Kelly Residential & Apartment Real Estate ETF
Q2 2018 Earnings Call Transcript

Published: 9 Aug 2018

[Operator:]

Good day, ladies and gentlemen. And welcome to the Front Yard Residential Corporation Q2 2018. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. I would now like to introduce your host for today's conference, Robin Lowe, Chief Financial Officer. You may begin.

[Robin Lowe:]

Thank you, Demetrius. Good morning, everyone. And thank you for joining us today. My name is Robin Lowe and I am the Chief Financial Officer of Front Yard Residential Corporation. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, please log on to our website at www.frontyardresidential.com. These slides provide additional information that investors may find useful. As indicated on Slide 1, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor provisions of the federal securities laws. These forward-looking statements maybe identified by reference to a future period or by use of forward-looking terminology that may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statement in our earnings release as well as the company's filings with the Securities and Exchange Commission, including our year end December 31, 2017 Form 10-K, our first quarter 2018 Form 10-Q and our second quarter Form 10-Q that we filed today. If you would like to receive our news releases, SEC filings and other materials via e-mail, please register on the Investors page of our website using the e-mail alerts button. Joining me for today's presentation is George Ellison, Chief Executive Officer of Front Yard Residential. I will now turn the call over to George.

[George Ellison:]

Thanks, Robin. And good morning, everyone. Today, we're pleased to announce several landmark transactions at Front Yard Residential. First, we have signed and closed an agreement to purchase HavenBrook homes, both their property management platform as well as their portfolio of approximately 3,200 single-family rental homes that they currently manage. On previous calls, we were open about our intentions to begin the internalization of property management at Front Yard. Today, that process has begun. The deal we’re announcing today will enable us to manage almost half of our entire portfolio internally within a few months. In addition to buying HavenBrook and its portfolio, we’ve also reached an agreement to acquire the resources that manage our 4,000 homes from Altisource Portfolio Solutions, ASPS. We’ll be merging these two great teams into one. The transition should be complete by year end. We’re excited and optimistic about Front Yard Residential operating its own property management platform which will maintain a first-class customer experience while achieving some of the best operating metrics in the industry. These extremely important transactions come on the heels of another quarter with strong operating results. Let’s take a look at the second quarter and then spend a little more time on the HavenBrook acquisition. If you please turn to Page 4, 94% of stabilized rentals released at quarter end. Turnover for the stabilized portfolio was 8.7%. Blended rent increases were 4.2% for the second quarter. Rental revenue increased 36% versus the second quarter of last year. Stabilized rental NOI margin remains strong at 64.5%, 65% of funding was fixed, 79% had a maturity of over three years. Full company core FFO increased to $0.06 per share and 97% of the properties in the portfolio were rentals and virtually all of the rental portfolios stabilized. On Page 5, we show important company data over the last five quarters. There continues to be some very good trend lines on the schedule, but I’ll call your intention to the REO data specifically. As of quarter end, we had only about 100 REO held-for-sale with 88 under review. And as of yesterday, there’re approximately 70 REO left in the held-for-sale bucket. The legacy REO issue just as a loan portfolio is essentially gone. I’ll now turn the call back to Rob.

[Robin Lowe:]

Thank you, George. Today, I’ll cover our second quarter 2018 portfolio activity, financial results and balance sheet development. Our total rental portfolio at the end of second quarter was 11,886 homes, of which 11,729 or 99% were stabilized. We reduced remaining legacy REOs by 41% during the quarter, leaving 190 legacy REOs with a carrying value of $44.5 million. Since the end of the second quarter, we have sold about 33 more legacy REOs with a further reduction of approximately $7 million in carrying value. We continue to refine our rental portfolio by identifying homes for sales in non-core markets. During the quarter, we sold 14 previous rental homes and identified a further 221 for sale with a carrying value of $36.4 million. We purchased 19 rental homes during the quarter at an average price of a $124,000. Rental revenue increased by 2.9% to $40.9 million compared to the prior quarter. Stabilized rental NOI margin was 64.5% and full company core FFO increased to 6% -- $0.06 per share compared to $0.05 last quarter. At the end of the second quarter, 65% of our funding had fixed or capped rate and 79% had a maturity of over three years. Today, we announced the Berkadia Commercial Mortgage LLC has provided $509 million of financing to us as part of Freddie Mac’s affordable single-family rental pilot program. The financing is a 10-year interest-only loan with a fixed rate of 4.65%. As of today, including this loan, 77% of our funding now has fixed or capped rates and 87% has a maturity over three years. The weighted average maturity of our debt is now 5.2 years and we continue to work on strengthening our funding profile. Reconciliations from GAAP net loss to reported FFO, core FFO and NOI numbers are provided on slides 15 and 24 of our earnings supplement. I’ll now turn the call back over to George.

