American Homes 4 Rent

NYSE:AMH

Earnings Call Transcript 2018-Q2

[Operator]

Greetings, and welcome to the American Homes 4 Rent Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

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

[Stephanie Heim, EVP of Counsel & Assistant Secretary]

Good morning. Thank you for joining us for our second quarter 2018 earnings conference call. I'm here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; and Chris Lau, Chief Financial Officer of American Homes 4 Rent.

At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical facts included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, August 3, 2018. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release.

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

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

[David Singelyn, CEO]

Thank you, Stephanie. Good morning and welcome to our second quarter 2018 earnings conference call.

Before I begin I’d like to acknowledge the recent departure of Diana Laing, our former CFO. Diana was a talented and dedicated partner to all of us and I wish her well in the future. We are fortunate to have Chris Lau step up as our new CFO assuring a smooth transition. Congratulations Chris on a well-deserved promotion.

And earlier this week on Wednesday, August 1, we celebrated five years as a public company. When we launched American Homes 4 Rent, we recognized the unique opportunity to accumulate a portfolio of single-family homes at attractive prices, take advantage of shifting household patterns that favor renting and bring professional management and institutional capital to the asset class.

During these past five years, we have provided quality housing to tens of thousands of families and rehabilitated thousands of homes in countless neighborhoods. Today, we not only acquire upgrade, lease, operate and maintain our homes, but we’re also pioneering the building of high quality single-family homes for rent.

And as I sit here, I can honestly say that the opportunity we identified five years ago is larger than any of us realized. We have accomplished a lot and I am deeply proud of our results. But the opportunity in front of us remains exciting with only 1% to 2% of the single-family rental market institutionally owned with excellent sector fundamentals and committed team and a balance sheet positioned for growth. American Homes 4 Rent has significant long-term potential and will continue as a best-in-class housing provider in America.

Now turning to the second quarter results, the second quarter continued a tremendous momentum from the first quarter. We continue to see strong occupancy gains in both total portfolio of our occupancy and same home average occupied days compared to last year. And we accomplished these gains while achieving a blended rental rate spread of nearly 5%, the strongest in the last two years.

As we enter the slower leasing season, we prudently moderated our increases late in the quarter. And based on results in July, we expect favorable rental rate spreads to continue through the next several quarters translating into strong operating performance compared to the prior year.

Now turning to acquisition activity, in the second quarter we continue to acquire homes through our traditional channels. Deliveries from our development programs are ramping up as well and early results are positive. In total including all channels we now expect to invest approximately $600 million in single-family homes this year which is at the high end of our previously communicated guidance. Jack will provide details of our acquisitions and development program later on the call.

To finance this growth we have ample capital, significant free cash flow, a fully undrawn credit facility and proceeds we can recycle from our expanded disposition program. To that end, we have recently finalized amendments to our remaining three securitization to allow for substitution of collateral and have updated our list of homes identified for disposition. We now expect proceeds from these sales to be between $350 million and $450 million over the next 24 to 36 months.

In closing as I mentioned earlier, the outlook for our future remains exceptional. Single-family rental fundamentals are healthy, the economy is producing strong and steady demand providing for high occupancy in virtually every market with increasing rental rates.

Further our operating platform is mature with proven systems and processes that we continue to lever. And with our strong balance sheet augmented by proceeds from an expanded portfolio of recycling program, we have ample capacity to fund our accretive growth plans this year and beyond.

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

[John Corrigan, COO]

Thank you, Dave, and good morning, everyone.

As Dave mentioned, our second quarter operating results were exceptional, highlighting the benefits of our earlier investments in front of the important spring leasing season. We see strength across our entire portfolio with steady demand and rental rate growth in virtually every market including some markets that had previously lagged. We improved our occupancy each month during the quarter and on a same home basis average occupied base percentage increased by 40 basis points over last year to 95.4%.

In addition to strong demand, we continue to benefit from fewer move-outs down 90 basis points from last year due in part to the maturation of the portfolio, continued improvement in customer satisfaction and strong market fundamentals. We believe these improvements are sustainable.

We achieved blended lease spread of 4.9% in the second quarter which was 50 basis points better than the second quarter of last year. We saw strong results through the quarter even as we intensely moderated increases for new leases in June in front of the slower leasing season consistent with prior years.

