Kelly Residential & Apartment Real Estate ETF
Q4 2017 Earnings Call Transcript

Published: 1 Mar 2018

[Operator:]

Good day, ladies and gentlemen and welcome to the Front Yard Residential Corporation Fourth Quarter and Full Year 2017 Earnings 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 be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to turn the conference over to Robin Lowe, Chief Financial Officer of Front Yard Residential. You may begin.

[Robin Lowe:]

Thank you, Zakia. 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 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, 2016 Form 10-K, our first, second and third quarter 2017 Forms 10-Q and our 2017 Form 10-K 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 would now like to turn the call over to George.

[George Ellison:]

Thanks, Robin and good morning everyone. First on the agenda today is the announcement of our company’s name change, Altisource Residential is now Front Yard Residential. As we grow in size and become the preferred choice for affordable single-family rental housing, we wanted to change our name to something warmer, something that speaks more to our mission and to the families looking to run our homes. One of the key differences between an apartment and a single-family rental home decides more privacy, larger living space, a garage and a driveway is your own yard, a yard where the children play with their dog, where family pictures are taken, smell cut grass and with bikes that should be put in the garage to parent’s frustrations they are all made. Spoke to many people, tested many names, considered many concepts over the last year. We are very happy with our new name and the images that it evokes. We hope you like it too. As a footnote, our NYSE ticker will remain RESI. Now, let’s get into the numbers. Please turn to Page 4. As mentioned on last quarter’s call, we closed on the final purchase of our previously announced acquisition of stabilized homes from Amherst. In 2017, our rental portfolio grew from just under 9,000 homes at the end of 2016 to 12,000 by the end of ‘17, a 39% increase. 95% of our properties are now in the rental portfolio and 98% of the rental portfolio is stabilized. On the operations front, 93% of stabilized rentals were leased at year end. Turnover for the stabilized portfolio was 6.1% in the fourth quarter of ‘17, 28.5% for the full year. The blended rent increases were 3.5% in the fourth quarter, 3.7% for the year. Rental revenue increased 155% year-over-year and stabilized rental net operating income, NOI margin remains strong in the fourth quarter at 65% and right around 64% for the year. Stabilized core FFO per share was $0.15 in the fourth quarter. At the end of 2017, 77% of our funding duration was over 4 years with 26% being fixed rate, all-in-all an excellent quarter and year for Front Yard Residential. As Robin and I on the team closed the books and the story of our first 3 years, we wanted to recap our achievements which we show on Page 5. First, we completely moved away from our relationship with Ocwen, the loan servicer of our NPLs. Next, we diversified property management, then we made a commitment in 2015 to exit the NPL business and sell our own portfolio and that’s done. We accelerated our REO sales of homes that didn’t fit our rental strategy. This is almost complete with only 490 REO left year end and already in the first part of year over another 100 of them sold. As we exit these assets the associated noise on our numbers clears up as well. We then found a stabilized core FFO $0.15 per quarter when we reached 10,000 rental homes and we hit that target. We have added new lenders and extended the duration of our funding to 4 years. We set a target of 60% to 65% NOI margin and have consistently hit that goal. And last as announced we changed our name. We made these promises to our stakeholders and our team has delivered, results matter. So where do we go from here on the bottom of the slide, we listed some of our goals for the future. First, we need to finish cleaning up the few remaining REOs. Next, we are beginning the process of pruning our rental portfolio in non-target or non-strategic markets. We need to concentrate our portfolio into our key locations. Having appropriate skill and every location is critical for us to effectively operate at our targeted metrics. Next and this is one of the most important goals we need to turn inward and continue maximizing our operating efficiencies. We are pleased with our growth, but we need to take a pause and take stock of how far we come consolidate ourselves and drill down to make sure we are optimizing what we built. Next, we need to continue to strengthen our balance sheet by further extending debt duration, monitor our fixed floating risk and strategically de-lever over time. As we now are finally reaching a size that is beginning to show the benefits of scale, we need to maintain our focus on classic capital allocation principles. Next, we need to revisit the asset management agreement with Altisource Asset Management with one major focus among others and that is to create a construct that allows Front Yard to grow while continually keeping an eye on the ratio of G&A and our expenses to real estate assets. We are currently within acceptable market levels for our size, but we need to continue to adhere to this ratio as we grow, this is critical and we believe it can be accomplished. Finally, we need to continue to optimize our property management function to ensure we are getting maximum coverage for our families at the most efficient price to the company. Obviously, we currently have excellent property management, but we need to monitor the cost effectiveness of the structure as we continue to grow. I will now turn it back to Rob.

