continue into 2020 as we ramp up our entire external growth program, including our development program, our acquisitions from National Builders and our traditional acquisition platform. Our plans call for investing $800 million to $1 billion in 2020. Put this in perspective, we expect to be net buyers of approximately 2,200 homes in 2020 compared to net sellers of 231 homes in 2019.

In addition, we expect to continue to expand our land pipeline. Over the past 3 years, we have tested and rolled out our one-of-a-kind development program, selected markets across our platform, primarily in the southeast and western markets. Our new development homes are built with the long-term renter in mind, including maintenance-resilient features as well as floor plans, finishes and other upgrades known to be desirable to our residents.

With the ability to build high-quality homes create neighborhoods and concentrate assets, we are opening new avenues to efficiently serve our residents and lower our long-term maintenance costs. We believe that American Homes 4 Rent is uniquely positioned to pursue a development channel for growth. We have tested the product and hired the talent, and we are encouraged by our results and resident feedback.

This concept is gaining widespread acceptance as evidenced by our joint venture announcement. We have a pipeline of landholdings with approximately 5,000 lots currently in place for future development, and we expect to continue to grow this land pipeline going forward. Our experienced land acquisition team and our proprietary data analytics enables us to strategically identify ideal land opportunities that are within our existing AMH footprint in our high-growth markets. This inventory and additional acquisitions of land will permit us to expand our future development activity.

Now moving on to other investment opportunities. While we believe the AMH Development program is the best investment on a risk-adjusted return basis, there are still great opportunities in our national builder and traditional acquisition channels. While we are accelerating our investment activities, we will be mindful of the timing of inventory additions to align with market demand and to minimize the impact on other assets in our portfolio.

Now let me update you on our expected investment activity for 2020. First, we expect to add between 3,300 and 3,700 move-in ready homes to our system. Of these, approximately 500 are designated for joint ventures and the remainder will be on our balance sheet.

Our total on-balance sheet investment is expected to be between $800 million and $1 billion, representing new home additions of approximately $750 million and increases in land inventory, construction and process of $150 million to feed our pipeline for 2021 and beyond.

With our investment of approximately $750 million, we expect to add 2,800 to 3,200 homes to our inventory, of which between 1,200 and 1,500 homes will be from our in-house development program and the balance will be split between our National Builder and traditional acquisition channels.

In closing, we are extremely excited with the opportunity in front of us and believe that American Homes 4 Rent is the only platform that is positioned to take advantage of today's favorable market conditions by deploying capital through these 3 channels.

Now I will turn the call over to Chris.

Thanks, Jack. In my comments today, I'll briefly review our operating results. I'll take you on our balance sheet, provide additional color on our new joint venture and conclude with a summary of our initial guidance for 2020.

Starting off with our operating results. For the fourth quarter of 2019, we generated net income attributable to common shareholders of $23.6 million or $0.08 per diluted share. On an FFO share unit basis, we generated $0.29 of core FFO, representing a 5% increase over prior year and $0.26 of adjusted FFO, representing a 4.7% increase over prior year.

For full year 2019, we generated net income attributable to common shareholders of $85.9 million or $0.29 per diluted share. On an FFO shared unit basis, we generated $1.11 of core FFO, which was in line with our expectations representing a nearly 7% increase over prior year and $0.99 of adjusted FFO, also representing a nearly 7% increase over prior year. And turning to our balance sheet. We continue to remain in great shape with the only investment-grade balance sheet in our space. At the end of the year, we had approximately $2.9 billion of total debt with a weighted average interest rate of 4.4% and a weighted average term to maturity of 13.1 years.

Our net debt to adjusted EBITDA is now 4.7x comfortably below our internal leverage target of 5.5x, providing us with meaningful debt capacity to support our 2020 expanded growth programs. In terms of liquidity and funding sources going into the new year, our $800 million revolving credit facility remains fully undrawn. We are currently generating approximately $300 million of annual retained cash flow, and we expect to generate between $100 million and $200 million of recycled capital from our strategic disposition program in 2020.

