Kelly Residential & Apartment Real Estate ETF
Q2 2019 Earnings Call Transcript

Published: 7 Aug 2019

[Operator:]

Good morning, ladies and gentlemen and welcome to the Front Yard Residential Corporation Second Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]I would now like to turn the conference over to your host, Ms. Alysia Cherry, VP of Investor Relations.

[Alysia Cherry:]

Thank you, Ian [ph]. Good morning. And thank you for joining us for Front Yard Residential second quarter 2019 earnings conference call. Joining me on today's call is George Ellison, Chief Executive Officer; Miles Adams, Senior Vice President of Property Operations; and Robin Lowe, Chief Financial Officer.I'd like to guide everyone to the second quarter earnings slide presentation available through the Investor section of our website at www.frontyardresidential.com. These slides were created to accompany our remarks and provide additional information investors may find useful.I'd also like to inform you that our comments today may contain forward-looking statements relating to the future performance of our business, the company's financial results, capital allocation and other non-historical information.These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from those discussed in the forward-looking statements. We describe some of these risks and potential differences in our earnings release, as well as the company's filings with the SEC, including the Form 10-Q we filed today.We may also discuss certain non-GAAP financial measures. You can find additional information on these measures, including a reconciliation to GAAP within our earnings release and earnings presentation located in the Investor section of our website.I’ll now turn the call over to George Ellison, Chief Executive Officer. George?

[George Ellison:]

Thanks, Alysia, and good morning, everyone. Given all the unprecedented changes to our business in the first half of the year from operational consolidation to material corporate governance changes including on-boarding three new directors we glad to successfully got into a point where we simplified our business model.We’re highly focused on three areas of the business. First, I’d drive shareholder value. Second, we’ve now successfully operationalized our business and are busy executing on best practices. And last, we’re looking at ways to improve our net asset value by driving towards better operating margins.To that end, we completed the operational transition of over 12,000 homes from two outside property management vendors onto our own platform at a record pace, months ahead of schedule.[Indiscernible] couple the size of the operation which was an enormous undertaking. Our main focus was that the families in our homes or customers were not in [indiscernible] instant anyway. We’re pleased to note that this quarter’s top line revenue results reflect the quality of that transition, our portfolio and the market’s research. However, as any undertaking of this size, we did experience some one-time integration challenges along the way which are manifesting themselves in our second quarter results.The rapid pace of operationalizing our business resulted specifically in prolonged turn times, elevated repair and maintenance costs and lowered our collections. To put it broadly, the aggressiveness of this transitional home store platform caused parts of the business to shrink. Although, we did not perform to our own high expectations, we’ve learnt valuable lessons and have put a plan in place that will help us operate efficiently and effectively both now and as we continue to grow our portfolio of homes.Transparency on this outcome is key and Miles will go into greater detail in his prepared remarks. The most important point to focus on today is the underlying fundamentals of the rental business and specifically the single family rental markets are stronger than ever. Every day reports come out on rental demand both apartments and AFFO [Indiscernible].Stories detailing the fact that renting is cheaper and more flexible in buying a home, surveys showing it over 70% of Americans lead home ownership is outreach. Private capital continues to point to the AFFO on investments, first time homebuyer share of the market is dropping, housing starts to down, rental demand is up. These tailwinds continue to support strong rent increases in the industry and for Front Yard that’s the best news today and speak to the business fundamentals to be stronger than ever.Our blended rent growth of 4.5% continues to be very strong. As an example, the time from current completes to move-in in Atlanta at 20 days. The demand is there, people are willing to pay for our product and unique service offers. And all of these issues I mentioned are even more amplified in the workforce housing sector which we believe has the longest run rate for growth. We know the business works, we know the product make sense and generate excellent returns.Investor should be as interested and excited about the workforce single family rental space as ever. There is an affordable housing crisis in our country and Front Yard Residential is the best way to participate in this enormous investment opportunity.I will now turn over to Miles.

