Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Silver Bay Realty Trust Corporation (NYSE:SBY)

Q2 2014 Earnings Conference Call

August 7, 2014 10:00 AM ET

Executives

Anh Huynh – Director, IR

David Miller – CEO and President

Larry Shapiro – COO

Christine Battist – CFO and Treasurer

Analysts

Jana Galen – Bank of America

Anthony Paolone – JP Morgan

Jade Rahmani – KBW

Stanley Gartshein – Zelman and Associates

Meng Jiao – SIG

Operator

Good morning. My name is Joya and I will be your conference facilitator. At this time, I would like to welcome everyone to Silver Bay Second Quarter 2014 Financial Results Conference Call. All participants will be on a listen-only mode. After the speakers remarks there will be a question-and-answer period.

I would now like to turn the call over to Anh Huynh, Director of Investor Relations for Silver Bay.

Anh Huynh

Thank you, Joya and good morning. I’d like to begin by welcoming everyone to Silver Bay’s second quarter 2014 conference call. On the call with us this morning are David N. Miller, President and Chief Executive Officer; Larry Shapiro, Chief Operating Officer; and Christine Battist, Chief Financial Officer.

For your reference, the press release and financial tables associated with today’s conference call were filed yesterday with the SEC. If you do not have copies of the materials, you may find them on our website.

This call is also being broadcast live over the Internet and may be accessed on our website at silverbayrealtytrustcorp.com in the Investor Relations section, under the Events Calendar page. We encourage you to reference the accompanying presentation to this call, which can also be found on our website on the Presentations page. In addition, we will be filing our 10-Q later today.

Before we begin, please note that today’s discussion may include forward-looking statements. Forward-looking statements reflect our views regarding future events and are typically associated with the use of words such as anticipate, target, expect, estimate, believe, assume, project, and should or similar words.

We caution all those listening, including investors, not to rely unduly on forward-looking statements. They imply risks and uncertainties and actual results may differ materially from expectations. We urge you to carefully consider the risks described in our filings with the SEC, which may be obtained on the SEC’s website at sec.gov. We do not undertake any obligation to update or correct any forward-looking statements if later events prove them to be inaccurate.

I would now like to turn the call over to David.

David Miller

Thank you all for joining us today. My prepared remarks this morning will include a discussion of recent strategic developments, the summary of our second quarter performance and a review of our recent acquisition activity and outlook. I would like to begin by discussing some recently announced transactions that we believe are strategically important and will be instrumental to our continuing evolution as a leading institutional operator of single family rental homes.

On August 3, we entered into an agreement to internalize the management of the company. We summarize the agreement in a press release on August 4, and the details maybe found in an 8-K that we filed with the SEC the same day. Since our IPO in December 2012 we have been externally managed by PRCM Real Estate Advisors, a company that is jointly owned by Pine River Capital Management and Provident Real Estate Advisors.

Under the agreement Silver Bay will acquire the external manager in exchange for approximately 2.2 million common units of our subsidiary Silver Bay operating partnership which may be redeemed for shares of our common stock or cash at the company’s election.

This represents approximately 5.8% of our existing shares outstanding. The proposed transaction is subject to stockholder approval to be held at a special meeting of our stockholders.

Silver Bay’s relationship with Pine River, Provident and Two Harbors has been instrumental to our success since our formation as we established our business operations and built our portfolio. The decision to become an internally managed company is a natural progression for Sliver Bay as our business and dedicated infrastructure has matured.

We believe this transaction will benefit our stockholders through reduced expense in the combined G&A and advisory management fee expense categories, improve cash flow and a simplified corporate structure.

Excluding the impact of transaction related expenses and adjustments; we expect the transaction to improve FFO on a go forward basis, because the elimination of the advisory management fee exceeds the estimated $3 million to $3.5 million in incremental annual cost that we will add as a result of the internalization.

Additionally the transaction is expected to reduce our NAV per share by approximately $1.15 to $1.30 per share after taking into account transaction related expenses and the issuance of common units.

We believe that the benefits from the improvement in cash flow and the simplification of our corporate structure out way the modest NAV per share dilution and is favorable for our stockholders. We look forward to presenting the transaction to our stockholders for approval at an upcoming special meeting. In due course we will announce the data of that meeting and send copies of our proxy statement to all stockholders of record for their full consideration.