On a same-home basis we achieved 3.5% growth in average monthly realized rent and July continues to be strong with blended spreads of 4.3% and we now expect average rental rate increases of 3.5% to 3.75% compared to our earlier expectations of 3.5%.

Moving on to our operating expenses, as previously indicated elevated expenditure levels experienced in the first quarter continued into April but during May and June overall expenditure levels were consistent with the prior year. For the full year, we now expect repairs, maintenance, turn cost and CapEx to fall within a range of $2,050 to $2,150 per home with total property operating expense growth in the 5% to 6% range.

Much of this increase is due to a larger proportion of our repairs and maintenance of turnover cost being expensed rather than capitalized compared to last year which will largely be offset by lower CapEx. Chris will provide more details related to all of these guidance adjustments later on the call.

Turning to acquisitions, during second quarter we acquired 323 homes for a total investment of approximately of $81 million. With our primary focus on the Southeast, Texas and Western markets, included in this our traditional channel acquisitions totaled 108 homes for approximately $27 million with stabilized yields remaining in the 5.5% range. We also took delivery of 215 newly constructed homes and 11 markets for a total investment of about $54 million. 116 of these homes were from AMH Development and 99 were from our National Builder program.

Over the latter half of the year, we expect to take delivery of a sizable number of homes from our development channel that are currently under construction and further supplement through traditional channel as we prudently recycle capital from our disposition pool. For full year 2018, we now expect to invest closer to $600 million in total from our various channel.

Moving on to dispositions, during the second quarter we sold a 113 properties for approximately 18 million of net proceeds. As Dave said, we now have amended all of our securitizations to allow for substitution of collateral. And as a result we added another 430 homes to our disposition pool. At June 30, our portfolio of homes to be sold totals approximately2,200 homes. These homes are currently 81% leased. We are now targeting 350 million to 450 million in disposition proceeds over the next 24 to 36 months.

In summary, we had a great second quarter and based on our highly occupied portfolio season platform and continued fundamental tailwinds I look forward to a strong operating results in the second half of 2018 and into 2019.

Now I will turn the call over to Chris Lau, our Chief Financial Officer.

[Christopher Lau, CFO]

Thanks Jack.

Starting off I’ll begin with a quick review of our operating results. For the second quarter of 2018 net loss attributable to common shareholders was $15.2 million or $0.05 per diluted share. This compares to a net loss of $200,000 or $0.00 per diluted share for the second quarter of 2017.

Also for the second quarter of 2018 core FFO was $93.6 million or $0.27 per FFO share and unit as compares to $81.5 million or $0.26 per FFO share unit for the same quarter last year. The growth in core FFO is attributable to our continued accretive acquisitions and development activity over the last 12 months. Coupled with strong operating performance in our same home portfolio which was partially offset by higher interest expense and higher outstanding share count.

Adjusted FFO was $82 million in the second quarter of 2018 as compared to $71.2 million for the second quarter of 2017. On a per share basis adjusted FFO was $0.23 per FFO share and unit for the second quarter on 2018 unchanged from the prior year.

With regards to our same-home portfolio operations, same-home core NOI after capital expenditures was $104.5 million in the second quarter of 2018 which compares to $101 million for the same quarter in 2017, an increase of 3.5%.

Our growth in the same-home core NOI after capital expenditures was driven by 3.7% increase in core revenues and a 2.8% decrease in recurring capital expenditures offset in part by a 5% increase in core property operating expenses.

As a note, our same home pool of 38,400 properties reflects this quarter’s removal of approximately 400 additional homes now identified for sales as Jack discussed previously. The removal of these homes did not have a material impact on market composition or operating performance of the same-home portfolio. But for reference like always we have provided a historical rolling five quarters of operating performance and metrics for the current pool on pages 13 and 14 of the supplemental.

Turning to our balance sheet and recent capital market’s activity. As previously announced in April we converted all €7.6 million Series C participating preferred shares into 10.8 million Class A common shares. We believe this was a great execution for us as it eliminated the financing instrument with 9% annual cost and further improved the capacity of our balance sheet.

Additionally, in May we paid off a $48.4 million note which was secured by 572 homes and then in June we paid down a term loan component of our credit facility by $100 million. These debt paid downs were made using cash from our balance sheet reducing earnings rate from ideal cash going forward while further strengthening the flexibility of our balance sheet and increasing borrowing capacity.

