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American Homes 4 Rent (NYSE:AMH)
Q3 2019 Earnings Call
Nov 8, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the American Homes 4 Rent Third Quarter 2019 Earnings Conference Call [Operator Instructions].

It is now my pleasure to introduce your host Stephanie Heim. Please go ahead.

Stephanie G. Heim -- Executive VP of Counsel & Assistant Secretary

Good morning. Thank you for joining us for our third quarter 2019 earnings conference call. I'm here today with David Singelyn Chief Executive Officer; Jack Corrigan Chief Investment Officer; Bryan Smith Chief Operating Officer; and Chris Lau Chief Financial Officer of American Homes 4 Rent. At the outset I need to advise you that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.

These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today November 8 2019. We assume no obligation to update or revise any forward-looking statements whether as a result of new information future events or otherwise. A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. As a note our operating and financial results including GAAP and non-GAAP measures are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com.

With that I will turn the call over to our CEO David Singelyn.

David P. Singelyn -- Chief Executive Officer

Thank you Stephanie. Good morning and welcome to our third quarter 2019 earnings conference call. We had another excellent quarter with 5.4% growth in core FFO per share from the third quarter of last year driven by strong demand and consistent execution. Single-family rental industry fundamentals remain strong fueled by the housing shortage over the past 10 years and the behavioral changes of individuals desiring the advantages of renting over home ownership. Our portfolio of high-quality rental homes offers an attractive opportunity for residents who want to live in a single-family home in a highly desirable community.

As we approach the end of 2019 and look forward to 2020 we plan to accelerate our development program in a meaningful way. We have spent the past few years making various investments that now position us to capture significant benefits that we believe are unique to American Homes 4 Rent. These investments start with the building out of our development platform the process of hiring experienced homebuilding personnel and sourcing land opportunities has taken us the better part of the past three years. Our development commitment needs to be long-term focused as it takes time to acquire land build out the horizontal infrastructure and finally construct the homes. The key to our development initiative is to ensure that we have ready access to sufficient capital to make this long-term commitment.

This began with reducing our leverage from the higher levels utilized when we were building the company. To date our investment grade profile combined with significant routine cash flow and recycled capital from asset sales provides us attractively priced capital to invest up to $750 million per year into new assets. However the long-term growth opportunity from our development program is far greater than this and I believe it's important that we have access to multiple permanent capital sources. As a reminder we have already entered into one development joint venture and continue to have constructive discussions with other interested institutional investors. A few facts about our development program. First our homes are designed with rental wear and tear and future maintenance needs in mind; second the clustering homes in a single neighborhood will enable us to offer unique amenities to our residents; and third the economics of these homes are better than other acquisition opportunities afford us.

To this last point two major components of the price of a new home is marketing cost and developer profit. When we build for our own inventory we do not incur these costs. Although we do put some higher cost materials into our houses our total investment in new homes through our development program is significantly less than acquiring a comparable home through other channels. This year we expect to deliver into operating inventory approximately 800 homes from the AMH Development program. Next year I expect we will deliver 3x this year's production with further increases in future years. Another change as we go into 2020 is that we promoted Bryan Smith to the role of Chief Operating Officer. Many of you have had the opportunity to meet Bryan. He has been part of our team for eight years working side-by-side with Jack and has been instrumental in building our acquisition and property management platforms. His breadth and depth of experience in multiple aspects of our business and his keen focus on leveraging technology to enhance our platform uniquely positions him to lead our operating platform for long-term success.

We have been preparing for this transition for a long time and believe now is the right time to make this change as our teams focus on their 2020 plans. This change will enable Jack to focus more directly on our important growth initiatives specifically our development program. He will continue to serve as a Trustee and Chief Investment Officer. As I look to the balance of the year and into 2020 I am excited about the long-term fundamentals of our industry. We are in position to capitalize on the opportunity to provide much-needed new quality housing inventory which will drive strong top line and cash flow growth for our company.

And now I'll turn the call over to Jack.

John E. Corrigan -- Chief Operating Officer

Thank you Dave and good morning everyone. Over the past couple of years as I have been more focused on building out our development expertise Bryan has assumed much of the operational oversight of our property management and maintenance platform. Now it is time perhaps past time to recognize Bryan for his role at the company. Our portfolio is in fantastic shape and I am confident in passing the torch to Bryan. Since our formation eight years ago we have identified and pursued the best opportunities available at each stage of the cycle to drive accretive growth from auctions to MLS purchases the new homes built by national builders and from portfolio acquisitions. Now we believe that our development program is the best risk-adjusted opportunity today to drive growth in both cash flow and value and is truly a game changer in terms of controlling our pace of growth and driving superior results over the long term. We have spent the last few years evaluating and testing this program hiring staff building our in-house expertise and refining our approach as we learn.