[George Ellison:]

Thanks, Rob. Now let’s do a deeper dive into the acquisition of HavenBrook, and the wind down of the ASPS relationship. In searching for the right acquisition, we wanted to find a company that was focused on affordable housing, just as we are at Front Yard. HavenBrook Homes is squarely in the affordable housing sector. The company based in Duluth, Georgia bought their first home in mid 2013. They built an excellent team that acquired and managed homes, first in Atlanta, followed by Minneapolis, Birmingham, and then several MSAs in Florida, 3,236 in all. These stabilized single-family rental homes are either in markets where we are already strong and we wanted to grow further like Georgia and Florida, or in markets that we wanted to get better scale; Minneapolis and Birmingham. At the time of the purchase, almost 97% of the portfolio was leased. The year-to-date average occupancy was 96%. Blended rent increases were just under 4%; annualized turnover, 32%. In 2018, year-to-date NOI margin was solid at 62%. With this purchase, Front Yard has over 3,200 attractive properties to our portfolio, acquires a strong team, with a proven track record and puts property management on our own platform. We believe this is a way to serve our customers more directly, closer, better and bring more efficiencies in savings out of the numbers as we grow our company. As I mentioned, we are closing on our long successful partnership with our friends at ASPS. The ASPS team currently serves about 4,000 families. We need to ensure a smooth transition, as well as build out the HavenBrook team to handle these and many more homes. To help with this transition, we are happy to announce we have also reached an agreement to move the teammates at ASPS that are currently managing our homes over to our platform as well. In this way we should minimize any disruption and provide continuity to our families as we make these important changes. This morning, the same teammates at HavenBrook and ASPS are handling the same families they took care of yesterday, with goal, minimal disruption to our customers. Then over the next five months, we’ll merge the two teams, taking the best ideas and practices from both. The HaveBrook acquisition is immediate, while the on-boarding of our new teammates from ASPS to Front Yard should be completed by year end. I’d like to thank Bill Shepro and the team at ASPS for their excellent performance over the years and their help in this transition. We’re also pleased to announce we were able to secure attractive financing under the Freddie Mac single-family rental pilot program, through Berkadia. We have continually stated our commitment to the affordable housing market, and the families who live there. Freddie Mac is obviously also committed to these families. Their support and partnership along with Berkadia is enormous credibility to our status as the leading provider of affordable rental homes. In conclusion, another solid quarter Front Yard Residential, core FFO keeps moving up, occupancy remains strong, rent growth steadily continues and NOI margin targets keep getting rich, all of which will be complemented by the integration of our new internal property management platform. As we said for the beginning of this journey, we need to simplify our story, remove the noise around the numbers, set aggressive growth and operating goals and then deliver and we have delivered, results matter. But the big news today is that we continue to take control of our own destiny. The transactions we announced today lay the foundation of the future Front Yard Residential and are exactly in line with what we’ve been talking about over the last several quarters. We executed on removing loans servicing away from Ocwen shortly after we arrived and now control property management. Internal property management is now ours. The growth continues. The results keep improving. Goals have been set and reached. And now structural changes are firmly in place to position us to become the leading, affordable rental housing provider, and more importantly, to be better stewards of the needs of our families. I’ll now turn it back to the operator. We can open up it for questions.

[Operator:]

Thank you. [Operator Instructions]. And our first question comes from Tony Paolone from JPMorgan. You may proceed.