Our debt metrics continue to improve, at the end of the quarter for the trailing 12 months net debt to adjusted EBITDA was five times and debt plus preferred shares to adjusted EBITDA was 6.7 times. We have approximately $2.7 billion of debt with a weighted average interest rate of 4.2% and a weighted average term to maturity of over 14 years.

Our $800 million revolving credit facility remains fully undrawn and coupled with an our routine cash flow of approximately $250 million and recycle capital from our expanded disposition program we are well positioned to fund our growth objectives.

Finally, I would like to provide you with some additional color on our guidance revisions that are detailed on 22 of the supplemental. Starting with our same-home expectations, as a result of our tremendous leasing activity through the first six months of the year and expectation for continued strong demand fundamentals we are tightening our full year average occupied days guidance to 95.0% to 95.5 which represents the upper end of our previously communicated range.

Coupled with our increased expectation for average monthly realized rent growth between 3.5% and 3.75% we now expect our full year core revenue growth to be between 4.0% and 4.5% also representing the upper end of our previously communicated range.

Turning to expenses our property tax savings primarily from successful appeals are exceeding our initial expectations and we now expect full year property tax expense growth to be range of 2.5% to 3.7%.

With respect to property management as a result of our successful strengthening of occupancy earlier in the year than originally expected we’ve been able to efficiently manage our operational overhead and have lowered our expectations for property management expense growth to 3.0% to 4.0% for the full year.

As Jack mentioned previously, we now expect full-year R&M turnover and CapEx cost per property to be in the range of $2,050 to $2,150 with a larger proportion of these costs being expensed rather than capitalized compared to last year.

As a result , we now expect full year core property operating expense growth to be the range of 5.0% to 6.0%, which will be offset in parts by lower growth in recurring CapEx. Taking all of this into consideration we are affirming the 3.5% midpoint of our previous full-year core NOI after CapEx growth expectations in tightening their respective range to 3.25% to 3.75%.

In addition to our same-home guidance revisions, we now expect full-year G&A to be between $34.5 million and $35.5 million. And finally as Jack has already covered, we now expect our full-year acquisition and development volume to be near to $600 million, which represents the high end of our previously communicated rate.

Now, we will open the call to questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Juan Sanabria with Bank of America/Merrill Lynch. Please proceed with your question.

[Juan Sanabria, Bank of America/Merrill Lynch]

I was just hoping if you could spend little time on the revised same-store revenue guidance range. Just wanted to put some takes at this point for the high-end versus a long-end and any sense of where you feel more comfortable and if you could comment on the decision to moderate rate growth into June, what drove that particularly given how bullish you seem on fundamentals and demand.

[John Corrigan, COO]

This is Jack Corrigan. I will answer the second question first. We are bullish on the demand, but we want to get - we don't want to enter the slow leasing season with a lot of inventory, which we kind of did last year. So we kind like the retailers do and just before Christmas they still have a lot of people going through the stores, but they start cutting prices, because they don’t want to have lot of inventory coming in after Christmas.

So that's kind of what we traditionally have done, we did it last June and we will continue to moderate a little bit in July, I think we saw on releasing about 5% increase in July maybe slightly better. But we are in a much better position going into the slower months than we were last year, I don't think we will have to reduce our asking rates like we did last year and probably we won't have to do as much in the way of concessions that we did in the fourth quarter of last year.

[Christopher Lau, CFO]

And then Juan, this is Chris, I can comment a little bit more on the guidance. On maybe starting with average occupied days, our range is 95.0 to 95.5 midpoint of 95.25 and if you just look at how that compares based that's on a full year and if you look how that compares to the first six months of the year that we are 95.1, that indicates that we think about the balance of the year being roughly kind of flattish with where we ended the second quarter so call it 95.4% to 95.5% for the balance of the year, which represents about 60 basis points in occupancy pickup over last year.

And then you add to that our revised range on average monthly realized rent growth, which is 3.5% to 3.75% or call it 3.6 in change to the midpoint. You put the two of those together and then as it gets to the midpoint of our core revenues guidance range of 4.0% to 4.5%.