Our balance sheet continues to be a key differentiator, which we plan to fully utilize in 2020, uniquely enabling us to accelerate our external growth programs. However, as Dave and Jack mentioned earlier, we believe that the external growth opportunity, especially from our AMH Development program, is even larger. And we believe that now is the time to capture as much of that opportunity as we can, which is why we are very excited to announce our new development joint venture with institutional investors advised by JPMorgan Asset Management, increasing our access to both public and private long-term capital to expand our development pipeline and capture more of the growth opportunity. The new JV will start as a $250 million venture with opportunity for future upsizing and be focused on constructing and operating newly built rental homes, like AMH Development.

AMH will hold a 20% ownership interest with additional economic upside for fees and opportunity for promoted interest. Of note, the venture is structured with an evergreen term, reflecting the long-term alignment of use with our high-quality partner and provides us for the opportunity to earn our promoted interest after construction and initial operation of the venture's properties, creating a unique and efficient opportunity to monetize the AMH Development value creation process without the need to sell assets.

Throughout 2020, the venture will be focused primarily on cultivating its own development pipeline designed to be incremental to our on-balance sheet development program, with construction deliveries beginning in 2021 and 2022.

Although we don't expect any earnings benefit from our new venture in 2020, we are incredibly excited about our new partnership and its longer-term contribution to our outsized growth profile. And finally, I would like to introduce our 2020 guidance, which was detailed in yesterday's release and supplemental information package. For full year 2020, we expect to generate between $1.17 and $1.21 of core FFO per share in unit. At the midpoint of $1.19, we're expecting an annual increase of over 7%, representing an acceleration over prior year growth, supporting our range for several assumptions that I'll provide you with more color on.

For our same-home pool, which will include about 45,000 properties for 2020, we expect core revenue growth between 3.2% and 4.2%, which, as Bryan already covered, is based on our expectation for continued strong occupancy similar to 2019 and a slight acceleration in year-over-year growth in average monthly realized rent. Additionally, we expect core property operating expense growth between 4% and 5%, driven by a 4.8% to 5.8% increase in property taxes, which represents a deceleration in growth compared to 2019, as we expect to benefit from the new Texas property tax reform and a smaller proportion of our properties undergoing multiyear reassessments in 2020.

Outside of property taxes, we expect all other expense line items to increase between 3.2% and 4.2%. And to the bottom line, we expect 2020 same-home core NOI growth to be between 2.8% and 3.8%.

Additionally, as Jack mentioned, we expect to invest between $800 million and $1 billion of total capital this year and take into inventory between $700 million and $800 million of homes from both our development and acquisition programs with the balance of this year's capital deployment, representing investment into our further expanded pipeline for 2021 AMH-developed homes.

From a funding perspective, we expect to fund this year's growth through a combination of retained cash flow, recycled capital from our disposition program and leverage capacity from our balance sheet. And finally, we expect 2020 reported G&A expenses to increase between 3% and 4% over prior year.

And before we open the call to your questions, on behalf of the management team, I'd like to quickly reiterate our excitement about 2020. Over the years, we've been working hard in investing to build the most efficient operating platform in the industry, develop our one-of-a-kind AMH Development program and cultivate our industry-leading investment-grade balance sheet. Our investments are now paying off, and we're excited to demonstrate the power of American Homes 4 Rent firing on all cylinders in 2020.

And with that, that concludes our prepared remarks, and we'll now open the call to your questions. Operator?

(Operator Instructions) Our first question comes from Jason Green with Evercore ISI.

You guys talked about homebuilders as one of the channels to deliver more homes. I guess, previously, it seemed like you had tried that route, and it didn't really work. Has anything changed in your thinking in regards to working with homebuilders to deliver homes?

I don't -- this is Jack. And thanks for the question. I don't recall it ever not working. We've consistently acquired homes through the National Builder network and continue to do so. We're just expanding that a little bit. We slowed it down because our primary investment during 2019 was our AMH Development.

Yes, Jason, this is Dave. Let me just add a couple of things to that. It's always been, as Jack said, one of our channels. We've used it consistently. I think what you may have heard is that our development program is our primary path. But as you see this quarter, where at this time, the opportunity in front of us is huge, and we have the capital in place to take advantage of that opportunity, and we're going to utilize all the channels available to us.

Got it. And then just on the rate acceleration that we saw in the same-store pool in the quarter. Is that attributable to anything specific that you guys are seeing in the market? Or is that really just a quarterly trend that we shouldn't really read much into?

Bryan, do you want to take?

