American Homes 4 Rent's (AMH) CEO Dave Singelyn on Q2 2016 Results - Earnings Call Transcript

| About: American Homes (AMH)

American Homes 4 Rent (NYSE:AMH)

Q2 2016 Results Earnings Conference Call

August 05, 2016, 11:00 AM ET

Executives

Stephanie Heim - SVP, Counsel

Dave Singelyn - CEO

Jack Corrigan - COO

Diana Laing - CFO

Analysts

Juan Sanabria - Bank of America

Dave Bragg - Green Street Advisors

Dennis McGill - Zelman & Associates

Jade Rahmani - KBW

Patrick Kealey - FBR

Richard Hill - Morgan Stanley

Buck Horne - Raymond James

Anthony Paolone - JPMorgan

Operator

Greetings and welcome to the American Homes 4 Rent Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

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

Stephanie Heim

Good morning. Thank you for joining us for our second quarter 2016 earnings conference call. I'm here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; and Diana Laing, Chief Financial Officer of American Homes 4 Rent.

At the outset, I need to advise you that this call may include forward-looking statements. All statements, other than statements of historical fact included in this conference call, are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.

These risks and other factors that could adversely affect our business and future results are described in our press release and in our filings with the SEC. All forward-looking statements speak only as of today, August 5, 2016. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

A reconciliation to GAAP with the non-GAAP financial measures we're providing on this call is included in our earnings press release. You can find our press release, SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com.

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

Dave Singelyn

Thank you, Stephanie. Welcome to our second quarter 2016 earnings conference call. On today's call, I will highlight our results for the quarter, review our operating performance, including the progress we're making on expense controls and discuss our recent efforts to enhance our balance sheet significantly.

Jack Corrigan, our Chief Operating Officer, will then review our portfolio performance in more detail and update you on our key operating initiatives. Finally, Diana Laing, our Chief Financial Officer, will provide further detail on our operating and financial results, balance sheet and capital activity. After our prepared remarks, we will open the call to your questions.

Without a doubt, the second quarter of 2016 was our strongest quarter yet and I'm extremely excited about the progress we're making on all fronts. Our efforts over the past several quarters and years to put in place operating systems and management enhancements are yielding exceptional results, as we drive growth on our stabilized legacy portfolio, improve efficiency and maintenance, turn costs, and capital expenditures.

With high occupancy and strong demand across our platform, we remain well-positioned to continue driving revenue growth and combined with our intense focus on controlling and reducing expenditures, to realize further upside and bottom-line results.

Turning to our second quarter 2016 results. We reported core FFO of $0.25 per share, representing a 47% increase over the $0.17 per share reported in the same period of 2015. Our adjusted FFO or AFFO was $0.21 per share in the second quarter compared to $0.12 per share in the second quarter of 2015, an increase of 76% year-over-year. We generated a 15% improvement in net operating income after capital expenditures from our Same-Home portfolio compared to the second quarter 2015.

This is the fourth consecutive quarter that we have achieved a 10% or greater improvement in this measurement. The improvement in Same-Home results was generated by revenue growth, driven by strong rental rate increases and lower operating expenses, primarily related to a reduction in our maintenance expenditures. As a result, we continue to see improvement in our margins on a year-over-year basis.

I'd like to spend a few minutes discussing our progress on expense controls, primarily in maintenance and management expenses. We have been talking about these initiatives for some time and continue to make great headway as evident by our second quarter results.

One clear advantage of scale in this business is on the cost side. The progress we are making is demonstrating, without a doubt, the long-term viability of single-family rentals as an operating business.

First, with respect to maintenance. For this discussion, maintenance expenditures are the sum of repairs, maintenance expenditures, turnover expenses and capital expenditures net of maintenance-related tenant chargebacks.

For the second quarter, Same-Home maintenance expenditures were $518 per home, down 24% from $682 per home in the same quarter of 2015. I would also note the cost in the current quarter include approximately $29 per home of in-house maintenance costs, resulting from the rollout of this initiative. Jack will discuss our in-house maintenance program in more detail later in the call.

Over the past four quarters, maintenance expenditures totaled $2,157 per home. Moving ahead, we expect our maintenance expenditures will continue to trend down as we further refine our initiatives and we continue the rollout of our in-house maintenance program.

Second, with regard to management efficiencies. For this discussion, management cost is the sum of all overhead expenses incurred in operating the organization including property management expenses, leasing cost, and G&A.

For the second quarter 2016, these costs amounted to 12.7% of revenues, excluding tenant chargebacks. This represents a substantial improvement from the 15.1% incurred in the second quarter of 2015 and 14.3% incurred last quarter. We're focused on managing the company in an efficient manner, while continuing to deliver a quality home and superior service to our tenants.

Moving on, I'd like to discuss our balance sheet and recent capital markets activity. Our strategic goal since day one has been to maintain a balance sheet and capital structure to support our operational and growth strategies. We have provided a long-term target debt level of 30% to 40% of market capitalization.

Earlier this year, we acquired American Residential Properties and assumed their debt, pushing our debt level to the higher end of our target range. In the second quarter, we issued nearly $500 million of perpetual preferred stock in two series using proceeds to pay down our credit facility and fund acquisitions.

We're extremely pleased with the execution of these transactions, which provide several benefits to AMH including: adding additional permanent capital, which is favorable to our existing shareholders; reducing the company's debt to the lower end of our targeted range; reducing refinancing and interest rate risk; and creating additional financial flexibility and capacity to take advantage of future growth opportunities.