[Juan Sanabria, Bank of America/Merrill Lynch]

And just on the CapEx versus expense, or capitalizing versus expense. What drove the change there any view on the length of life of what you are spending on and what's the now just pure CapEx spend guidance per home on an annual basis.

[Christopher Lau, CFO]

I will start by saying there is no real fundamental change in what it is that we are spending. As you know, it is a pretty great line for accounting purposes, between what gets expensed and capitalized and at the outset of the year it's pretty difficult to predict for accounting purposes where those dollars will fall, which is why we focus on both for projection and quite frankly management purposes, the total dollars going out of door on a combined basis being R&M turn in CapEx and that’s that how we guide as well both in terms of net expenditure line and then more importantly our NOI after CapEx growth line.

And so what we are seeing so far this year it is slightly higher proportion of those dollars being expensed versus capitalized compared to the last year for accounting purposes and you see that reflected in part in our core property operating expense growth, but then as I mentioned in our prepared comments the offsets of that impart will be slightly lesser CapEx growth all coming out in the wash to the same midpoint of our NOI after CapEx growth range of 3.5% that we are actually pegging the bookings around by 25 basis points.

[Juan Sanabria, Bank of America/Merrill Lynch]

And then just one last quick one from me. I saw some of the [indiscernible] market saw a dip in occupancy year-over-year like Austin, Greenville, Raleigh, Charlotte. Any trends there or rationale that you guys are seeing, is it people leaving or buying homes and anything you could provide in terms of color.

[David Singelyn, CEO]

No, I think that all those markets are reasonably strong and I'd expect to pick up that occupancy over the next three to six months pick it back up.

[Operator]

Our next question comes from the line of [indiscernible] with Citi. Please proceed with your question.

[Unidentified Analyst]

Just going back to the expense and capitalized cost per home is 20.50 to 21.50 the rate - run rate to think about going forward or is there is a reason why next year it would go back down to the initial projection?

[David Singelyn, CEO]

Well, we did have higher than what I would consider normal turn costs in the first quarter, so probably have pretty good comparison in the first quarter of next year and may be into the second quarter next year. So we will have normal inflation, I don’t know if you saw the print on, unemployment was 3.9% so we were seeing some of our wages are going up, some of our vendors are going up. So, you’ll see some normal inflation of 3% to 5% and that will be offset somewhat by some efficiencies and the higher cost in the first quarter than we typically would have.

[Unidentified Analyst]

Thanks. And then just on developments, are you seeing any difference between the AMH developed homes and the National Builder Program homes in terms of demand or yields, and what's your overall yield for those delivered homes?

[David Singelyn, CEO]

The yields for the delivered homes will vary depending on couple of items how good a deal we got on the land, but we are seeing probably 20% better yields and depending on the market that could be anywhere from 6.5% as high as 7% on those yields on the purchase from the developers, it’s closer to the yields that we get on our traditional purchases. The demand is really strong on both and I think it has something do with the newer homes and something to do with markets that we are building and acquiring them.

[Operator]

Our next question comes from the line of Jason Green with Evercore ISI. Please proceed with your question.

[Jason Green, Evercore ISI]

I just wanted to circle back on slowdown might be the wrong word, but the renting in June, and kind of how the increase is in June compared to April and May year-over-year?

[Christopher Lau, CFO]

I believe the blended rate was slightly better this year than last year. The re-leasing rate was I think slightly lower, but pretty comparable June to June relative to - June is a tough month because it's really when you have a big chunk of your [turns] [ph] June and July, so, if you mispriced June and you end up with a lot of inventory going into July, you're kind of stuck. So, we may have cut it a little too low, but I'd rather be a little safe and keep the occupancy high.

[Jason Green, Evercore ISI]

I guess, what I'm getting at, and I think, you kind of answer there is, it seems like April and May were stronger year-over-year and indicated some real strength in that rented market. It seems like in June, you guys brought it down just to make sure there was occupancy, but potentially you could have raised it and fill some of those homes, is that right?

[Christopher Lau, CFO]

Yes, I think that's right, and the year-over-year it's comparable, but we do the same thing every year because you're really first big chunk of move-outs for June, really come at the beginning of June, and you turn the numbers as fast as you can, and you want rent them as fast you can to keep your occupancy levels.

The last two years, I think we've had a decline in occupancy, May to June, so I didn't want to end up in the same place this year, we had positive absorption on the same home basis, not by lot but by about 27 homes, but with how we'll occupy that's pretty good.