Yes, Jason, it's Bryan. I think you're seeing the benefit of some improvements in our execution on renewals. Our renewal rates are really at an all-time high for the quarter. Part of that ties into the improvements in execution on the resident experience and really listening to what our residents want and providing exceptional service. So not only did we improve our renewal rates, we did it in the context of improved retention as well. I think that's the main contributor to that improvement.

Our next question comes from Shirley Wu with Bank of America.

So my first question is a follow-up on Jason's questions on your rates. So the renewals were stronger, but the new leases were slightly down year-over-year. So understanding here, for January, and you're seeing the blended lease is up 40 bps, is that -- has that continued to come from the renewal side? Or have you seen more strength in also the new side as well?

Yes, moving forward to January, we've -- the improvement in January is largely attributable to the improvement in the renewal rates. Our re-leasing rates were flat for January. But what it really shows, too, is that we came into this year from a position of strength on the occupancy side. And we expect that to translate into improvements in rate growth in 2020 as well.

Got it. Okay. So -- and just pivoting now to expenses. Your -- the taxes are 4.8% to 5.8%, lower than previous years on taxes. Just curious into how we should think about that line item moving forward? And in terms of tax appeals, your success rate was slightly higher than historical last year. And how are you thinking about underwriting or success for this upcoming year?

Yes, this question -- Shirley, this is Chris. You're right, expectation for this year, just as a reminder, is property tax growth in the low 5% range, which also, as a reminder, is about 100 basis points of deceleration from what we saw in 2019, largely coming from some of the benefits we're expecting from the new tax reform coming out of taxes and then a smaller proportion of our markets or properties experiencing multiyear reassessments in 2020. But we are still seeing a number of markets and states experiencing higher increases and assessed values that we're expecting in 2020, which I think is really reflecting to the health and strength of the local economic environment of the markets that we're in. But with that said, as within a year, as you pointed out, we'll challenge where appropriate and aggressively on value through the appeals process. And it's not uncommon in any 1 year for us to challenge north of 20,000 to 25,000 individual property values through our appeals process. And I wouldn't expect that to look too far different for this year, but it is early in the year, and we'll be monitoring it throughout the year and keep you updated on how the appeals process plays out.

Our next question comes from Rich Hill with Morgan Stanley.

Congrats on what we thought was a pretty solid quarter and good guidance. I wanted to talk about 2 things in particular. First of all, the development projects, I completely recognize the benefits of delaying CapEx spend or mitigating CapEx spend, should I say. Could you just walk us through sort of the development yield equation? I know you talked about this in the past, but I'd love to have a little bit more color on what the development yields look like? And how much the upfront costs for developing a home or maybe a portfolio of homes?

Yes. The yield or pro forma yields that we come in with are developed much like our traditional homes. So you have your pro forma rents and your anticipated expenses, including property taxes is the main one, a slightly reduced repairs and maintenance, actually how we reduced them probably in the first 5 years and we look at what the yield is after year 1 and then at year 5, and then at year 10. By year 10, we're getting to more normalized expenses on the repairs and maintenance, although still better because we're building them to be maintenance-resistant.

Rich, it's Dave. Let me add a couple of things to the yield. The yield has obviously got 2 components. It's got the cash flow that you're going to generate, but it's also the investment equation. And when you're building for your own account, you're much more efficient. It's a much more efficient way for us to be able to invest. The cost is of the project the total that we need to invest is less. There's no sales and marketing costs. Development profit is basically a reduction in the investment price. So the denominator here is going to be lower. It's going to, therefore, translate into permanent superior yields. But I think the equation is even bigger than that. Not only are the maintenance costs cheaper but the desired -- desirability of the product by our residents is far superior, just because it's built with the resident in mind.

Got it. That's helpful, Dave. So is it -- is there a number you can sort of put around the development yield? Or is it just -- there's a lot of different parts that go into it, and you're still working through that?

Well, we're -- initial yields, including normalized expenses on the repairs and maintenance is in the low 6s.

Got it. Okay, helpful. And I wanted to talk about some of the various different regions that you're in. We are crunching some numbers, and it looks like you had some pretty nice revenue growth upticks in markets like Salt Lake City, for instance San Antonio, and even some of the markets that have maybe lagged, at least by our measure, Nashville and Tampa. So maybe just talk about Salt Lake City because it looks like a really strong market to us. Is there anything specifically happening there because you're one of the only SFR REITs that actually owns in that market?

