Feb 24, 2017
Executives
Stephanie Heim - Senior Vice President-Counsel David Singelyn - Chief Executive Officer Diana Laing - Chief Financial Officer John Corrigan - Chief Operating Officer
Analysts
Juan Sanabria - Bank of America Merrill Lynch Anthony Paolone - JPMorgan Jade Rahmani - KBW John Pawlowski - Green Street Advisors David Corak - FBR Richard Hill - Morgan Stanley Dennis McGill - Zelman & Associates
Operator
Greetings and welcome to the American Homes 4 Rent Fourth Quarter and Full Year 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. [Operator Instructions] 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 fourth quarter and full year 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, February 24, 2017. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
A reconciliation to GAAP 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.
David Singelyn
Thank you, Stephanie and welcome to our fourth [Technical Difficulties]. Jack Corrigan, our Chief Operating Officer, will then review our 2016 key operating initiatives or transaction activity update you on our portfolio performance in review our 2017 key initiatives.
Following Jack, Diana Laing, our Chief Financial Officer, will provide further detail on our operating and financial results for the year and quarter and review our balance sheet and recent capital market activities. After our prepared remarks we’ll open the call to your questions.
I'm extremely pleased with our accomplishments on all fronts for 2016. Following years of raising capital aggressively growing our portfolio to scale in building a national platform 2016 continued to validate single-family rental homes as an institute institutional real estate asset class.
Demand for single-family rental homes remain solid, driving strong occupancies and rental rate growth. Likewise our investment in our processes, systems and people have resulted in faster execution and improved customer service while better controlling operating expenses.
During 2016, we experienced improvement in all our key operating metrics. Also we strengthened our balance sheet in 2016 by reducing our debt to less than 30% of capitalization, while significantly lowering refinancing and interest rate risk.
To begin with the numbers; for 2016, we reported core funds from operations of $282 million or $0.97 per FFO share, up 36% compared to the $0.72 per FFO share we reported last year in 2015. Adjusted funds from operations or AFFO for the year was $243 million or $0.84 cents per FFO share an increase of 49% from the prior year.
Our portfolio continues to produce exceptional results. During 2016 we ended the year at 95% leased across our portfolio excluding homes held for sale.
Our Same-Home core net operating income after capital expenditures increased 12% year-over-year and we achieved a 62.5% Same-Home core NOI margin for the full year. These results are a testament to the quality of our portfolio and our platforms, which continue to generate strong top and bottom line performance.
Our Same-Home revenue increased 5.6% during the year, while expenses were relatively flat. Our results reflect in our ongoing focus to unlock the power of scale and control expenses through the implementation of innovation, leasing - innovative leasing and property management best practices.
In 2016, we were able to reduce overall repair, maintenance and turn over cost. Including expensed in capitalized cost to $2034 per home for the year, a 14% improvement over the prior year.
As a note these numbers include repairs incurred as a result of damage during Hurricane Andrew of about $900,000, of which approximately $515,000 was incurred within the Same-Home portfolio. The size and quality of our portfolio combined with our systems and processes have resulted in the most efficient platform in the single-family rental space.
As a measure of efficiencies our total combined property management G&A and leasing expenses were 13.3% of total portfolio rents and fees in 2016 an improvement of 150 basis points from 14.8% in 2015. And at the bottom line we reported adjusted EBITDA of $454 million for the year up 47% from $310 million in 2015.
As a result our adjusted EBITDA margin increased to 58% for 2016 compared to 54% for 2015. We have acquired over 10,000 homes during the year, growing our portfolio by more than 24%.
On December 31, 2016, we owned 47,303 homes plus an additional 1,119 homes held for sale. Highlighting this growth with our acquisition of American Residential Properties completed last February, which was our largest portfolio acquisition to date.
As a testament to the quality of our operating systems and platform, the ARP homes were seamlessly and efficiently integrated into our platform without missing a beat. In addition, we improved the operating margin of these properties from 50.8% for the nine months ended September 2015, which represents the period prior to acquisition to 61.6% for the 10 months ended December 2016 under our platform.
Moving on to the balance sheet; we continued our efforts to maintain a strong and flexible balance sheet. Early in 2016, we took on $792 million of debt in connection with the ARP merger resulting in our debt to capitalization exceeding 40% at that time.
Throughout the year we right sized our balance sheet and at year end our debt represents approximately 29% over capitalization and net debt to adjusted EBITDA is less than six and a half times. During the year, we expanded and broadened our institutional equity shareholder base by issuing 36.5 million shares through our merger with ARP and facilitated a secondary offering of 43.5 million shares that were held by a legacy investor.
We also put in place in at the market or ATM equity program and raised more than $100 million in net proceeds from the issuance of common stock. Additionally we raised approximately $500 million of perpetual preferred stock during the year.