[Miles Adams:]

Thank you George and good morning everyone. As George mentioned we completed the internalization of nearly 12,000 homes from two separate external property managers during Q4 of 2018 and Q1 of 2019 and this was our first quarter of having direct control over the entire rental portfolio of nearly 15,000 homes.Our operating footprint which started in South Florida, Atlanta, Birmingham and Minneapolis now spans the southeast, southwest and midwest. Our management company more than doubled from approximately 80 people to approximately 190 team members as of today.The transition of homes was a very significant undertaking that was accomplished quickly by our dedicated team of professionals. However, an undertaking of this magnitude is often accompanied by challenges.We face three primary operating challenges which adversely impacted our Q2 operating results. Prolong turn cycle times due to excess homes in turn which adversely impacted occupancy levels. Elevated repairs and maintenance expense and collection rates below our expectations.From a market perspective those issues were particularly pronounced in Texas as you can see on slide 15 in the presentation.We have personnel issues in this market and a few key positions which we have addressed. Clearly these are not the sort of metrics we're expecting in Texas and we're confident that we'll see a marked improvement going forward.Let me spend a bit of time to talk about what caused issues across the portfolio in general and the measures we are taking to correct them.For unit turns, we encountered three primary issues; first more than 6.5% of homes who are in turn status when they transition to us from third party managers. Second, we experience turnover of key field base personnel as mentioned in Texas but also in the midwest which caused temporary delays in completing unit turns.Both of these issues were magnified but seasonally elevated turnover and by the scheduled expiration of 31% of our leases in Q2.Lastly, it took us longer than expected to set up fully functioning leasing operations in all the new markets which led to subpar leasing terms particularly in Tennessee and Texas. Each of these matters contribute to an increase in cash to cash cycle times which hurt our occupancy levels during the quarter.At this point we have addressed all significant matters. During Q2 we built a SWAT team consisting of both built staff and property managers that can be deployed at a moment's notice when inevitable events occur that impact staffing levels. These individuals can capably fill staffing gaps and then train permanent replacements to mitigate the impact of employee turnover.During July we also undertook a significant one-time effort to accelerate completion of unit turns. We challenged our field teams toward all homes and backlog as of July 16 by the end of the month. We expect the percentage of homes in turn to decrease from 4.5% down to a stabilized [2% to 2.5%] of the portfolio by mid-August.The results of this effort will lead to an additional 2% to 2.5% increase in homes available for occupancy. At the end of July we were halfway through this initiative and on track to meet these targets.Looking forward we expect turnover to decline significantly over the remainder of the year as lease expiration steadily declined during Q3 to their lowest point during Q4. This will ease the burden on the field based teams as they continue to improve cycle times the remainder of the year.Finally, we will be adding skilled turn technicians in a targeted manner. The benefit of this will be felt in both lower costs and greater internal capacity on a go-forward basis.For repairs and maintenance, when we assembled our initial field based teams we were careful not to over staff. We have analyzed the percentage of work orders performed in-house by our field based teams to determine the optimal levels of cost containment on a market by market basis.Portfolio density levels, local supply of cost-effective, third party vendors and the cost and quality of local labor all impact the determination of ideal staffing levels and in turn cost per home for maintenance and repairs.Stated simply our performance of work orders on an in-house basis was not sufficient to meet our goals for repairs and maintenance expense in Q2. To address this issue we're adding skilled maintenance technicians to our teams in certain markets to achieve sufficient bandwidth to meet our goals of in-house performance of work orders. At the same time we are focused on increasing utilization of existing resources around optimization, reduction of time spent on non-maintenance work orders and additional cross-training of our team to increase their ability to respond to differing types of routine work orders.The risk recently implemented route optimization technology which significantly reduces average draft and wait time for our technicians. In our test of market in Atlanta this resulted in a 40% to 50% improvement in the volume of work orders that a technician can complete in a day. We are excited about what this could mean when fully implemented across our platform in the coming months.[Rent] optimization along with eliminating tungsten on non-maintenance work orders coupled with additional training of our existing technicians will lead to improved utilization of our resources and will lower our cost in this area.On collection rates the transfer of homes was disruptive to the collection cycle. Reconciliation of the transferred resident accounts was a time intensive process where we took extreme care to ensure all residents were treated equitably.This reconciliation process delayed or prevented the collection of some delinquent accounts transfer. At this point the reconciliation has been completed. Work remains in this area but we anticipate the collection rates will improve over the course of the remainder of the year.For the second half of the year, our primary focus is to reduce the turn times which given the strong demand we're seeing in our markets will lead to increased occupants. In parallel we will increase the share of repair and maintenance work performed internally by improving the efficiency of existing technicians and by adding additional resources where it makes sense.We've discussed the measures we're taking that we believe will yield good results in these areas of our business. We believe these improvements will begin to be reflected in our operating results in Q4 of this year.Demand for our homes remain strong as evidenced by robust blended rental growth rate of 4.5% during Q2 comprised of renewal rate growth of 4.1% and re-lease rent growth a 5.3%. In fact re-lease and renewal growth rates in Atlanta by far our most significant market continue to remain well above average at 7.8% and 4.6% respectively.In summary, we remain very optimistic on the outlook of our company, our portfolio and our team. This quarter our team faced some evitable challenges that arise any time an organization experiences rapid growth but I am confident we will get through these challenges quickly as a team and that we will ultimately achieve our goals.I will now turn the call over to Rob.

[Robin Lowe:]

Thanks Miles. Good morning everyone. Today I'll cover the financial results for the quarter, touch on balance sheet activity and provide an update on acquisitions and dispositions.GAAP net loss for the quarter was $25 million. Rental revenue was up 26% compared to the second quarter of 2018. As we increase the stabilized rental portfolio by 22% to 14,348 homes. And stabilized rental NOI of $30.3 million was up 15%.Occupancy at 94.1% and turnover at 8.7% were virtually flat to the second quarter of 2018. Stabilized rental core NOI margin was 59.7% and core FFO per share was $0.05 for the quarter reflecting the operational challenges that Miles has discussed as well as a year-on-year increase of about 12% in property taxes on a same home basis.Most significantly we saw higher than expected tax increases in Georgia, Texas, Minnesota and North Carolina. We have an ongoing appeal process in place but we expect the full year property taxes may be significantly higher than originally forecast.High on unexpected tax is apparently estimated to have a $0.01 to $0.02 sent to share per quarter impacts on our core FFO.Finally on the financial results this quarter G&A cost include approximately $3.8 million of one-time legal and professional fees mainly related to the proxy contest as well as the renegotiation of the asset management agreement and other litigation.Turning to the balance sheet, 92% of our financing is either fixed rate or capped up from 65% a year ago with a weighted average duration of 5.3 years. During the second quarter we successfully negotiated a 70 basis point reduction in interest rate spread for rental properties on both our Nomura and Credit Swiss lines from 3% to 2.3% as well as some other improvements to the fee structure.During the course we acquired 43 homes at a purchase price of $5.5 million or an average cost of about a 128,000. We sold 116 non-core homes that did not fit our rental criteria. Net sales proceeds were approximately $28 million with a gain of $3.3 million over cap carrying value. Last quarter we sold 576 non-core homes for a gain of $7.5 million. We believe that the gains we continue to realize are strong evidence the value embedded in our portfolio.Additionally, on slide 16 and 17 we are providing details of investment cost and home price appreciation by key markets that we believe provides support for a baseline valuation of our portfolio.I will now turn the call back to George.

[George Ellison:]

Thanks Rob. So let's recap. As we sit here today Front Yard is the largest public full-service workforce housing REIT in the United States with approximately 14,500 homes.Our top-line growth of 4.5% and mid-90s occupancy validates our workforce housing investment thesis and as Miles note also points away the furthering shareholder value as we continue to drive to its operational excellence.As I stated earlier in the call we've simplified our business model. Miles pointed out the opportunity to reduce turn times and drive higher occupancy levels and the management team is working hard to realize the value of the platform with high NOI leading to a better valuation.I'd like to just take a moment to thank our teammates in the field who are working so diligently to address the operational needs of the business and our customers. We see the challenges you face but these challenges also represent great opportunity. We thank you and acknowledge your hard work.Also I'd like to thank our board of directors old and new for quickly assembling and working with management as well as legal and financial advisors on the strategic review of our business. The company is working diligently with its advisors to maximize shareholder value and my team and I look forward to working with them to that conclusion.I'll now open up the call to Q&A.

[Operator:]

[Operator Instructions] And the first question is from Douglas Harter from Credit Suisse.

[Douglas Harter:]

Thanks. I guess if just on after kind of going through the operational challenges that you went through this quarter, do you think there's any change to kind of the long-term outlook as to where you can get in terms of operating margins and running the business internally?

[George Ellison:]

No. I think as Miles went through we put 15,000 homes on top of a platform that had three. So obviously when these things get put together we've seen [indiscernible] space or even outside of them with companies together things have to get straightened up.So for the first three months of running this thing we finally got to see more numbers than we had in the past Dough and we could actually do something about it.So as it relates to expectations and targets that we put out there, we put very clear assumptions and markers that we had to hit to hit those numbers in terms of earnings.So we still are highly confident we can get there might be some of those might get hit by year end and some of them might not but will either hit them at the end of the year or the first quarter or the second quarter. So to use your phrase long term, yes we believe we might miss the timing by a touch but we still believe particularly even more now than ever that we own the business and actually run the business that we will hit those numbers that we put out there. So we still are highly confident we can get there.

[Douglas Harter:]

Okay. And then given kind of given the operational challenges in the hit to occupancy in the quarter -- how does that impact kind of your ability to get rent increases -- kind of as for as you're kind of carrying more vacancies heading into through peak leasing season?

[George Ellison:]

Yes. So I would just say on that that we have to take a market by market approach. That market demand and our occupancy levels in each market have to be factored into that consideration. We have to balance our need for an improvement in occupancy levels with the rent growth that the market will yield and so we have to be measured on that but in general I would expect there to be more of a focus on gaining occupancy than the maximizing in the last basis point of increase in rent lease or re-lease.

[Douglas Harter:]

Okay. Thank you.

[Operator:]

Thank you. The next question is from Jade Rahmani from KBW.

[Unidentified Analyst:]

Hi everyone. This is actually Ryan on for Jade. I'm just wondering if you can give us an update on the board's strategic review process? Do you think that a sale of the company or combination with a larger portfolio could be a likely outcome or are there other strategies that the board is considering at this time?

[George Ellison:]

Yes. Good morning Ryan. As I said in my comments, the strategic reviews is well underway and the board and its advisers are moving as expeditiously as possible as we've mentioned in the last call or the announcement of that committee being formed everything's on the table, including those things you mentioned and others. So it is underway. It's moving ahead. We will report things as we are able to but all things are on the table.

[Unidentified Analyst:]

Okay. And then just switching over to cash flow, do you have an estimate of where AFFO was in the quarter inclusive of leasing commissions and recurring CapEx and Robin maybe you can say where recurring CapEx is trending today on a per home basis and how that compares versus a year ago?

[Robin Lowe:]

Sure Ryan. Thanks. We haven't given a number for AFFO yet so we're not sort of giving that number right now. On the CapEx I will turn over to Miles.

[Miles Adams:]

Yes. So on recurring CapEx the previous numbers we've provided on that were 2,700 gross and 2,400 net on an annual basis right now, obviously with the challenges we described that's increased a bit temporarily. We're about 2850 gross and about 2550 net right now is what we're seeing. So a little bit of an increase over our previous statements on that.However, we think there's certainly opportunity to improve from there and get back to the numbers that we are talking about and perhaps even improve over that. So we just have to get – I'll just have to go back to the remarks that I made you have to get to that improvement and utilization of our existing resources and in a targeted manner we're going to have to have add some additional resources to be able to do more work in-house and that's going to lower our gross costs to maintain.

[Unidentified Analyst:]

And just to clarify the 2550 net that's inclusive of all direct property costs including RNM in turn rate. So do you have the CapEx component of that?

[Miles Adams:]

Correct. Yes that includes all of those items.

[Unidentified Analyst:]

And specifically CapEx as a component of that where that is on a per home basis versus your targets?

[Miles Adams:]

It's about 1250 [indiscernible].

[Unidentified Analyst:]

Got it and then I guess in trying to boil down the operational issues and I'm sorry if I miss it in the prepared remarks but do you have a specific dollar impact and where that was in the quarter of what core FFO perhaps would have been and then notwithstanding these challenges kind of following up on Dough's question, are you still comfortable with the prior core AFFO ranges that you providing that you've been providing? I believe in the past you've cited $0.52 to $0.64 of AFFO.

[George Ellison:]

Yes. I said to Dough's question. Yes. If you go back to those projections we had very specific targets and assumptions that went into those numbers. So that's really where we're focused. So if you look at that page I think you put it in a couple of last few quarters things like the assumption on NOI, the assumption on occupancy, the assumption on number of homes.So I think we had 16,000 homes for example on that sheet Ryan. So right now we're 14.5 back-of-the-envelope Rob could tell you exactly 500 homes is probably a penny a share a quarter. So I'm $0.03 away from that. So it's things like that.So the bottom line is we still believe in those numbers. We still support those projections. What we have to focus on is the operational pieces and Miles went through that in great detail and we in the first quarter that we ran this thing we see what's not working and we've already moved to fix it and so we'll fix it until the operational numbers on that page will get hit and the occupancy will get hit.Home-buying you have to be disciplined. You will get to 16,000 when we get the right prices on the right number of homes. So we're continuing to bid all the time. So bottom line is, yes when we actually hit it, it depends on when we hit those markers. Some of them I think we can hit by the end of the year. Some will slip into the first to second quarter of next year.

[Unidentified Analyst:]

Okay. Thanks everyone.

[George Ellison:]

Thank you.

[Operator:]

Thank you. The next question is from Mike Grondahl from Northland Securities.

[Mike Grondahl:]

Yes. Thanks. So the changes you're making on the operation side do you -- I'm trying to just understand when do you feel like those will be largely in place? Is that the end of 3Q or is it going to even take a little bit longer?

[George Ellison:]

I will let Miles handle them in more detail but as we said Mike this is the first time we actually could get under the hood and see more things. So when you have an outside vendor running your business and both of those guys did a great job you're really just overseeing what they did. Now we can see the numbers and actually make the changes and so that's all working on right now putting in place.So as we saw the numbers April, May, June we started reacting and we've already put things in place as Miles said in June and July. So some of the numbers I think we're starting to see are turning but I think it's going to take most of the third quarter to get everything in place that we want and I think we'll have this thing straightened out by year-end.I'd be disappointed if a year from now we had these kind of numbers but I'm not surprised and no one should be that putting these two companies together and quintuple the size and put some stress on the system. That's okay. But let's look at what didn't work and let's fix it and get the numbers back to where they should be.So I would say third quarter still will be tweaking some things and changing some things and add some more people and then I think by the end of the year it should be most of these numbers should be straightened out. Would you agree with that?

[Miles Adams:]

Yes. I would agree. I would taken by the components that I discussed and I would refer back to the remarks that I made on turns. Yes. The first thing that we have to do as I mentioned is just reducing the number of homes that are in turn and make them available for lease.And so, we made great strides on that at the end of July. We're continuing to work on that at the beginning of August, and we're looking for big months in August and September on the leasing front. And that will lead to an improvement in occupancy, but the revenue trails signing the leases and so it takes a little bit time for that to be reflected in the numbers.And then, as we mentioned on turn costs and repairs and maintenance expense, it really is about optimizing our staff, implementing technology and then adding additional technicians in a targeted manner. And all of that takes a little bit of time as George mentioned. So, I think that's more of a, that's going to trail the improvement in occupancy that we're pushing for.And so, that's where I would guide you to and to answer your questions.

[Mike Grondahl:]

Got it. Okay. And then, maybe just your confidence that you are making progress in Texas, those are two decent sized markets for you. The core NOI margin is pretty low there, I mean how do we think about recovery in Texas?

[Robin Lowe:]

So, when I said we recently made changes there, I mean it's very recent. So, I would be a little patient there. I'm going to be, but I'm confident that we've made improvements there in our leadership and it will result in improvement as numbers but we do need to be a little patient there.

[Mike Grondahl:]

Okay, thanks guys.

[Robin Lowe:]

Thanks, Mike.

[Operator:]

Thank you. The next question is from Anthony Paolone from JPMorgan.

[Anthony Paolone:]

Thanks, good morning. With some of the challenges on the upside, is any of this a function of just being subscale in any markets, or is it just not related to having critical mass?

[George Ellison:]

I wouldn’t say that. I mean, I think it's more a function of entering a significant amount of territory where we will want operating prior to the merger or acquisition. And then, as I mentioned, just the increase in size of our employee base going from 80 to 190, not every single person that we onboarded has operated at a tip top level and we’ve had to make changes as we go on.Yes, I mean you're talking about MSR running five of the homes during the first part of the year and we're enormously happy with this speed that we transition stuff over. And as I mentioned, customer service was paramount, but I think we did that very well. The IT part worked well, but all of a sudden 8000 homes that were being run by another company were being run by us.And so, as Miles said, we had to double the size of the staff and all of a sudden a couple of 1000 homes in Texas that were being run by the guys at our off center are now being run by us. So, that's new offices, new people, new leadership, so three or four of the major regions were being run by us pretty quickly.And so, we had new people. And the new office in Charlotte's doing a great job, Tennessee is doing a great job, Texas struggled, but as Miles said, we'll see some new leadership there pretty soon will be public. So, it's just we’ve doubled the size of the BOs, the directors and the officers and those people kind of get up speeds, some hit the ground running.Some struggled a bit, but as I said, that shouldn’t surprise anybody when we went from 3000 to 15,000 getting on in property management was the note. And so, it's a year ago today, we're celebrating our first anniversary, we're still enormously excited about the purchase. It was the right thing to do.How to control expenses. We had to pull internal, and so there are some bumps in the road, but we're very very pleased with how it’s going.

[Anthony Paolone:]

Okay. So, you've not seen any like any of these cost hit -- particularly if I will get this like having 40 some odd 100 homes in Atlanta, like those numbers aren’t the effect on that portfolio is not as similar to sale like Nashville at one tenth that size like this is kind of just a people thing across the board.

[George Ellison:]

Yes. Well, it's a people thing, which cause operational issues wrapped [ph] in that's in some other things. I think some of our competitors mentioned the tax language, a little surprising. We have newer stuff, newer homes, newer purchases, so appraisal is fresh here and so I think we got nicked a little on taxes.Insurance is coming off with storms. So, maybe you there, you'll see as we go through the year but what I'd say all-in-all was just kind of getting our legs underneath this operational is the issue.

[Anthony Paolone:]

Okay. And incremental costs that come with buttoning this down, is that all going to be an OpEx or we see any of that in overhead?

[Robin Lowe:]

Yes. I think it's mostly in that repairs and maintenance expense line item. That's essentially where you'll find most of it.

[Anthony Paolone:]

Okay. And there's just one question about some of the stats in the portfolio. You reported pretty consistent blended leasing spreads and were mid-fours. If I would get just the average rent in the quarter and compare it to the same quarter a year ago, it's up like 2.5%. Is that a mix matter or am I missing something?

[Robin Lowe:]

I think it's a bit more inventory in Atlanta, which was driving the growth there was pretty impressive as I mentioned. And having more homes in that market relative to this time a year ago I think drove some improvement in that blended increase. Pretty impressive numbers there in Atlanta.

[Alysia Cherry:]

Yes Anthony, this is Alysia. We also had a separate mix with homes; we do present things on a stabilized portfolio basis. So, it's not same store when you're looking at the average rent for home. So, what you have in there is just the average rent per leased home and so that mix has changed a quarter ago or year, right as we're looking at those numbers, the best number to you is that quoted [ph]. We found lease improvement, that really shows you that puts you underlying increase is on a same home basis.

[Anthony Paolone:]

Okay, got it. Thank you, for that. And then, just back to your guidance, the 16,000 homes that get the margins and occupancy and things like that given the ups and stuff but in terms of getting to the 16,000 homes, just you think gets pushed out as you kind of focus on operations or do you think that's something that you'll can still kind of pushing ahead with?

[George Ellison:]

Look, we're kind of almost completely disconnected except to the extent that well the acquisition guys would go to Miles and see where he prefer to fill in. So, we'll see pools, there is a 3200 pool in I don’t know probably nine different markets. So, target places where these expenses won’t go up by adding a couple of 100 homes here in Atlanta or Minneapolis or Florida.And so, to that extent we'll get involved, but the acquisition guys really are shooting for a target yield. And so, if they can’t find something with that yield we'll stay very disciplined about it. And if they can, you'll see us buying some more stuff over the next few weeks and months here. I'm confident there's a lot of stuff to sell out there.So, but Miles rolling that is I want more homes in this region or that region, so we can just keep filling out where he's already prepaid.

[Anthony Paolone:]

Okay. So, are you still seeing stuff you like that's hitting your yields out there?

[George Ellison:]

Yes. I mean it's a two-edged sword, Rob mentioned in terms of valuations. We keep selling things as we clean up these sort of areas that are leftovers from the loan distribution being in cities and places we didn’t want. And I don’t want overstate it or I can’t predict the future, but this is the second or third quarter in a row where we sold a 100, 130 in one quarter we've done a 450.And everything, Tony, it's up in price. So, that's the good news. And that speaks to we say it on every calls, it speaks to the valuation of what these 14,000, 15,000 homes at work. It's pretty clear that the demand for this product as we mentioned is red hot. And I think all of us in the public space are reporting higher and higher rents.I think there are [Indiscernible] are a little bit more west coast, how hard that is we're not really there, but I think all three of us are pretty pleased with the rent increases, the demand for the product is incredibly high. So, it's I think things are in very good shape in that regards and we'll see how it plays out.

[Anthony Paolone:]

Okay, last question. On the strategic alternatives process, do you think we'll hear something on that front by the end of this year?

[George Ellison:]

I can’t really say when that will be. As I said, we're moving on at "expeditiously," I think was what the word I use. So, we're moving ahead Tony. And since we have something to report there, I will go public with it. But I can’t put a time line on when and what the board will do.

[Anthony Paolone:]

Okay, I understand. Thanks.

[George Ellison:]

Thank you.

[Operator:]

Thank you. And we have a follow-up question from Jade Rahmani.

[Unidentified Analyst:]

Hey guys, it’s Ryan [ph] again. Thanks for taking the follow up. Just with the recent changes in the board, can you say how engagement with the new members is going so far?

[George Ellison:]

Yes, it’s been perfectly fine. We had our first board meeting and I would say the strategic review – pretty regular call. So it’s been incredibly constructive and positive. There were – I think we as the management team are very pleased with the dynamic and I think there are as well, I think we all are.

[Unidentified Analyst:]

Great. And you continue to optimize the portfolio as you look across your markets today and the existing increased portfolio. What percentage of homes would you deem as core and for those that are – to those really to specific characteristics like market or is it more so asset quality and overall characteristics as it relates to rents in place rents in those assets.

[George Ellison:]

Yes, we have a slide in the supplemental information. Ryan, it’s slide nine, where we kind of show this stabilized core portfolio if you like and then we put some unstabilized stuff which we are stabilizing. And then we put some stuff which is available for sale. So it’s some previous rentals identified for sale is 291 of those right now. And those have kind of put the reasons you gave they are non-core markets, so there are other reasons why they don’t fit our rental portfolio criteria. And then lastly we still have a few legacy REOs and 60 of those that were showing that were going to sell us well. So about 351, right.

[Unidentified Analyst:]

Yes I mean it seems that that 351 number has kind of remained around that level despite you continuing to slash it, so I guess that was the impetus [ph] for the question because it seems like you are continuing to just incrementally identify new assets that you don’t deem as core. So just was wondering if we should expect that these stabilized portfolio to continue to trend down, absent new bulk acquisitions.

[George Ellison:]

I don’t think there is always going to be stuff around the edges. We’re are always going to be refining and optimizing the portfolio. You always expect to see something, it’s always going to be running at this level, maybe not, I’m not sure we’re expecting to see the stabilized portfolio just decrease much more than this. So that’s really not going to happen.

[Unidentified Analyst:]

Okay. Thanks for taking the follow-ups.

[Operator:]

Thank you. And I’m showing no further questions at this time. I would like to turn the call back over to the company for closing remarks.

[George Ellison:]

Thank you everyone for dialing in. And we’ll be speaking to most of you throughout the day. And thank you everyone for your interest. Have a good day.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participating and have a wonderful day. You may all disconnect.