Secondly, we announce that we priced a $312 million securitization transaction with an effective blended interest rate of LIBOR plus 192 basis points. The completion of the securitization will improve our capital structure, reduce our long-term cost of capital and enhance our FFO profile.

Upon closing which we expect to be on or about August 12, is our intention to use the securitization proceeds to pay down the current balance on our existing credit facility and subsequently reduce the size of the credit facility to approximately $200 million.

We then plan to de-lever our credit facility to fund additional acquisitions and for other general business purposes. We believe that moderate leverage of up to 50% loan value is still appropriately conservative for the single family rental business model. We expect this transaction to result in considerable savings to our interest cost over the long run and we may consider additional transactions like it in the future.

And lastly I’m pleased to announce that we recently internalized property management in Tampa, which brings the percentage of internally managers to 65% of the portfolio. Tampa has been a strong market for the company and we believe the decision to internalize property management in this market represents an attractive return on capital for our stockholders.

With Tampa representing one of our largest markets this transition will enable us to further optimize business operations in this market by leveraging our internal infrastructure. Larry and Christine will provide additional details with respect to Tampa later on the call.

We value the strong relationships we’ve developed with our third-party partners and consider them to be in extension of our operating platform. Over the years there have been scenarios where it was beneficial to internalize property management for a specific market.

Our team has developed the expertise to effectively transition property management functions on to our internal platform and we believe that our recent success in Columbus demonstrates our strength in this area. As we continue to evolve as a company, we will look to evaluate additional internalization opportunities to further consolidate our operating platform.

Turning to the second quarter, we are pleased with our strategic progress and financial results. The second quarter of 2014 marked the 6th consecutive quarter of growth for Silver Bay. Total revenue increased 6% on a sequential quarter basis to $19.2 million. Net operating income was up 5% sequentially to $9.7 million.

Core funds from operations, a new metric we introduced this quarter grew 12% to $3 million or $0.08 per share. Going forward we expect strong growth in core FFO per share from a combination of revenue growth NOI margin improvement, reduced interest costs and the elimination of the advisory management expense.

During the second quarter of 2014, we continued to experience appreciation in the underlying assets of our portfolio. As of June 30, estimated NAV increased approximately 3% to $20.95 per share from $20.35 per share as of March 31. We anticipate a continued strengthening in asset values as many of our homes remain below our estimates of replacement cost in markets exhibiting tightening housing inventory.

We believe we are operating in markets that present the most favorable economic and demographic factors that are essential to long-term rental demand, rent increases and home price appreciation. We are focused on achieving continued portfolio growth and realizing further scale efficiencies by strategically adding homes in our existing markets with the most compelling opportunities.

We continue to see attractive pricing in select markets in Florida, Texas and Atlanta and during the second quarter we acquired 244 properties in these markets primarily through the MLS. As of August 1, we owned approximately 6,075 properties with contracts in place for a 100 additional properties.

Acquisitions increased during the second quarter and we anticipate this momentum to build as we continue to ramp up through the back-half of the year. We take pride in our commitment to acquiring well by ensuring to our rigorous underwriting standards and believe that our ability to acquire homes at attractive prices will continue to be an essential component of our total return profile.

Today the availability of distressed inventory is concentrated in selected markets; we are generally seeing the most attractive opportunities through the MLS channel. The MLS process involved raining offers on an individual basis and can be a lower volume acquisition channel compared to foreclosure sales, purchasing homes by MLS as enabled us to complete a more comprehensive underwriting process, which includes a complete physical inspection of the property prior to purchase.

We’ve been pleased with the quality and yield profiles of our newly acquired homes and believe our approach toward acquisitions will continue to support steady portfolio growth. In addition we believe we are entering a phase of industry consolidation as small and mid-size owners of single family portfolios look to exit the market.

Many of these are special opportunity funds that were created two to five years ago. Generally speaking, they have higher cost of capital, smaller operating platforms and finite investment horizons. We are seeing an increasing stream of these portfolios across our desk and we are evaluating these opportunities based on price quality and fit.

We believe that Silver Bay is well position for this next round of consolidation and we’ll be actively evaluating these opportunities to accelerate our growth. We are optimistic about Silver Bay’s financial and operating trajectory. The completion of our first securitization and the pending internalization of management combined with improved operational efficiency is positioning us well to grow to realize the company’s full earnings potential and to create enduring value for our stockholders.