[David Singelyn, CEO]

The trend lines year-over-year are very comparable. So, the rental rate project during each month is about the same, we're just seeing in each month in 2018, a positive spread to 2017. But the same occurrence occurred last year with a slight moderation in June.

[Jason Green, Evercore ISI]

And then just with some of the stabilization of home prices nationwide, have you seen more willing sellers in the marketplace, or more willing kind of portfolio owners willing to get rid of their portfolio at this point?

[David Singelyn, CEO]

Not really, I think most portfolio owners are seeing such similar things that we're seeing, a really strong demand, and pretty strong cash flow, and as well as price appreciation. So they're not - they don't know where to put the money if they can get the same return.

[Operator]

Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

[Jade Rahmani, KBW]

Are you seeing any new entrance in the single-family rental space? And, in addition, are you seeing any competition from some new types of platforms, such as Zillow, which I think is operating in Atlanta, for example? Just want to hear about the competitive environment.

[David Singelyn, CEO]

Yes, as far as Zillow goes, I mean, they're, I think, basically flipping houses. So there's - they've taken away supply and putting out supply - they're really not that big yet. I didn't know they were in Atlanta, I thought they were in Phoenix, but I heard they're coming to Vegas and maybe they did get started in Atlanta.

As far as other competitors, I don't think we're seeing new ones, but we're seeing expanded platforms of older competitors. I saw Tricon at a joint venture and expect to acquire about $2 billion worth of houses, and we just see the same people kind of.

[Jade Rahmani, KBW]

Are you guys interested in exploring any additional avenues of growth, such as, joint ventures or potentially expanding into new demographics, such as, seniors housing?

[David Singelyn, CEO]

We did a small test on the senior housing thing in 2012, I think. And it just didn't - it didn't rent very well. And so, I'm a little hesitant to make another foray into that. But we've constantly look at different avenues of capital raising and I think that's more Dave's and Chris', I mean, areas.

Both of your questions are - we discussed those items, we've looked at the items and if it's appropriate, then we will launch into that and make an announcement at the time. But yes, there's a number of things that are continually being evaluated not only markets but capital raising avenues, and we are seeing little bit of a change in the private equity demand recently. So, we're aware of that.

[Jade Rahmani, KBW]

And just lastly, could you give the CapEx portion of the R&M turn in CapEx guidance?

[Christopher Lau, CFO]

Well, we don't break it out that granularly. But if you wanted something for modeling purposes, if you took the rough split of what we're seeing year-to-date this year, on a six months basis, I think about 67%, 68% of that spend is being expended to the balancing capitalized.

You can get that math from Page 12 of the supplemental. And apply that percentage to our guidance that would be my best advice at this point. But like I said at the start, it's very difficult to predict that, which is why we guided on a combined basis and then NOI after CapEx.

[Operator]

Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your questions.

[Haendel St. Juste, Mizuho Securities]

So, it looks like the yields on your recently completed single-family home developments have been pretty good, pretty consistent, and that’s showing an impact of the construction cost inflation we've been hearing. I'm curious about the current underwriting of homes though, and in the current pipeline, how do yields there compare rising cost, perhaps having an impact on your underwriting of those deals? And then perhaps some thoughts on, if - how much of a rise in construction cost may be degradation in yield could maybe cause a rethink or pullback in a single-family rental activity and development activity?

[David Singelyn, CEO]

Yes, there has been some inflation in the cost, although it seems to be moderating more recently. The public costs are going up, so are the rents. So, the yields are hanging in pretty close to where we were underwriting, I mean, and we're still finding good deals that pencil out and acquiring lots that we intend to build on.

The development activity is not, it's not like buying houses one off, it's more of a two to three year plan versus - we can accelerate the traditional activity much quicker and cut it back much quicker.

[Haendel St. Juste, Mizuho Securities]

Appreciate the thoughts there, the other question I had was on your dispositions comments looking at $350 million to $450 million over the next two to three years. How much of that is pruning the portfolio versus perhaps exiting certain markets? And to be assume our capital gets redeployed into acquisitions and development, and any color on yield spreads and potential medium portfolio buyers, what could we see maybe accelerate the dispositions should there be any portfolio interest and then maybe some comment if there is any comment, but do you see any current portfolio buyer interest in the market today?