[Robin Lowe:]

Thank you, George. Today we are reporting a GAAP net loss of $37.5 million for the fourth quarter 2017 and $185.5 million for the full year, an improvement over the third quarter 2017 and full year 2016 of 13% and 19% respectively. Fourth quarter rental revenues increased 6% sequentially to $34.9 million reflecting one month impacts of the acquisition of 1,957 homes from Amherst on November 29. Total revenues for the fourth quarter were $27.8 million, a 17% increase over the third quarter as the impacts of legacy asset disposition continued to decline. We sold 325 non-rental REOs in the fourth quarter, leaving 490 legacy REOs. We also closed the sale of 322 mortgage loans, leaving only 111 loans on our books with the carrying value of approximately $11.5 million. Expenses for the fourth quarter were $65.7 million, 10.3% lower than the fourth quarter of 2016. As we continued the disposition of non-rental OREOs, we are seeing a reduction in average property operating cost as non-rental REOs are more expensive to maintain than our rental homes. There was a 5% reduction in property operating expense in the fourth quarter compared to the third quarter despite the 1-month impact of the 1,957 homes purchased from Amherst. 95% of our properties are now in the rental portfolio compared to 91% last quarter and we expect this to trend towards 100% as we complete the disposition of the remaining non-rental REOs. Core FFO on the stabilized portfolio was $0.15 and NOI margin was 64.9%. Full year revenues were $94.2 million, up 66% year-on-year. Rental revenues were $123.6 million, up 155% over 2016. Expenses for the full year were 2.5% lower than 2016 mainly driven by lower legacy asset-related costs offset by higher depreciation on rental assets. In the fourth quarter, we recognized a further hurricane-related insurance recovery of $500,000 bringing total recoveries to $3.3 million in 2017 and reducing the expected net impact of the hurricanes to $2.7 million. We continue to work with our insurers and could see further potential recoveries in the range of $500,000 to $700,000. On Slide 10 of our earnings deck, we provide a breakout of real estate assets. As I noted earlier, 95% of our real estate assets are now in the rental portfolio, up from 91% last quarter as we continue to divest non-rental REOs. In addition to the 490 remaining legacy REOs, we have identified 109 rental assets for sale that are not in strategic locations. Going forward, we will continue to prune our portfolio of non-strategic assets. Slide 11 of the earnings deck provides financials for the stabilized rental portfolio. Stabilized rental NOI margin improved to 64.9% in the fourth quarter of 2017 compared to 62% in the fourth quarter of 2016. On a full year basis, NOI margin improved to 63.7% in 2017 from 60.2% in 2016 driven primarily by lower insurance premiums and lower repair and maintenance costs. Moving to Slide 12, stabilized rental core FFO for the fourth quarter was $0.15 flat to the third quarter and up from $0.11 in the fourth quarter of 2016. Stabilized core rental FFO for the full year 2017 was $0.52, up from $0.21 in 2016. Details of our debt financing are shown on Slide 13, 77% of our funding has a maturity of 3.9 years or longer, up from 46% a year ago and 26% is now fixed rate. We will continue to focus on extending debt duration and potentially a higher fixed rate component going forward. In addition to $114 million of unrestricted cash, we estimate remaining equity and legacy assets of around $60 million. I will now turn the call back over to George.

[George Ellison:]

Thanks, Rob. In conclusion, along with our new name, we continue to grow judiciously while maintaining our already excellent operating metrics, goals we continue to emphasize on these calls quarter after quarter. We put forward some broad strokes outlining where we want to drive this company next. And just as in the past that we make a promise we will deliver, the results matter. We look forward to discussing our company with all of you and answering any questions you may have. We will now turn it back to the operator and open up for questions, please.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of [indiscernible] of Credit Suisse. Your line is now open.

[Unidentified Analyst:]

Hi, guys. So my question it comes from the expense side. So I know that now you guys achieved the rental portfolio of 95% of the total home portfolio. So, I was trying to kind of reconcile that the G&A allocation, so about $1.5 million from stabilized rental segment, but the overall was 2.3 million, so my question is as we are kind of in the final stages of the capital transition, I was wondering how we should think about the convergence in D2 like metrics and/or whether we can expect some sort of convergence in 2018?