And finally, we negotiated a new industry leading $1 billion credit facility that increased our borrowing capacity, lowered our interest costs and greatly enhanced our financial and operational flexibility as we evolve our capital structure to focus on unsecured borrowings. Going into 2017, we have positioned ourselves to further grow our portfolio and to continue generating strong revenue growth while controlling expenses.
While we continue to acquire properties through our traditional acquisition channels, our strong balance sheet uniquely positions us to take advantage of portfolio transactions. In addition, we are adding a new portfolio growth channel with our first delivery of newly constructed homes in early April.
We are working with well-respected developers to build new homes to our specifications and standards in desirable locations. And expect this acquisition channel will become an interactive means to grow our portfolio throughout the year.
We also expect the initiatives that have resulted in expense reductions in 2016 will continue to improve as we move into 2017. Yes, it was a busy year and a very rewarding one as AMH shares produced a total return of approximately 27% during 2016.
We are focused on making 2017 just as productive in reward. And now I'll turn the call over to Jack Corrigan and our Chief Operating Officer.
John Corrigan
Thank you, Dave, and good morning everyone. I'd like to begin with providing additional details on our transaction activity.
During the quarter we acquired 398 homes for a total investment of approximately $85 million. Our pace of acquisitions was slower in the fourth quarter due to traditionally slower activity at trustee auctions during the holiday period.
Moving forward, we expect to acquire 300 to 500 homes through trustee auctions and traditional MLS channels. Newly constructed homes in any bulk transactions will be in addition to this anticipated activity.
During the quarter, we also sold 127 homes generating $16.7 million in net proceeds and $1.3 million gain. 78 of these homes are included in the number that were acquired through the ARP merger.
At year end we had 1,119 homes sell for held for sale and look to sell these properties trough bulk sales as well as individual retail sales. We expect the majority of these sales to occur over the next 12 months.
Beyond that we expect to continue to identify homes within our portfolio to prune and recycle capital as a normal practice. This January 1, 2017, we have sold an additional 420 homes generating approximately $16 million in net proceeds.
Turning to leasing, during 2016 we executed 19,429 new leases for the fourth quarter we signed a total of approximately 4,025 new leases. Our overall activity was down from the prior quarter due to typical seasonality traffic volumes including call, activity into our call center or as expected in line with a normalized pace.
Total turn days for the year average 53 days, which represents time from prior tenant move out to new tenant least start. For 2016 this measurement range from a seasonal low 43 days in the third quarter to a seasonal high of 63 days in the first quarter.
We achieved average leasing spreads of 3.3% on renewals during the fourth quarter and 2.7% on new leases. Leasing spreads trended down as we expected and we’re within the target range we provided last quarter.
Within our Same-Home portfolio reflecting the operational results of 25,270 owned and stabilized in both 2015 and 2016. We reported revenue growth of 4.8% in the fourth quarter.
This increase was driven by a 70 basis point increase in average occupancy to 94.8% and a 3.7% increase in average contractual rental rates. Same-Home expenses for the fourth quarter decreased to 3.5% driven primarily by a 9.7% reduction in repairs and maintenance and turnover costs including in-house maintenance net of tenant charge backs, a 7.4% decrease in property management costs and an 18.4% decrease in insurance expenses.
After several quarters of outsized increases, property taxes were up just 2.4% in the fourth quarter compared to last year resulting in part from many successful property tax appeals. As a result of these factors for the fourth quarter Same-Home core NOI increased 10% and our Same-Home core NOI after deducting capital expenditures increased to 11.4%.
This marks the sixth consecutive quarter of double-digit growth in cash flow generated by our Same-Home portfolio. Our Same-Home core net operating income margin was 64.4% for the quarter, up 310 basis points from the fourth quarter of 2015.
As Dave noted, our full year Same-Home core NOI margin was 62.5% which was at the high end of the target range we had provided earlier in the year. Moving on I’d like to update you on our expenditure efficiency initiatives.
In the fourth quarter, we continue to drive our overall repair, maintenance and turnover costs, including expensed and capitalized cost lower. On a Same-Home basis these cost totaled $446 per home compared to $495 per home in the fourth quarter of 2015, a decrease of almost 10%.
For all of 2016, these cost total $2,034 per home compared to $2,378 for 2015, reflecting a decrease of 14.5%. Again these expenditures in the fourth quarter and full year include the costs related to damages incurred during Hurricane Matthew.
As we have stated in the past, lower costs are being driven by several factors including the underlying quality of our homes and the powerful benefits of scale that accrue to a large and growing platform but equally important is our maturing operational expertise. Four plus years of operating experience implementing and improving processes and procedures, subject matter experts ensuring consistent application of national standards on maintenance and replacements and improved experience of training continue to yield benefits across our operating platforms.