[David Singelyn, CEO]

Let me take the first part. In Page 21 of supplement, you will see the number of properties held for sale in each of our markets. It's pretty easy assorted by largest to smallest of. Look at the top, those are markets that were exiting and then the balance is the one offs for a variety of reasons that we may be looking at.

With respect to disposition channels, Jack, you want to tell them what you're seeing at this point?

[John Corrigan, COO]

Yes, I mean our basic philosophy on dispositions is to try to dispose in bulk occupied homes and then once they become unoccupied, then to sell them to the retail buyers. Our - and we've been relatively successful doing that.

But it's primarily to smaller bulk buyers, 50, 60, 80, homes. We definitely have interest in most of our markets that we're exiting from buyers, but these deals take time to percolate. So, we're still working on them.

[David Singelyn, CEO]

And Haendel, credit line is that one thing about the market exit, you'll see Chicago towards the top of the list, that's not a market exit, that is pruning us specific assets out of that market. The five or so market that are our actual just exits, just for reference, Rae Oklahoma City, Corpus Christi, Augusta, Central Valley, and Columbia, South Carolina.

[Haendel St. Juste, Mizuho Securities]

And then last one, I'm sorry if I might have missed it, but what was the blended rate growth for July last year? I'm curious where the 4.3% blended for this July compares to last year? Thank you.

[Christopher Lau, CFO]

July of last year was 4.2%, which compares to our 4.3% of this year.

[Operator]

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

[Ronald Kamdem, Morgan Stanley]

This is Ronald Kamdem for Richard. If I could just go back to the same-store expense guidance, just a little bit of clarity and color here. So when I look at that 100 basis points rise, obviously I appreciate that items are being expanse versus capitalized. But maybe can you help us understand how much of the rise is driven by the change in expansion capitalized versus how much is in actual increase in cost and dollars going out the door?

[Christopher Lau, CFO]

Without - its difficult to give you the exact number…

[Ronald Kamdem, Morgan Stanley]

Is it a high level?

[Christopher Lau, CFO]

Yes, probably close to - fairly equal weighted, but there are other components to the expense guidance revision. And let me just walk you through those, because there are puts and takes all the way down which is why I can't give you just an easy split between the two of those off the top of my head.

So, as I mentioned, the revised range on property tax growth is 2.75 to 3.75. Our internal CapEx is 20.50 to 21.50 with a large proportion being expense. Property management is 3 to 4, and then on insurance and HOAs, if you look at the two of those combined, HOA is running they're small line items in the grand scheme of things. It's a way they're running a little bit higher, so if you blend the two of those, it's like a 5 to 6 for the two of those combined.

And that all washes out into our five to six on core OpEx. So, there are more pieces to it. I guess that's my point in getting to that 5% to 6% range.

[Ronald Kamdem, Morgan Stanley]

And then just on - and then back to the same-store revenues. Is there - are there any markets or any regions to call out that maybe have an outsized impact and driving the upside here or is it sort of strength across the board?

[David Singelyn, CEO]

It's pretty much strength across the board.

[Ronald Kamdem, Morgan Stanley]

So my last one would just be on the acquisitions, obviously coming in near the high end of the guidance range, just trying to get a sense, is this sort of a run rate that feels right, feels the same or something we can think about going forward or is this sort of based on the demand that you're seeing maybe for some of the built to rental product?

[Christopher Lau, CFO]

I think it's a pretty good run rate. It could be higher, it could be slightly lower. We've retained $250 million or so of cash this year and probably more than that next year. When you put a little bit of leverage on that, and some of the disposition program you're there without having to raise equity. So, that's kind of what we're looking at.

[Operator]

Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.

[John Pawlowski, Green Street Advisors]

Chris, are you having any active conversations with Fannie or Freddie in doing a GSE to securitization?

[Christopher Lau, CFO]

No, we're not. We're aware of their existence and kind of some of the commentary out there about their interest in this space. We're not having any active discussions currently. It's great to know that that market is potentially growing, great for the sector as a whole.