We continue to focus on optimizing our capital stack to reduce risk and our cost of capital. And Diana will discuss these transactions in more detail later on the call.

As a result, we have capacity to increase our acquisition pace in the third quarter. We still see very attractive acquisition opportunities in many of our markets and you should expect to see more acquisitions in the third and fourth quarters.

Bear in mind, as we on-board more homes, we will likely see a small negative impact on total portfolio occupancy, as the acquired properties are renovated and prepared for initial lease.

In summary, our second quarter results were strong across the board. We continue to be well-positioned to maintain strong occupancies and rental rate growth, as we complete the final months of this leasing season.

Due to our focus on maintenance expenditures and efficiencies, we demonstrated meaningful progress on reducing costs and expect to show further improvement in the coming quarters.

Now, I'll turn the call over to Jack Corrigan, our Chief Operating Officer.

Jack Corrigan

Thank you, Dave and good morning, everyone. Beginning with our transaction activity, during the second quarter, we acquired 152 homes through one-off transactions, for a total investment of approximately $25 million.

This is a little lighter than the pace of acquisitions over the last few quarters, however, with the expanded capacity on our balance sheet, we expect ramp up our buying in the second half of the year and expect to be back to a quarterly acquisition pace of approximately 500 to 600 homes by the fourth quarter of 2016.

Any bulk purchases we may acquire will be in addition to these targeted levels. On the disposition front, we sold 67 homes in the second quarter for net proceeds of $7.8 million, bringing our total year-to-date net sales proceeds to $15.5 million. In July and August, based on transactions closed and under contract, we expect to complete sales of approximately 300 homes for $20 million to $25 million.

Turning to leasing, during the second quarter, we signed a total of approximately 5,600 leases. On average, we achieved a healthy 4.1% increase on renewals and an even stronger 7.5% average increase for re-leasing. Our early results in the third quarter give us optimism that we will continue to capture strong re-leasing and renewal spreads.

However, as we close out the busy spring to early fall leasing season, we expect re-leasing spreads to moderate to the 4% to 6% range and renewal spreads to the 3% to 4% range.

Turning to our second quarter Same-Home portfolio results, which reflect the performance of 25,288 homes, we reported revenue growth of 5.4%. This improvement was driven by 130 basis point increase in average occupancy to 95.7% and an increase in average contractual rental rate as well as lower bad debt.

Same-Home expenses decreased 0.4%, driven primarily by an 18% reduction in repairs, maintenance, and turnover costs net of tenant chargebacks, including costs related to our in-house maintenance program, partially offset by a 10% increase in property taxes in the quarter.

As we discussed last quarter, higher property taxes correlate with higher home values. While we're actively challenging assessments whenever we can, we now expect our full year property taxes will be up 8% to 9% during 2016. Over the long run, property tax increases should trend with appreciation in home values.

As a result of these factors, our Same-Home core NOI increased 9.2% and our core NOI after deducting capital expenditures increased by 14.8%. As Dave mentioned, this marks four straight quarters in which core NOI after deducting capital expenditures has increased in excess of 10%.

Our core net operating margin was 62.2%, in line with the first quarter and 220 basis points better than we achieved in the second quarter last year. Despite the 8% to 9% increase in property taxes that we anticipate, we expect full year core NOI margins to be approximately 62%, which compares favorably to the 60.6% margin we achieved in 2015.

Regarding the fully integrated ARPI portfolio, we are experiencing the operational synergies we expected having achieved a 60.1% core NOI margin in the second quarter on the 7,582 former ARPI operating homes.

As more of these leases roll over the next 12 to 18 months, we believe we will achieve higher rental rates to drive overall operating metrics in these homes closer to our legacy AMH portfolio.

Also recall that we identified certain homes in ARPI's portfolio that were not up to AMH standards. We are implementing repairs and improvements; however, it will take some time to complete these projects, as most require the home to be vacant. I would also note that now that this work is underway, it appears that the cost to complete this work may be less than originally anticipated.

Moving on, I'd like to address several of the maintenance initiatives that we have discussed on recent calls and provide some color to help you understand how they are contributing to our cost reductions and efficiency gains.

As Dave noted, we continue to drive our overall repair, maintenance, and turnover costs, including expense and capitalized cost lower. Through national standards, better training and more transparent reporting, our field personnel are better able to discern whether a repair or replacement is the appropriate solution.

Our enhanced training and processes have also focused on reduced days from move out to rent-ready during turns. We have reduced this period from 21 days in Q2 2015 to nine days in Q2 2016. This reduces our cost of utilities and landscaping by approximately $100 per turn, as well as enhancing our occupancy.

In addition, we have added centralized subject matter experts in our high cost areas of HVAC, plumbing, landscaping, and roofing. These experts have years of training and experience in their fields. They improve troubleshooting, diagnosis, training and costing throughout the country through a centralized function.

Finally, we continue to build out our in-house maintenance capabilities. During the quarter, we incurred approximately $1.4 million of expenditures, as we are still in the process of building infrastructure and growing the department.

While we saw some benefits of this program during the second quarter, we expect that the benefits of this investment will not be fully realized for several quarters.

We're confident that this program will further enhance our ability to control costs; however, maybe the most significant impact will be the enhancement it brings to customer service through better response time, controlled professionalism, and more comprehensive servicing of the tenant and the home.