[George Ellison:]

Yes, that’s a great question. Thank you, Sam. So actually if you look at our average asset by the count for the fourth quarter, we bought this maybe 2,000 homes from Amherst right at the end of the quarter. But our average home count for the quarter was roughly 10,300 homes. So if you think with our existing equity, we can probably get to somewhere between 15,000 and 16,000 homes. If you simply take the percentage of the two, it’s about 65%. And so we are allocating about 65%, it was from value terms as well as just home count by the way. We are allocating about 65% of the G&A and allocable cost to the FFO portfolio. So, to your point when we get to 100% of homes in other words 15,000 to 16,000 that will converge. We will have allocated 100% to the allocable costs to the FFO portfolio.

[Unidentified Analyst:]

Great, okay, that’s really helpful. So my next question was could you guys provide an update on the acquisition pipeline and what you are seeing in terms of the cap rates in the markets you are trying to build out your presence in?

[George Ellison:]

Well, yes, there is still a couple of large pools out there or I would say large I mean in the low thousands 2,000 to 4,000 so there is less of those than they are used to be. But there is still a couple out there that are selling most folks are aware and are still active. And then there is a – we have mentioned in the past that we were building a few pipelines and those are coming along nicely, three in particular that we mentioned I think about a few quarters back. And so those are starting to bear fruit. That’s pretty steady, sort of 5, 10, 15 a month. We have gone a little bit a slow on those just because the Amherst trades were so large. And as you know we closed 3 last year 757 in ‘15 and closed 2,000, so our focus has been on that. Obviously, Amherst continues to show us homes, ASP has to show us homes. So I would say it’s, remember we are in a little bit of different sector than some of the other SFRs. And so there is a very good supply of homes in this sector where we play, broadly speaking 100,000 to 150,000. As you know there is enormous demand, people aren’t building in that space. And so it’s all pretty positive, pretty good news.

[Unidentified Analyst:]

Got it. Thank you so much.

[George Ellison:]

Sure, Sam. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Anthony Paolone with JPMorgan. Your line is now open.

[Anthony Paolone:]

Thanks and good morning. Now that you have pulled in this last wave of Amherst homes, do you have a sense as to what you think the first year yield will be on that acquisition?

[Robin Lowe:]

Yes. Tony, as we always say, we buy to a 6% yield, so that’s still our expectation of that portfolio. Maybe we bought very slightly below that, but that is our expectation, that’s what we are driving towards in 2018.

[Anthony Paolone:]

Okay. And then how far along to that 15,000 to 16,000 do you think you will be by the end of 2010?

[George Ellison:]

As you know, it’s pretty binary. It could be first half of the year if some things fall in place. I would be surprised if we – I mean, again we have to get to the right price. So there is a scenario where if we can’t get to the right yield, then we are not going to buy things if we can’t get there, but we have been pretty successful hitting the numbers that we wanted to. And so I would say in terms of modeling to be conservative, I would say that it would – I’d splice it out over the year, so I think is why you are asking. I don’t – it could be in a big chunk in the first part of the year, but we try to do this in a very conservative manner. So, I would say by year end the last amount of equity will be spent. We don’t need to tap into anymore and that’s what will get us to depending on the price 15,000 to 16,000 and I would model it to be completed by year end. Do you agree with that?

[George Ellison:]

Absolutely.

[Anthony Paolone:]

Okay. And then I guess to that end as well, what’s the magnitude either in terms of dollars or number of homes of what you think of as non-core at this point as you mentioned calling some either non-core homes and/or non-core markets?

[Robin Lowe:]

We have, as we said 109 homes on the market right now, which are non-strategic that maybe what another….

[George Ellison:]

300.

[Robin Lowe:]

200 to 300.

[George Ellison:]

I think the total will be 300, as I said we have proven over time as you know the previous methodology was buying loans. And so what that created was the homes that were kept still have the proper yields, but you are ended up with cities or MSAs with 20 and less 10, 5. So that stuff has got to go. Unless we talked about this on the last call, there could be two sections to that. It could be homes that are on the rise, St. Louis, for example, a year ago didn’t have that many homes and we are going out to St. Louis pretty hard. So, I think it’s the cities where we have small numbers where we want to be grow, St. Louis as an example as opposed to say Providence, Rhode Island, where we have I think 10 or 15 homes, we are not going to be able to get the depth and the penetration in Providence. So, we will find somebody in Providence who there is plenty of people up there, who managed homes and so we will reach out to some smaller folks and sell to more Providence portfolio. So, that’s I think that’s going to take some time, because we got to hit the right numbers, but I’d say the whole thing maybe drops by 300, while at the same time on the other hand you are growing.