Yes. This is Dave. Before -- Bryan will answer the couple of detailed questions. But you highlighted something that I think is very important here. And that is we have a diversified portfolio. And as time goes on, we are seeing a number of our markets improve, and we're not reliant on any one market. And you mentioned Nashville as a little bit of a lagger, but I would tell you, Nashville, I'm very, very bullish on it. It's one of the -- Wall Street Journal, it was 1 of the top 2 markets for job growth. If you've been in the market, there's cranes everywhere. And that's going to be a fantastic market for us in the long term. Specifically, the performance in the fourth quarter for Salt Lake City, Bryan, do you have some numbers on that?

Yes, Salt Lake City is a very strong market for us. It has been. We're one of the few major owners in the market, but it's performed very well from an occupancy perspective and from a rate growth perspective, and that's why we're continuing to invest in that market, and hopefully, really build that portfolio out. The fundamentals are fantastic. There's a lot of growth in our companies moving there, expanding some of the tech companies and the rehiring, for example. But again, it has all the wonderful fundamentals that you want to really drive continued investment.

Got it. And Dave, you mentioned about your diversified portfolio, which I completely get. As we think about 2020 and the guide, is there any markets that are specifically driving that guide that we should focus on?

No, I think our portfolio being as diversified as it is, not in any one market, is going to move the needle. And that's one of the benefits that you have is that you have the -- not only does -- do you look at it from an operation standpoint, look at it from a growth standpoint, and you have many, many places that you can grow. When we built this platform, I mean, it's not by accident that we're in 30 markets. That diversification, we're seeing the benefit of it right now.

Our next question comes from Haendel St. Juste with Mizuho.

So a few questions from me. First, on the JV, the new institutionally -- and I guess, new one with JPMorgan, I'm curious why you're retaining just 20% and effectively seating control to your partner on that front? And then as part of that, is this JV going to be region specific. I recall your last JV, I think, is a southeast-focused JV? Or is it more of a National program? And then maybe some more color on the fees, if you would?

Yes, Haendel, it's Dave. I'll start and then I think on some of the specifics on the JV, Chris can follow-up. But the JV first is an exciting additional form of capital for us. So we've been very intentional in building multiple channels of capital, which looking at this week is very -- I'm very grateful that we have those channels. The current JV in the discussion about control, yes, we have a 20% ownership interest, you're correct on that. But the control provisions, we are the manager. We have the decision-making authority on this joint venture. There are some major events that both parties weigh in. But the other piece of this joint venture that is very unique is that it is an evergreen venture, meaning it doesn't have a clip at a given time, where assets have to be sold, et cetera. So I'm very excited to have JPMorgan as one of our partners. I think they bring a lot to the table as well as the capital that they bring.

And then, Haendel, this is Chris. Just to some of your other questions, no, there are no geographic restrictions with respect to this venture. With that said, there are mechanisms in place in the venture as we think about allocating future projects to ensure that we have appropriate levels of diversification to our pipeline and the ventures in terms of geographies, project types and sizes, et cetera. Again, I would reiterate the strategy going into this is, is that the venture, we will be cultivating kind of an incremental as I would think about a development pipeline to feed the venture that is on top of everything that we're doing on our balance sheet. In terms of fees, for obvious competitive reasons, I probably shouldn't comment too much on the feed specifics, but I would say there are fee streams back to us for all the services that are being provided to the venture, management development, et cetera. So fees are positive. Scale is a positive. But again, I would reiterate Dave's point that some of the really unique upside to this venture for us is the fact that it is evergreen capital, which is very, very important. And then the really unique aspect of our ability to be able to crystallize to promote inside the venture without needing to sell or liquidate any of the assets, which is, quite frankly, going to be game changing for us in terms of our ability to monetize a portion of the tremendous value that's created by our development program.

Okay, fair enough. I appreciate that. And then maybe some more on the external growth and capital deployment comment. You mentioned, I think, $750 million of development spend planned for this year. I think that's a bit higher than a $700 million outlined from last quarter. So I'm curious what the driver on that front is? And then you also previously talked about $500 million of dispositions in 2019 and 2020 as a key source of funding for that development spend. I guess I'm curious what your view is on the disposition market and what the backup plan, if there is a cease up in the transaction market. It sounds like you're comfortable using your balance sheet and levering up, if need be. So just any comments on those 2 fronts?