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

Diana Laing

Thanks Jack. In my comments today, I'll review our second quarter 2016 financial results and discuss our balance sheet and liquidity, including our recent capital markets transactions that Dave mentioned.

As of note, our results are fully detailed in yesterday's press release and in our supplemental information package, both of which have been posted on our website in the For Investors' section.

Beginning with our operating results, for the second quarter of 2016, we reported core FFO of $73.5 million or $0.25 per share. On a per share basis, our core FFO was up 46.8% from the $0.17 per share we reported in the same quarter one year ago. This increase was driven by higher net operating income from both our Same-Home pool and the other homes acquired and/or leased in the past year.

Our adjusted FFO for the quarter was $62.6 million compared to $32.1 million in the second quarter of 2015. On a per share basis, our AFFO was $0.21, an increase of 76.5% from the $0.12 per share reported in the second quarter of 2015.

In calculating AFFO, we deduct recurring capital expenditures and leasing costs paid from core FFO. Recurring capital expenditures and leasing costs both declined during the second quarter of 2016 compared with the second quarter of 2015, which combined with the increase in core FFO resulted in our significant increase in adjusted FFO. The computation for each of our FFO measures is shown on page nine of the supplemental.

Moving on to our balance sheet and capital activity. During the second quarter, we issued two new series of perpetual preferred equity. In May, we sold 10.75 million shares of 6.5% Series D perpetual preferred shares, raising gross proceeds of more than $268 million including shares sold concurrently in a private placement and the full exercise of the underwriters' over-allotment.

In June, we sold 9.2 million shares of 6.35% Series E perpetual preferred shares, raising gross proceeds of $230 million including the full exercise of the underwriters' over-allotment.

Both of these transactions were well-subscribed permitting the pricing of each offering to be tightened, while the size of each offering was significantly upsized. Proceeds from both of these offerings were used to pay down the balance outstanding on our credit facility, to fund acquisitions, and for general corporate purposes.

We're extremely pleased with the execution of both of these offerings, which provide permanent capital to us as very attractive coupons and they increase our capital financing flexibility and our capacity for future growth.

Early in the second quarter, we repurchased and retired nearly 1.3 million shares of common stock at an average price of $15.59 per share. At quarter end, our balance sheet and liquidity remained strong. We have total debt of $3.2 billion, with no maturities until 2018. Nearly 70% of this debt is fixed rate, with a weighted average interest rate of 4.26% and a weighted average term to maturity of more than 17 years.

We had $270 million of unrestricted cash and cash equivalents on our balance sheet at June 30, 2016 and just $142 million outstanding on our $800 million credit facility, which was repaid at the beginning of the third quarter.

As we move ahead, we'll continue to look for opportunities to strengthen our balance sheet and to further expand our capital flexibility. We're looking at ways to optimize our credit facility and to increase our unencumbered pool with an eye toward managing credit and refinancing risk.

Additionally, the steps we are taking can put us on a path toward greater capital capability options at the most advantageous pricing.

Now, I'll turn the call back to Dave.

Dave Singelyn

Before we open the call to your questions, I'd like to report two changes to Our Board of Trustees since our last call. First, Lynn Swann, a Trustee from the inception of the company accepted the position of Athletic Director at the University of Southern California. Due to the requirements of this new opportunity, concurrent with the commencement of his new position on July 1st, 2016, Lynn resigned his position as Trustee of the company.

And second, earlier this week, the Board of Trustees appointed Tamara Gustavson to be a Trustee of the company. Tamara is the daughter of B. Wayne Hughes, the company's Chairman. Tamara is a real estate investor and philanthropist.

In addition, she currently sits on the Boards of Public Storage, the University of Southern California, and the William Lawrence and Blanche Hughes Foundation, a cancer research organization. I have known Tamara for more than 25 years and I'm excited to have her input as we continue to grow, improve, and enhance American Homes 4 Rent.

And with that, I'll ask the operator to open the call for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we'll now be conducting the question-and-answer session. [Operator Instructions]

Our first question comes from the line of Juan Sanabria with Bank of America. Please go ahead with your questions.

Juan Sanabria

Hi, good morning. Thanks for time. I was just hoping you could talk a little bit about the CapEx per home, it was down obviously pretty significantly. How do you see that normalizing over time and maybe the slope of that deceleration or target that you'd like to get to?

Jack Corrigan

We expect it to continue to go down and the way we look at it is the combination of maintenance, CapEx, turn cost and our in-home maintenance team. The reason we looked at it like that is most of the cost that you're incurring, especially over this larger portfolio to me, if it's been on repairs or spent on replacement, it's a cost that detracts from the deal.

And so we expect -- I think what it takes that we were at $2,157 in total on those costs over the last four quarters. I think we can drive that down into the $2,000 to $2,100 for this year. I think there's still room maybe 10% to 20% room to drive it down further in the future. But that could take a little more time as we perfect the in-house maintenance group.

Juan Sanabria

Okay, great. And on the balance sheet you guys talked about having a debt to total market cap in the preferred giving you more capacity. Do you have any leverage targets that maybe aren't into market capitalization and that would be inclusive of preferred just from an equity point of view, depends on who you talk to but a lot of people consider the preferred as debt.