[Anthony Paolone:]

Got it. And then as you talked about your leverage, how do you think of a target viable, because I mean just given the size of the company net debt to EBITDA maybe not the right way to do it or perhaps maybe LTV or how do you think about where you want leverage to be?

[George Ellison:]

Yes. We have talked about this in the past this is the journey and so when we arrived there was – as we talked about here in the last 3 years, we are hitting that anniversary now I think we have something like 356 rentals and now we have 12,000, so obviously we are changing things pretty rapidly and pretty dramatically. And so leverage as we are growing we have pressed it a little higher as we are growing, we brought up in the gold section of the deck or excuse me the speech that now I think it’s time to start thinking about that. So, I think we will peak around now. And maybe I think we are in the 60s as a company and so maybe on the next purchase maybe that goes a touch higher. And then I think Tony, that portion of the game starts to turnaround and we talk to everyone about this. I think it’s time to start thinking about it. If you can’t turn the leverage on the dime, you make a deal with someone I think the last deal was a 5-year, 4% fixed. So that for example you can’t change that chunk to a lower LTV I mean if you could, but we would have to renegotiate that. So, what we are trying to say to you is it’s starting to peak. Now, it’s time to start modeling the next purchases for that to come down, where we end up. A lot of it depends on what your investors want. And as you know, there is all different types of investors, the pure value folks aren’t quite as sensitive to this question. The REIT folks who we obviously cater to as well do care about this pretty dramatically, so where it ends up, we will have to see, it really depends on what our owners want and what type of owners they are, but I’d say it’s starting to peak now and now it’s time as we model new homes to start dialing that back down and obviously please god, we are able to raise equity as you go into that next phase of the story you would use less leverage as you buy the next set of homes. So that’s what we are trying to signal to people, it’s starting to top out, but now it’s time to start modeling and thinking about bringing it back down.

[Anthony Paolone:]

Okay. And just last question the asset management contract you mentioned as a goal how do you go about revisiting that or what’s the strategy there?

[George Ellison:]

Yes. When we talk to both boards about it, we redid the last one in April of ‘15, but we talk to both boards pretty openly about what works and doesn’t work as you can imagine. And so the main issue around that and there has been a lot written and talked about with external management and as you know it exists in a lot of different places, it might not exist with the three or four companies in this space, but there is other REITs that have and other structures that have external management. And the issue is I mean, there is other issues, but I bought down to just two issues on this topic. And I brought this one up in the comments. Does it cost more to do it? Does it cost more to have external management? And so one of the things we are looking at and we discussed with both boards is as we grow all expenses, whether you are internal or external, expenses divided by your assets has got to come down, but you should be driving that efficiency more and more and more. And everybody had a certain level of 10,000 and 20, 30, 40, 50, now IH at 80 and everybody talks about that. So, we have to live by that same standard. I am not as interested in internal or external I think it’s really if it costs the same amount of money to have external management, that’s what shareholders should care about. So, what we are trying to track and what we are starting to model out and Rob and I and the team have spent a lot of time on this is all expenses, because Tony, you know people leave some things out sometimes, all expenses, I mean, Green Street calls it normalized G&A, all expenses divided by assets, what is that number regardless of whether it’s internal or external. And that’s something that we talk to the boards about, we have to answer to that and that’s got to continue to come down to be in line with AMH is excellent and IH is excellent at it and with 10,000 we are right in line with where those folks were, but we want to watch to make sure it comes down. And then the other issue is the contract fare or is it skewed one way or the other, is it out of balance, is it shareholder friendly to book? I think those are the two tests when people argue about internal or external. And I think on the first one, we are already there in terms of expenses divided by assets, but we have to make sure it’s built, so that, that continues. And two, I think the contract was excellent in terms of being shareholder friendly for both, but I think there is things that could be tweaked as well. So, how do we do it? You talk to the boards about it. We update them all the time. We have board meetings with both companies next week. We talk about in every meeting. Both sides wanted to work, so I think we will see where that goes. But I think it can be tweaked and I think it can be improved and we will continue to pass those two tests. The rest of it I think is noise. If it’s shareholder friendly to both and it is, but I think it can be improved and if it continues to answer this expense issue, which it has to and we will make sure that it does, then I think it’s a little bit of a red herring on this whole internal, external.

[Anthony Paolone:]

Got it. Thank you for the color and congrats on the new name.

[George Ellison:]

Thanks, Tony.

[Operator:]

Thank you. Our next question comes from Jade Rahmani of KBW. Your line is now open.

[Jade Rahmani:]

Thanks. Since AMC is not profitable, why not merge the two companies let AMC be fully aligned to participate in the upside in RESI and remove one, just one of the overhangs?

[George Ellison:]

Let’s say, I think you said, Jade, I think I hope people believe based on the stuff we went over on Page 5, there are no sacred cows in this company or in these companies. We have – I think some of the things where you go back and look at that list, when we first started talking when Rob and I showed up being in 15, I don’t think half of any of those would have ever been – people would have ever believed any of those could have been done, whether we would do them. So, that’s a fine idea. It’s a complicated issue, but there is – if we believe – it sounds like property management, it was dogma that external property management could not hit excellent operating metrics. Okay. Well, we just proved that. So, but that doesn’t mean that we won’t look at internalizing it some day. As it relates to AMC and RESI, very different situation, much more complicated, but do we talk about internalizing it? There is ways to do that, there is complexities of doing that. We are totally – I appreciate the thoughts. We talk about it. That’s one way to solve this, but there is other ways to solve it too. So, I think what we are trying to signal to folks to investors and potential investors is we will continue to do what we think is right, what’s practical, what’s prudent and what’s right for both companies and there isn’t something that’s off the table in anyway shape or form. Everything is on the table and no sacred cows. The one thing that’s not off the table is long-term growth of this company and building it become the size we want. And so any solution that helps us continue to make sure that the folks in the homes are getting the right service and the cost of doing it is right to give our investors the right return that’s all we care about. And if you look at Page 5, when we first met a lot of those things weren’t even being contemplated. So your idea is an excellent one and we will take that on to consideration with a lot of other ideas as well.

[Jade Rahmani:]

Thanks. And I do appreciate that you have suddenly moved the ball forward, you have bought shares of RESI directly and you have done initiatives to diversify away from the prior dependencies on Altisource, so I appreciate the various competing factors you have to deal with, on the M&A front, just for sizable portfolios, is there anything that you can comment on deal flow in the market if there is a pick up, if there is a reduction and we have seen some new entrants in the space that could potentially be competitors to RESI, so I guess how do you feel about the overall M&A landscape?

[George Ellison:]

Yes. The two – it feels to us as just the market is sort of bifurcating, when I listen to the calls of our friends at AMH and IAH [ph]. Obviously, that’s a very, very different market. And so I will listen to the dynamics that they have. We don’t feel a whole lot of problems in finding homes. And as I said to the first question, there is still a couple of large blocks out in 2,000 to 4,000 type size and so we are chatting with people about that. I do agree with you, we have met with some folks who are in our space, who we know well and so particularly in the – we have seen a lot of competition in Texas and a little bit in St. Louis, so that’s okay. I think it’s all – there is 17 million families living in single-family rentals, there is plenty of homes to go around and we are not having trouble finding small flow programs that I mentioned. We do – we are careful with those because there are some big pools out there that could take us to have last step to in the last 3,000. So the M&A or the purchasing flow is very, very good. And as you know we kept the line very, very hard on making sure we buy to the right yield. If people want pay more than that, God bless, we are seeing plenty of supply and I don’t think we will have any trouble spending the last amount of equity that we have to get another 2,000 the 4,000 homes.

[Jade Rahmani:]

In terms of the trends in rent growth, I am not sure if it’s a issue of compatibility, but there is a couple of markets that seem to exhibit weakness including Oklahoma City, so I guess overall, what could you say about what’s going on in that market, potentially also Memphis and what’s your outlook for rent growth for the year?