Now I would like to turn the call over to Larry to discuss our operational results for the quarter.

Larry Shapiro

Thanks David. I will start today by providing some key operational highlights for the quarter, then comment on the internalization of property management in our third largest market Tampa and finally give an update on some of our operating initiative for the year.

For the second quarter of 2014, we maintained stabilized occupancy of 95%, which is comparable for the prior quarter. As a reminder our goal is to maintain stabilized occupancy well north of 90% through effective leasing and high resident retention. Columbus saw the largest increase in occupancy for the quarter with stabilized occupancy increasing the 93% from 80% for the first quarter.

Aggregate occupancy also increased in Columbus to 91% for the second quarter of 2014 exceeding the 90% target we provided for this market on our previous earnings call. This represents an increase of 16 percentage points over the prior quarter and 55 percentage points since the start of the year when we internalize property management in this market.

As David mentioned in his remarks, we continue to gradually ramp up acquisitions in the second quarter and the increase in acquisitions contributed to a slight decrease in aggregate occupancy on the total portfolio to 90% from 92% for the prior quarter.

For the second quarter, the average monthly rent on the portfolio increased to $1,170 from $1,163 in the first quarter. Overall, we are seeing good rent growth on new leases and renewals with Northern and Southern California and Tampa demonstrating strong renewal pricing.

We expect to see further increases in rent in the coming quarters as the portfolios quarterly lease expirations continue to unfold and we seek to drive rental increases. One of our operational priorities this year is to drive rent growth across the portfolio. Based on our experience so far, we believe we are well positioned to achieve 3% rent growth on a same-store basis.

In the second quarter, we had a 1079 lease expirations including month-to-month occupancy, which was more than any previous quarter. We retained 70% of these residents. Total turnover in the quarter was 8% of our stabilized portfolio of 5,719 properties.

We anticipated greater turnover during this quarter compared to previous quarters, as residents are more likely to move during this time of the year. And overall we are pleased with the success in retaining residents.

The next item I would like to touch on is the exciting news that we have internalized property management in Tampa. In June, we acquired our external manager in the market and we are pleased to have the Tampa team on Board. They bring a great depth of local market knowledge and the industry experience that could not be easily replaced.

The internalization of Tampa will result in a lower overall property management expense for this market. In addition with Tampa under our corporate umbrella, we believe we can also imply additional levels of control and efficiencies.

We’re making good progress on the process improvements that we implemented earlier in the year in order to reduce overall property level expenses. Our centralized application and leasing call-centers are processing applications quickly and a number of showings of homes under this enhanced process have increased.

We’ve reduced our application processing time to less than 24 hours, for applications there submitted with all necessary information and materials. We have standardized processes, so the potential residents had a consistent and professional leasing experience which we believe will provide a positive experience for our residents and contribute to favorable resident retention. We have made steady progress in developing a robust institutional platform in order to capture efficiencies of scale.

At this time, I would like to turn the call over to Christine for her comments.

Christine Battist

Thank you, Larry. I would like to be in with the summary of our financial results before diving into few items on our financial statements. For the second quarter, we reported total revenue of $19.2 million up 6% quarter-over-quarter. Net operating income increased 5% on a sequential quarter basis to $9.7 million. Core funds from operations came in at $3 million or $0.08 per share up from $2.7 million or $0.06 per share for the prior quarter.

We had a core FFO this quarter to more clearly provide a metric representing operating performance that excludes certain items not reflective of our core real estate operations. Namely the internalization of Tamp property management and non-capitalizable cost related to our securitization transaction. I will provide more detail on these two points later on the call.

For the second quarter, property, operating and maintenance expense increased to $4.1 million or 22% as a percentage of total revenue compared to 20% for the prior quarter. As Larry mentioned, we had a number of lease expirations during the second quarter and we anticipated a corresponding increase in turnover related expenses.

The sequential quarter increase was attributed to this expected increase in turnover related expenses. In addition, we experienced an increase in repair and maintenance due to seasonal factors. For the third quarter, we are anticipating turnover related expenses to be comparable with the second quarter, because we have a large number of leases that will expire.