Finally, I would like to provide color on some of our expectations for 2017. Our in-house maintenance program is now rolled out to markets covering 90% of our homes.
During 2016, we incurred approximately $6.5 million of expenditures to structure, roll out and operate this program. 2017, we expect to incur a full years cost to operate this program.
But we believe the benefit in continued reduction in maintenance turn times in turn cost should more than offset these costs. In addition, we expect that the enhanced customer service and care for the homes will provide long term benefit.
In 2017, we anticipate further margin expansion across our Same-Home portfolio into the 63% to 64% range, the quarterly amounts being affected by seasonality. Rent growth in the 3.5% to 4.5% range as rent growth from improvements in occupancy and bad debt reduction level ops.
Overall repair, maintenance and turnover costs including those expenses and capitalized to decrease by an additional 5% to the low $1900 per home range. And property tax expenses are estimated by our consultants to increase 6% to 8%.
However, it is early in the year to have a complete picture. Our remaining operating expenses are expected to be relatively flat to down slightly.
Now, I’ll turn the call over to Diana Laing, our Chief Financial Officer.
Diana Laing
Thank you, Jack. In my comments today I’ll review our fourth quarter and full year 2016 financial result and discuss our balance sheet and liquidity.
As a note, our results are fully detailed in yesterday’s press release and our supplemental information package both of which have been posted on our website in the for Investors Section. But had to begin with our financial results, for the fourth quarter of 2016, total revenues increased 32% to $228 million from $173 million in the fourth quarter of 2015.
Net income attributable to common shareholders totaled $2.4 million or $0.01 loss per diluted share compared to net loss attributable to common shareholders of $21 million or $0.10 loss per diluted share for the same period last year. Core FFO was $76 million or $0.26 FFO share for the fourth quarter of 2016 compared to $54 million or $0.21 per FFO share for the fourth quarter of 2015.
Adjusted funds from operations or AFFO with $68 million or $0.23 per FFO share compared to $46 million or $0.18 per FFO share for the same period last year. For the full year 2016, total revenues increased 39% to $879 million from $631 million in 2015.
Net loss attributable to common shareholders was $34 million or $0.14 per share compared to $85 million or $0.40 per diluted share for 2015. Core FFO for the full year 2016 was $282 million or $0.97 cents per FFO share of 34% increase over $0.72 per share for 2015.
AFFO for 2016 was $243 million or $0.84 per FFO share, a 50% increase over $0.56 per share for 2015. As a note, our 2016 other revenue and other expense line items include the contribution from our non-performing loan program which was land down last year.
Going forward, these two line items should be immaterial and generally offsetting. Also I’d like to remind you that in calculating AFFO we deduct current recurring capital expenditures in capitalize leasing cost from core FFO.
Also both core FFO and AFFO our supplemental non-GAAP financial measures and reconciliation to GAAP measures are provided schedule accompanying the earnings release that we issued yesterday. As we move forward in 2017, our balance sheet and liquidity remain extremely strong and supportive of our operational and growth objectives.
We had $119 million of unrestricted cash and cash equivalents at year end, and we retain approximately $50 million per quarter after all expenditures including dividends. We had total debt of approximately $3 billion which represented 29% of our total market cap and we have no balloon maturities until 2018.
26% of our debt is floating rate and that includes a balance of $325 million outstanding on the term loan portion of our credit facility. Subsequent to year end, we’ve drawn the remaining $25 million on the term loan and we have capacity on our revolving credit facility for $650 million.
Our fixed rate debt of $2.2 billion have a weighted average interest rate of 4.26% and a weighted average term to maturity of 17 years. In terms of our current leverage, net debt to adjusted EBITDA was 6.3 times for the year and the benefit of a full year’s results from ARPI portfolio combined with our portfolio improving operating metrics should produce improvements in net debt to adjusted EBITDA throughout 2017.
Our goal is to continue to unencumbered assets to increase our portfolio flexibility and to enhance our ability to access attractively priced capital. During the first four months of 2016 through our common share repurchase plan, we spent $96 million to repurchase 6.2 million shares of our common stock and an average price per share of $15.44.
And during the fourth quarter, we established a $400 million ATM program under which we issued approximately 4.9 million shares at an average price of $21.13 per share, for gross proceeds of $104 million. I’ll now turn the call back to Dave.
David Singelyn
Thank you, Diana. Before we open the call to your questions I would like to announce the two individuals have been added to our executive officer ranks.
Chris Lau has been named Executive Vice President, Finance and Stephanie Heim has been named Executive Vice President Counsel and Assistant Secretary. Both Chris and Stephanie have been with the company since our IPO and have been key contributors to our growth and execution.
And I congratulate both Chris and Stephanie on these much deserved promotions. With that, we’ll open the call to your questions.
Operator?