Dave Singelyn

The debt to me -- this is Dave. Good morning Juan. The preferred is permanent capital. It does reduce refinancing risk. It also gives you more capacity for debt if necessary. Yes, we obviously are well-focused on what our balance sheet looks like. We have focused on our EBIDTA to debt as well metric that is now down into the six times ratio, which is more in line with the traditional.

Overall, we're still a growth company. And we're looking for the most attractive capital that we have for the current day, but more importantly, for the long-term to continue to reduce our cost to capital in the future. And so we're focused on all those measurements.

Juan Sanabria

Okay. And then sticking to the balance sheet, you've seen a nice rally in your share price this year. What's your capacity to grow the acquisition you talked about that ramping up into the fourth quarter without having to look at the equity market and how do you feel about issuing equity at these current levels?

Dave Singelyn

As I think Diana mentioned, we are sitting with a little bit of cash. We have a fully available credit facility of $800 million. We do retain a fair amount of cash flow from operations and all of those will permit us to continue to grow this company.

I think as we mentioned, we continue to see attractive opportunities out there. Both on the one-offs and -- we're always in discussions with our peers about potential opportunities there.

Juan Sanabria

Thank you very much.

Dave Singelyn

Thank you, Juan.

Operator

Thank you. And our next question comes from the line of Dave Bragg with Green Street. Please proceed with your questions.

Dave Bragg

Thank you. Good morning. So, is it correct in that my interpretation of your comments is that your increased appetite for acquisitions is driven by solely the acquisition landscape as you see it or is it also a reaction to your improved cost of capital?

Dave Singelyn

Dave, I think from day one it's been a combination of both. You have to keep those in balance. And as we've been growing, there's always been a little bit of tension back and forth.

We basically look at acquisition opportunities in light of the cost of our capital. And today we believe there is acquisition activities. We know there is acquisition activities out there that are favorable to our cost of capital and favorable to our shareholders in the long-term.

Dave Bragg

Okay. And now that you've integrated the American Residential portfolio in a fashion that seems to have been pretty smooth, can you talk about the scalability of your platform? What size of a portfolio would be too large for you to handle in one fell swoop?

Dave Singelyn

I would tell you that the experience that we had with American Residential first we had done some smaller acquisitions prior to that. A couple that we have announced in portfolio we call [Indiscernible]. They were good practice for us to make sure that we had our steps in place.

You appropriately commented that the transaction with American Residential was extremely smooth. We were able to integrate the portfolios both from a physical and personnel standpoint as well as system standpoint pretty much seamlessly.

I think it's the benefit -- we have the benefit of having very strong centralized systems. It allows us to scale up pretty quickly in our call centers. I would -- any opportunity that is available out there, I'm confident that we can acquire and bring into our platform with relatively -- with relative ease or very little disruption to our current operations.

Dave Bragg

Okay. Last question. As it relates to potential acquisitions, can you tell us a little bit more about what you're seeing or expect to see with your purchases in the second half of the year in terms of pricing both from a gross yield and a net yield perspective?

Dave Singelyn

Yes, I don't even look at it in terms of gross yield. But in the markets that we're currently -- because property taxes have such an influence on gross yields, you have to be able to make it up on the revenue side.

So, we're basically buying in the southeast. Most of them are low -- lower property tax states, but Florida is still pretty high property tax state. And of the net yields are right around six, all in. On average.

Dave Bragg

Yes. Thank you.

Dave Singelyn

Thank you, Dave.

Operator

The next question is coming from the line of Dennis McGill with Zelman & Associates. Please go ahead with your questions.

Dennis McGill

Hi, good morning. Thank you. First question just had do with turnover, I think you reported over the last year term has been about 40% and our industry numbers and some of the other players would probably closer to a third.

Do look at that is being structurally higher because of your price point or is it market mix or is there anything that you're seeing that would cause the variance? And then maybe you could talk to whether you think there's opportunity to drive number lower as you move forward?

Jack Corrigan

Yes, I think there's opportunity to drive it lower. And I think 35% to 40% is probably where we are. You have a number of move outs in the second quarter as school was getting out. You tend to have -- that's your peak leasing season, but it's also your peak moving season especially a month.

But in terms of -- I would expect that it will go down over time. If you look at the people that have stayed in our houses two years or more, they're more likely to renew then people that have stayed one year. So, over time that should build on itself and reduce your turns.

The part that probably is different than people that are in the lower tier of the rental housing -- we're probably seeing more -- I heard Silver Bay on their call talked about 15% to 17% -- I think that's what they said of move out move outs due to people buying new homes. We're probably in the 25% to 30% range and that might account for some of the difference.

Dennis McGill

Okay. That's helpful. And then Dave, can you just maybe update us on how you're thinking about the sustainable operating margin going forward? I think it was about two years ago where you started guiding down your longer term expectations, but since then you've done an incredible job of improving some of the maintenance costs that I think drove that initial guide down. So, just curious how you're thinking about that now and maybe more so then core NOI margin sort of net of CapEx all-in how you would think about the sustainable opportunity?

Dave Singelyn

Well, today we are -- our systems are firing on all cylinders. As you've seen some significant rental rate increases, we expect that to continue. Our systems still have capacity to reduce expenses. Our in-house maintenance program we are in the middle of rolling that out and once that is rolled out, it will take some time to optimize it.

We've see that time period necessary to optimize some of our other systems. You get it rolled out and the process is roll it out, analyze it, refinement it, and repeat the circle. And we'll be doing that again with the in-house. So, there is opportunities still left on the table to improve revenues on an outside basis to the inflation market.