Over the course of the year, we expect repairs and maintenance to be uneven, but overall these costs are still in line with our expectations. Real estate taxes increased to $2.8 million for the second quarter, the quarter-over-quarter change was primarily due to increases in estimated property assessed values and rates in certain markets until a lesser extent and slightly higher base of stabilized properties.

Property management decreased to $2.4 million for the second quarter as a percentage of total revenue property management improved to 13% from 16% for the prior quarter. The sequential quarter decrease was primarily due to a decrease in personnel related expenses. As a result of timing, an increase lease terms which enabled us to leverage our distinct infrastructure and lowered software implementation cost.

We are anticipating property management cost to be fairly uneven for the remainder of the year, as we continue to execute various operating priorities. For the third quarter, we are expecting a quarterly increase in property management on a dollar basis.

For the second quarter, we reported net operating income of $9.7 million or 50% of revenue compared to $9.2 million or 51% of revenue. This slight decrease was generally in line with our expectations due to the expected increase in turnover related expenses. We believe the continuation of improved operational efficiencies combined with greater scale will translate into NOI margin expansion, which in turn will contribute to cash flow generation.

G&A for the quarter increased to $3.4 million, this line item includes a one-time expense of 775,000 for the Tampa internalization and 474,000 in certain non-capitalized securitization cost. Both of which were added back in the calculation of core FFO.

Adjusting for these two items, G&A would have been in line with the prior quarter in our expectations. Excluding these items, we believe that our current run rate is a good proxy for corporate overhead and general and administrative expenses required to support our existing business structure. I’ll speak about the G&A impact due to internalization of the manager shortly.

Looking ahead we’re expecting additional non-capitalizable securitization cost given that the transaction occurred in the third quarter. As David mentioned, we recently entered into an agreement to internalize the management of the company. The internalization of our external manager will involve Silver Bay acquiring the external manager in exchange for approximately 2.2 million common units, plus the assumption of certain liabilities and transaction cost related to professional and advisory and legal fees.

These one-time costs will be recorded as G&A expense in the quarter the transaction is completed. Under the existing management contract we’ve been paying an annual advisory management fee of 1.5% of our market capitalization, which has been running approximately $9.2 million on a trailing 12 month basis.

After the internalization, this expense will be gone. The savings will be partially offset by an increase in our SG&A up $3 million to $3.5 million on an annual basis to cover certain personnel cost previously incurred by our manager as well as some additional headcount required by the internalization.

Now turning to the balance sheet, as of June 30, we had a cash balance of $36 million in addition of $34 million in escrow deposits. We had $225 million outstanding in our credit facility, which provides us available capacity of a $125 million as of June 30.

As David mentioned, we recently priced our $312 million transaction, securitization transaction with a blended effective interest rate of one month LIBOR plus a 192 basis points. We expect to incur deferred financing cost of approximately 75 basis points on an annual basis.

Finally close of the securitization, we plan to pay down the entire balance of our credit facility and reduce its size to $200 million. Going forward, our cash on hand and our undrawn credit facility will give us ample capacity to continue our acquisition growth strategy.

I would now like to turn the call to the operator for question.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Jana Galen with Bank of America. Please go ahead.

Jana Galen – Bank of America

Thank you, good morning. Thank you for the information on the G&A and kind of cost structure of the internalization, I was wondering if you could provide, how many employees Silver Bay would have once internalized and, how many you think with that, platform can scale in terms of, how much would you need to add if you are to do internalization similar to the Tampa one?

David Miller

Yes, thanks for the question. So in terms of when the internalization is complete, all folks that are dedicated to Silver Bay that have been at the manager level will transition over as well as all of our field and operating personal that will be over 100 employee at the REIT level once the transaction is complete.

As far as scalability you did mention a point, we’ve got our third-party operating partners that have significantly more employees collectively than the – over a 100 that would be directly supporting the REIT. I think over time it will depend on those individual markets. So if we were to internalize additional markets or property management that would come with some additional headcount to serve that market. But we evaluate those on a market-by-market basis in some cases it may not make sense to do that; it may make sense to wait until we scale, there are cases we’ve got a great relationship and it’s working nicely.

So, we’re kind of going to look ahead and make those assessments every quarter and see what makes sense for the company. But from a corporate perspective it will be a very seamless transaction. And so I think our platform is extremely scalable at this point as far as adding units and growing the existing market base.