Yes. Haendel, it's Dave. Let me see if I can unpack that because that's like 10 questions. Let's start with the sources. The sources side, yes, I mean, there's -- the one thing I'd like to just make sure you're clear on is that in 2020, we do have an investment program. It's between $800 million and $1 billion, and all of that capital and funding is already in place, whether it's going to be retained cash flow or our ability to task the debt market between where we currently sit at a 4.7% EBITDA ratio to our desired place to be at 5.5% as well as what you mentioned, sales proceeds of $150 million. That's where our guidance is for this year. I'll let Jack talk about our portfolio. We've got about 1,200 homes in the disposition pipeline right now, but we're very comfortable in our ability to be able to fund all of our investment opportunities. And as you indicated, there's a slight increase in the 2020 guidance, it is between $800 million and a $1 billion through all 3 development or all 3 investment channels. On dispositions, Jack, you might want to go through?

Yes. Haendel, I think where you got the $500 million was the total amount of dispositions that sales proceeds from the homes held for disposition. We expected $200 million last year and $200 million this year. We ended up with $250 million last year, and now we're expecting $150 million. So we just front-loaded it a little bit. The other $100 million will come as homes vacate. Unless we sell them in a bulk sale. We generally wait till the homes vacate and then sell them. So they could -- it could be 2021 or 2022. We don't know when they'll stop renewing. I think that's where maybe a little bit of the confusion was, and the disposition market is fantastic. I think there's pushes and pulls on that. We're able to sell them fairly fast. But that -- I think everybody has seen that the inventory of available homes for acquisition, it has shrunk up a little bit.

Haendel, the $150 million of guidance, it's about 2/3 or 800 of the 1,200 homes that are there. As Jack indicated, we do not sell occupied homes unless we can sell it to another operator. So there's a little less clarity as to the timing of that $150 million, but that's our estimate for this year.

Got it. Appreciate that. And just to clarify, I think you briefly hit the cost of $275,000, I think, Jack, last quarter for the development cost per home. Is that still the ballpark range for us to be thinking here?

Yes, $265,000 to $275,000 is a pretty good range.

Our next question comes from Rick Skidmore with Goldman Sachs.

Just going back to the development program. It looks like you delivered a little bit more than 100 homes in the fourth quarter. Is that the right number? And what happened with regards to, I think, the initial guide for 2019 was approximately $800 million. And then as you look at 2020, getting to that roughly 3,000 homes delivered, how do you think that path looks through 2020 evenly over the quarters through the year or front or back-end loaded? If you can just give a little color on that.

I'll take. Let me take to begin, this is Dave, about the guidance for 2020. When you -- and then a little bit about 2019. As we enter into 2020, the big difference between 2020 and 2019 is our land inventories are significantly higher going into this year than they were last year, giving us clarity on our ability to deliver homes. The 3,000 homes that we talk about are 3,000 homes through the 3 channels. The majority of that is through the development channel, but it's not all of it. The deliveries will be basically pretty different than last year. There will be more equalized between the first half and the second half of 2020. With that said, we do try to deliver as best we can into the rental season. So it may be weighted a little bit in the second and third quarter, but I think you'll see a lot more even distribution in 2020 than you did 2019. The other piece about 2020 versus 2019 is, 2019, when we entered the year, we had, as I said, less land. And at that time, there appeared to be more availability of vacant developed lots to be able to acquire, which you can develop quickly. Today, we get better yields with land itself. And now that we have the land and have land developed, there's a lot more clarity on our ability to deliver into 2020. With that said, 1 thing just to mention, when we talked about our $800 million to $1 billion of investment, a piece of that investment is to grow our land inventory even further. So 2021 will be at a higher delivery pace than 2020 because land is the key.

Yes. One other thing. I'm not sure where you got the 100 homes delivered in the fourth quarter. We added 341 new homes, 108 through our National Builder program and 233 through AMH Development.

Got it. And then just on the new homes delivered and the ones that you're building, how are those leasing up? Are they leasing up relative to your expectations? And then also in terms of the rent that you expect?

The rents are slightly better than we expected. They're leasing up faster than our existing inventory on turns, and the construction costs are right where we expected it to be.

Our next question comes from John Pawlowski with Green Street Advisors.

Dave, do you expect any additional changes to the Board over the next year?