[Anthony Paolone:]

Thanks and congratulations on the transaction. First question is, just is -- I just want to make sure the deal was closed and the financing is closed, is all that done or is anything pending still?

[Robin Lowe:]

It’s done, Tony. It’s all closed, closed yesterday.

[Anthony Paolone:]

Okay. And then you talked about bringing ASPS folks over to back in HavenBrook platform. Is -- you just changed your name to Front Yard, what will happen like with sort of the brand and what are you going to do in terms of right outward facing to the residents, is there an integration there or another change to happen?

[George Ellison:]

Well, I will start, then you can. Yes, so, the Front Yard acquired HavenBrook, so it will be Front Yard, so the brand is Front Yard. The folks will come over from ASPS, will become part of Front Yard if you want to talk about sort of the future of. Now, we are touching consumers directly. And so, there’ll be a whole build out of that front in particular.

[Robin Lowe:]

Yes. Day one, Tony as you know in this kind of situations nothing changes. So HavenBrook has their own website and that’s their interaction with their tenants. But over time as we integrate that will change and the final name and the branding for everything will be Front Yard Residential.

[Anthony Paolone:]

Okay. And are these the first employees of RESI, and so is everyone will be an employee of RESI and not AAMC?

[Robin Lowe:]

That’s right, this is the first time we’re putting people into Front Yard.

[Anthony Paolone:]

Okay. Can you talk about what G&A and OpEx and any integration costs, what all that might look like going forward?

[Robin Lowe:]

Yes. There’s definitely going to be some integration costs. There’ll be some noise in the next numbers in the near term. So you expect that. The challenge for us -- the imperative for us is to move the homes on to the HavenBrook platform, as quickly as possible, so that we can achieve scale and cover the fixed costs to G&A. But there will be some noise in the near term, Tony.

[Anthony Paolone:]

Do you have a number, like if I look at sort of last couple of quarters your total overhead between fees and other costs like running about $7 million or so a quarter like, do you have a sense as to where that goes?

[Robin Lowe:]

Yes, we haven’t -- we’re not giving out that number today, over time we’ll sort of become clearer on that and what for us on pro forma financials and that kind of stuff. But today we’re not giving out those numbers.

[Anthony Paolone:]

Okay, and just last question to you. Can you just talk to the economics like either the yield or just total NOI that will come in over from HavenBrook relative to I guess like the all-in purchase price of property management, the termination fee and the actual purchase price of the properties?

[Robin Lowe:]

Yes, we think we’ve got a very attractive yield on this one, Tony. I think the nominal cap rate is probably over 6%. The majority of that $485 million transaction price is allocated to assets. And I think if you look at the final purchase price compared to where the BPOs are today, we’re probably 90% of BPOs or something like that. So I think we’ve got a pretty good deal there.

[Anthony Paolone:]

Okay, but that 6% is on what you are allocating to the real estate.

[Robin Lowe:]

That’s right. So I am not going to give you an exact number, but I will say that the majority of that purchase price -- the big majority of that is allocated to assets.

[Operator:]

And our next question comes from Doug Harter with Credit Suisse. You may proceed.

[Douglas Harter:]

Thanks. Just to sort of feet off of the last question. I guess just how should we think about kind of in the early days at this size the relative costs to Front Yard, managing yourself on this platform versus kind of the current costs that you have with ASPS and kind of margin expectations?

[Robin Lowe:]

Yes, look, I think if over time Doug, the intention and the belief obviously is that we can be more efficient by bringing this thing internal. As I just said to Tony’s question, in the short-term, there’s going to be some synergies and we’re going to need to realize there’s going to be some duplication of costs and other things to drive out. But in the longer term, there are two aims to this integration -- internalization. One is to be more efficient and we definitely believe there are efficiencies here as we move forward. But two is to create an internal scalable platform, right, which gives us the platform to grow, well that’s sort of paying unit costs to an external vendor. So we get the benefits of all that scale as we continue to grow.

[Douglas Harter:]

Okay. And now that you’ve kind of tackled this -- the portfolio management, I guess what are your thoughts on AAMC and that relationship?