Jana Galen – Bank of America

Thank you. And in terms of how many markets are you internally managing, if Tampa the fourth or fifth one?

Larry Shapiro

Yeah it’s our fifth market that we’re managing. So we’ve got Phoenix, Atlanta and Tampa now which are three biggest markets, and we’ve got Columbus we talked about which we internalized and then South East Florida which has been internally managed from the beginning.

Jana Galen – Bank of America

Thank you.

Operator

The next question comes from Anthony Paolone with JP Morgan. Please go ahead.

Anthony Paolone – JP Morgan

Thanks good morning. I was wondering if you can talk about just your decision or not to really ramp acquisitions from here given sort of the excess cash from the securitization and also now going through the internalization process it seems like you’ve got a bit of a new company so to speak going forward and just wondering why not turn on the acquisitions more heavily?

David Miller

Thanks Tony. Let me start out and maybe Larry can give color. Certainly in our prepared remarks we talked about we’ve ramped certainly in the second quarter from the first quarter we expect that to continue to grow in the third and fourth quarter as well so to be north of where we are. And that’s really what the opportunity set is organically one-by-one basis in the markets where we’re buying. We do expect to scale a little bit more from where we are today.

And I think it just depends on what the supply is and what pricing is in those markets. So it will definitely grow from where it is today how much so it’s somewhat dependent on the opportunity set. And I think we have talked about in the past and are certainly looking at more opportunities to grow through portfolios where it makes sense, I think that’s is an important part of our future strategy, don’t want to put any timetable on it, because we look at opportunities as they come up and we do think it’s important that we execute on both of those in the future.

Anthony Paolone – JP Morgan

And what were the, what were the yield time the deal should get in the quarter or the deals that you’re generally looking at now?

Larry Shapiro

Tony this is Larry. Gross yields are just slightly north of 10% and obviously they vary market-by-market depending on how high taxes are, the Texas markets are going to be a little higher. But that translates in the net yields in the 5% to 6% range.

Anthony Paolone – JP Morgan

Okay. And then just last one on the margin, you guys did about 50% in the quarter, and I think you touched it on the past being able to take property management down to probably 10 or so percent of revenue, which would add a few points to the 50. And then taking occupancy up to probably something close to 95 would also add a few points. So it seems like borrowing anything else the stabilized scaled margin for your portfolio should be like in the may be mid to high 50. So does that sound right or is there something else that you can get out of this?

David Miller

Yeah Tony that’s what we’ve articulated previously, we’re still comfortable with that. We expect to get leverage on our property management expense and have that come down overtime, certain actions that we’ve taken Tampa there are some other things that we’ve been working on. We’ll reduce that as well as a higher revenue base that’s one area and continuing to find ways to control spend in some of the other expense categories help drive that up. We’re still comfortable with that really don’t want to comment beyond that what’s achievable at this point. I think we’ve got enough to do in the near-term and those have been the margins we underwrite when Larry talks about yields and thing about what we expect to get out of that clearly we’re always looking for ways to improve that, but right now we’re still comfortable with that guidance we talked about.

Anthony Paolone – JP Morgan

Okay, thank you.

Operator

The next question comes from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani – KBW

Yes hi, thanks for taking question. Just firstly on cash flow, I think when you talk about cash flow you’re referring the FFO and just wanted to see when you thought operating cash flow would turn positive?

Christine Battist

Well as a reminder Jade, one of the large items that we have flowing through our income statement is depreciation and amortization and it’s going to take us continue to grow the base of our properties to generate more revenue to offset that large depreciation and amortization. And the way we look at it and managing the business are across a whole symmetric, but looking at the NOI margins in addition to looking at FFO.

Jade Rahmani – KBW

But operating cash flow adds back depreciation?

Larry Shapiro

Yeah I mean we’re currently positive. I’m not sure exactly if I understand your question. So, we look at, our core real estate operations, so looking at core FFO obviously take out some stabilized CapEx from that and we’re comfortably positive.

Jade Rahmani – KBW

Okay. I was just looking at the cash flow statement. So, I guess I can follow up which…

Larry Shapiro

Yeah you can follow up after and walk you through anything else, it’s so confusing.