John, that's hard to say. We will be evaluating the Board for a potential additional trustee. Whether it happens in 2020 or 2021, I'm not sure. But when we went out this time, we were looking for 2 things. One individual to complement the skills of what we already have on the Board and that was in the homebuilding arena, and Matt Zaist is an excellent addition. He was in the boardroom yesterday and his contribution was very valuable. The other we're looking for is, as you know, we're a state of California corporation or entity or a trust, actually, but an entity, and we will need to add another female to our Board in the next 2 years. So whether that happens this year or next year, I don't know.

Understood. And Bryan, I wanted to get your thoughts on a market like Charlotte, which has, in terms of rent and occupancy trends, it has lagged in the last several quarters versus the same-store average. From an outsider view, the Charlotte economy is still very, very strong. So structurally, in your opinion, what makes Charlotte a bit weaker market than like a Phoenix or a Vegas right now?

Yes, Charlotte is a very good market. I think what you're seeing is the effect of a lot of supply. There's competition there from other institutional players, and there's also relatively a reasonably high amount of new development. Charlotte, we've seen some nice improvement coming into 2020 in Charlotte. We have good momentum there. But it takes a little while for that growth and supply to be absorbed, as we mentioned before, in other markets. But over the long run, we're very bullish on the Charlotte economy and our portfolio there.

I guess, why hasn't supply picked up in competitive supply, repurposing? Why haven't your competitors started to try to steal some of your launch in Phoenix and Vegas when rent growth has been so darn good for the last few years?

Is the question, why is the supply not affecting the growth in occupancy in those 2 markets?

Yes, if supply is picking up in Charlotte, why isn't supply picking up in Phoenix and Vegas when the results have been really good?

Yes, Vegas is fairly supply-constrained due to the -- just the geography and the heavy BLM landholdings. There's tremendous amount of growth coming in from California to Vegas and Phoenix as well. But I think that the demand for housing is really outpacing supply in those 2 markets, where it's not exactly the same case in Charlotte.

Our next question comes from Hardik Goel with Zelman Associates.

I actually had a couple. On the -- just on the revenue guidance, right? So if I look at your last year's guidance, you said 3.2% to 4.2% you're coming in at 4.1%. And now I see your renewals are probably the best they have been since IPO, correct me if I'm wrong on that, the 4.8% is pretty high. It's been a goal to get that up. Even if I assume that 4.8% comes down a little, I have to assume a lot of deceleration and then flow that through to the same-store pool to get to make sense of your revenue growth guidance. I'm coming in closer to the high end. So can you give me some color on why that is?

Sure. Hardik, it's Chris here. Let me start with some color. You're right. 2019 was a really strong year and one that we're proud of. I would also keep in mind, though, as you think about the various different components driving the revenue line. One piece in 2019 was the fact that we had about 40 basis points in occupancy pickup or improvement over 2018, which was simply just a function of the fact that a portion of 2018 was below a stabilized level on occupancy that we picked up year-over-year from '18 to '19. If you were to normalize for that 40 basis points, you would see that 2019 revenue growth was at 3.7%, still very strong and very healthy. And very similar to what we're expecting in 2020, 3.7% at the midpoint, which is a strong level of growth.

Got it. That's helpful. And just a second one, if I look at the second quarter transcript, I have Jack saying that you guys will deliver 700 to 900 homes in the back half of 2019. As we sit here today, it's coming in below the low end of that, even with the 340-or-so homes you did this quarter. And now you're telling us that there's going to be 3,000 homes next year, which is almost as more than triple what you did this year. So what gives you confidence that, that is achievable? Should that guidance range to be wider? Is there more volatility than we're -- am I just thinking about this wrong?

Yes. This is Jack. Thanks for the question. As Dave mentioned earlier, the back half of the year was burdened a little bit by the lack of availability of what we call VDLs or vacant developed lots, which is basically lots ready to build that you can deliver within 90 to 120 days. And so we were -- and we had -- I had some field people that were maybe more optimistic than they should have been. Then if you look at the 2020 guidance, we're not delivering 3,000 homes, that's through all 3 channels, including the National Builder Program, which is about 700 to 800; our traditional acquisition program, which is about 900 and then the balance through our development program, our in-house development program.

Got it. And if you'll indulge me on R&M, just really quickly, what's going on there? Because as a percentage of revenue, it's higher than both '18 and '17 on the same-store pool?

Hardik, do you want to talk specifically about the fourth quarter and the increase that we posted? It goes back to our evaluation going into the fourth quarter. One of our main objectives was to preserve occupancy during, really, traditionally the slow season where we lost occupancy in the past. And we had a couple of different levers to pull on the leasing side. For example, you could increase commissions, you could introduce a concession program, which was a strategy employed by some of our institutional competitors. Or third, we looked at improving some of the cosmetic feel of our homes. We chose to do that, and it helped drive our improvement in occupancy, the pickup of 40 basis points. About half of the increase in R&M was due to incremental paint and landscaping work to improve the aesthetics of these homes. We're really managing it towards ultimate improvements in cash flow. So that program was successful. I liked it because it helped us preserve rate and put us into a really good position coming into 2020. But more importantly, if you tie it back to this full year expense performance, both our increase in R&M, and more importantly, our increase in operating expenses, accepting property taxes, we're right in line with -- or in line with our expectations at the beginning of the year.

Our next question comes from Jade Rahmani with KBW.

I was wondering if you could talk about how occupancy and rent growth might perform in a modest recession? Have you gone back and look at any precedents to give some kind of baseline of expectations? I would assume that there would be a modest uptick in bad debt expense, pressuring occupancy and that rent growth would moderate to maybe low 1% to 2% range?

Yes, Jade, it's Dave. Thanks for the question. The benefit of having a diversified portfolio, if you look back at history, is that over the last 30 years that we've looked, we have never seen in 1 year where rental rates have declined on a national basis, and occupancy on a national basis has always been in the 90% range. Can't be said necessarily on any individual market because some markets have had some dips, but not on a national average. And the benefit of having a diversified portfolio is that we've spread that risk across the entire nation. And as you indicate, I know there's some concern in some of the residential companies right now with some of the potential impacts on the coastal state and on the east coast, yes, we have a little bit of exposure there, but we've got exposure spread across the entire country. And so on the top line of having the occupancy there and the ability to maintain our rates and even grow our rates, history tells us that we will do fine there.

On the collection side -- there potentially will be a small uptick in that. But let me remind you that our tenants are -- have the ability to pay. I mean, our average household is $100,000 of income. And that is more than our 3x as our guidelines, it's closer to 5x. And will there be 1 or 2 that we need to work with, yes, and we'll work with our tenants. That's our general goal is to work with them and not evict them, but there will be a little more bad debt potentially. Again, we haven't gone through the cycle. But history does tell us that the rent line will be fine on a diversified portfolio.

Turning to the joint venture. Is the joint venture going to be pursuing a different build-to-rent strategy than what you are doing on the balance sheet? And how big does that capital pool have the potential to be? Will you also be using financial leverage?

Yes. It's Dave, again. No, it's going to be the same development strategy. However, we look at our capital needs and first fill up our balance sheet. And then what we do is look and make sure that we've got adequate capital to meet our investment goals in total. It is going to start in the $250,000 range. And yes, it does have the ability to upsize, and it will have leverage at some point as we build out that joint venture.

And then lastly, a question I get a lot from investors is about dividend growth. Do you anticipate increasing the common stock dividend this year? And over what time period would you expect there to be steady growth in the common stock dividend?

Dividend discussion is an interesting discussion. And one of the benefits that we have on our growth program is that we are retaining $300 million or a little more than $300 million of cash flow from operations. And so today, we have very, very good opportunities to grow our portfolio, which is enhancing the value to our shareholders. So that reinvestment program is a very good use of the funds. You're aware, as we are aware that there is an obligation to pay out a minimum level of distributions in order to retain your REIT status and it's tied to your taxable earnings. The taxable earnings for us is not significantly different than our book earnings, but it's partially sheltered by net operating losses, which are disclosed in the footnotes to the financial statements.

Ladies and gentlemen, there are no further questions at this time. I'll turn the call back to David Singelyn for closing remarks.

Thank you, operator. To close, I just want to reiterate that we're excited about our opportunities in 2020. Let me remind you that the single-family rental fundamentals remain very strong and our investment-grade balance sheet and best-in-class operating platform and our one-of-a-kind development program give us the ability and momentum to continue our strong growth regardless of the economic cycles that we are in. So thank you for joining us this morning and look forward to talking to you next quarter. Have a good day.

Thanks. This concludes today's conference. All parties may disconnect. Have a great day.