The work we've done has allowed us to formulate a blueprint for an optimal rental home with better economics than homes purchased through acquisitions based on actual data and results. These homes are high-quality and durable offering lower maintenance and capex and are designed with renters in mind with designer finishes and colors open floor plans and pet friendly features. In the last year we have rolled this program out across our platform to select existing submarkets and neighborhoods primarily in the Southeast and Western markets. With the ability to create neighborhoods and concentrate assets we are opening up new avenues to efficiently service our residents and further revolutionize a single-family rental business. The results have been excellent and we are ready to take our development program to the next level. By controlling our own pipeline we create a path to sustainable long-term and accretive growth without dependence on housing market conditions.

Over the long term our development program allows us to control our own growth in terms of product quality location and overall volume in all economic cycles. Of course our confidence in expanding this program is based on the continued strength in market fundamentals. On the demand side population and employment growth are vibrant and housing formations remain robust. And for AMH in particular population growth and household formations within our markets are nearly double the national average. Over the last 12 months employment growth in our markets was more than 40% greater than the national average. In summary today we are well positioned to capitalize on our growth opportunities and look forward to realizing the significant benefits of our prior investments. As Dave indicated for 2019 we are on track to take delivery of approximately 800 homes from our AMH Development program which should expand significantly in 2020 and beyond.

Now I will turn the call over to Bryan.

Bryan Smith -- , Executive Vice President

Thanks Jack. I would like to start by thanking you and Dave for your support and mentorship over the past eight years. I'm honored to assume this leadership role and I appreciate the confidence that you and our board have shown in me. Most importantly I look forward to continuing to build on our success. The portfolio is in great shape and our platform is strong. We are well positioned for the future. In the third quarter the portfolio continued to perform well. As we exited the busy leasing and move out season our consistency and execution and focus on the resident experience continued to drive strong results. On the revenue side average monthly realized rent within our Same-Home pool increased 3.6% and occupancy remained strong resulting in an increase in core revenues of 3.9% when compared to the third quarter of last year.

Our positive top line performance continued into October where we maintained Same-Home average occupied days of 95% and blended leasing spreads of 3.5% which represents a 30 basis point improvement over last year. We are especially proud of our team's performance toward the end of our business season. During a period that was marked with some severe weather we were able to continue to deliver an excellent customer experience. Our disaster response to Hurricane Dorian and Tropical Storm Imelda is a perfect example of the strength of our platform. With a little bit of luck and a lot of preparation we were able to avoid significant damage to our homes in the affected markets. These back-to-back storms in September affected more than 14000 homes in our portfolio including approximately 5000 homes that were in areas of under mandatory evacuations. We've learned from past experiences and our teams in the Southeast and Texas did a great job in preparing for potential issues and in getting our operations and homes back online.

Our streamlined response enabled us to minimize storm remitted renew costs to approximately $1 million in Same-Home pool. For the quarter Same-Home core property operating expenses were up 6.3% compared to last year mainly due to a 7.5% increase in property taxes and a 12.2% increase in repairs and maintenance and turnover costs. Chris will discuss property taxes later on the call. Excluding store-related damage repairs and maintenance and turnover costs increased approximately 7.9% slightly higher than our 4% to 5% inflationary expectation and primarily due to exterior maintenance expenses related to our HOA cleanup. Even including these items our year-to-date core property operating expenses excluding property taxes are up 3.5% which is in line with the range that we communicated at the start of the year.

Recurring capital expenditures were up 7.2% quarter-over-quarter which is in line with our expectation and largely driven by the planned expansion of our preventative maintenance program. We will continue to invest in this program and believe that it will reduce maintenance expenses in the long term. I am pleased with how our platform continues to evolve driving consistent and predictable operating result. Still I think we have a lot of opportunity ahead. From the outset our operating philosophy has centered around data-driven decisions. Our strategy to own and control key processes has allowed us to develop proprietary systems that capture tremendous amounts of data. Among other things we use this data to evaluate our assets and markets. Strategic pruning of our portfolio allows us to recycle capital into opportunities with better long-term returns. During the third quarter we sold 341 homes which brings our year-to-date disposition volume to 954 homes. And as of September 30 we had approximately 1400 homes held for sale. To close I am thrilled with the opportunity in front of us and I look forward to continuing our momentum through the end of the year and into 2020.

Now I will turn the call over to Chris.

Christopher C. Lau -- Chief Financial Officer

Thanks Bryan. In my comments today I'll provide some additional color on our third quarter operating results including an update on 2019 property taxes update you on our balance sheet and conclude with a review of our revised 2019 guidance. Starting off with our operating results. For the third quarter of 2019 we generated net income attributable to common shareholders of $23.5 million or $0.08 per diluted share. This compares to net income of $15.2 million or $0.05 per diluted share for the third quarter of 2018. Also for the third quarter of 2019 core FFO was $97.4 million or $0.28 per FFO share unit as compared to $92.2 million or $0.26 per FFO share and unit for the same quarter last year. Adjusted FFO was $83.9 million in the third quarter of 2019 as compared to $79.4 million for the third quarter of 2018. On a per share basis adjusted FFO was $0.24 per FFO share and unit for the third quarter of 2019 compared to $0.23 per FFO share and unit for the third quarter of 2018. Next I'd like to give you an update on property taxes now that we're 3 quarters through the calendar year.

We've now received assessed property tax values for the majority of our portfolio and continued to see valuation increases across numerous jurisdictions that are higher than our initial estimates at the start of the year. Additionally consistent with our update last quarter we've now filed over 23000 individual property tax value appeals and are happy to report that we've received responses on approximately 18000 of these appeals with a nearly 60% success rate. However although we've had a very impressive success rate based on the number of appeals filed. Due to this year's outsized initial assessment increases the reductions in value have not been as great as we expected. And as a result we now expect full year property tax expenses to increase in the mid-6% range which will tie into our revised full year guidance expectations in just a moment. However first I'd like to give you a quick update on our balance sheet.

At the end of the quarter we had approximately $2.9 billion of total debt with a weighted average interest rate of 4.4% and a weighted average term to maturity of 13.4 years. Our net debt-to-adjusted EBITDA is now 4.6x providing us with debt capacity headroom up to our internal leverage target of 5.5x which is consistent with rating agency expectations for investment-grade credit. Also as a reminder we don't have any debt maturities other than regular principal amortization until 2022. As Dave and Jack covered earlier we are extremely bullish on the external growth opportunity ahead of us and we are proud of our flexible and best-in-class balance sheet that uniquely positions us to unlock long-term value creation from our AMH Development program. More specifically at the end of the third quarter we had $171 million of unrestricted cash and cash equivalents and our $800 million revolving credit facility was fully undrawn.

Currently we generate approximately $275 million of annual retained cash flow and we are also actively recycling capital out of strategically identified noncore and underperforming assets. Year-to-date our disposition program has generated $179 million of recyclable capital and at the end of the third quarter we had approximately 1400 additional homes identified for disposition. And we expect to generate between $275 million and $325 million of incremental recyclable capital throughout the fourth quarter and into 2020 and 2021. Finally I'd like to provide you with some additional color on our full year 2019 guidance ranges which were revised in last evening's release. Starting off with our Same-Home portfolio we've been very pleased with our operating performance this year including great strength in occupancy and top line performance and accordingly are tightening and raising our expectation for Same-Home core revenues growth to 3.8% to 4.2% versus our prior range of 3.2% to 4.2%.

Next I mentioned previously that our current expectation for full year Same-Home property tax expense growth is now in the mid-6% range. It's important to note however that our current full year growth expectation for all nonproperty tax-related expenses including all-weather and storm costs remains at 3% to 4% consistent with our expectations at the start of the year. However on a combined basis with property taxes we now expect full year core property operating expense growth to be 4.7% to 5.1% versus our prior range of 3.5% to 4.5%. Lastly on the Same-Home portfolio the midpoints of our expectations for core NOI growth and core NOI after capital expenditures growth remained unchanged at 3.5% and 3.1% respectively.

And finally with respect to our overall portfolio we continue to be very pleased with our operational performance. In particular the leasing strength we've seen in our properties outside the Same-Home portfolio. And as a result we're tightening and increasing our expectations for full year core FFO per share and unit growth to $1.10 to $1.12 per share and unit compared to our prior range of $1.06 to $1.14 per share and unit. And before we open the call to your questions I'd like to remind you that as we begin to think about 2020 we couldn't be in a better position. We've worked hard to cultivate our investment-grade balance sheet which took years to accomplish. And because of the flexibility of our balance sheet we've been able to invest into and create the only single-family rental home development program of its kind which is now primed for meaningful increase in production levels and expected to be an exciting growth driver for us into 2020 and beyond. With that we'll now open the call to your questions.

But I would like to make you aware that Jack is joining us remotely today as he recovers from a recent knee surgery. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Nick Joseph with Citi.

Nicholas Gregory Joseph -- Citi -- Analyst

Maybe just starting on development. You mentioned the 800 homes this year. So I was wondering if you can give more color on those in terms of the delivery timing versus expectations the costs how leasing has gone? Just as you've started to ramp up how things are trending so far?

Bryan Smith -- , Executive Vice President

Yes. We're growing. This is our I think our third year of being in this business of developing new homes and the platform is growing. So the cadence of deliveries is going to be growing. We delivered about twice as many in the third quarter as we delivered in the second quarter. I'm going to expect another 50% increase in the fourth quarter. And that increase should continue into 2020 where we expect to deliver approximately 2400 homes. So the cadence is going to increase. We haven't finalized our guidance for 2020 yet. But in terms of -- or our projections in terms of exact deliveries in each quarter but -- that should give you an idea.

Nicholas Gregory Joseph -- Citi -- Analyst

But I guess in terms of -- as the homes deliver right I mean are the costs coming in line with expectations? Are there any development delays? How long is it taking to lease a home versus a home that you're just turning from your same-store portfolio? Any color on actual deliveries would be helpful.

Bryan Smith -- , Executive Vice President

Yes. The -- I think in terms of leasing they're leasing faster than we expected on average and at slightly better than what our pro forma rents were. In terms of costs there's been some delays some -- as we open up new markets you have to learn the various planning departments of the various municipalities. And we've had some delays as it relates to that and then some weather delays. But I think as we've -- we're now in 15 markets that we're developing in. We opened a big chunk of them in 2019. And I think we've gotten through most of those type of delays. And then weather is the other major factor and that's pretty variable.

David P. Singelyn -- Chief Executive Officer

Nick let me supplement. This is Dave. Let me have Bryan supplement a little bit on that leasing your leasing aspect.

Bryan Smith -- , Executive Vice President

Nick the deliveries of the new homes has been really great for our pre-leasing efforts. We've been able to have estimated completion dates and delivery dates and really pushing these homes before completion. So we've been able to reduce the time on market. The demand has been fantastic for it but we really see that pre-leasing effort as being a true benefit to the development program as we go forward. And we've seen some really good traction so far.

Nicholas Gregory Joseph -- Citi -- Analyst

That's helpful. And just as you continue to ramp up the development pipeline you mentioned maybe additional JVs. What size or what percentage of the pipeline would you be comfortable with either owning full year or being JV-ed?

David P. Singelyn -- Chief Executive Officer

Yes. This is Dave Nick. The way I would look at that maybe is not as much as a percentage. But as we indicated we have about $700 million $800 million of capital each and every year from increased debt capacity as our EBITDA grows and retain cash. And so we first and foremost want to get that deployed. But the opportunity is greater than that. So as the program scales up we do need more capital. And we have a small joint venture today. That was really to get the joint venture model out there to test the demand in the marketplace which is very very strong for it. So it -- there -- I'm looking to that we'll probably need one next year because the demand -- the capacity and the expected deliveries will exceed that capacity that we have. We have a couple of options we can do JVs we can do common and we'll make that call as we go -- get a little closer. But I think the -- as we go from 2019 to '20 and then further to 2021 the need for additional capital will be great or greater than it is today. And JVs are a good option for that.

Nicholas Gregory Joseph -- Citi -- Analyst

Thank you.

Operator

Our next line comes from the line of Jason Green with Evercore ISI. Please proceed with your question.

Jason Daniel Green -- Evercore ISI -- Analyst

Just a question on the property taxes. As we look forward over the next two to three years. I know this is a really difficult number to predict. But is there anything that should give us confidence that the property tax expense growth will start to decelerate? Or should we be thinking about kind of the 6% to 7% tax expense growth over the next few years?

Christopher C. Lau -- Chief Financial Officer

Jason it's Chris. I think you started the question correctly and that it is difficult to predict. And so I'll be cautious in terms of what I say here because none of us have a crystal ball. But I will say for this year in particular like we've been talking about really year-to-date here. This year does feel fairly outsized and was higher than what our expectations were at the start of year. So we're optimistic that this represents kind of a high watermark that we should hopefully be able to see some benefit off of but it's really difficult to predict. The other piece I'll put out there this is just kind of for factual reference because it's very early. But I'm sure you and others are probably aware that Texas recently passed some new property tax reform.

And again I'll be careful here because it's still somewhat unclear in terms of how the mechanics on this are going to work. But at the Texas level there's 2 new bills that are in effect now. One covering county city and special district taxes providing essentially a cap on the total property tax revenue dollars that can be collected by whatever the respective jurisdiction is at 3.5% on a year-over-year basis. And then on school district related taxes applying a cap at 2.5% revenue growth year-over-year. So again a little bit unclear at this point in terms of how the mechanics on that will work but we're optimistic that that should be a little bit of a help for us going forward. For some context about 30% of our property taxes are in the state of Texas. And to give you a little bit of context in terms of this year now that we're through the majority of the calendar year with assessments and appeals in hand I can tell you that this year's property taxes in Texas were right around 7%. And so a meaningful component of what we've seen in property taxes this year so far.

Jason Daniel Green -- Evercore ISI -- Analyst

Got it. And then I guess just on the total expenses side. And I know taxes are a big influence this year and I appreciate that. But you ran at 5.8% expense same-store expense growth last year. Your midpoint this year is 4.9%. Is a mid- to high-4 number just the same-store expense growth expectation for the next few years?

Christopher C. Lau -- Chief Financial Officer

Well I mean if we take -- I think it's -- let's go back to some of the comments we had in our prepared remarks and we exclude property taxes on a full year basis and you look at everything else combined. Our expectation there is 3% to 4% overall. There's a couple of different pieces in there. I think the underlying inflationary expectation on R&M and turn is probably a little bit above that. We started the year talking about the 4% to 5% context just because of wage and labor inflation. But I think again I want to be careful here. So that I'm not saying anything too forward-looking or anything 2020 guidance related but I think it's helpful that you look at everything on a combined basis this year and recognize that excluding property taxes we're expecting 3% to 4% growth which is where we started the year. And it is where we're tracking toward right now.

David P. Singelyn -- Chief Executive Officer

And Jason it's Dave. Keep in mind and you had this in your question. But keep in mind property taxes are about 50% of the expense load.

Jason Daniel Green -- Evercore ISI -- Analyst

Yep, I got it. Thank you very much.

Operator

Our next question comes from the line of Shirley Wu with Bank of America. Please proceed with your question.

Shirley Wu -- Bank of America -- Analyst

So I kind of want to go back to taxes. And so you -- most of your assessments come in year-to-date. And it seems as if there's around 5000 more appeals that are still going to come in. So in your expectation of call it the 6% taxes how much success are you anticipating in the remainder of your appeals?

Christopher C. Lau -- Chief Financial Officer

I mentioned this -- this is Chris. I mentioned this in my prepared remarks. So far we've seen about a 60% success rate on our appeals that we've received responses back on so far which is 75% or so. In the balance of those appeals we're assuming actually probably a little bit lower than that just because the 60% quite frankly outperformed our expectations a little bit in terms of number of successful appeals. But I would say for the balance of those appeals we're assuming kind of similar to or a little bit lower than the success we've experienced so far year-to-date. So we feel pretty good about where property taxes or where our estimates on property taxes are for this year. Because again we really do have the majority of our data points collected at this point.

Shirley Wu -- Bank of America -- Analyst

Got it. That's helpful. And so also on other side where you're talking about the storm expenses. So the $1 million 3Q was that bucketed in your initial expectations for storm costs for the year?

Christopher C. Lau -- Chief Financial Officer

Yes simple answer. And that's a good topic because I think weather is one of those things that we've been -- that we talk regularly about. And I think as time has shown us is a recurring part of the business. And accordingly we budget for it and forecast for it and include it in our guidance expectations. And if we all go back to the start of the year when we initiated our guidance we all know that we provided for a contingency in our expectations this year. And that has turned out to be a very prudent decision and we've had a number of weather events throughout the year.

We had some winter storm events in the first quarter. Hail and tornadoes in the second quarter. And now we had 2 pretty significant weather events this quarter Dorian and Imelda and you take all of that on a year-to-date basis and it all fits very comfortably within the provision we included in our initial annual guidance at the start of the year.

Bryan Smith -- , Executive Vice President

Yes sure. This is Bryan. I think it's important to note when we're talking about weather the change in operations the change in disaster response that's evolved within our company within our platform. We were able to quickly respond prepare for these homes and get these homes back online much quicker than we were able to in the past which both limits the expense side and also protects us on occupancy going forward. But we're really proud of the way that the team's executed this year. And I think it's a difference between storm events of the past.

Shirley Wu -- Bank of America -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.

Richard Hill -- Morgan Stanley -- Analyst

I promise I'm not going to lead off with a question about taxes. I want to come back -- sorry Chris. I couldn't help that. I do want to come back to maybe something that no one else has asked about thus far. And seemed like it was a big driver of your revenue which was fees. So can you remind us what percentage of total revenues is driven by fees? And maybe where you think you can go with that over the medium to long term?

Bryan Smith -- , Executive Vice President

Rich this is Bryan. I'll start by talking about kind of the improvements in the fee line this year and what it means for next year. This year we added a couple of different fee items to the program. Probably the most significant was standardizing the way that we treat our pet fees and pet deposits. And we expect that to continue as it rolls out to the entire portfolio in the next year. Beyond pet fees looking to the future there are other opportunities that we see. But I think one of the most unique opportunities is with the rental communities on the ancillary revenue side. When we have these communities that are collected geographically we're able to explore some other offerings namely smart home landscaping services. We see real upside with that. But in the short term the major effect on key line items is that -- is the standardization of the pet revenue.

Richard Hill -- Morgan Stanley -- Analyst

Got it. And so look there's been some discussion in the market that may be over the medium term single-family rentals can get to other income if you will closer to apartments. So is it fair to say you're around 2% to 3% right now? And maybe you could get to 7% and 10% over the medium term? Or is it just sort of too early to think about that?

Christopher C. Lau -- Chief Financial Officer

Rich I'll let Bryan comment on his view going forward. But right now fees aren't even 2% of revenues they're probably closer to 1% to 1.5%.

Bryan Smith -- , Executive Vice President

And I think over the long term there's a lot of opportunity on smart home offerings not only just for the communities but for the entire portfolio. It's not quite there yet. But in the interim we're happy with the improvements we've made with pet policies and there's a couple of other small ones that are going to be rolled out shortly.

Richard Hill -- Morgan Stanley -- Analyst

Got it got it. And I do want to ask just quickly about the appeals process. Look my sense is that property taxes are what property taxes are and you can't really control them. So what you can control is the appeals process. Are you guys using technology data to maybe become better in terms of how you're appealing the property tax increases?