Jade Rahmani – KBW

Okay. I mean, I think the cash flow from operations is negative so that’s what I was…

Larry Shapiro

Yeah again I think if you look at the core FFO right, because we had some big charges in the quarter that are real expenses. So, we spent $775,000 purchasing our Tampa operation, which the way we’re thinking about that is it’s very good cash-on-cash return, north of 20%. So, we thought it was a pretty good opportunity for the company. We have that and then some onetime non-capitalizable securitization costs as Christine mentioned. So those are actually real cash cost in this particular time period and do impact our financials, but we do think the core FFO is more representative of the steady state real estate operation.

Jade Rahmani – KBW

Okay. Are you able to give any per property metrics on repair and maintenance turnover cost and ongoing CapEx?

David Miller

Sure.

Larry Shapiro

So, turn over cost we’ve always talked about in around $2000 a house. First quarter, we were a little bit less than that, second quarter we’re probably little bit more than that. But in the long run we believe that assumption on turn cost is very reasonably. On R&M as Christine said, R&M picked up a little bit this quarter, we really think it was seasonal just coming into summer months we saw a pretty large increase in service calls for HVAC and swimming pools. But we think that going into the latter half of the year that drops back and our underwriting assumption is 12 to 12.50 per house and that we’re still very comfortable with that.

David Miller

And on the stabilized CapEx, we’re pretty comfortable it’s going to differ a little by market, but on average 750 to 800 on an annualized basis I think again not reading too much in one quarter is a little bit higher for some of the reasons Larry talked about, but over the course of the year we’re comfortable with that we’ve done pretty rigorous analysis looking back and those are some of our assumptions that we’ve talked about in our securitization transaction. So, we feel pretty good about them.

Jade Rahmani – KBW

Okay, the turn cost of the 2000 per house, what percentage is expensed?

David Miller

It would all be expensed.

Jade Rahmani – KBW

Okay, all expensed, and same at the 12.50 per house on R&M?

David Miller

Correct.

Jade Rahmani – KBW

Okay. I think the other companies capitalize some of those turn costs?

David Miller

Well we that’s – that would go into our stabilized CapEx, but that’s a separate number. So, I mean we do that the $2000 we’re giving you is through expense.

Jade Rahmani – KBW

Okay. So some, so when you go to do return if there is CapEx required that would be a separate category?

Larry Shapiro

Correct. So if you replace the roof, for example during that time period that would be a capital item.

Jade Rahmani – KBW

Okay. Just by the way back on the cash flow, I think I didn’t back out of your six month cash flow, I didn’t back out the first quarter so you’re right it was positive in the quarter, so I misspoke. Okay, great thanks for taking my questions.

Larry Shapiro

Our pleasure. Thanks Jade.

Operator

The next question comes from Stanley Gartshein with Zelman and Associates. Please go ahead.

Stanley Gartshein – Zelman and Associates

Good morning, this is Stan and Ivy Zelman from Zelman Associates. How are you?

Ivy Zelman – Zelman and Associates

Hey guys, we both have questions apologize, I got on late. But we were wondering first coming from Ivy. The question on turnover, you mentioned 8% rate of turn over. Do you have any data that helps us understand where those tenants are going given that you captured 70% of the turnover, where the other 30% went? And then may be some more specifics as it relates to turnover and trends with move out from the individual markets? And then Stan has a follow-up. Thank you.

David Miller

So on the churns when people leave they leave for a variety of reasons. They leave for – some people move out of town, some people have life events they get married, they get divorced. Few people buy new houses. We’re not seeing a lot of that but we do get some of that. There is a wide variety, I don’t think that there is any one category that over shadows everything out. Market-by-market, I’d say in general our turns are relatively consistent, obviously there is a little bit of variance but in most of our major markets that turns are running about the same. Some of the stronger real estate markets maybe in California, Northern California in particular we’re getting a little bit less in turns.

Ivy Zelman – Zelman and Associates

So as of right now you don’t have statistics though on the specifics of where those that you track are either moving to another single family rental and/or they’re going…

David Miller

We do track some of it, but obviously it’s incomplete, because we’re not getting response rates from everyone and so we’d rather sort of differ making judgment on the entire turn pool.

Ivy Zelman – Zelman and Associates

Got it. All right, Stan has a question now. Thanks.

Stanley Gartshein – Zelman and Associates

Sure, thanks Ivy. And can you provide a little more detail on the 775,000 expense for internalizing Tampa kind of what that covered and also if you have any plans currently to internalize some of your other markets?