[George Ellison:]

Yes. On Page 16 of the deck, I am not sure we had NOIs last time, so we added that because I think you asked the similar question. So OKC, we watched some of our – one of our managers actually made some personnel changes there. So as you know we are going to be and this is just our top 10 or so, but there is another 10 or 20 behind us over time. And you are going to go through hot markets and oversupply, there is a lot of people playing in Oklahoma City, so there is a little bit of pressure on rents. What we try to focus on is the NOI over on the way. So if you look at negative blended average change in rent, OKC negative 6, obviously not a good thing. But it’s one of the highest NOIs on the page. So we still have a lot of confidence in OKC and Memphis are one of our second. So it also has the strong NOI. So we don’t get too spun off if the quarter-to-quarter things jump around on rent, obviously longer term we are watching it. Randall Mason who runs operations with the help from Alecia sits on top of the managers pretty closely. And so we see this stuff weekly and we follow everything in it and so we are watching it, but the NOIs are strong. So, we are okay with this list.

[Jade Rahmani:]

Are those two markets seeing positive NOI growth in the actual net operating income understanding that the margins are high, but is NOI going up or down for those companies?

[George Ellison:]

I don’t have lots of months in front of me. I don’t think they moved a whole lot, Jade. I think they are strong. I wouldn’t represent that it’s changed a ton, I’d have to go actually check the exact last, but if we are not having the data in front of me, I don’t remember it being dramatically hard, but it’s one of the biggest contributors. You also asked about rent growth. I think it’s again, you are talking about a whole, talk about 10, 20, 30 city/MSAs, I think we pretty much model out 3.5 to 4.5 is what we think about. And so that’s you asked what we think about for the year, I think that’s would you agree with that, 3.5 to 4.5 is what we kind of model out when we are buying. I will have to add in inflation and take expenses out of that, but if you just said what is that prediction when we are modeling I’d say 3.5 to 4.5.

[Jade Rahmani:]

Okay. So, you think that your median renter can afford an extra like $40 a month in rent?

[George Ellison:]

I mean, you are talking about 12,000 families, some probably more than others, but I’d say there is lot of lot things to watch when homes change hands from transfers to credit issues to buying a house to getting another SFR house. And so we watch all of that pretty closely. So, I guess the answer is on average across the portfolio, I think that kind of a number is definitely doable I think it’s definitely doable. In some cities, it might be even stronger than that.

[Jade Rahmani:]

And can you talk about what you are experiencing on a per property basis for repairs and maintenance for CapEx and for homes that turn what the cost return is?

[Robin Lowe:]

Yes, our recurring CapEx, Jade, is about 850, repairs and maintenance is about 950 and our turn costs net of tenant charge-backs 175 to 200.

[Jade Rahmani:]

175 to 200 per year per turn?

[George Ellison:]

Yes, yes.

[Jade Rahmani:]

So that would be something like $600 to turn if it was a 3-year duration?

[George Ellison:]

Correct.

[Jade Rahmani:]

Those numbers seem pretty low to me candidly just knowing other private companies in your space. So, I guess how do you worry about or how do you think about the risk of deferred maintenance if there is issues that aren’t being addressed and you plan to address them later on the turn, but your turnover ratio is low. So, we are not really seeing kind of the normalized expense rates?

[George Ellison:]

Yes, all our properties when we turn them or when we acquire them, we renovate into spec. So, I don’t think we are deferring anything, Jade. Remember that the price point of our homes is somewhat less than the price point of other firms. So, these are the numbers that we have. I am sorry, if you find a little low, but this is what we have.

[Jade Rahmani:]

Okay. I mean, it actually could – there is a thesis that some people have put forth which is it whether the home is 80,000 or 200,000 in HVAC cost the same and so those CapEx items shouldn’t have much advantage, but it seems that actually based on your numbers that thesis could be incorrect, is that these CapEx items maybe a lot less costly at the lower price point homes?

[Robin Lowe:]

Yes, it could be I think for a couple of reasons, one is size right. So, the properties are probably in service area tends to be smaller right, so even an HVAC system for a smaller area is going to be less expensive. But also if you think about the finishings that were put into a hub like the kitchens for example, we wouldn’t necessarily put marble tops in everything or granite tops, it just depends that we are at a lower price point and a kind of lower square foot on average I think that by definition this costs should be less.

[Jade Rahmani:]

Okay. Great. Well, thanks so much for taking the questions.

[George Ellison:]

Thanks Jade.

[Operator:]

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

[George Ellison:]

Thanks everyone for joining our call and have a great day. Thank you.

[Robin Lowe:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes today’s program. You may now disconnect. Everyone, have a great day.