But for us in particular, at least in terms of debt financing, as I'm sure you're aware, we successfully completed our debut unsecured bond yields at the beginning of this year and see unsecured debt financing is really kind of the optimal debt vehicle for us, for the foreseeable future, just given the efficiency of it. And probably most importantly the flexibility of the structure for us given how granular our assets are, and the ability to feely asset manage them and move them around the portfolio as we need.

[David Singelyn, CEO]

And for term debt, economics are more favorable to us on the unsecured, when you take into account not only the current coupon rate but also the origination costs of a secured financing and PPOs and other costs, when you amortize that through, it's more efficient for us to be unsecured today.

[John Pawlowski, Green Street Advisors]

And turning to some of the re-leasing spreads on Page 15 within the same star pool, high single digit growth rate and 11% on the Page. Outside of the demand and supply backdrop in any of these very hot markets, was there a conscious decision had into this year to push to - and within the revenue of management system to push harder on rate? Is it fair to say that some of these homes were under rented previous years?

[David Singelyn, CEO]

What page are you talking? On Page 15, and it's at the top. No, I think there's a couple of things going on. The market is very, very strong today for residential rentals. And then we went into the second quarter, the benefits of what our first quarter created was a very strong occupancy and a little bit of limitation on supply. And that enabled us to push rents in many of these markets in the second quarter.

[John Pawlowski, Green Street Advisors]

So, market rent growth in Phoenix right now is 11%?

[Christopher Lau, CFO]

No, I would say that it's probably not 11%, but it's high singles. We have been - our philosophy is not push as hard on renewals. And so, as our releasing rate will probably be higher than our renewal rates on average other than in the fourth quarter. And it's also a good time of the year for us to push a releasing rate because the demand is so high and the number of phone calls and people moving.

So, we're not going to get 11.1% for 12 months. We got it for the second quarter, which is one of our peak. This is - yes, the peak quarters were pushing rate on re-leasing.

[David Singelyn, CEO]

Keep in mind, John, the seasonality of the business still comes into play. So, strong markets are strong markets, but they're going to be stronger in second quarter than fourth quarter. So, this is not projected to be averages for the year, it's projected - this is the demand in the second quarter.

[Operator]

Our next question comes from the line of Douglas Harter with Credit Suisse. Please proceed with your question.

[Douglas Harter, Credit Suisse]

Chris, did I hear you during your prepared remarks, saying, that move-out rates had declined in the quarter?

[Christopher Lau, CFO]

I didn't say that in my prepared remarks. But you are correct. So if you look at our turnover rate on a same-store basis, that you get on Page 12 of the supplemental. You'll see that our turnover rate is down 90 basis points for this quarter compared to last year.

[Douglas Harter, Credit Suisse]

What is your belief, as if more of the causes of that and do you think you can kind of push average duration of stay, longer?

[David Singelyn, CEO]

Well, I think that there is a few things that contribute. One - and I mentioned that it's the maturation of our portfolio, if you look at people who move out in the first couple of years is a much higher percentage than if they stay three or four years that the move out percentage is much lower.

So, as the portfolio matures, I think we'll see an average longer stay because of 5% stay, 20 years that 5% keeps building on itself. So that's part of it, part of it is we've had in our in-house maintenance group in place for two to three years and we're seeing the customer service surveys, coming back very strong on that and I think that contributes to it.

And then we've implemented a renewal group of specialists that if somebody gives us notice that they’re moving, we react right away and talk to them and try to figure out if we can save them. So I think the combination of those three things really add.

[Operator]

The next question comes from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.

[Dennis McGill, Zelman & Associates]

I guess first one just has to build to run program one of the things that's been challenging for builders despite strong demand its getting communities opening and gaining product out there to the market. And I am wondering if you guys are experiencing any of that and as you look at what you're trying to deploy into the market this year maybe next year seeing below what you thought initially does that play into that at all. Would you do more if you could do more?

[David Singelyn, CEO]

Yes, I think we’re experiencing delays first we’re fairly new this business so we see delays as a result of inexperience or I mean we’ve got experienced guys doing it. But - our senior guys aren't including myself aren’t as worst is pushing them as we could be. So we see some delays there and then we're seeing delays with municipalities and permits and in that type of thing similar to what I think the homebuilders see.

[John Corrigan, COO]

Yes, I think of the big picture Dennis the demand for our product that when we deliver it we have no constraints on what the demand for our product is. A little bit of is just growing each market getting the vendors in place that does take some time as you go into some of the new markets.

Some markets we've been a little bit more efficient than others but there has been a couple of delays there. And then the typical construction delay that you see in any industry it doesn’t matter whether it’s a residential or commercial, you will have permitting differences, jurisdiction to jurisdiction.

And so many of our - and probably most of our program to-date have been relatively on track, I know one that was a little bit delayed by permitting issues. But for the ramping up of the program we’re very comfortable and happy with where we are.

[David Singelyn, CEO]

But we would like to be further along always.

[Dennis McGill, Zelman & Associates]

And just to clarify on the disposition side, I didn’t catch these numbers exactly but did you say that the proceeds of what you have and the held-for-sale buckets today would be 350 to 400 million and that would be over a 2 to 3 year period?

[David Singelyn, CEO]

Yes, I think it was 350 or 450 but that's correct.

[John Corrigan, COO]

It could be - we may estimate most of it will be done in two to three years. We look at what we did with the ARPI homes that we identified which is about 14 or 1500 and it's now been 2.5 years and we still have handful of those left. We kind of expect the same kind of pace.

One of the things that we sell as a rental company to our potential tenants is you can rent from mom-and-pop and they can wake up one day and say we need the proceeds from that house for our retirement.

And then they sell the house out under you. We're rental company and so we tell we’re not going to do that so we wait till it naturally vacates to put it in retail. Otherwise, will sell it to another investor if that possible.

[Dennis McGill, Zelman & Associates]

So the timeline is that we have to do with that getting the homes vacated essentially? Right and once they are vacated what’s your typical turn time I am getting them so?

[David Singelyn, CEO]

It depends on time a year in spring summer its probably three months if you're listing it in October, November it could be six months.

[Dennis McGill, Zelman & Associates]

And just one last one that 350 to 450 of proceeds that a direct comparison to the 285 million of cost basis?

[Christopher Lau, CFO]

There is, if you get the 285 off the balance sheet, the 285 on the balance sheet is as you're probably aware there are two categories of our disposition property there is held for sale and then identify for future sale. It's kind of accounting terminology on the held-for-sale they get classified on the balance sheet. So that is what you see in the 285. And then there is incremental cost basis on the identified for future sales that’s not in held-for-sale yet but I would expect it move into held-for-sale in the third quarter.

[Dennis McGill, Zelman & Associates]

How much is that?

[David Singelyn, CEO]

Dennis if you look at Page 21 you'll see the majority of the homes 1800 are held for sale, 300 to 400 are identified for future sales.

[Christopher Lau, CFO]

Dennis I don’t know the exact number off the top of my head but if you use a per property average from the held for sale bucket and applied it to the identified for future sales it will be pretty close.

[Operator]

Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed you’re your question.

[Ryan Gilbert, BTIG]

So we've seen a increase in homes developed for sale in the regional market over the past couple of months. And I'm wondering, if that's impacted your ability to raise rents? And in - or accelerate rent growth in June and July?

[David Singelyn, CEO]

I don’t believe it’s affected at all.

[Ryan Gilbert, BTIG]

Okay.

[David Singelyn, CEO]

Probably the opposite - we've seen a lowering of not dramatically but a lowering of the percentage of people who move out moving out to buy properties. And I think maybe if rates increasing, I don't know what causing in rates and price probably a fact of affordability but I think wages are also going up. So I am not sure how it all blends together.

[Ryan Gilbert, BTIG]

And so limited competition from available-for-sale, you've got 120 basis point improvement in occupancy at the end of the period and your turnover is down 90 basis points. I guess, is the strategy on rent growth over the rest of the year - you're going to moderate rent growth to keep occupancy up to make room for the significant acquisition volume that's hitting in the second half? Or how should I think about blended rent growth over the second half of 2018?

[David Singelyn, CEO]

Well we’ll moderate rent growth on releasing just because the level of demand want to make sure your at least leasing up what turns, but it will be more aggressive than it was last year because last year we had a lot more inventory.

[Ryan Gilbert, BTIG]

So you think that the blended rent spread in 3Q and 4Q '18 will be positive relative to the third and fourth quarter of last year?

[David Singelyn, CEO]

Yes.

[Operator]

Thank you. This concludes our Q&A session and with that our conference today. Thank you for your participation. You may now disconnect your lines.