David Miller. Sure, so yes we – the accounting team as an expense but the way I would characterize it is sort of purchasing a business this was an entity that was solely dedicated we’ve been in business with a property management contract for a number of years. We think they’re very good and so they covered essentially purchasing that business for accounting treatment it’s going to all expensed one time. And so the contract that we have with that entity goes away, we think the surviving entity leveraging our existing centralized infrastructure to being part of a larger platform. We’re going to do that more cheaply in terms of the actual cost of property management, the net result being a very nice return on that $775,000.

As far as going forward, look it’s something that, I think we’re moving in the direction as a company, but we evaluated as the quarters go by and when it makes sense. Obviously Tampa was a very market that was strategically improvement and made sense to do and other markets we’re going to look at. But where we have good relationships and we’ve got some really good partnerships now some of these are going back two, three years that it’s working quite well and we don’t see any reason necessarily to do anything.

So it’s a combination of both, it’s where we get more scale in markets it certainly can make sense to do it. And if the manager isn’t performing it makes sense to do it as we show at Columbus. So it’s really a variety of those factors that we look at, but I think – I’m comfortable making the statement that we are moving more in the direction expect the internal footprint to grow certainly over the next year.

Stanley Gartshein – Zelman and Associates

Great, thank you very much.

Operator

The next question comes from Jack Micenko with SIG. Please go ahead.

Meng Jiao – SIG

Hi guys this is actually Meng Jiao on Jack team. How are you guys doing today?

David Miller

Good morning, thank you.

Meng Jiao – SIG

Good morning. I just had a quick question – your rental income has been growing this quarter its 0.6% quarter-on-quarter last quarter it was 0.1%. I’m just kind of trying to figure out on a quarterly basis where do you see, I guess that 3% hitting? Would that be like in the third quarter, second quarter or more towards the end of the year?

Larry Shapiro

This is Larry. For the quarter we got roughly 3% growth on our renewals. Some of the other difference is really its mix of houses, if you look the Jacksonville, Jacksonville has gone up and that’s gone up quite a bit, but that’s strictly due to mix. We’re buying a fair number of houses in Jacksonville we’re getting just more rent than what our average house was previously. But, the renewals are running around 3% and on turns we’re getting about two and three quarter percent.

Meng Jiao – SIG

Got it. Go ahead.

Larry Shapiro

I just say it’s a combination of all of those things.

Meng Jiao – SIG

I guess, on the turn rate, do guys provide, I guess a metric ton, how long it takes for, one tenant to I guess move out and then other tenant to I guess moving basically from, when one tenant stops paying to when the new tenant start paying, matter for that?

David Miller

Yes Larry, go ahead.

Larry Shapiro

So in the second quarter the days from move out of one resident to move in of the next resident is running right around 50 days. And that’s not lease signing that’s move in. So 50 days from previous move out to new resident moving in.

Meng Jiao – SIG

Got you, great. And then I guess my last question is, you guys mentioned a lot about the industry consolidation that you’re seeing and also some of the, I guess deals that are on your, I guess moving across your desk. What kind of sweet spot are you guys looking at in terms of any portfolio size or any these are small operators, do you have a size amount?

David Miller

No we see a variety, they range, portfolio is ranged from 25 or 50 homes, up there in the 1000s, I think, we’ll look at all of them and valuate them individually. I mean it will be great to see something that’s bigger than 50, certainly we’d love to find something in the certainly 100s of homes, it’s something around is bigger and makes sense as far as, obviously expected pricing that fit geographically and the price points of the homes that better fits with our strategy, we’re pretty excited and we’re able to work very quickly. So, there is no real sweet spot, we look at all, and we think all of those avenues in terms of size cool as our, important ways to grow and certainly we’re going to look at all of them.

Meng Jiao – SIG

Great, thanks very much.

David Miller

Thanks. Operator, are there any other questions?

Operator

Okay. No more questions in the queue. This concludes the question-and-answer session. I will now turn the call back to David N. Miller for his concluding remarks.

David Miller

Great, I just wanted to thank everyone again for joining us today. This is an exciting time for our company and we’ve made great headway as an organization. And look forward to updating the investment community on our progress in the coming months. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Silver Bay Realty Trust's (SBY) CEO David Miller on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts