Nov 3, 2017
Executives
Stephanie Heim – Executive Vice President, Counsel & Assistant Secretary Dave Singelyn – Chief Executive Officer Jack Corrigan – Chief Operating Officer Diana Laing – Chief Financial Officer Chris Lau – Executive Vice President-Finance
Analysts
David Corak – FBR Juan Sanabria – Bank of America John Pawlowski – Green Street Advisors Nick Joseph – Citigroup Steve Sakwa – Evercore ISI Jade Rahmani – KBW Ronald Kamdem – Morgan Stanley Haendel St. Juste – Mizuho Securities Douglas Harter – Credit Suisse Hardik Goel – Zelman & Associates Ryan Gilbert – BTIG
Operator
Greetings, and welcome to the American Homes 4 Rent Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
Now I would like to turn the conference over to your host, Stephanie Heim. Please go ahead.
Stephanie Heim
Good morning. Thank you for joining us for our third quarter 2017 earnings conference call.
I'm here today with Dave Singelyn, Chief Executive Officer; Jack Corrigan, Chief Operating Officer; Diana Laing, Chief Financial Officer; and Chris Lau, Executive Vice President, Finance 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, November 3, 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 of the non-GAAP financial measures we are providing on this call is included in our earnings press release and supplemental. You can find our press release, supplemental, SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com.
With that, I will turn the call over to our CEO, David Singelyn.
Dave Singelyn
Good morning, and thank you, Stephanie, and welcome to our third quarter 2017 earnings conference call. Before I turn the call over to Jack and Diana to cover the details of the quarter, I would like to review our business and strategy from a high level.
The third quarter was another quarter of significant progress for our Company as well as the quarter in which we faced and overcame some unprecedented operational challenges. During the quarter, we exceeded the acquisition expectations of our previously communicated strategic growth plan, continued to reap the benefits of our best-in-class operating platform and demonstrated the power of our institutionalized scale and the value it provided in supporting our residents throughout the back-to-back tragic hurricanes and the ongoing rebuilding of their communities.
Looking forward, accretively growing our high-quality portfolio of single-family rental homes continues to be the primary strategic initiative for American Homes 4 Rent. Last quarter, we introduced our strategic growth plan for the remainder of 2017 and 2018, which is to significantly ramp-up our level of capital deployment through our traditional acquisition channels, consisting of foreclosure auctions in MLF’s.
Also, our built-for-rental program will add additional homes through our growing National Builder program and AMH development initiatives. I'm pleased to report that on the third quarter, we successfully acquired over 1,000 homes for a total estimated investment of over $250 million, exceeding our strategic planned target of $200 million and generating attractive blended economic yields in the mid-to-high 5% range.
As planned, the majority of these acquisitions came through our traditional acquisition channels and were supplemented by over 100 built-for-rental homes sourced through our growing National Builder program. Many of this quarter's deliveries have already been leased and are cash flowing at estimated yield premiums of 50 basis points over traditional channel acquisitions in the comparable markets.
Our rollout of the AMH development program delivered our first 13 homes in the quarter and is proving to provide a superior built-for-rental product. Again, evidencing the tremendous demand for newly constructed rental homes, many of our third quarter AMH development deliveries have been leased and are now cash flowing at estimated yield premiums of 100 basis points over traditional channel acquisitions in comparable markets.
This quarter's acquisition activity also marked an important milestone in the Company's history as we eclipsed the 50,000 home mark. Recognizing the plentiful landscape of attractive acquisition opportunities and our unique ability to invest accretively using the only investment grade cost of capital in the single-family rental industry, we have revised our strategic growth plan to increase our acquisition and new construction targets.
In the fourth quarter, we now expect to deploy over $300 million of capital versus our previous plan of $250 million. And for 2018, we now expect to deploy over $1.2 billion.
Through the combination of our pro forma economic acquisition yields in the mid-to-high 5% range and our attractive cost of – and access to capital, we see a tremendous opportunity to accretively grow our portfolio by more than 10% by the end of 2018. On the operational front, our results remain solid in the third quarter.
Continued topline growth, while muted, together with further improvement in our operating efficiency measures drove 160 basis point expansion in our Same-Home NOI margin to 63.3%. Adjusted EBITDA increased approximately 7% compared to the third quarter of 2016.
And including the impact of our significant deleveraging activities completed in 2017, we’ve reported core FFO of $0.25 per share, a 4% increase over the same period in 2016. Macro fundamentals remain supportive across virtually all of our markets.
Operationally, our quarterly achievements are particularly notable in spite of the seasonal headwinds we typically faced in the third quarter from higher turnover levels as well as the near-term impact and disruption to a significant portion of our portfolio caused by the hurricanes. The strengths of our centralized platform, proprietary technology solutions, national scale and world-class team were put to the test with these hurricanes.
Focused on the safety and well-being of our employees and residents, we implemented our multifaceted action plan and immediately reallocated resources and personnel to the affected areas to identify and triage significantly damaged homes and to support and care for our residents. After ensuring their safety, we assigned a personal AMH representative to each displaced resident to separate them through the process of relocating to another AMH home and connecting them to FEMA and other relief agencies.
Regarding our assets. Full damage assessments and initial remediation efforts were swiftly initiated.
And through the use of our internal personnel, we avoided additional losses that may have been incurred if we were dependent on the scarce availability of third-party vendors. As we have previously disclosed, we recorded an estimated $10 million in total unreimbursed costs, which includes both our insurance deductible and the estimated cost that we expect to incur to repair minor damage, consisting primarily of down trees, damaged roofs and fences.
Diana will provide more details on these items later on the call. And before concluding, I would like to sincerely thank our operations team members who worked tirelessly to support our residents and care for our homes throughout and after hurricanes Harvey and Irma.
Now as we approach the end of 2017, I remain bullish on the future of American Homes 4 Rent and anticipate continued strength in macro supply and demand fundamentals for single-family rentals, further optimization of our already best-in-class operating platform that will produce outsized organic cash flow growth relative to other real estate asset classes and a unique opportunity to accretively deploy our investment-grade cost of capital through growing our portfolio by more than 10% by the end of 2018, creating value and generating positive returns for our shareholders. And now I'll turn the call over to Jack.
Jack Corrigan
Thank you, Dave, and good morning, everyone. I will begin with operations.
For our Same-Home portfolio which reflects the performance of 36,682 homes, in the third quarter, we recorded revenue growth of 2.5% and expense decreases of 1.7%, resulting in a 5% NOI increase compared to the same period of last year. Capital expenditures were roughly flat in the quarter resulting in an NOI after capital expenditures increase of 5.5%.
As a note, direct hurricane-related repair and cleanup costs are excluded from our Same-Home results. Nearly 100 homes primarily in the Houston market that sustained major damages were removed from the Same-Home pool entirely.
These homes were determined to be uninhabitable, are currently vacant and will take approximately six months to one year to rebuild. Additionally, approximately 2,400 homes in the Same-Home pool in the Houston and Florida markets incurred approximately $5.8 million of minor damages from the hurricanes.
These properties remain in the Same-Home pool. However, the hurricane-related costs are excluded from Same-Home operating results and presented separately on the income statement.
With regards to leasing, we continue to experience solid demand for our properties. For our Same-Home portfolio, we maintained strong average occupancy of 95% for the quarter, ongoing rental rates by 4.7% and 3.5% on new and renewal leases, respectively.
That’s translated into an overall blended rental rate increase of 4.0%. Even more impressive is the fact that we achieved these metrics despite slower leasing activity towards the end of the quarter, as leasing was disrupted by back-to-back hurricanes as potential tenants prepared for and recovered from the hurricanes in late August and early September.
And many of our property management personnel, both in the hurricane markets, as well as from other markets, assisting in the recovery effort prioritized the well-being of our residents and preservation of our homes in Houston and the Southeast, having a short-term impact on leasing results. Following the hurricanes, we have already seen leasing activity pick up in October.
As an illustration of this trend, our new leases signed were about 2,000 in July, 1,800 in August, 1,600 in September, with an increase back to 1,800 leases signed in October, returning us to pre-hurricane levels. Further, as expected from the growth in our acquisition program, our delivery of additional homes in certain markets is creating a short-term level of increased supply, competing with our existing inventory of available homes including those in our Same-Home portfolio resulting in near-term occupancy declines at certain of our Southeast markets and Columbus, Ohio.
These temporary absorption issues resulting in short-term reductions and occupancy are similar to our experiences in 2013 and 2014 when we were adding a large number of properties to our portfolio. We expect the addition of the properties acquired in the fourth quarter of 2017 and first quarter of 2018 will have some negative impact on occupancy.
However, these acquisitions will fuel second and third quarter 2018 leasing activity when we expect these homes will get absorbed. As I will go through in more detail in a few minutes, our team has done a tremendous job ramping up our acquisitions program, which exceeded our growth targets for this quarter.
We are acquiring great quality homes in great locations, furthering the long-term investment in our attractive and already proven market footprint. Turning to maintenance costs.
For the third quarter, expenditures for the Same-Home portfolio, including repairs and maintenance, turnover costs and capital expenditures, but excluding hurricane-related costs were $22.7 million or approximately 90 basis points lower than the same period last year. The decline is primarily attributable to over $1 million in savings on HVAC repair costs which are typically highest during the summer months in the third quarter.
These savings are a direct result of our intentional deployment of in-house maintenance personnel to focus primarily on HVAC issues during the quarter. This $22.7 million of repair and maintenance turnover costs and capital expenditures includes the additional investment in our resilient flooring installation program that we discussed last quarter.
This resulted in approximately $1 million of incremental flooring cost this quarter. As we have stated before, this increased cost will continue for the next couple of years but we expect it will reduce future turn times and turnover expenditures.
Excluding this resilient flooring program, our total maintenance-related expenditures for the Same-Home portfolio decreased by about $1.2 million or 5.3% during the third quarter compared to the same period last year, evidencing our ability to continue to reduce costs while still focusing on portfolio expansion. Turning to transaction activity.
In the third quarter, we added 1,143 homes for a total investment of approximately $257 million, exceeding our previously laid out growth target by nearly 150 homes. And as Dave mentioned, marking an exciting milestone for the company, as we surpassed 50,000 total homes, including those held for sale.
1,019 homes were acquired through our traditional acquisitions of one-off transactions with average pro forma cash flow yields including provision for capital expenditures blending to 5.6%. Additionally, we took delivery of 13 new construction homes from our own AMH development program and 111 homes through our National Builder program in 11 markets for a total investment of $27 million.
Many of these new construction homes have already been leased, demonstrating the strong demand for new construction rental homes and our cash flowing at estimated yield premiums over traditional channel acquisitions in comparable markets, which I will discuss further in a few minutes. As Dave mentioned, we continue to ramp up our pace to an expected quarterly volume of $300 million later this year and into 2018.
Our revised growth plan includes over $1.2 billion of acquisitions and 2018 with two-third sourced from our traditional acquisition channels and the balance split two-third National Builder program and one-third AMH development. To expand more on our built-for-rental program for our National Builder program, we have established relationships with national and regional third-party homebuilders and have a growing pipeline of commitment.
The pro forma stabilized cash flow yield, including a conservative repair and maintenance, turnover and capital expenditure burden based on the historic performance of our Same-Home portfolio is averaging 50 basis points higher than traditional acquisition properties, reflecting the benefit of new construction premium rents. Although our underwriting includes a conservative level of expenses over the longer term, we expect the built-for-rental homes to result in lower cost and an even greater yield premium.
With respect to our AMH development initiative, we have another 43 homes currently under construction. The pro forma stabilized cash flow yield, again including a conservative repair and maintenance turnover and capital expenditure burden based on the historic performance of our Same-Home portfolio, should reflect a premium of over 100 basis points compared to traditional acquisition channels.
And we anticipate that the market value of these homes is approximately 20% to 25% greater than the invested cash. Similar to our National Builder program, over the longer term, we also expect our AMH development homes to result in lower cost and an even greater yield premium.
Bear in mind that our AMH development initiative is currently only developing homes on already entitled land and that average construction times are relatively short. Additionally, our current pipeline consists of targeted in-fill opportunities in our already existing submarkets.
As a result, we view the risk profile of our AMH development program as not meaningfully different than that of our other acquisition channels and believe the 100-plus basis points of yield premium to be extremely attractive on a risk-adjusted basis. Finally, as it relates to dispositions during the third quarter and into the fourth quarter, we sold 128 homes and have approximately 130 in escrow and have now completed most of the non-core sales related to the ARPI transactions.
Sales going forward will be more normalized and related to specific property and market factors. Finally, I’d like to update you on some of our expectations for full year 2017.
As a reminder, our quarterly operating metrics will continue to reflect the seasonality of our business. And the fourth quarter has historically been the quarter with the lowest leasing activity and turnover.
Same-Home full year blended leasing spread growth is still projected to be in the 3.5% to 4% range. However, due to the hurricane occupancy disruption, an extra level of inventory being carried into the fourth quarter, specifically in certain of our higher rental rate markets, we expect full year rental rate and revenue growth to be in the 3% to 3.5% range.
Factoring in the favorable property tax benefits received this year, we now expect a full year 2017 reported property tax increase towards the low-end of our previously communicated 3% to 5% range. Repair, maintenance and turnover costs including those expensed and capitalized are still expected to be in the mid $1,900 per home range including the cost related to our resilient flooring initiative.
As a result, we are still comfortable with our previously communicated full year Same-Home margin guidance at or above 64%. Now I will turn the call over to Diana Laing, our Chief Financial Officer.
Diana Laing
Thank you, Jack. In my comments, I’ll briefly review our recent capital markets activity and balance sheet metrics and then discuss our financial results for the third quarter.
Our operating and financial results, which include GAAP and non-GAAP measures, are fully detailed in our earnings release and supplemental information package that are available on our website. Beginning with the balance sheet, we were very active in the third quarter as we remain committed to maintaining our investment-grade rating and best-in-class balance sheet that provides us with continued access to attractively priced capital and flexibility to grow through our growth objective.
In August, we issued 13.8 million shares of common stock in an upsized offering, generating gross proceeds of $312 million including the over-allotment option. We also issued 1.2 million shares of common stock during the third quarter through our aftermarket program, generating gross proceeds of $26.9 million.
In September, we announced the conversion of the outstanding 5% Series A and 5% Series B participating preferred shares. These conversions which were effective in early October will result in an $11.8 million reduction of annual preferred dividends and they resulted in the issuance of 12.4 million new common shares.
As a result of our significant deleveraging activities and our growth in EBITDA and pro forma for the preferred conversion completed subsequent to quarter-end, total debt represented about 22% of our total market capitalization and preferred stock represented 9% of total market cap. Net debt to adjusted EBITDA was 4.2x compared to 6.6x a year earlier.
Fixed charge coverage was 2.9x and 62.5% of our NOI is generated from unencumbered assets. As we mentioned earlier, the $965 million of permanent capital we raised this year effectively prefunds a portion of our growth initiatives through the end of the year and into 2018 as we now have more than $1 billion of available liquidity on our balance sheet, including a fully undrawn $800 million revolving credit facility and over $240 million of cash.
In addition, our business generates more than $220 million in annual retained cash flow after dividends and capital expenditures, which provides additional fuel for growth. Turning to financial results.
During the third quarter, core FFO was $0.25 per share compared to $0.24 per share for the third quarter of 2016, which represents a 4% increase despite significant deleveraging in the balance sheet this year. AFFO was $0.20 per share, up 5% from $0.19 per share for the same quarter of 2016.
With regard to the back-to-back hurricanes experienced during the quarter, we recognized the charge of $10.1 million as our expected share of total repair cost. This amount is recorded separately on the income statement as hurricane-related charges and is included in FFO, but excluded from core FFO and AFFO.
This figure reflects the current estimated total losses of $21 million, of which we will expect to recover $11 million through insurance claims. As we go through the claims process and work with our insurance carrier, any future adjustments to our estimated losses net of recoveries will be presented in the hurricane-related charges line item in future periods.
Approximately 140 properties sustained major damage and are currently uninhabitable and will not be generating rental revenue until renovated and re-leased. We’ll receive some reimbursement for hurricane-related business interruption costs and we’ll recognize those as we receive the insurance proceeds.
As Jack mentioned, of these 140 homes, about 100 were in the Same-Home pool. These 100 homes have been removed from the Same-Home pool.
And along with the other 40 homes, are now presented as non-stabilized in our other and held for sales property grouping on Page 11 of the supplemental. We expect that the rehabilitation of these properties will occur over the next several months but they’ll not return to the Same-Home portfolio until they meet the requirements of other recently renovated properties.
Now, we’ll open the call to questions. Operator?
Operator
Thank you. [Operator Instructions] Our first question is from David Corak with FBR.
Please state your question.
David Corak
Very good morning, everyone. So in the past two calls, I guess you’ve talked a lot about kind of some moving pieces within the same-store pool and guidance, from margin to the rent growth guidance, to the property taxes.
Can you just kind of maybe give us a net effect? I mean, do you think that same-store Core NOI growth will come in above or below what you were anticipating at the beginning of the year when you already gave guidance?
Jack Corrigan
Well, I would say that the margins will be better. Maybe revenues are slightly lower, but margins will be better.
Our expense decreases were better than we anticipated through the year particularly in property taxes and property management cost.
David Corak
Right. And I think that was communicated.
I guess my question is just, you can have lower revenue and higher margin and we don’t necessarily get there. So I was just kind of trying to see if you can help us paint the picture based on previous expectations?
Jack Corrigan
I think it approached the expectations maybe slightly better. I mean, I think, the overall growth in NOI for the year was – or for the last nine months was –
Dave Singelyn
It’s 6.4% and our cash flow has been up 7.3% and that is in line with what our expectations were at the beginning of the year. The components and maybe the mix is a little different, but I think a 7% growth in your Same-Home cash flow is pretty good year-over-year.
David Corak
Thank you, it was great. And just specifically on property taxes, it came relatively low again.
Can you give some color on just the difference there between your expectations? And then maybe any initial expectations or how we should be thinking about that into 2018?
Diana Laing
Sure. This year, we actually experienced several credits coming through the current year that related to, I guess we call it, out-of-period adjustments from appeals that we were successful with.
So that’s resulting in a fairly low or fairly small increase in property taxes over what you see from last year. If you could take out all of those adjustments, I think the bill-to-bill increases are about 5.5%.
And so I think that 5.5% could be a decent run rate for going forward from now. But for this year, I think our increase is going to look more like the low 3% to 3.5% because of these credits.
So I guess if you…
David Corak
A couple of the hurricane markets or hurricane-impacted markets that you mentioned, we don’t have ending occupancy numbers on there. Could you share what those kind of where some of those markets ended on occupancy and where they stand today?
Jack Corrigan
Well, I’d say a lot of our markets that you wouldn’t think were affected by the hurricane were somewhat affected because we had personnel from the other markets instead of churning homes, going in and helping board up homes in Florida and in Texas. But the ones that were principally affected would be Houston ended at 92.6%, and Tampa ended at 93.6%, Jacksonville at 94.7%, Orlando at 97.2%, and Charleston, I guess was partially affected, ended at 95%.
David Corak
And are they up from that or at least year-over-year?
Jack Corrigan
I’m sorry? Are they up?
David Corak
Yes.
Jack Corrigan
Yes, they were up, some are down. Quarter-to-quarter – end of year – are you talking Q3 2016 to Q3 2017 or –?
David Corak
No. Where do they stand today?
Jack Corrigan
Where do they stand; I don’t know market-by-market after October leasing. But I would say that our absorption in October was pretty strong.
We had about 1,800 new leases and about 1,400 move-outs.
David Corak
Thanks guys.
Operator
Our next question is from Juan Sanabria with Bank of America. Please state your question.
Juan Sanabria
Hi, thanks for the time. Just hoping you could give more color on the – sort of, missed, I guess, on kind of the same-store revenue line.
It looks like occupancy decreased through the quarter. So I just wanted to get a better sense of really what drove that.
It sounds like maybe you guys did a fantastic job with the hurricane. But maybe there were people checking out of the field that hurt your occupancy.
But it looks like occupancy kind of decreased through the quarter-end – into the quarter-end. So maybe you could just help us trying to frame what drove that miss kind of at the top line?
And how things are trending currently, like if you climb back that occupancy and this was just a one-time blip or maybe the core growth is kind of trending downwards towards kind of where you’re – the third quarter numbers ended on the same-store revenue basis.
Jack Corrigan
Yes. I think it depends on the reason for the occupancy decline.
And so if it’s because we were adding new properties to a market like in Columbus or Charlotte, significant…
Juan Sanabria
What if the new homes be excluded from the same-store results?
Jack Corrigan
They would but they do compete with the homes in the same-store. So if you throw up a competing product in the same neighborhood, if you have two houses in the neighborhood, you have a 50-50 chance that they take the new home versus the other one before you would have 100% chance if they took the Same-Home.
So there is an effect, whether it’s direct or indirect. But there’s definitely an indirect effect and you can see that in the occupancy of pretty much all the markets where we’re heavily adding homes.
And I would expect that we didn’t see much of an effect through the summer of that and that’s because the demand in the summer mutes that effect. But when you get into the lower demand months, you’ll probably have that occurring through the end of the year and into January.
And then February, March, when it really starts picking up again, I would expect that inventory starts to get absorbed, whether it be new houses or same-store or Same-Home. On the markets affected by the hurricane, we are already seeing that that we saw a tremendous demand in October.
We are seeing that move more towards their natural occupancy levels.
Juan Sanabria
Could you give us a spot occupancy in October? And maybe help us think about, since you’re acquiring more rapidly, like will the Dragon occupancy grow as your acquisition pipeline grows in the target markets?
Jack Corrigan
Our plan is for it not to grow. But I think there is a likelihood that the occupancy will decrease slightly in the markets where we’re acquiring heavily in the fourth and first quarters.
And then leasing season will be well-positioned and we’ll absorb it. I mean, this is a very consistent trend that we had when we were acquiring previously in 2013 and 2014.
For the long-term, it’s very, very positive, in the short-term, especially in the quarters where leasing isn’t as strong as first – fourth and first, we’ll stay pretty much static as to where we are and we’ll absorb it in the second quarter.
Juan Sanabria
And what’s the spot occupancy, if you have that?
Dave Singelyn
I don’t have it as of October 31, not with me. I’m sure Chris can get back to you with it.
Juan Sanabria
Okay. And then just a separate question on M&A.
You guys have obviously building out your own on-balance sheet development capability. Any thoughts about looking at external opportunities at this point in time, whether it’s an established homebuilder public or private?
Dave Singelyn
No. At this point, we are not looking to acquire a homebuilder.
I think we’re very, very happy with the homebuilding function that we have in our own company. We are looking to build homes only for our own inventory.
And I think between our National Builder program and the program that we’re building out internally, I think we will be well-positioned and well covered.
Juan Sanabria
Thank you.
Operator
Our next question is from John Pawlowski with Green Street Advisors. Please state your question.
John Pawlowski
Good morning. Jack, I’m having a little trouble understanding the hurricane impacts.
And the heavily damaged homes are removed from same-store and the hurricanes happened towards the end of the quarter. And you’re seeing average occupancy weakness throughout the quarter.
And I understand traffic can die down and rate growth can fall. But why were there such weakness in occupancy?
If anything, the storms removed stop in the market and maybe you can get a benefit from displaced homeowners. Can you just walk me through that?
Jack Corrigan
Yes. I think we will get some benefit in Houston.
But the benefit would have happened later than the hurricane. And the hurricane happened in late August, September.
So we are definitely seeing some absorption in Houston and it’s not being affected at all by new inventory because we’re not buying. So absorption is good there.
I think the average occupancy for the quarter on a Same-Home basis was 0.1% lower than last year at the end-of-period occupancy that was lower. And that end-of-period occupancy clearly was affected by, if you look at the markets where it occurred, it’s in the markets in Texas and then the Southeast and Columbus where we’re acquiring.
John Pawlowski
So the average occupancy for Houston dropped 70 bps. So there seem to be weakness heading up to the hurricane.
So I get why rate growth can drop. But what’s the weakness in occupancy?
Jack Corrigan
In Houston particularly?
John Pawlowski
Yes, I mean, you’re describing some of the weakness in occupancy that happened in 3Q 2017 due to the hurricane. And I’m just trying to get my head around.
Jack Corrigan
One of the things that we did in Houston was to allow people to get out of their lease even if the home wasn’t completely damaged and taken out of the things. So you’ll see the effect of that occupancy coming down in September.
And I expect that you’ll see that recover in the fourth quarter, if not more.
John Pawlowski
All right. And then on the temporary absorption issue similar to what you saw in 2013 and 2014, I thought you and your peers had stated in the past that given the highly fragmented nature of the business and you and your peers only own very small percentage of total stock that you can never really move pricing in any given market, even in your larger markets.
So what you’re saying, it’s not exactly the case. You can’t move pricing as institutional activity in any given market increases.
Is that accurate?
Jack Corrigan
Well, move pricing on – I think what we said, at least what I said was move pricing on the value of the homes. Move pricing on rents, I think we’ve been consistent in Arizona when we added a bunch of institutional product.
In 2013, we had very low rental rate increases and rents were pretty low. As that had got absorbed, rents moved up considerably.
Same thing happened in Tampa and Indianapolis. So I don’t – I’ve never believed that there’s no effect of competition.
So I just don’t think there is – I don’t think it affects the value of the houses.
John Pawlowski
Got it. That makes sense.
Thanks a lot.
Operator
Our next question is from Nick Joseph with Citigroup. Please state your question.
Nick Joseph
Thanks. Maybe continuing on that.
When you think about the impact of kind of newly acquired homes on your existing portfolio, is it more of a market impact? Or is it a personnel impact that they become focused on the new homes to lease them up and maybe take their eye off the ball with the existing homes that you’ve owned?
Jack Corrigan
It's a market impact. It's not a personnel impact.
I mean, there are occasions where we are hiring, gets behind the flow of inventory into the market. But that's pretty rare.
And I don't think it has much impact at all.
Nick Joseph
Thanks, and how do you think about that balance between external growth and you talked about ramping up now versus the performance of the existing portfolios? So, really why is right now the time to step on the gas for external growth?
Jack Corrigan
Well, at least from my perspective, and Dave and Diana can chime in, as we are sitting on $250 million of cash not earning anything and we've had positive absorption every month, it might not be to the same extent of the houses we're delivering, but we're putting earning assets in and it's earning way more than the cash is. So I think it's accretive to buy.
And then it will position us really well for the high leasing periods.
Dave Singelyn
Yeah, I think anytime that we ramp up acquisitions, you're going to cause a very short-term absorption impact. And if you look at a market, and going back to your prior question about market, if you’ve got 40 homes on your website in a particular market that are your turned properties and then you have another 40 that have come in as new inventory, now you have 80 homes to lease.
And that's just a short-term absorption issue. Growth in the long-term is a huge positive.
In the short term, it's an absorption issue. And it's a quarter, or two quarters of absorption.
As you go through leasing seasons, which are the middle of the year, those properties get absorbed. And then, the earning power of those new assets, especially when you're using accretive – doing them accretively with a lower cost of capital, are very big positive.
But they will have a short-term absorption impact.
Nick Joseph
Thanks. And then, which markets are you most focused on for acquisitions.
Dave Singelyn
Charlotte has been our heaviest acquisition. Columbus, our second.
We've been continually adding inventory in Atlanta. So I don't know that that's affected very much.
And then the Florida markets, Tampa, Jacksonville, some in Orlando. And Charleston, we've been acquiring.
But it is across the country where in, I think 11 or 12 states, we added properties. But heavy in the Southeast.
Jack Corrigan
Southeast and Columbus.
Operator
Our next question is from Steve Sakwa with Evercore ISI. Please state your question.
Steve Sakwa
Thanks, I guess to kind of keep on the same theme here. If you sort of look at your rent spreads, both new and renewals on Page 18 and look at sort of the change in occupancy and kind of try to marry those up.
I'm just wondering how concessions are fitting in and how that all kind of relates to sort of the average monthly rent, at the end of the period that was up sort of 3%? And then secondly, was there kind of a mix issue that maybe went on to only drive the 2.5% revenue growth?
Meaning, did you lose occupancy in high-priced markets and gained occupancy in low-rent markets and that's contributing to the shift here?
Jack Corrigan
Steve, I think you’ve identified two very important items to identify. Concessions, because you – they rolled through over a 12 month period in your straight line rent.
For the year of 2017, they are a little bit higher than they were in the year of 2016. We've seen that in previous quarters.
It's been – that spread has been there before. And it's just, I think, maybe a little bit more accentuated with a little bit lower rental rate growth.
The mix is exactly correct. If you look at some of our higher rent markets, that is where the occupancy has come down.
You look at some of the lower rent markets, the Arizonas, and the Midwest, the occupancy has gone up and there is a little bit of mix in the reconciliation of rental rates to bottom line. And as those homes get re-absorbed and the occupancy normalizes next year, that revenue will reverse.
Steve Sakwa
And then I guess given your commentary that you sort of want to accelerate your acquisition program starting in Q4 and into next year, which presumably creates a little bit more of that same cannibalization against yourself in 2018, is it fair to assume that even if you're getting these kind of renewal and new leases in the kind of high 3s that revenue growth may only be in kind of the low 3s as we look into next year?
Dave Singelyn
Again, the growth program has some short-term impacts. I think as you go into next year, into the leasing season, I think things will look similar to what they did this year.
But in the end of the third quarter, in the fourth quarter, it will be a little bit softer, yes.
Steve Sakwa
Okay. And then I guess just the final question I have is on kind of I guess the in-house kind of homebuilding program, which I realize is a relatively small piece of your overall capital allocation.
But can you just sort of remind us kind of what, I guess, in-house capabilities you sort of have? What are you sort of farming out?
And what are you doing to kind of mitigate, I guess, the risk of doing this in-house homebuilding versus just partnering with the National Builders?
Dave Singelyn
Yes, well there's definitely a premium or reduced cost that we get, so a premium yield that we get on building our own homes and that's part of the benefit. I think institutionally, it's good to have the knowledge bank of the rebuilding of houses.
And occasionally, one gets destroyed by fire or whatever. And they help us – and they've helped us in determining which products to use on the flooring.
We've recently changed from the glue-down, vinyl plank to floor type because we see in the new houses, where we’re putting in the floor type, it looks great and it's even more durable than the glued down. So we learn from what they're doing and that's good.
And as far as reducing the risk, part of starting slow is you make your mistakes small. So we started with kind of experimenting with 20 homes to see if we could build them the way we wanted and at the cost that we wanted them at in a very controlled way.
And then we're going to move to – we like what we've seen so far. And so we're going to move and accelerate that program a little bit.
And if it's really, really good, we'll accelerate it even more.
Jack Corrigan
And the one other thing, I think your question, Steve, is the staffing of this group is with people that are experienced homebuilders. They've come out of the homebuilding industry.
And so they bring their institutional knowledge to us and as we build that department organically.
Steve Sakwa
Okay, thanks.
Operator
Our next question is from Jade Rahmani with KBW. Please state your question.
Jade Rahmani
Thanks very much. Have you looked at to what extent the slower re-leasing growth and also the occupancy is reflective of market rent and market occupancy declining in those markets?
Dave Singelyn
I don't think it has any relationship to market occupancy in any of the markets that we're in. I think the only one that I could – I'm not 100% sure about or I guess I'm not 100% sure about anything, but I'm not the majority percent sure about is Charlotte has a lot of new homebuilding going on and North Carolina has some programs for low downpayments for people buying new houses.
And that you could see a little – a few more move-outs to buy new houses and slightly less demand for rentals. But I think that's short-term.
Jade Rahmani
Has the turnover been higher than you expected? It's around 40% or so.
Dave Singelyn
It's lower than last year. I expect it to continue to drop.
And it's – we are not – we don't have enough validation of the statistics, but it seems because we haven't been around long enough, it seems like that the older, the tenant has been in our place, the less likely they're going to move-out. So over time, that should reduce your move-out percentage.
Jack Corrigan
But there is no increase in turnover going on.
Jade Rahmani
Can you remind us what you expect to spend on annual CapEx and turnover cost in aggregate dollars? Not on a per property basis, but in total?
I guess the recurring CapEx rather than the improvement of renovation CapEx?
Dave Singelyn
Yes. I mean, you take the per property, multiple that by 50,000.
So the CapEx is running about 700 a property. So multiply that by your 50,000.
Chris Lau
Yes. The other way that you can look at it, Jade, is that's actually the adjustment that we make to AFFO.
And so the way that we look at it is to use actual CapEx in place for the Same-Home pool. And then apply that to the rest of the portfolio, excluding homes that are held for sale and those that we just purchased that aren't going to be including – or aren't going to be incurring a CapEx burden yet.
And that will give the kind of our expectation of total CapEx for the portfolio.
Jade Rahmani
And where are turnover costs running? On an annual basis – or on a per turn basis?
Dave Singelyn
On a per turn basis, Chris you have that number? I know what mine say, but operationally – but that's not – it hasn't subtracted out the security deposit effect.
Chris Lau
It was a split, as you know, out of the 19.50 or so, it's about 7.25 CapEx and about 12.25 of expenses including total repairs and maintenance turnover net of charge backs. The portion of just turned costs on a home that is turning is about $1,000 net per home.
But you have to blend that in with the effective turnover rate to capture the number of homes that were actually incurring turn cost on to get that into the 19.50 on average.
Jade Rahmani
Okay. So the 19.50 includes CapEx and expenses, R&M?
Chris Lau
That's correct. R&M, turnover cost, to the extent we are incurring utilities on vacant homes that are in process of turning over, that's included in there as well and then all of our capital expenditures.
Jade Rahmani
Just on the build-to-rent. Are you exploring the idea of any self-contained exclusive rental communities where you could add amenities and stickier features, dog parks and that type of thing to keep tenants longer?
Dave Singelyn
Yes, we are – we're looking at those communities. There's obviously very unique benefits to those communities.
As you infer, there is little – there's also a little bit of a different risk profile and we're taking all of that into account as we evaluate those opportunities.
Jade Rahmani
So right now is your built-to-rent activity confined to sort of one-off infill locations? What's the largest number of lots you've bought in one purchase?
Dave Singelyn
Largest that we've closed in the purchases?
Jack Corrigan
The largest that we are actively working on is about 105.
Jade Rahmani
105 lots in one. Are those all like adjacent lots?
Dave Singelyn
Yes.
Jade Rahmani
Okay. Thanks very much for taking the questions.
Operator
Our next question is from Ronald Kamdem from Morgan Stanley. Please state your question.
Ronald Kamdem
Hey, thank you guys for the time. Just going back to the kind of the impact of the hurricane there.
I'm just wondering. Obviously, the team did a phenomenal job dealing with that.
Is there any sort of efficiencies or lessons learned going through that the Company picked up? So said another way, of those – the 140 homes that are being rehabilitated, is it possible that there's a way to maybe save a month or two in terms of getting them back online?
Dave Singelyn
The 140 homes, we responded very quickly. We were able to deal with the tenant issues quickly.
And we have removed all of the wet material and started the rehabilitation and refurbished many of those homes. There are a number of factors that are going to impact each and every one of those homes as to the timing of bringing them online including dealing with the city and permitting processes, et cetera.
But I think many of them, we are moving pretty quickly on. I expect all of them to be online probably by the end of 2018.
Which considering the impact of that city and some of the obstacles that you have with the permitting process, I think is a pretty successful plan.
Ronald Kamdem
Got it. And then just going back to the in-house development, I appreciate the small number of houses.
But just curious what – how the team is thinking about land cost and so forth? And I understand that a lot of it is already on entitled lands.
But when you're thinking about land costs, is that something that could potentially be a gating factor to how that ramps?
Jack Corrigan
Yes, definitely if I mean, it doesn't pencil in terms of yield and land cost are a significant portion of whether it pencils, that it can make the decision not to go forward with that project for leasing.
Ronald Kamdem
Great. And then the last question would be just on the tax bill that came out.
Clearly, maybe I’m not had a lot of time to digest. But just curious, any initial takes?
Or how are you guys thinking about that? Thanks.
Jack Corrigan
Yes, we are still in the digestion period of that bill as well. So I think it's a little premature to comment.
Ronald Kamdem
Understood, thanks so much.
Operator
Our next question is from Haendel St. Juste with Mizuho Securities.
Please state your question.
Haendel St. Juste
Good morning.
Jack Corrigan
Good morning, Haendel.
Haendel St. Juste
So I guess I just want to understand this more clearly, maybe if you could help me. The pieces of the near-term outlook for Same-Home revenue and occupancy.
It sounds like you're telling us that fourth quarter same-store revenue and certainly occupancy in Houston should be better than this quarter and that you may have been added tailwind into 2018 as some concessions burn off and the potential tailwind in the back half of the year as some of the occupancy in some of your Southeast markets come back up. Is that a fair – a good way to look at it?
Jack Corrigan
Partially. On the concession and – the concessions that we did at the end of last year, we had built up some inventory, I think in Indianapolis, Chicago and Houston.
And we were offering some concessions in those markets to lower the amount of available inventory. But concessions we offered there was higher than the concessions we're offering now.
But our concessions right now are more broad. So I think the amount of concessions will be similar to last year.
So I wouldn't expect a big pick up there.
Haendel St. Juste
Okay. But the other pieces of what I put together were largely consistent?
Jack Corrigan
Yes.
Haendel St. Juste
Okay. And then maybe Houston, I'm curious I guess, how you're thinking about that market going forward.
You guys made a bigger bet there than your peers. And I'm wondering if that could be changing at all here?
And maybe perhaps if you're seeing more acquisition opportunities in the aftermath of the hurricanes and how much more you could be perhaps willing to add there? Or perhaps if you're thinking what you have right now is enough or even too much?
Dave Singelyn
I don't think it's too much, I think Houston will recover I think. But in general, from what I've seen when big disasters hit an area, I've lived through the 1994 earthquake in L.A.
It really boosted as all the insurance money and FEMA money came in and boosted the economy. And Houston will continue to get more and more diversified out of oil.
So I like our investment there. We are not currently adding.
But we've gone and looked at potentially adding a few there. But right now, we have plenty of opportunities elsewhere.
Haendel St. Juste
Okay, and then one last one. I guess maybe on Nashville.
It's been a market that's been pretty hot for a while here. Just curious if you could talk a bit more about that, it sounds like maybe it's facing the issue of some of that competing against your own supply.
But also I guess, I think we saw in the news that I think GE might have closed a plant there. So I'm curious if there's any change and then perhaps the local economy or anything in that market that may change how you view that market or perhaps your willingness to add there?
Jack Corrigan
Springhill was affected. The Springhill section of Nashville was affected by that GE closure.
Other than that, we've seen pretty strong leasing continue throughout Nashville. And we're still acquiring there, just not Springhill.
Haendel St. Juste
Okay, thank you.
Operator
Our next question is from Hardik Goel with Zelman & Associates. Please state your question.
Hardik Goel
Hey, guys, thanks for taking my question. I know people have asked about this earlier on the call.
But I just want to revisit really quickly, may be taking a different approach. Do you guys have any sense for how many leases were signed in October?
You said it was 2,000. How many move-outs and how many move-ins was that?
Jack Corrigan
1,800 is what I said leases signed and about 1,400 move-outs.
Hardik Goel
So that's 400 net gain, right? So that's roughly 80 basis points of occupancy?
Jack Corrigan
Well, we added about 370 homes to the pool. So…
Hardik Goel
Right. And do you have – that's isolating to homes that were in your portfolio.
So the same-store home let's say, has occupancy gone up in October for that pool?
Jack Corrigan
I haven't seen October's results yet for – broken out by pool. I’ve only seen it overall.
Hardik Goel
Got it. And just shifting gears a little bit, do you expect these homes that you have acquired, are most of these homes leased or are they vacant?
I mean, based on your results, it seems like most of these are vacant. But do you plan on acquiring only vacant homes?
Jack Corrigan
Yes. Unless we do a bulk acquisition from somebody who leases them up first, then they're one-off transactions that are, I would say 99.9% of the time vacant.
Hardik Goel
And just last question for me. You revised your acquisition guidance upwards for 2018.
Last quarter you mentioned the ratio would be roughly 2/3 of acquisition, 1/3 more of your built-to-rent kind of program with your in-house and from builders. So how does that ratio change now with your acquisition guidance being revised?
Jack Corrigan
It doesn't change much.
Hardik Goel
All right, thanks. That’s all from me.
Operator
Our next question is from Douglas Harter with Credit Suisse. Please state your question.
Douglas Harter
Thanks, I was wondering if you could talk about how much potential room for further efficiency gains you have, whether you can drive the margin higher? Are we getting close to peak levels?
Dave Singelyn
Yes, I think as we add properties, it's one of the benefits of adding properties. You're going to see all our fixed cost in our property management department allocated over more properties.
And we still have a ways to go in our industry. We started our property management company in January of 2012.
So we're still pretty new at this and getting better every year. I would expect to get better on the cautious side of it, I would say, we are seeing especially with construction cost and turn cost.
We're seeing some salary inflation and materials inflation.
Jack Corrigan
And let me just add one thing to that. As we indicated, we continue to look at how to make that process more efficient.
Right now, we are investing in each of our homes for the future efficiency in our turns by putting additional resilient flooring into the homes. That has – that had $1 million of cost in the third quarter.
But that will pay dividends and reduce the turn cost in the future making that process more efficient.
Dave Singelyn
And all of our renovated – newly renovated homes and new build homes to the extent on the renovated homes, to the extent we replaced flooring, we are placing that with resilient flooring in our new homes that we're building, whether it be the National Homebuilder program or ourselves, all have the resilient flooring. It's very well received.
Douglas Harter
Is there anything else like the flooring that you foresee kind of being a meaningful investment coming up?
Jack Corrigan
A meaningful investment? No.
We do have some other things that help our cost in the new homes. We haven't decided to roll that out for any of our other homes.
But the fiberglass deck instead of wood is really, I mean, it's just the maintenance cost on wood decks and wood stairs is just constantly needing refinishing and we see a lot of that in the Southeast particularly in Atlanta. And so to the extent that we have decks with new homes, they're much more maintenance-free.
Douglas Harter
Makes sense, thank you.
Operator
Our next question is from Ryan Gilbert with BTIG. Please state your question.
Ryan Gilbert
Hi, thanks for filling me in. On the full year 2017 revenue guidance, I think 2% to 3.5% I think it implies a reacceleration of revenue in the fourth quarter.
I guess what gives you confidence that you're going to see revenue growth inflect higher? Have you already seen that in the October results?
Or is it just October leasing results that give you confidence that you're going to be able to push rent in November and December?
Jack Corrigan
On Texas, I really expect to get back to 95% occupied and that's one of our higher rental rate markets, and I think that will help us get there. And we got a little bit of cushion.
Dave Singelyn
Ryan, year-to-date nine months Same-Home, our revenue is 3.2% so we're right inside that band as we said.
Ryan Gilbert
Okay, understood. And then on the same-store core NOI margin guidance.
I mean, to get to 60 – you're running over – well over 64% now to get to the low end of that range. You need a pretty low number in the fourth quarter.
So is there anything that I'm missing on the cost side or I should look out for on the cost side that would push core NOI margin meaningfully below 64%?
Dave Singelyn
No, I think we are pretty conservative on that guidance.
Ryan Gilbert
Okay, great. And then just last one.
It sounds like you picked up the guidance for 2018 acquisition volume from homebuilders. How's the progress in establishing relationships with international and regional homebuilders progressing?
Is that better than you expected when you started this program?
Jack Corrigan
It is. And they're not inclined initially a lot of times to like the program.
But then when they start thinking about it and they look at our houses, our rented houses in other communities that they’ve built and well cap they give us a little more – they’re excited about it.
Dave Singelyn
We – in the third quarter, took delivery of 100 homes in 11 states from multiple homebuilders and we have additional homebuilders that will be delivering product in the future.
Ryan Gilbert
Great, thank you.
Operator
We have reached the end of our question-and-answer session. I would now like to turn the call back over to management for closing remarks.
Dave Singelyn
Thank you again for joining us today. We look forward to speaking with you at the end of the year in February.
Have a good day.
Operator
Thank you. This concludes today's conference.
You may disconnect your lines at this time and thank you for your participation.