[George Ellison:]

Well, this is -- this one has got us pretty busy right now, Doug. So we’ve always said we’ll -- we always look at that relationship. We always try to see if we can think of ways to improve the contract between the two to talk to both the boards about that. So I think the real message today is as we’ve talked about over and over, the structure that we inherited when we got here has no -- we will consider making any change we have to make to improve the company’s performance and the stock price with a pretty good move. But I don’t think people thought it would happen or would happen this soon. So, that’s a big deal. We’ll deal with AAMC in due time and let’s say it’s a complicated story, but we’ll keep looking at that.

[Operator:]

And our next question comes from Jade Rahmani with KBW. You may proceed.

[Jade Rahmani:]

Thanks very much. The -- can you give the number of direct employees RESI will now have, including HavenBrook and the migration of the ASPS employees?

[Robin Lowe:]

Haywen Brook is roughly 85 people, so those are immediate employees now of RESI. The actual number that we’re taking from ASPS is, we’re kind of working through that now. But we think it’s probably somewhere between 50 and 100 something like that, is that right George?

[George Ellison:]

Yes. But some will be go to RESI and some will go to AAMC, so we’re still working through that. But as Rob said earlier, Jade, RESI will now have employees and until most of the property function management, folks will be in RESI, but there’ll be some of both teams that might migrate to AAMC. But we’re -- I’ve always said on my comments, right now it’s -- everybody who’s handling families on each side keep doing what they’re doing so that our customers don’t feel a disruption and we have any issues there in customer service and behind the curtain we’ll be working out who goes where.

[Jade Rahmani:]

Was the acquisition competitively bid or was this ….

[George Ellison:]

[No].

[Jade Rahmani:]

... privately negotiated? Okay. And just to confirm, there is no equity issuance involved in either the acquisition or the payment to ASPS?

[Robin Lowe:]

No.

[George Ellison:]

No.

[Jade Rahmani:]

And the liquidation fee to ASPS, I saw it was $60 million contractually. Can you give any color on the $18 million figure?

[George Ellison:]

The $60 million is a little different. The $60 million was a change of control payment that ASPS would receive in a change of control to RESI. So if RESI were to be purchased and there was a change of control and that new owner did not hire ASPS, who still has about 10 years left on that original contract, that $60 million was to be their payment if they weren’t chosen. So that’s what we negotiated when we got the first waiver on the first Amherst transaction back in ‘16. That’s not really what this was. So that really wasn’t the starting point. So, the $18 million versus $15 million now and $3 million over time that was really for a myriad of people, resources, separation if is it, so we are very pleased with that figure.

[Jade Rahmani:]

And if the -- if there is change in control in the future, does the $60 million payment still stand?

[George Ellison:]

No.

[Jade Rahmani:]

Okay.

[George Ellison:]

It’s gone.

[Jade Rahmani:]

And then … go ahead.

[George Ellison:]

Sorry, it’s gone. I said it’s gone.

[Jade Rahmani:]

Okay. And what are the implications with respect to Main Street Renewal. Are they’re going to continue to manage, think about half of the portfolio prior to this deal?

[George Ellison:]

Well, it’s sort of the same answer that I gave to Doug on the last question which is, this is a huge -- this is a big deal. We’re appropriately anxious. We want to make sure we do this right. It’s -- we’re pulling property management inside of ourselves. And so, we have to be supremely focused on customer service. And as Rob said, then we’ll start figuring out people and numbers and whatever. So this is a big deal, putting two teams together and that we’re actually in Duluth today doing the call. So we’re starting to integrate at 10

[Jade Rahmani:]

Okay, so that means I think about 7,000 properties are managed by Main Street Renewal?

[George Ellison:]

There’s about 8,000 with Main Street, they’re 3,000 today and 4,000 ASPS, so the first phase one will be to put together over the next five months, we want to do this as I said by year end. The 4,000 from ASPS combined with the 3,200 from HavenBrook, that’s phase one. And then we’ll deal with the 8,000 MSR down the road.

[Jade Rahmani:]

Did HavenBrook have an active acquisition and renovation platform that was ongoing, were they still active buying homes?

[George Ellison:]

As I mentioned, when they started, they did. But in the last probably year or two, it’s really been a tightening up of the ship, acquisitions stopped and they -- as you saw from the numbers, they’re really -- so let’s focus on -- Pat Whelan and his team did a tremendous job of really tightening this thing up. We have pretty good numbers. We’re blessed to be putting up some good metrics. These guys’ numbers integrate very, very well as ours. We have occupancy, theirs is higher. We have great NOI, theirs is a little bit lower. If you compare them side-by-side, the rent increase is around the same as ours. It’s an excellent, excellent platform. And so, we looked at -- as we mentioned, we looked at, I don’t know four or five different platforms, this one fit, the numbers are great. We like the people. Theirs are good numbers in markets we wanted. So it was a really good. They are in affordable housing spaces like us, it was a -- it’s a perfect fit.

[Jade Rahmani:]

When you look at -- when you consider the financing that you guys put in place, what do you think the achievable return on capital, return on equity is and over what timeframe just thinking about the underwriting of this transaction and the outlook for earnings? Because I do want to mention that I think according to the AAMC management agreement, where they need to generate a 7% return on invested capital for the next two years, starting April 1st, otherwise a performance event of default will be triggered. So what do you think, the next two years achievable return on capital will be?

[Robin Lowe:]

Yes, we are quite confident we can achieve those numbers, Jade. I don’t see any issues there.

[Jade Rahmani:]

So that would be I think about a $1.56 or so per share, is that what you expect to achieve?

[Robin Lowe:]

Yes, I am not going to get into exact numbers today, Jade, but it’s -- as I say, we don’t see any issues with meeting the requirements in the AAMC system.

[Jade Rahmani:]

Okay, that’s good to know. Just wanted to ask about the historical CapEx, since I think HavenBrook’s portfolio is more seasoned, if you look at -- did you look at that and historical turnover costs, maybe could you give any sense of those numbers?

[Robin Lowe:]

Yes. Look, Jade, I think they probably spend a little bit more on CapEx than we have historically which is good for us because I mean the houses are in better shape. I don’t have exact numbers to give you right now. But that’s -- sort of CapEx is in that $850 million, $900 million range on a maintenance CapEx basis. I think these guys have put slightly more money into the properties in the average -- the average investment aiming to the properties and some of the renovations, something like $26,000 a home which is quite a lot when you think about it. So these homes are well maintained and well kept for. And so obviously that’s done for some good stat as we go forward.

[Jade Rahmani:]

Okay. And then anything on the turn cost?

[Robin Lowe:]

Yes. I don’t have a specific number to give you right now, Jade sorry about that.

[Operator:]

Thank you. [Operator Instructions]. And our next question comes from Mike Grondahl with Northland Securities. You may proceed, sir.

[Mike Grondahl:]

Yes. Congratulations guys on both events, pretty nice to see. The integration with HavenBrook, do we sort of think about that occurring over the next five to six months, by year end you should be kind of woven together?

[Robin Lowe:]

Well certainly Mike on the ASPS piece as George said that our agreement with ASPS is to move all of those 4,000 properties over. So, by the end of the year all of that should be integrated on on-board. And then we’ll see how the rest of it goes going forward.

[George Ellison:]

Yes. HavenBrook is sort of a skeleton to the property management business. We will obviously have to make that bigger and sort of attach ASPS’ folks where needed. So as I said, the HavenBrook team can handle a lot more than they are handling right now. So they’re excited Mike because as I said on the last question, they haven’t been buying for a while. So, they are very excited to get a lot more homes to manage. We had a town hall with everybody last night. So, it’s great news for them, we think -- we hope and -- but bringing ASPS over, virtually doubling -- more than doubling the size or HavenBrook that might be -- that’s a lot. So that’s why we want more folks, more boots on the ground. And so, we’ll be able to I think move all the homes over by year end. But transitional price is going for a little bit after that as well.

[Mike Grondahl:]

Got it. And from a very high level, by internalizing, George, two years, three years from now, how we will see in the numbers that this was the right decision. How we will track that? I mean is it a couple of points to margin. What will be the external signs that we’ll see that it worked?

[George Ellison:]

Well, I’ll give you the high level and Rob can probably give you the -- more accurate financial part of your question. As I said in my speech, we all work together and put that speech together. So, that’s all about speaking, we really believe. I think we’ve been looking for this for some time as we said. So, if we just bought assets today that would be fine, but when you start getting to the size, I think you could do two things, I think you can -- and the team convinced me of this, that you can get expenses down particularly as you saw it moving to 15,000, 20,000, 25,000, 30,000 homes, you can actually bring significant expenses out of the business, if you control what it yourself. And so that’s great for shareholders. That goes right to the bottom-line. But I also believe -- and I said this in my comments, I really believe that we don’t want to somebody between us and the customers and I say that with no disrespect to our property managers. We want our own spin on our own customers, we want to touch them. We want to hear from them. We want to talk to them. So customer contact in this day and age, and that whole dynamic is incredibly powerful. And so, it was okay, the way it was originally structured, but I personally and my management team are much more comfortable that when we want to say something to our customers and we want to do something about the people and the communities where we manage homes, we want to call those shots, that we want to raise our views and our passion through that. So that’s -- so I think it’s a part of customer -- and although I mean obviously good customer service leads the financial results. But I think we can do better customer service when we control it. I really believe that. And I think happier customers means they stay longer, and they continue to use your product and you get more customers. So that’s good thing. But also I think what you start -- and we were talking to team about it last night, folks who have been managing homes in Atlanta can push people around with a 1,000 homes. Well now they’re going to have close to 4,000 and that can have an enormous benefit. I think we will be one of the biggest property managers in Atlanta over all the companies. And it is enormous pricing power. So the team really has been pressing on me to look at the numbers of internalization of property management, they convinced me of it, Rob and his team, they are right. And so if it was today, great. But we’re going to do this in 20,000, 25,000. I don’t know, Rob, if you want to give more specific numbers?

[Robin Lowe:]

Yes, well, I’ll just say two things. I think there are two kind of point just to this Mike. One is, even with 15,000 homes to George’s point, I think there are operating efficiencies we can realize by internalizing and a lot of people have asked us before why don’t you internalize it, that’s the reason, this thing is internal, paying a third-party vendor than larger. So just by definition, just internalizing that should improve our operating performance. And then secondly, I think it’s a going forward thing. As I said earlier, the fact when we have an internal property management platform now, gives us the ability to scale up without increasing our costs in correlation and so that we’re going to be sort of more efficient as we go forward financially and we’ll see benefits that way.

[Mike Grondahl:]

Got it. And with the $18 million you are paying to Altisource, are you giving any revenues associated with that, or cash flow. How do we think about that?

[Robin Lowe:]

In some sense, we will, because some of that -- for example, I’d just give you one example, some of the other income that gets charged to tenants, we would share that with the property manager externally. And so now we’ll be getting all of that internal. So that’s just a one example. But so that’s really sort of the revenue side of it, I’d say.

[Mike Grondahl:]

Got it. And the cash flow from that other income. Is that what are you seeing?

[Robin Lowe:]

That’s right.

[Mike Grondahl:]

I mean are those -- that revenue and cash flow pretty small numbers, I mean you’re basically paying them and grabbing some people and resources.

[Robin Lowe:]

So if you think about, how an agreement when an external vendor would work that may give some of the extra charges to tenants, other income, optionally payments or stuff like that, on the one side. They might -- when you do renovation work, they might charge you a markup on what the vendor cost is. And so those cash flows now come to us, right, we know this is savings, it’s a real cash flow for the tenant side and it’s a saving on the expense side. So, yes, in terms of that fee, yes, we are in some sense buying resources as we said earlier from ASPS, so we’re taking cost off property platform and putting them at talented people and combining that with the HavenBrook platform.

[Mike Grondahl:]

Got it. And then lastly just -- we keep seeing industry data, home prices are rising, things are -- there is a big tailwind. You guys have been obviously at the lower end of the market. Those houses seem to be going up faster than higher price points. Last quarter, you kind of talked about an $18 to $19 NAV. How are you thinking about that number now and the benefit you have on this $1.5 billion now larger with Haven -- HavenBrook portfolio, those unrealized gains, sort of where are they?

[George Ellison:]

Yes. I’ll talk about post transaction NAV at a later date. But I can tell you that I am absolutely convinced that our current NAV pre-transaction is still in that sort of $18 to $19 range. And I’d just tell you we’ve had that independently validated by very, very reputable global firm of analysts. So this is not just me telling you that, this is validated.

[Mike Grondahl:]

Got it. And then I guess last one. After HavenBrook is closed, you’re absorbing 3,200 homes. When you’re ready to keep looking and growing, I mean are you doing that today or do you feel like you got to digest this and then you move forward in a few months?

[George Ellison:]

Well, HavenBrook is closed, just to be perfectly accurate. But -- so we’re starting on a transition in 15 minutes with the HavenBrook regional folks. We are working on the financing piece of this which Freddie and Berkadia is extremely important. I think it’s the biggest loan they’ve made in this space. They’ve done a half a dozen or so others. So we hope it’s a big deal for them. That partnership is -- we hope that, that partnership continues with both Berkadia and Freddie. So, that’s an important piece of this. So we’re already having conversations with what can we do next. Freddie has a lot of really interesting things they want to do in this space and we’re committed to that too. So, we’re hoping that, that friendship, that partnership continues. So we’re working on that. There’s on-go hands working on that. I think tomorrow, we’ll start that -- next, what do we do next with those folks. So that’s already begun, and we’re already looking to buy – Rob, I don’t know how much more capital we have for homes, but I think you said somewhere around $500 million.

[Robin Lowe:]

Yes.

[George Ellison:]

So Mike, we’re already out looking for homes. So, we’ll probably talk to the more sources where we find that. So, the work continues. The team is putting a ton of work. I want to thank all of them for this. The folks at HavenBrook, our guys, everybody works on it here, obviously, Freddie and Berkadia. So -- but let’s back to work, this call is over, getting transition done, get back to buying homes, make sure we do this right and hopefully keep working with the GSEs so we can stay in their favor. So we’re incredibly flattered to be associated with those guys. Dave Leopold and his team, Brickman, excellent folks, we’re hoping that they’ll still work with us. So that’s -- so there’s a lot of to watch this space, we could buy more homes. Hopefully we’ll have some more creative financing to go down, the transition and hopefully the financers will follow.

[Operator:]

And we have a follow-up question from Tony Paolone. You may proceed.

[Anthony Paolone:]

Yes, thanks. Just a couple of additional ones. With regards to the financing, are there any restrictions placed on you with regards to pushing rents, given the affordability components?

[George Ellison:]

None at all, Tony.

[Anthony Paolone:]

Okay. And do you expect or at least as of June 30th, anything else that you see as opportunities to either do more of the Freddie Mac type deals and take out debt, or where do you see that that’s going over the next few quarters or looking like?

[George Ellison:]

Well, as I just said, to be on the other side of the trade with Berkadia and Freddie, it’s a big deal. We’ve been talked about the deal, the GSEs coming into the space I think is a -- we all know this is s formal housing crisis, Freddie and Fannie and working their tails off to do something about it. Now both of them have done really significant material trades. So that started conversation and we hope it leads to some more creative stuff. But there’s nothing I can comment on, or nothing we have to report. But Don Layton is serious about this, Dave Brickman is serious about it, Leopold is serious about it, and we’re serious about it. So when we met, it was -- we’re one of the same frequency as those guys. So we’re incredibly flattered to be borrowing money from those folks, we’ll see where it can go next. Hopefully it’s a long-term partnership.

[Anthony Paolone:]

Got it. And you mentioned get back buying homes and it’s just continuing to push forward. Can you just remind us, kind of where you feel comfortable taking leverage to and whether you’re looking at it from a net debt-to EBITDA or loan-to-value or how you’re just thinking about just where you want to take leverage level over time?