Christopher C. Lau -- Chief Financial Officer

Absolutely. Rich that's a great question. And honestly we are very very active and strategic on the appeal side. We're using not just data but as we know property taxes in particular the assessment in the field process is a very localized process. And so we have cultivated a very large network of in-market property tax professionals that both help advise and represent us throughout that process. Probably a little bit of a broken metric here just in terms of some of the statistics. But on average each year we're filing over 23000 individual property tax appeals. This year we filed over 23000 similar numbers last year and the year before. And so we're very active and we're also proud of our property tax team. And you're right it can go both ways. It's a little bit difficult to predict ahead of time. But I would remind everyone that prior to this year we've actually had favorable outcomes in the opposite direction. If we think back to overall property tax expense growth last year we were at 3.6%. And that was largely driven by the success of our appeals program. The year before that. If we go back and pull prior year financials you'll see that property taxes were up 2.2%. And again that's a function of the success of our Appeals program that I think we do a great job on and will continue to be a very large focus of ours going forward.

Richard Hill -- Morgan Stanley -- Analyst

Great, thanks, guys. See you next week.

Operator

Thank you Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.

John Joseph Pawlowski -- Green Street Advisors -- Analyst

Dave or Jack for the 2400 homes you'll be delivering from the build-to-rent channel next year could you give us a sense for what percentage of the budgeted costs are locked in or bought out right now?

David P. Singelyn -- Chief Executive Officer

Yes. I'll take that. The percentage that are locked in I would say is probably in the 60% to 80%. We're through at least or for the first half of the year we're through the horizontal development phase of it. And obviously land is kind of fixed in there. So -- and then the vertical costs are -- we haven't really exceeded our vertical costs by any significant degree in the past and I wouldn't expect to exceed them in the future unless we do stuff sometimes we add a basement that we didn't budget for or add an amenity. But in general we've been hitting our cost pretty close other than carrying costs in the case of delays.

John Joseph Pawlowski -- Green Street Advisors -- Analyst

Okay. And then on the delay front. I believe that in the Fall Conference Circuit you referenced that 1000 homes were expected to be delivered this year and now it's 800. Is that -- is the delta driven solely by weather? Or what else on the ground is going on there to cause a delay this year?

David P. Singelyn -- Chief Executive Officer

Like I said I think the local planning offices it takes a while to learn exactly what they want. And then once we get our floor plans approved it's much easier to get the next set of floor plans reviewed because they're the same in the next development. So we've opened up in 15 markets so far as far as development and about half of them were done this year. And we go through the learning process in every locality. So that's the other side of the delay.

John Joseph Pawlowski -- Green Street Advisors -- Analyst

Okay, thank you.

Operator

Thank you Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

So I appreciate the color on the single-family rental development. I was hoping for a few more numbers though. You mentioned $800 million of deliveries next year. What should we be thinking about next year a similar cost per home ballpark? And maybe you could add some color on the yield you expect to achieve on the $800 million this year? And preliminary thoughts on the crop for next year?

David P. Singelyn -- Chief Executive Officer

Yes. I'm not sure we said $800 million I think we said $700 million to $800 million. So 2400 divided by that. Right now we're developing them on average at about a $250000 per home rate and we're not changing dramatically anything we're doing. So it might go up a little bit because we'll be more active in the west and the land cost in the west are a little more. So I would say somewhere in the $250000 to $275000 range on average.

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

Okay. In the yields you -- go ahead. Great.

David P. Singelyn -- Chief Executive Officer

The yield is approximately it will be in the low 6s.

Bryan Smith -- , Executive Vice President

Yes. Haendel look I -- in my prepared remarks there was a little bit of a reconciliation for you on this. If you look at the cost of a new home that we develop we don't incur the marketing cost there is no developer profit. Our ability to acquire a -- and to produce a home to put into our inventory is a better home at a more attractive price as we develop and it really comes from the economies of the development process. And that all translates as a reduced investment cost you're getting a better home in the same market equal or better return -- or rental income it's improving our returns significantly over other options.

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

Sure sure. Okay. Jack I think you also mentioned 15 total markets you're developing. And I'm curious is that -- are there new markets? I'm not sure what the prior number might have been earlier this year but I'm curious if you're entering more markets to next year -- entering new markets next year and if so where?

John E. Corrigan -- Chief Operating Officer

We currently only plan to open up 1 new market next year. And maybe just a side market that's an hour outside the -- another market but we're principally in the Southeast and West and we may open up another market in the Midwest.

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

Got it. Okay. And second question. Your peer Invitation Homes at its Investor Day about a month ago outlined $25 million to $50 million of NOI incremental opportunity in the next two to three years from ancillary income and lowering its days to reresident. Curious if you guys have gone through an side if you quantified that opportunity? And if so any color you can share on that?

Bryan Smith -- , Executive Vice President

Haendel this is Bryan. Speaking to the -- reducing the turn times the cash-to-cash turn times that's been a goal of ours for a long time. If you look at the improvement over the years in both our speed to prepare the home and our marketing costs you've seen a reduction in turnover times down into the low 40s for the third quarter. So we do see some opportunity there. There's opportunity there by increasing our premarketing efforts. There's opportunity there by performing more of the work in-house. So my expectation operationally is that we'll see improvements on that side. With our portfolio size a reduction of 1 day in average turn times for the year is roughly $1 million of cash flow. In terms of quantifying the ancillary revenue opportunities we have some expectations for the near term. Over the long term probably the greatest opportunities in the smart home offerings and some other things that we're going to wrap into our rental communities. And we're just not quite ready to estimate those because they are a lot further out.

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

Thank you.

Operator

Our next question comes from the line of Hardik Goel with Zelman & Associates. Please proceed with your question.

Hardik Goel -- Zelman & Associates -- Analyst

As I look at your same-store pool the sequential decline in occupancy seems to be probably the highest for the third quarter if I look across your history. And I realize that we don't have that many years but it still stands out. And as I look at your same-store results overall growth appears to be pushed down because of that. And I'm wondering how much of this occupancy decline is because you're completing brand-new homes in markets alongside your same-store pool and that is negatively -- or that is deflating those results. Is there a deflationary effect on your same-store pool because of your new homes?

Bryan Smith -- , Executive Vice President

Hardik this is Bryan. That's a good question. I think start by talking about the effects of some higher-than-expected move-outs in July on occupancy. And then we can talk about what it looks like in October. But specifically as to whether we're getting some serious headwinds from the new product we haven't seen that yet. The demand metrics that we follow in terms of showings per rent ready. And the website traffic really shows that the demand is there. If we saw some real effects of the new homes being delivered probably would be higher incidence of move-outs to buy homes and our resident surveys aren't showing that either. I think that the occupancy pressures for the third quarter really surround higher-than-expected move-outs in July and a little bit higher in August. If you look at our turnover prior to this quarter we had 10 consecutive quarters on a trailing 12-month basis of improvement.

This quarter was flat with July and August being up. That means September recovered. And we continue that positive recovery into October. So if you look at the third quarter in isolation it's a little bit different than the past but our rate management and the way that we manage through September positions us much better through October where we have average occupied days of 95.0 as opposed to a 95 -- or 94.7 a 30 basis point improvement over last year.

Christopher C. Lau -- Chief Financial Officer

Yes. Hardik this is Chris. And if I can just add Bryan's comments around those July move-outs really consistent with the mid-quarter update we provided just probably one month 1.5 months ago. And I think ending the quarter at a full quarter of 95.1% average occupied days really I think demonstrates the strength to the finish of the quarter. And then just to emphasize Bryan's comments around October coming in at 95% which is strong as well right on top of what our expectations were. And for additional context as Bryan kind of was alluding to that 95% is 30 40 basis points ahead of October of last year.

Hardik Goel -- Zelman & Associates -- Analyst

Got it. And just congratulations overall. On kind of keeping your NOI guide even though your tax is apprised to the downside that's pretty impressive.

Christopher C. Lau -- Chief Financial Officer

Thanks Hardik. I think that that's a great point that we like to underscore as well.

Operator

Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.

Sam Choe -- Credit Suisse -- Analyst

I believe it was Bryan who touched on the turn improvements coming from like process-oriented things and internalization. But I guess I'm curious to hear an update on efficiency gains from the technology infrastructure you guys put in and where more gain can come from that?

Bryan Smith -- , Executive Vice President

Sam this is Bryan. I can give you a relevant example that we -- that I touched on in my prepared remarks and that's surrounding the way that we're processing HOAs. Our technology platform has always been designed for scale and efficiency and HOA was one of the last pieces that we automated. If you remember last year we had some deficiencies in our processing that created some outsized increases in the HOA line item. Last year we began the automation of the process the mail intake OCR recognition and routing to a responsible party for remediation. It allowed us to become very efficient and quick with moving violations to where they needed to get to to be remediated immediately. That cleanup and change technology change was implemented at the beginning of the year and we worked through that entire system and expect it to be much more efficient going forward. Other areas that we see for -- potential for technical improvements really surround the way that we communicate with our residents. We pioneered the self showing aspect on the leasing front end. There's still some small improvements that we expect to roll out in that next year. But the next big game changer for us is going to be really having the right communication portals with our residents to make the -- make it really easy to order maintenance and communicate with the property management team.

Sam Choe -- Credit Suisse -- Analyst

Great. This is helpful. Another one on I guess occupancy. I mean you guys made a point to build out a position of strength. But I mean we're still seeing some markets operate sub-94% on the occupied days percentage. So just curious to hear whether there are idiosyncrasies in that area or operational issues contributing to that? And whether the local fundamentals help drive the occupancy higher over time?

Bryan Smith -- , Executive Vice President

Yes. I think if you look at specific markets you're going to see variability month-to-month. The occupancy the markets that aren't performing up to our expectations in individual markets really characterized by ones that had higher-than-expected move-outs in July. And as you start to exit the busy season it's just more difficult to recover from there. So it takes a little bit longer to get them back to the right occupancy position. But we made a number of changes last year operationally that have paid dividends this year driving consistency in our operations consistency in our turns. So I don't think it's attributable to anything other than expected variability across markets.

Sam Choe -- Credit Suisse -- Analyst

Okay, thank you so much.

Operator

Thank you. Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed with your question.

Ryan Christopher Gilbert -- BTIG -- Analyst

Just one more on the development program. I think you should have over a year's worth of data for a number of units at this point. Can you tell me what are the average additional or Year one yields that you're achieving in the units that have already delivered?

John E. Corrigan -- Chief Operating Officer

Yes. I'll talk a little bit and if Bryan wants to talk a little bit about it. This is Jack. It's really hard to -- as the yields are going to be higher than you would expect in the first year because sometimes it takes a year or two for them to adjust property taxes and they really have any maintenance or turns. So I'd be misleading if I gave you a real high net yield. The rents are slightly higher than what we anticipated and the occupancy is slightly higher-than-anticipated. And they appear to be staying longer than at least in the first couple of years than our traditional houses.

Ryan Christopher Gilbert -- BTIG -- Analyst

Okay. Great. And then on blended rent growth. We've had 2 quarters now of a spread compression on blended rent. It looks like October improved. Do you think that you'll be positive in the fourth quarter on a blended rent spread basis?

Bryan Smith -- , Executive Vice President

Ryan this is Brian. We really look at it we're looking to maximize the total revenue. And if you look at the rate difference between this quarter and last quarter it ties in a little bit to our performance into October. We were -- on the releasing front we moderated our asking rates a little bit and that helped drive some improvements in occupancy year-over-year. For me to go and predict all the way to the fourth quarter I think is a little bit premature.

Ryan John Tomasello -- Keefe Bruyette & Woods Inc -- Analyst

Okay, understood. Thank you.

Operator

Thank you. Your final question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Jade Rahmani -- KBW -- Analyst

This is Ryan Tomasello on for Jade. Just tailing off of the earlier questions on ancillary fees. Realizing it's a small -- it's small today but can you remind us if there are any asset management economics on the current built around JV? And if that -- if asset -- if that asset management model is something that you think could meaningfully benefit the earnings profile of the company in future years as you target entering more of these JVs?

David P. Singelyn -- Chief Executive Officer

Yes. Great question. It's Dave. So the joint ventures are structured with no preferences to the investors. There is a series of fees for property management overhead. And -- but the real driver and the real benefit is as you alluded to is as certain hurdles are met our percentage participation in the future cash flows after a baseline are greater than our investment percentage. So there is a promote structure in the joint ventures. And there is no preference or subordination in the joint ventures.

Ryan John Tomasello -- Keefe Bruyette & Woods Inc -- Analyst

And can you remind us your long-term targets for the cost to maintain line as well as the all-in cost to maintain expense line including I guess for this year? And considering that the build-to-rent product will increasingly become a greater portion of the portfolio is that changing how you're thinking about that number over the next few years?

David P. Singelyn -- Chief Executive Officer

I'll take that at the beginning here. So you really -- as you indicated I think you got it right. You got to really kind of bifurcate the 2 portfolios. So one of the benefits of the the build-to-rent portfolio as it is being built with future maintenance in mind. And therefore the maintenance cost going forward should be less and will be less not only in the short term but in the long term. They're built with resilient decks as opposed to wood decks that need to be maintained as a simple example. So those -- the long-term aspect of the build-to-rent program is going to be very very good for the maintenance line. On the existing portfolio we've spent a number of years bringing that cost down into the current $2300 $2400 line. We do have preventative maintenance programs in place. So we don't have any clips that we are going to incur but it will increase as time goes on for inflationary reasons.

Operator

[Operator Closing Remarks].

Duration: 57 minutes

Call participants:

Stephanie G. Heim -- Executive VP of Counsel & Assistant Secretary

David P. Singelyn -- Chief Executive Officer

John E. Corrigan -- Chief Operating Officer

Bryan Smith -- , Executive Vice President

Christopher C. Lau -- Chief Financial Officer

Nicholas Gregory Joseph -- Citi -- Analyst

Jason Daniel Green -- Evercore ISI -- Analyst

Shirley Wu -- Bank of America -- Analyst

Richard Hill -- Morgan Stanley -- Analyst

John Joseph Pawlowski -- Green Street Advisors -- Analyst

Haendel Emmanuel St. -- Juste Mizuho Securities -- Analyst

Hardik Goel -- Zelman & Associates -- Analyst

Sam Choe -- Credit Suisse -- Analyst

Ryan Christopher Gilbert -- BTIG -- Analyst

Ryan John Tomasello -- Keefe Bruyette & Woods Inc -- Analyst

Jade Rahmani -- KBW -- Analyst

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