Operator
Ladies and gentlemen at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Juan Sanabria with Bank of America Merrill Lynch.
Please take your question.
Juan Sanabria
Hi, good morning. I was just hoping you could give a little bit more color, I think you said, you're expecting 3.5% to 4.5% revenue growth.
Not sure if that's the same store number or not, but if you look at your new and renewal spreads are running a little bit lower than that, so just hoping you could kind of give more color as to what's driving that assuming acceleration into 2017?
David Singelyn
Yeah that is three same home number that I was giving and it was lower in the fourth quarter and if you look at historically we've had lower specially on releasing spreads we've had lower releasing spreads in the fourth quarter, because we try to capture there's less activity, and so we try to capture as much of it as possible and aren't as aggressive in pushing rates. So you see a more rate pushing starting really from March through about July, and it will start going down a little bit in August as we start trying to capture.
I kind of look at it as like the Christmas season you have a time and you have a lot of activity and capture as much of your rate increases as possible and then when Christmas is over you kind of have a little bit of a sale and so the fourth quarter is really the sale.
Juan Sanabria
Okay, so that number is not being skewed by like ancillary fees or anything like that?
David Singelyn
No.
Juan Sanabria
Okay great. And then maybe a question for Diana on the balance sheet, I think you've got some preferred, you can call just curious on the plans there and if you're thinking about refinancing with new preferred and if the rates are favorable to do that if you're thinking about maybe thinking not with unsecured debt and how you kind of think about preferred versus debt in your overall leverage calculation, and how to rating agencies just look at that as well?
Diana Laing
Well, first of all the two series of the participating preferred will become callable bias, after September, 30 of this year and it will entirely depend on what the capital markets look like and what’s the balance, what's going on with our balance sheet and growth opportunities, as to what we will do. I think it's safe to say that it may be attractive for us to call those about how we take them out will depend on conditions at the time.
And then as far the issuance of preferred stock, perpetual preferred versus debt you know preferred stock is forever capital and never has to be paid back, but in our option it can be called and replaced with something else. So we like that as a source of capital.
If we think it has a place on the balance sheet. So I’m not making any predictions about what capital we will access over the next year, but it is something that is somewhat attractive to it from time to time.
Rating agencies consider it leverage and for fixed charge coverage type ratios, but different agencies look at it differently in some of the other debt metrics.
Juan Sanabria
Okay great. And then just on the acquisition side, I think you said 400 to 500 homes I’m sure that’s per quarter number.
I think part of that now includes that our new assets from developers. So it's that new sort of strategy around buying new from developers, is that focused on buying new product or taking out existing homes that are built in sort of the plan communities, just help and you could give a little bit more detail on it and how exactly that strategy is being thought out going forward?
David Singelyn
Sure. What I had said in my remarks was 300 to 500 through our traditional methods at auction and MLS purchases, and the new homes would be additive to that on we're really looking at this in two ways of buying new homes, we bought and this is really in the very early stages of what we're doing, we bought several lots and we have local contractors building homes for us on those lots.
We think we can get somewhere in the neighborhood of 50 basis points to 75 basis points higher on those properties in yield than we do in our existing channels. But we're really still in a - let’s see if it works phase of this.
And then we're also partnering with a national developer and buying a percentage of - a small percentage of their homes in multiple developments. So those are the two tracks we're taking right now in that regard.
And yes those numbers are per quarter.
Juan Sanabria
Okay. And then you'd be warehousing the land on your own balance sheet?
David Singelyn
Yes, well in the in the first one I described, where we're buying the lots they’d be warehouse on our balance sheet. In the second one where we're going with the national developer that would be on their balance sheet.
Juan Sanabria
Thank you
Operator
Thank you. And our next question comes from the line of Anthony Paolone with JPMorgan.
Please take your question.
Anthony Paolone
Thanks, good morning. In the 2017 outlook, do you have any occupancy pickup expected?
David Singelyn
No, I think it's going to be relatively stable.
Anthony Paolone
Okay. And then when I look at the R&M in turn and CapEx $2,034, how much was charged back to residents like how is that trending?
David Singelyn
That’s net of the charge backs.
Anthony Paolone
Right, so how much are you guys charging back?
David Singelyn
I don't have that handy, but people looking for you.
Anthony Paolone
Okay, great.
David Singelyn
$582 per home.
Anthony Paolone
Okay. And is there an expectation that also improves to kind of help with that down 5% in 2017 or is that kind of prior works going to be?
David Singelyn
It's probably where it's going to be and obviously the less we spend on certain things or less we would charge back to that could go lower. But it's probably not materially lower.
Anthony Paolone
Okay. And then in terms of on the acquisition side, where yields right now, like when you think about that 300 to 500 pace where those yields?
David Singelyn
Right around 6%.
Anthony Paolone
And you mentioned like a 63% to 64% margin in 2017, when to get to 6%, what’s incremental margin like have to imagine you're pretty stabilize from a property management point of view, trying to how you get to the 6%.
David Singelyn
Yeah, we look at that are - in this probably lower than this, but we estimate our incremental cost of management at about 5% of revenues.
Anthony Paolone
Okay, so that's in that 6% already.
David Singelyn
Correct.
Anthony Paolone
Okay. And then if you look across your market mix and where do you think you either or biased toward investing more any new markets and conversely any places you want to get out of in the next 12 months?
David Singelyn
Yeah, we haven't identified any place that we're getting out of other than we have a handful of homes in the Coachella Valley of California that really are just difficult to manage, because there's so few of them and so far outside of our normal thing that we’d probably get rid of it, but that's not really exiting a market, because it’s included in our England Empire. And we're looking at other markets where we have just a handful of homes that we might sell out of, but nothing any of our significant markets and then the other question where we're buying, we're not opening any new markets, but we're buying primarily in the Southeast Florida, the Carolinas, Atlanta and then the one market in the Midwest, Columbus.
Anthony Paolone
Okay. And then just last question on the newly constructed house side in that initiatives just what do you think dollar magnitude is in that business over the next year and how much land are we talking about that the ROIs or it would be in the year [ph]?
David Singelyn
I doubt that it will be material to 2017, if it - if the program works it could be material in 2018.
Anthony Paolone
Okay. Great.
Thank you.
Operator
Thank you. And our next question comes from the line of Jade Rahmani with KBW.
Please take your question.
Jade Rahmani
And thanks very much with the valuations having improved in the single family rental sector. It’s the pace of dialogue the level of dialogue increasing with respect to combinations M&A opportunities?
David Singelyn
Yeah, I mean we don’t really comment on any transactions that are in place. There’s always discussions on M&A transactions there was last year when our stock was lower there’s discussions now, and so when there’s something to be announced, we’ll announce soon.
Jade Rahmani
Okay. Have you gotten any inbound calls from multifamily investors whether it would be in garden style apartment or other just being interested in the space whether through joint venture or other types of contracts?
David Singelyn
In order to do like joint ventures now obviously there’s crossover on investors on the stock, but no not on joint ventures.
Jade Rahmani
Okay. Thanks very much for taking the questions.
David Singelyn
Thank you, Jade.
Operator
Thank you. Our next question comes from line of John Pawlowski with Green Street Advisors.
Please take your question.
John Pawlowski
Thanks. Good morning.
Jack, could you please quantify the initial upside you’re generally able to achieve on an average existing occupied acquisition. If you acquiring at a net yield of roughly six on average.
What does net yield look like in a year?
John Corrigan
If rents are, it’s really depends on if they’re if the prior owner is charging market rents or low market rents or above market rents. Typically we don’t see above market when we acquire them and usually, we think that we can push above what they are, but assuming they’re charging market rents and probably are you still in the 3.5% to 4.5% rate growth overall and then we estimate our pro forma expenses at what we think they’re going to be the following year.
So I think that should give you approximately what it would be. John, I think two ways to look at this.
If you look at the portfolios that we’ve acquired which is assembled occupied homes. We gave some statistics on what was we what we accomplished ARP, we were able to improve the margins there about 900 basis points.
And so that’s really the benefit of our systems and lot of that is on the expense side of the transaction. A single occupied homes we typically underwrite that home using our cost structures.
John Pawlowski
Okay. In your experience acquiring the one-offs from our pops on average, how far below market or rents?
John Corrigan
Oh I wouldn’t give an average and we don’t buy a lot from mom and pop they’re usually small institutional holdings, but as we don’t buy a lot of ten home portfolios, we buy a couple hundred year and although we did close on a small 28 home portfolio at Atlanta. Recently, and we think there’s some upside on the rents there, but it’s all over the board some not pushing rents and some are.
John Pawlowski
Okay. Understood.
And then Dave, given your improved cost of capital on the equity side how does your acquisition criteria change from a quality standpoint or a geographic footprint standpoint?
David Singelyn
I don’t think it is, I mean doesn’t mean that we won’t acquire a portfolio that may have some homes in it that are not inside our footprint or quality of homes. Jack mentioned a couple homes and could still that will be disposing of it’s in our help for sale.
Those were acquired in connection with the portfolio. But for the most part that portfolio is the need to match our acquisition criteria.
And those homes that are on the fringe are outside our criteria we will evaluate for disposal and basically maintain the quality of our portfolio.
John Pawlowski
Okay. Thank you.
David Singelyn
Thank you, John.
Operator
Thank you. Our next question comes in line of David Corak with FBR.
Please take your question.
David Corak
Good morning, everyone. Can you just walk through kind of the primary drivers of expenses next year, you mentioned like lower insurance on the last call and obviously the six to eight property tax, but what are primary drivers beyond that that are that are kind of flat to down and then should we assume those six to eight property tax increase is kind of in line with your home price appreciation in 2016, and how we think about that for 2017?
David Singelyn
Property taxes are tied to home price appreciation, it’s going be a market-by-market whether it’s a 2016 or kind of 2015, but the assessments on value roughly correlate to appreciation. When you look at the expenses, I think Jack gave a little bit of guidance on that the property taxes are going to be the ones that are going to increase, the other line items we’ve seen improvements in our insurance, we’ve seen part of that that was renewed recently some of that is that benefit came through in the fourth quarter about 10% or 11% as I recall.
And property maintenance is the other major item in the expenses about $2,030, $2,034, we expect that to be in that $1,900 range or just slightly above $1,900 about a 4%, 5%, 6% decline.
John Corrigan
That that number includes capital.
David Singelyn
That capitalized costs not strictly stuffing that NOI margin. But those are the main expense lines those lines.
David Corak
Okay. But
David Singelyn
Property management is also in there and we’ve talked that we’re comfortable with where those numbers are don’t expect to see any increase in those numbers next year.
David Corak
Okay. Great.
And then the rent growth numbers you guys gave 3.5% to 4.5% this year, I mean you guys, I think on the last call said, with renewals and released 3% to 4% on renewals and 4% to 5% released you guys still feel comfortable about those ranges and then on the same item, what are the catalyst that could kind of move that up and down within the portfolio?
David Singelyn
I feel comfortable with my prior estimates and as far as catalysts we - the one metric that we have seen and it’s based on limited response in our surveys. But we’ve seen the number of people leaving our homes to buy houses as has moved up, and so if we end up with less demand then that would affect what whether those prices - rates continue to go up.
We see no signs of that it seems to be following seasonal patterns, which November, December you see fewer calls and fewer showing and then starting really right around after Martin Luther King Day, we really see activity pick up and then as you get into the spring season, it really picks up. So the more demand we have the more kind of push rates.
David Corak
Okay. And is there any material difference between kind of the 2016 Same-Home portfolio and here 2017 Same-Home portfolio in terms of your assumptions?
David Singelyn
Not in terms of our assumptions, we do - we will have a slightly different mix, I look at the 2017 same home pool, it's pretty comparable in terms of rental rate and occupancy will be slightly lower in some of the higher property taxes as a percentage of the portfolio areas, and slightly higher in some of the lower property tax areas. So I would expect that that will help with margins on the same home bases, but it's I don't think it will be material.
David Corak
Okay, great. But those numbers that you gave around the 2016 portfolio, same store?
David Singelyn
Numbers that I gave for…
David Corak
For 3.5%, 4.5%.
David Singelyn
It’s on the same home for 2017.
David Corak
Okay, all right. Thanks guys.
David Singelyn
Thank you.
Operator
Thank you. Our next question comes from the line of Rich Hill with Morgan Stanley.
Please state you question.
Richard Hill
Hey guys, how are this morning? I had a question sort of going back to your comments about growing your portfolio, and not doing it on one off transactions versus larger scale transactions.
You've obviously had some success with integrating some large scale transactions. So I’m curious how big in an ideal sort of state do you - would you like to grow sort of given the success of the single family rental platform both for yourself and as an industry, and then you know what's your appetite for sort of another larger scale transaction?
David Singelyn
I don't think we have any firm numbers, we don't have a goal that we need to be X number of homes on any given date. We look at every opportunity that is out there to determine the benefits in accretion to the company of entering into that transaction.
We are positioned very, very well both from a balance sheet standpoint as well as a platform standpoint to be able to acquire portfolios, any portfolio that's really out there as long as it's going to be a accretive I think we're in a position to entertain it. But there is no target number out there that you know we want to grow to a certain number and then stop.
We look at it each transaction on its own merits.
Richard Hill
Got it. And so maybe just a follow-up question and trying to get a better sense for this, as you're thinking about the growth opportunity going forward, do you think it's more on the operating leverage side of the business or do you think it's more in the external gross side of business, so how would you sort of prioritize those two things?
David Singelyn
I think you look at both of them and you know the operating group is definitely focused on the operating leverage side and improving the organic growth of this company. We are also very focused on external growth or balance swipe one of the parts of the - one of the reasons our balance sheet.
We've got our balance sheet where it is, is to take advantage of those opportunities. But those opportunities need to be cultivated, and they just don't happen, and so we're going to look at both.
We're not going to make any statements on to what we are going to be able to acquire in portfolios. But we continue to talk to operators and evaluate the various potential transactions.
Richard Hill
Great, great. I’ll follow-up any other questions offline.
Thanks for your time.
David Singelyn
Thank you, Richard.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Dennis McGill with Zelman & Associates.
Please state you question.
Dennis McGill
First question just on the ATM program, can you maybe just talk a little bit about how you're thinking about that program on a go forward basis, and how you might match that against debt issuance as well, is it something that you'd expect similar to the fourth quarter some almost indifferent to the market as long as you're near these levels and accessing growth capital as you move forward consistently?
David Singelyn
Yeah, I think the ATM is just its tool and the tool box allowed us to do some right sizing of our balance sheet. We're going to hopefully be able to use that rightsizing to drive down borrowing costs and in the borrowings will look more attractive.
So I think it's a little bit of give and take both ways, we utilized all forms of capital in our side, short life here and the ATM was just one of them that we did throughout the year. On the other side of the coin earlier in the year, we actually did stock repurchases, I think Diana went through that as well.
So we're looking on both sides as to what we think the best opportunity is at on the given day.
Dennis McGill
Good, good trade to the year, obviously. But I guess when you talk about the comfort level and the leverage or clean up balance sheet how you just phrased it, and then also I think that deleveraging is that through the year, it sounded like the deleveraging once more just through growth in the earnings side as opposed to the actual depths side of it.
So are you looking at the ratio today is comfortable from a leverage standpoint, do you feel like you start to drive that lower to get to the credit rating agency achievements you want?
David Singelyn
I think it was both side, I think it, I mean we did pay off some debt, we issued some capital underneath the debt. Those and then we also had significant growth in our earnings.
Dennis McGill
No, not just I’m saying on a forward basis for 2017?
Diana Laing
Well, I'd say we're really comfortable with where we are right now from a debt metric standpoint, and you know I mentioned that we're focused on in cumbering assets to give us flexibility and hopefully access to unsecured debt in the future. But I think where we are now is great, I mean we're very happy.
We think the metrics are right in line with where the rating agencies would expect to see us and we continue to have conversations with the rating agencies about investment grade.
Dennis McGill
And the margin improvement side and it seems a big chunk of this is being driven by the production repair and maintenance turnover type costs both expense and capitalized, how much of that reduction you spoke today from that little over 2190 is related to the initiatives that you've already implemented or were implying throughout 2016 and just sort of rolling forward to more markets or more of the portfolio versus new ideas that you guys might have around expense control?
David Singelyn
Well, I think we're just - we're getting better every day and one of the things we did in 2016 was roll out the in-house maintenance program, and some of the cost involved in that were startup costs that won't be incurred in 2017 also that whole department is getting better and better as you know their efficiency, so we're number of work orders handle per day, per deck moving up, I think the improvements will just get us there. And if we do anything we're make other improvements and we'll drive it even low.
The in-house program, Dennis was ruling out all of 2016, but really was in full rollout really towards the end of the year. So in the full rollout period it as Jack said we were incurring cost that we were expensing to roll it out.
So there's some benefit just in the fact that you are going to match up better throughout the year through periods that we didn't have it fully rolled out or even rolled out at all in many of our markets.
Dennis McGill
Sorry, if you look at that all 2016 as far as an average, how much of your market was covered by in-house taxes that 30%, 40% number is some way to frame it understand how much you still have to lap.
David Singelyn
I don't, I haven't looked at that number, but if I just did, what I think it is of the top of my head it's probably in the 40% to 50% range.
Dennis McGill
And then just last question I had, Houston and I guess secondarily Indianapolis are two markets where may be or outliers from a pricing power standpoint. Can you just maybe tell us a little bit about what's on the ground in those markets?
David Singelyn
Yeah Houston, particularly in the energy corridor has had some early terminations and in some vacancy that we you know we don't like to have vacant homes, so we try to bring them in with reducing the price a little bit. So we've done that, and we've seen some improvement in Houston and expect that throughout the year, it'll continue to improve Indianapolis is a solid market it's just, it's not an area where you get outsized rent growth or that we've seen it anyway.
But our occupancy has moved up I think pretty solidly in Indianapolis over the year.
Dennis McGill
Okay, appreciated. Thanks guys, good luck.
John Corrigan
Thanks Dennis.
Operator
Thank you. Our next question comes from the line of [indiscernible].
Please take your question.
Unidentified Analyst
Hey, good morning.
David Singelyn
Good morning.
Unidentified Analyst
So I guess a couple questions, first on the operations side, with occupancy here in the low 94% range in your projection pretty be flat up this year. Should we read into it that the portfolio is that max or peak occupancy for where you think you can optimize revenue in the current environment, and if that's the case, then perhaps can we see get a bit more aggressive on the rent group side you outlined 3.5% to 4.5% expectation for this year?
David Singelyn
Yeah the 94.2% or 94% is for the whole portfolio and includes homes we just bought with without tenants in it, so I'd say that's not a maximum thing, I think on our same home or high 94% or close to 95% which is more reflective of you know where we think it'll stabilize out it's somewhere in the 95% to 96% range, and all lot of that depends on how quickly we can. How much more we can drive down or turn times and get houses leased and we’re always focused on that.
As far as pushing rate, we push on when we think we can and it's, if you look across the portfolio we might push, we push rates harder in areas where we have more demand and less in areas that we've don’t, so in the Midwest for the most part you know once it starts snowing. The demand kind of dries up and then you know once a certain part out it comes back up again.
So I think that will see better rent growth in the spring and summer months than we will in the winter months.
Unidentified Analyst
Gotcha. Okay and then maybe not on operations you guys talked about a core margin outlook up this year in a 63%, 64% range up from 62% last year, so I guess I'm curious how much better number even that number can get as you implement your in-house maintenance program as you enhanced your operational argument, and I think many of us saw 65% at the high watermark, can you hit 70%.
And then in terms of the turning times you mentioned 53 days for last year. What do you think that number can improve to by year end?
David Singelyn
I think that number can improve to by year end or to be average for 2017 are really two different numbers, but…
Unidentified Analyst
Maybe you comment a number.
David Singelyn
Yeah I think for the average we'll get into the mid-40s is my guess, mid-40s in turn times for the year, the end of the year is slower, so it'll be the end of next year could be you know low-50s to mid-50s. Some of that is depended on how hard we've pushed rates.
So if we really push rates and kind of our methodology is to push it hard early and then if it leases we get the rent increase and then if we don't see much activity at that price and then we move it back down, but that necessarily takes some time to the real day is where we can have an impact without affecting rate is how long it takes us from the move out to getting at ret ready again, and that's what we've been really focused on, I think we've pushed it from the beginning of the year from about 18 days 20 days down to we're currently at somewhere in the six to eight days.
Unidentified Analyst
Got it, okay. Another question I guess that's when the maybe for you Diana, you know when your peers in the process of accessing GSC back debt which would be the first on institutional on single-family rental homes.
I'm assuming that's looking as well, perhaps you could give us some sense of the market, maybe your level of interest and maybe some broad terms on what's on offer maybe in terms of term the pricing, the size of the market and the benefit you see their overall?
Diana Laing
Yeah, there's not a lot we know about the potential Fannie Mae deal since it has been closed. So there's I really can't comment on that specifically, as far as our own cost of capital, I think our strategy of maintaining a conservative balance sheet with flexibility in the portfolio and potentially a rating is our best to efficient cost to capital.
Unidentified Analyst
Okay, that's fair enough. And then one last maybe for you Dave, I know you've answered have been addressed the question, but I'm trying on a slightly different twist.
I'm curious on the tenor of the conversations that you potentially having with small and mid-cap private portfolio owners with your clear cost of capital and operating advantages along with facing higher interest rates slowing HPA are you sensing any change in their willingness to engage and pursue possible combinations?
David Singelyn
Well, I don't know of a transaction that we've actually probably completed on the first discussion with an institutional buyer. It is always been a give and take, and you know there's a number of little small portfolios I think we did a 20 home portfolio this last quarter, those are a little different and those do close a little bit faster.
But you know the increase in the stock price and all of that is a very, very recent event. It's all happened in the last couple of weeks and I wouldn’t say there's been a lot of inbound on the last couple of weeks.
But really the a lot of the drivers for the inbounds are our conferences, and other events and it's none of those have occurred in the last couple of weeks. But with all that said, it should be noted that, I mean it is there is opportunities out there, and so it's just getting to a meeting of the minds and what is attractive and accretive transaction for us also works for the seller.
We’re not going to close on transactions that are out there just because there unless it's accretive for us or meaningful in one way or another for us to do it.
Unidentified Analyst
Okay, thank you.
Operator
Thank you. Our next question is a follow-up from John Pawlowski with Green Street Advisors.
Please take your question.
John Pawlowski
Thanks, Jack, could you quickly share January and February leasing trends you were no growth new lease and occupancy and what you're sending out renewal of that today?
John Corrigan
We've been pretty consistent on renewals in the 3% to 4% range on releasing. We are beginning to push rates and so you'll see something similar to what we have in the fourth quarter in January bumping up in February and my guess is that will bump up some more in March and average out to something in the range that I gave you in the 3.5% to 4.5%.
John Pawlowski
Thanks.
Operator
Thank you. That does conclude our question-and-answer session.
At this time I will turn it back to management for closing remarks.
David Singelyn
Well, thank you again for joining us today. We are excited about the year ahead in 2017 and look forward to speaking with you again on our next earnings call.
Have a wonderful weekend. Thank you.
Operator
This concludes today’s conference. Thank you for participation.
You may disconnect your lines at this time.