There's opportunities to continue to drive maintenance expenditures lower as Jack just indicated. We're in the mid $2,100 range -- $2,100 to $2,200 and we expect to see that overall with -- including our capital expenditures come down into the $2,000 by the end of the year. So, I guess that is a long way of saying by definition the margins will continue to expand a little bit between now and in the future.

Dennis McGill

I guess maybe just putting some numbers around. In the past you've had ranges that have been 61% to 64% on the core side, kind of guiding lower at some time and then adjusting that other, do you feel like the lower bound is now higher -- or that the higher end of that potential range has gone up with some of the efforts you've made over the last six months?

Dave Singelyn

No, absolutely they've gone up. Remember it's -- when we talk about margins, we talk about on a 12-month basis. It is a seasonal business. And I think you've seen with the ARP merger, you have seen with our management expenses coming down significantly as a percent of our revenues. All of that's leading to expansion.

We saw 200 basis points improvement year-over-year. You take the guidance that we gave you at the beginning of the year and increase it to 100, 50 or so basis points and that's where we would expect to see 62%, 63%, 64% range in the near-term maybe a little bit greater than that in the much longer term.

Dennis McGill

Got it. That's helpful. Thanks guys. Good luck.

Operator

Our next question is coming from the line of Jade Rahmani with KBW. Please go ahead with your questions.

Jade Rahmani

Thanks very much. Has the increase in stock prices accelerated the volume of conversations around larger scale M&A?

Dave Singelyn

Well, I mean we're always having discussions with parties and we don't typically comment on those. It took a long time to pull American Residential together. And when it's appropriate and if there's something to be announced, we'll announce it.

Jade Rahmani

Okay. What about on the bulk portfolio sales from private holders, several hundred units type size, have seen a pickup in those inquiries?

Dave Singelyn

Yes. I wouldn't say that they are focused on as much on what our stock prices, but we are in terms of what our cost of capital and what we can pay for a portfolio. So, I wouldn't say that the inquiries coming in are more, but we're taking the inquiries more seriously because I think we can pay a more competitive price than we were willing to when our stock was lower.

Jade Rahmani

And are you seeing any increased willingness of those types of entities to hold OP units?

Dave Singelyn

Not on the --

Jade Rahmani

OP units.

Dave Singelyn

Yes, not on the smaller transactions. Because it's -- a lot of people just really don't understand them. And they are then filing tax returns in 18 different states. So, it's a tool for a more sophisticated seller.

Jade Rahmani

And do you view that as attractive sharing OP units?

Dave Singelyn

Yes.

Jade Rahmani

On the a ARPI acquisition, I guess if it was operating at your existing platform level with efficiency would you say that could you quantify the level of accretion that would have been above your reported core FFO?

Jack Corrigan

Well, I would tell you, if you look in our supplements, we breakouts our properties in four or five different categories. Same-Homes and stabilized homes, we do have the ARP portfolio in there. And you'll see that the margin is slightly below the margin of our Same-Home portfolio.

As those leases continue to turn and some of the deferred maintenance which we actually believe is less than what we anticipated when we underwrote the portfolio. When all of the has come through, I expect the ARP properties to have very, very similar metrics and margins to the Same-Home portfolio that we have today.

And when you look at our administrative expenses, you see from first to second quarter some nice improvement there. Some of that is the synergies coming through of the ARP transaction.

Jade Rahmani

In terms of the seasonality and NOI this quarter was that -- I mean it sounds like it was better than your expectation and could you say what drove that?

Jack Corrigan

I don't know if it was better than our expectation. It's better than the street obviously. But we're now at a point where we have -- really the only vacancy we have in our system is a vacancy and not only for us but for the industry.

I think that combined with a couple of years of getting systems continually to refine them, enhancing the ability to get our turns done in a very, very timely manner has allowed us to maintain a very, very strong occupancy in the mid-90%.

You couple all of that and you also have pricing power. And all of that leads to really the proof of what we've been talking about from day one that there is an opportunity to move the pricing of this industry -- the rents of this industry to be a little bit more in line with multi family.

Jade Rahmani

In terms of CapEx, how much duration do you think there is left in the non-stabilized CapEx? How much longer is that going to last? And maybe if you could distinguish between that a ARPI portfolio and your own portfolio.

Jack Corrigan

I'm not sure I understand -- as long as we're continuing to acquire, we're going to have renovation costs coming through on that. Are you referring to renovation costs on portfolio acquisitions such as a ARPI?

Dave Singelyn

What you're referring -- non-stabilized?

Jade Rahmani

Are you incurring any improvement CapEx on your existing portfolio?

Jack Corrigan

There's zero--.

Jade Rahmani

In the earlier days you weren’t -- maybe in the earlier days you are renovating things to different standard.

Jack Corrigan

We probably are incurring some improvement costs, but we don't make an effort to segregate it in terms of our same-Home pool between -- so all of the CapEx that's reported in the Same-Home pool that spent.

Dave Singelyn

Jade -- and I might be a little confused here, but the capital expenditures on our Same-Home does not include the initial renovations. That occurred before we put the property initially into lease.

The cost that we're incurring will be your standard maintenance related capital improvements which may be a replacement of an appliance here or there, a replacement of an air-conditioning system here or there. But the initial renovations is prior to the property going into service. And those properties by definition are not in our Same-Home pool.