[Robin Lowe:]

We’ve always said Tony, that sort of 70% is our kind of border line if you like. And so, I think this transaction takes us close to that, but it doesn’t go over it. So roughly speaking that’s where we want to be. And then as we go forward, over time, I would expect us sort of de-lever slowly over time. So that’s where we are today. I don’t think that’s really changing.

[George Ellison:]

Yes, we’ve talked about this a lot on these calls. This first book if you will was all about getting the size that we wanted. This now starts the second story which is now we’re pulling property management internal and that opens up a whole new opportunity. So in a aggressive growth stage, we’re comfortable pushing the leverage to the levels that we’re at. We understand that different owners have different views about that. We have our own views about that with the background that we have and what 60 to 70 LTV means but it means different things to different people, as you all know. You are right in the middle of the REIT space more than just about anybody. So, that would obviously push for a much lower leverage. And we respect that and we’re pushing that. We also have massive owners who are not refunds and they want growth and they want earnings. And so they’re more comfortable with higher leverage. So, it’s a fine line we answer to our owners, but some of them are less concerned about this issue as you know and some are much more dogmatic about it. I’d ask you to look at our holders list and see probably the top 10 holders are not folks who are concerned about leverage. So, we’re very cognitive of it, we will continue to watch it and it’s a balancing act of watching that leverage and not letting it get too high, we understand some folks don’t like it. But we’ll be balanced about it, and it will probably run higher now and then as Rob said we’ll bring it down over time.

[Anthony Paolone:]

Got it. And then just with regards to your structure, will there be like a COO or a President or somebody that just become sort of the operational day-to-day face, how will that work?

[George Ellison:]

Yes. There is going to be a Senior Vice President of Property Operations and we’re still doing a lot of socializing and it’s only a group of people. So, we’re not ready to announce names or assure those people, but yes there is going to be a point person who will run the property management business, and he will obviously coordinate with Rob and his team, with Eruzione and his team. And so that person will sit in the middle of what Eruzione does every day, he pretty much oversees most of our strategy and all things. And so his partner will be this person and on the other side of that person will be Rob and his team. And so it’s an incredibly important role. We’ve chosen the person and we’re in Duluth talking to a lot of people about lot of things, but that will be evident very shortly.

[Anthony Paolone:]

Okay. And just last question. Do you intend to undertake any review of the properties coming in such that restricts back a move up in the dispositions or just kind of revisiting everything now that you’ve a bigger portfolio and just have a little bit pull through?

[George Ellison:]

Yes, yes. I think the -- I think it’s important to -- particularly around that NAV question, I think it’s important for people to see what our homes are worth and we know what they are worth. And we know what they’re worth what Rob says they’re worth. So we have to -- I think our disposition strategy that might be programmatic, we haven’t hashtagged yet but we’re all talking about it, may be an annual disposition program of several hundred homes to prove our mark and to prove that our real estate is worth, where we think it is. I think that’s a good discipline to get into, we’ll see if I can convince my teammates to do that. So, if you do get that in place then that ducktails very, very well with the business folks. There are things that we have bought that are a low yielding, higher priced homes that probably have, I would hope some money in them. That doesn’t fit our profile, it’s not a formal housing, it doesn’t hit our yield bogie. So, as we go through this acquisition and our existing portfolio, I think you’ll see some more homes come out. Also, as you know as we probably stated we’re still in some desperate far ranging locations from the legacy business and those have to go out. I think Rob has mentioned a 100 for you so that random masons working on. So, yes I think dispositions, I think there’s going to be a disciplined approach to dispositions. Again we don’t have that fully structured yet, because everybody has their own opinion about that, but I am saying that to the team, why don’t we try to initiate this. I have a feeling, we’ll probably start that immediately.

[Operator:]

Thank you. Ladies and gentlemen, that concludes our Q&A portion of today’s call. I would now like to turn the call back over to the company for closing remarks.

[Robin Lowe:]

Thank you very much for joining the call today. And have a great day. Thanks a lot.

[George Ellison:]

Thanks everyone.

[Operator:]

Ladies and gentlemen, thank you for attending today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.