Jade Rahmani

Okay. So, once you've done the initial renovation in the properties in the Same-Home pool, will you report a stabilized CapEx as the entirety of the CapEx that you're incurring?

Dave Singelyn

Yes.

Jack Corrigan

Yes.

Jade Rahmani

Okay. Some of the other companies are incurring capital improvements -- capital improvement expenditures on homes that either were previously renovated, but by someone else or to a different standard or homes that were acquired within leases that were not renovated. So, there is a different for at least some of the other companies. But thanks for taking my question.

Jack Corrigan

We aren't putting those homes at this point into our Same-Home portfolio. So, those homes are broken out separately in bulk acquisitions and in our supplemental I believe and other -- yes.

Jade Rahmani

Okay.

Jack Corrigan

But in the Same-Home those are homes that we've renovated and -- we may put in a fence in a unfenced yard and that technically is an improvement, but we don't take that out of the CapEx when we report it.

Dave Singelyn

That's included in our CapEx numbers. If we do any enhancements to the property of a Same-Home properties.

Jade Rahmani

Thanks very much.

Dave Singelyn

Thank you, Jade.

Operator

Thank you. [Operator Instructions]

Our next question comes from the line of Patrick Kealey with FBR. Please go ahead with your questions.

Patrick Kealey

Good morning everyone. Thanks for taking my questions. Just I guess first off, talking about the decrease in turn times here, obviously pretty impressive year-over-year. So, is this where we should think about obviously a fair turn time running -- or going forward or do you think there's going to be opportunity with as you bring on in-house maintenance et cetera that you might be able to squeeze a few additional days out of it?

Jack Corrigan

I think -- first I want to be clear on what in there. That's not the total -- what I talked about is not the total turn time. It was the time between move out and a home becoming rent ready. And then you have marketing time, which is the time between the house becoming rent ready and a lease being signed.

And then you have -- usually there is a period of three days to 14 days that -- between a lease signed and somebody moving into the house and starting to pay rent. So, those are really the three categories.

The one that we focus on is getting the house rent ready. The marketing is really -- the marketing time is really a function of how aggressively your pricing your rents. I mean we could get down to nothing if we priced it low enough and we can expand it to infinity if we priced it too high. So, -- and the other is just practically for most tenants, the day they sign the lease they are not quite ready to move in yet. So, there's a little bit a period of usually until the weekend or the weekend after that.

Dave Singelyn

Patrick, I think as we become a more mature industry and -- when we're early in our days, we focused on all the detail. Today, we monitor and I think the focus needs to be on where our rental rates are and our occupancy. And we will continue to drive to have occupancies in the mid to upper end of the 90% range.

And we will -- some of those factors are adjustable based on how we look at as probably the primary one as Jack said rental rates. But we are very, very pleased with maintaining occupancy in the highest turnover quarter in the mid-90s and expect that -- our ability to continue to do that -- we don't see a problem with.

Jack Corrigan

But we can -- the one area we can improve on is the -- and we have direct control over it is the period of time between move out and rent ready. And we've gotten that down to nine days. I think we can get it lower, but maybe just a few days lower.

Patrick Kealey

Okay, great. And that's very helpful. And then when thinking about acquisitions, I guess maybe more thinking about geographically obviously looking at your portfolio today, there's a couple markets I think that stand out on the rental growth side.

So, when you're allocating capital here over the next few quarters and even few years, I mean should we expect maybe deeper penetration in your existing markets as a way to play at or is there potential you think for certain markets out there that maybe you don't have either scale in or aren't entirely that could help diversify the portfolio and brought in your footprint.

Jack Corrigan

I think only to the extent that we bought a bulk transaction where they already had scale in a market. We're not really looking at other markets right now. We're looking at building out our existing ones.

Dave Singelyn

In other words, our one-off transaction will focus on our existing markets.

Patrick Kealey

Okay, great. Thank you.

Operator

Our next question is coming from the line of Richard Hill with Morgan Stanley. Please proceed with your questions.

Richard Hill

Hey. Good morning everyone. How are you? A couple of -- actually three questions on my end. First of all, earlier in the call, I think you mentioned property taxes being up maybe around 9% or so. If I recall correctly, that's up from maybe 5%, which you were previously estimating. Is my understanding correct to begin with?

Diana Laing

It is. After the first quarter, we were estimating 5% to 6% increases this year. We've now increased that estimate to 8% to 9% and that's based solely on information we've received about where our assessed values are ending up.

So, we've had to increase our expectations of the increase for this year. We've got two states where we have several of our largest markets that have had double-digit increases and assessed values.

Dave Singelyn

This is a little bit of the result of the significant home price appreciation we saw in the last couple of years. And assessments tend to follow that not necessarily correlating exactly the timing is not exactly the same, but they do tend to correlate with home price appreciation.

Richard Hill

Understood. So, obviously, it's a good problem to have. What gives you confidence that 9% is right and is there any chance that it might be higher given some of the things that we're seeing in the homeownership market?

Diana Laing

We can't be absolutely certain that we're right because we don't have actual tax bills. We don't know exactly what the tax rates are going to be. But for the most part, we've gotten strong indications of where assessments or assessed valuation are going to be. So, this is our best estimate. We think it's conservative about work property tax expenses will end up for the year.

Richard Hill

Got it. Thank you. So, just thinking about the rise of property valuations in context with some of your securitizations that are outstanding. I think if you have maturity dates that are forthcoming here or at least an initial maturity dates, I recognize there's some extension options there.

But given the rise in property valuations that we've seen, how are you guys thinking about that? Is there -- Would you consider potentially refinancing these into any deal, particularly given some of the strength we've seen in the securitization market over the past couple months?

Dave Singelyn

I think the capital discussion is probably bigger than just refinancing back into another securitization. You've seen over the lifecycle of American Homes have looked at all forms of capital. And as we continue to move forward, we look to optimize our capital structure the best way possible to drive cost of capital down.

We're seeing more and more ability for us to obtain unsecured debt relieving the burden of a securitization. But it doesn't mean that we don't look at securitizations. They are attractive. They are administratively somewhat burdensome, but we will look at all forms.

And Diana had mentioned, we don't have any maturities coming up until 2018. What she did it mentioned is if you look at our supplement and look at our debt, the maturities that come up in 2018 are a pretty small percentage of our entire capital stack. So, I think we are well-positioned to manage all of our maturity risks that we have.

Richard Hill

Great. That's helpful. And look -- understood. One quick thing just up from a macro standpoint. Are you seeing any sort of changes on the demand side for rent in your houses? We keep hearing about millennials coming in and maybe millennials might not be the natural fit for all of your homes. I'm curious if you're seeing any new trends developing on them demand side of the equation?

Dave Singelyn

The demand has been very robust. Really for the last two or three years. And it was probably like that before. We were using third-party managers, so we didn't necessarily feel it. But the volume of calls per available home is a strong as ever.

Richard Hill

No, I'm not making a comment on the strength of the demand I'm making -- I'm asking a question on the type of demand, are you seeing a different type of renter look to rent the house or is a pretty consistent?

Dave Singelyn

The demographics have been pretty consistent.

Richard Hill

Okay. Thank you.

Operator

Our next question comes from the line of Buck Horne with Raymond James. Please go ahead with your questions.

Buck Horne

Hey guys. I promise I'll limit myself to just a couple here. The R&M and the gains in the CapEx just the improvement there have been truly impressive. So, congratulations on that. I think maybe there's going to be a skeptical argument that says are those numbers truly sustainable over the long term, are you investing enough in houses? So, maybe if you can address that? One.

And I guess to correlate to that, tenant chargebacks. Can you explain to us a little more on how you have been so successful in collecting tenant chargebacks and reducing your -- those costs with the collections? The other option around that is how are you feeling like the tenants are getting frustrated with the level of tenant chargebacks?

Jack Corrigan

No, I think actually we under charge back still. We are very sensitive to the tenants especially on occupied maintenance chargebacks. And a very minimal part of that -- part of the chargebacks is occupied maintenance chargebacks. Most of it occurs on the turn and we try to give them as much opportunity to clean the house and leave it in good condition as we can.

We give them names of approved cleaners and coupons for discounts and all that stuff. We try to minimize it actually as much as possible because that helps us in the turn times and it's strictly a cost reimbursement. So, we're not making money.

On the -- But the bulk of our chargebacks that you see on the balance sheet are utility chargebacks. We pay for most of our homes utilities all year round 100% of the time and the charge it back when it's occupied to the tenant. So, that's--

Dave Singelyn

And that program -- I mean charge backs on utility is a significant benefit to our tenants that make the move in process much easier and it’s a convenience factor to the tenant. So, as Jack indicated, the majority of that line that you see although appears to be relatively large, the lion share is utility.

Jack and our operating team are pretty effective in charging back work on move outs primarily and its -- it gets back to having good systems and documentation and having a very -- having the tenant understand the leasing process. So, its educating all parties as to the process.

And a big key to improving that over time is we're pretty strong about documenting the condition of the house when they move in. So, when we charge them back we have pictures and everything to show them, what they got and what they gave back and that's why you owe it.

Buck Horne

Thank you guys. One quick one on big picture. How do you see the industry's evolution and maybe consolidation in terms of what stage we're at and the addressable market opportunities. What are you -- maybe see the optimal side of your portfolio ultimately being kind of -- where do you envision this thing going longer term?

Dave Singelyn

On optimal size I would say that it is necessary to have a minimum size. Scale is very, very important. On the upper end, I think there is no upper end. It's a function of capacity of your systems and I think we are well aware of that and have invested significantly. In the system in response to one of our earlier questions, we're comfortable with any acquisition we can take today and we'll continue to monitor that.

Where do I think we are in the lifecycle of this industry? I think we're still very, very early. Recall that there are 16 million homes -- single-family homes that are today rentals. We owned under 50,000. You do the math and it comes out in decimal places.

As an institutional industry, we've been doing this for three or four years in volume. And we are still very early. We own as an industry like 1%. Compare that to other real estate sectors that were institutional -- the ownership of institutionally and you're going to find that to be in the double-digit range. So, we to catch up with have a long ways to go. Not saying we will get there, but there is a lot of opportunity between here and any finish line that we could ever imagine.

Buck Horne

Thanks guys. Congratulations.

Dave Singelyn

Thank you.

Operator

Our next question comes from the line of Anthony Paolone with JPMorgan. Please go ahead with your questions.

Anthony Paolone

Okay. Thank you. First, on the balance sheet I think your floating rate total is like 30%. What's the long-term view on where you want that to be?

Dave Singelyn

I'm not sure I have a target loading rate. It's more focused on the overall structure and maturities. 30%, that's a number of total debt and you look at the amount of total debt as a percentage of capitalization; that percentage comes way down. The inference I think is on interest rate risks. So, I don't think we have tremendous amount of interest rate risk. At that level for where we are and being five year company, we're pretty comfortable with that number.

Anthony Paolone

Okay. And then Jack, I think you mentioned all in yields on -- you're looking at in the low sixes, what's all in as it relates to CapEx and property management? Are those included in that and what level?

Jack Corrigan

Yes. They are included at our targeted level of CapEx turns, maintenance and on property management. We're probably overstating what we're -- what's really costing us because to add it one property or 10 properties or 20 properties to a market doesn't cost us paying currently the marginal cost is lower, but we burden it with the full property management costs that we're currently experiencing.

Anthony Paolone

So, if I look at the percentage of revenue -- property management as a percent of revenue that's what you are saying in sixes?

Jack Corrigan

Yes.

Anthony Paolone

And CapEx what's -- is at 500 or the kind of 700 to 800--

Jack Corrigan

We grouped the categories, so it's somewhere in the -- this is going by recollection on the pro forma, it's somewhere in the $1,800 to $2,000 range for maintenance CapEx and turns.

Anthony Paolone

Okay. And think about that -- this number and kind of maybe normalized for some of these assumptions versus what you guys were doing say three years ago when you were in the thick of it. What's been -- I don lack of better term the cap rate compression or net change?

Dave Singelyn

The cap rate compression -- I don't think it's as much as people think because rents have risen. Some [Indiscernible] more than prices. We -- I think we were buying probably in the low sixes and now we are at six. I really don't think it's that much different in the markets we continue to purchase. And if we were talking California or Las Vegas or Phoenix, I'd have a different answer.

Anthony Paolone

Okay. And on the acquisition pace, I guess you implied about $100 million a quarter in returning to that pace later this year. How much debt do you think is coming from investor-to -investor versus like MLS-type transactions?

Dave Singelyn

I would say probably 50% is coming through options, foreclosure auctions and the other 50% is primarily going to be MLS transactions buying from owner users.

Jack Corrigan

Bulk transactions will be on top of that.

Anthony Paolone

Okay. And then--

Jack Corrigan

Primarily your investor-to-investor.

Anthony Paolone

Okay. And then in terms of on the sales side, can you give us a pace or just a dollar amount on the sales side? Is it just held for sale stuff or is there more that we could potentially see there?

Dave Singelyn

It's primarily be held for sale stuff. We -- occasionally, you will have Homeowners Associations that change the rules, so that you can't lease them so those will obviously move into fore sale and we constantly monitor our 90 day and older inventory to see if maybe it's not a good rental for us. Fortunately, I think we're down to only 23 homes in that category. So, it's not very hard to monitor.

Anthony Paolone

Okay, great. That's all it got. Thank you.

Dave Singelyn

Thank you, Tony.

Operator

Our next question is coming from the line of Dave Bragg with Green Street Advisors. Please go ahead with your question.

Dave Bragg

Thanks again. I'd just like to revisit an answer you gave which suggested that you're spending more time in evaluating the unsecured market. Could you please elaborate on that and just talk a little bit more about what your long-term outlook is for the composition of the balance sheet?

Dave Singelyn

I think the composition in long, long term -- we want to make sure that we have a good blend of permanent capital and attractively priced debt. As we have -- when we started this industry we had only one form of capital. And each and every period we have been able to develop additional forms.

And as we become more and more mature as an industry and company's capital position becomes stronger, more opportunities are opening up for us. And we are at that point where there's now availability of unsecured debt. It has a number of benefits to us including an encumbering assets on our balance sheet and it's a process.

And we today are -- I think fairly would well down the process. I would hope that we have some more attractive unsecured debt in the near future that's attractively priced. But every step we have taken has been with a view and a thought to the long-term reducing of capital.

And some of that is needing to put some capital that maybe a little bit more expensive than existing debt onto our balance sheet because it's permanent capital. It's a process to right-size the balance sheet and in the long-term, it's going to have significant benefits to the company in reduced cost to capital. So, I think we're at the -- looking at unsecured debt for the first time as a viable alternative and viable option to finance the company.

Dave Bragg

Thank you for that. One other question, can you please provide the percentage change in renewals and new leases for 2Q on a same-store basis?

Jack Corrigan

We don't have that information--

Dave Singelyn

Everybody is looking quickly to see if we have it our room. But my gut feel is that it's very similar to what we have overall.

Dave Bragg

Okay. Because our question was -- we were wondering if the integration of a ARPI portfolio into your portfolio given the fact that your significantly better operator is allowing for much higher results in that pool of assets than in your legacy pool. And you are saying that's not the case.

Dave Singelyn

Just the number of properties that we have in the ARP pool compared to our Same-Home spool and stabilize pool. ARP is 14%, 15% of our total property count. It's not -- if it influences it at all, it's not been a be material influence. The total numbers are more driven by our legacy portfolio than ARP.

Jack Corrigan

I would say that our overall increases on ARP are probably a couple of percentage points higher on re-leasing than on -- than overall AMH legacy. But it doesn't -- there's not that many of them to significantly influence the overall rate.

Dave Bragg

Understood. Thank you.

Dave Singelyn

Thank you, Dave.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session and today's conference. You may disconnect your line at this time. Thank you for your participation.

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