Earnings Call Transcript
American Homes 4 Rent (AMH)
Earnings Call Transcript - AMH Q2 2020
Operator, Operator
Greetings, and welcome to the American Homes 4 Rent Second Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Anne McGuinness, Manager of Investor Relations. Please go ahead.
Anne McGuinness, Manager of Investor Relations
Good morning. Thank you for joining us for our second quarter 2020 earnings conference call. I'm here today with David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment 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. The current and expected future economic impacts of the COVID-19 pandemic including extraordinary increases in national unemployment, may pose headwinds to our future results. All forward-looking statements speak only as of today, August 7, 2020. We assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Reconciliation to GAAP with 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 financial 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. And with that, I will turn the call over to our CEO, David Singelyn.
David Singelyn, CEO
Thank you, Anne, and good morning, everyone. I hope you are all doing well. It’s hard to believe that ten years have gone by since Wayne Hughes proposed that we invest in homes in Las Vegas and rent them out. In less than a decade, American Homes 4 Rent has significantly changed the rental home industry by offering housing options that align with modern lifestyles. Today, American Homes 4 Rent leads the single-family rental sector for three main reasons. First, our strong operating performance in the second quarter, especially during these challenging COVID times, reflects the resilience of our platform. Second, the pandemic has underscored the considerable demand for our single-family homes, particularly those in desirable locations that provide a safe environment for residents to live and work. Lastly, our robust balance sheet and ongoing investments in our unique development platform equip us to grow even in these tough economic conditions. Our second-quarter achievements showcase the strength and resilience of our platform amidst economic concerns, as our leasing and occupancy rates reached record highs. In June, we signed a record number of new leases, which, along with our excellent retention rates, led to occupancy levels hitting all-time highs, only to be surpassed in July. And our successes extend beyond leasing; our collections in the second quarter were approximately 98% of normal levels, and results in July followed suit. Additionally, our maintenance program has been effective, ensuring we serve our residents well and concluding the quarter without any backlog in work orders. Bryan will share more details about our operations in the second quarter, but I want to express how proud I am of our performance during these unprecedented times; it truly reflects the commitment and focus of our entire team. Now, regarding rental demand, the interest in our homes, which was already strong, has surged to unprecedented levels. Our internal applicant data shows a marked shift in consumer preferences favoring single-family homes over apartments. This trend, which began prior to the pandemic, is expected to continue even after it ends. The COVID crisis has illuminated the value of our well-located, professionally managed homes. People are moving to less densely populated areas with diverse economies in high-growth markets. Now more than ever, individuals prioritize high-quality accommodations and nice amenities, like a yard for privacy or an extra bedroom that can serve as an office for remote work. We provide the benefits of single-family living to those who value flexibility and convenience. We are leveraging the strong rental demand we are witnessing in various ways. First, it starts with our diverse portfolio, which we strategically assemble across 35 markets, all characterized by robust population and job growth, along with low living costs and minimal income taxes. These regions are poised for increasing household formations as people continue relocating in the COVID era. Notably, no single market in our diverse portfolio constitutes more than a small fraction of our overall footprint, allowing us ample opportunities for growth. Additionally, our diverse portfolio, combined with the higher income levels of our residents and the fact that many households have dual incomes, provides a natural risk management hedge for our business. The second factor that positions us to take advantage of significant rental demand is our solid financial standing. We currently possess the only investment-grade balance sheet in our sector, which acts as another risk management buffer, allowing us to grow across all economic cycles—a major differentiator in the capital markets. Our balance sheet, along with substantial retained cash flow, provides the capital necessary for our growth initiatives. The third factor is our growth programs; we are the sole company with teams dedicated to growing through three channels: traditional acquisitions, acquisitions from national builders, and our unique development program. Our capacity to expand our portfolio while realizing the benefits of scale remains significant, enabling growth in both current and future economic cycles. As the leading national developer of purpose-built single-family rentals, American Homes 4 Rent is transforming the industry with our strategically located new home communities. Our capability to add new, rental-oriented homes is key to generating better returns and ensuring consistent growth through various economic conditions. Jack will discuss the highlights and progress of this exciting growth channel later. Before I hand the call over to Bryan, I have a few announcements. First, regarding our guidance: although the COVID crisis has accelerated the demand for single-family rentals and American Homes 4 Rent has delivered strong operating results so far, the overall impact of the pandemic on us and our residents remains uncertain, depending on future developments. Due to this uncertainty, we are not in a position to issue future earnings guidance at this moment. However, long-term drivers, such as the shift from multi-family housing to suburbs and the resiliency of single-family living, remain favorable for us. Also this morning, we announced the appointment of Lynn Swann to the Board of Trustees. Lynn previously served as an AH for our Trustee from 2012 to 2016. We are glad to have him back on the Board to bring his considerable public company board experience, business acumen, and extensive business connections. Currently, Lynn is on the board of EVOQUA Water Technologies and has previously served on the boards of multiple organizations including Floor Corporation, Caesars Entertainment, Hershey Entertainment and Resorts, H J Heinz, and the PGA of America. Lynn's appointment is part of our ongoing process to refresh the board, which has included adding four independent trustees since 2019. This year, we appointed Matt Zaist, a home building industry expert, in February, and Ken Wooly became our independent Chairman in May. We also announced that we are actively seeking to appoint another trustee later this year to enhance the diversity and independence of the Board. Board refreshment is an ongoing commitment for us. The Board is focused on ensuring it possesses the right experience, diversity, and independent viewpoints to effectively oversee the successful implementation of the company's strategy to drive growth and create value. We have always maintained solid capitalization, and today our strong balance sheet is more critical than ever as we strive to deliver greater shareholder value. This financial flexibility, paired with our operational and development capabilities, allows us to grow even in challenging economic climates and enables innovation and execution where others may struggle. Now, I'll turn the call over to Bryan for more operational details.
Bryan Smith, CFO
Thank you, Dave and good morning, everyone. Over the past few months, the strength and resiliency of our platform has been tested. And I'm pleased to report that we are continuing to deliver strong results in spite of COVID-19 related challenges. Our continued investment in industry-leading systems and our team's dedication and effectiveness have allowed us to capitalize on emerging trends that have driven record leasing and occupancy levels. I would like to thank all of our team members for their hard work, dedication, and perseverance. Today, I would like to start by talking about the recent demand trends that are driving record leasing across the portfolio; then I will discuss our second quarter results including the COVID-19 implications to our business. And finally, I will conclude with a recap of our disposition activity. As Dave mentioned, demand for our homes has never been stronger with record leasing activity and retention driving occupancy in June and July to all-time highs. These results were powered by our technology-driven platform that allows our current and prospective residents to manage their entire leasing and rental experience online. In the second quarter, our website traffic and user activity grew to record levels with the number of distinct users up over 25% from the prior year. We are able to capitalize on this activity through our proprietary, Let Yourself-In mobile-leasing Technology, which allows prospective residents to tour homes without an agent and submit applications and execute leases digitally. With more people utilizing our self-service leasing option than ever before, we saw a significant increase in showings per rent-ready home, which drove a record volume of applications, including a 30% increase June-over-June. The recent increase in demand is due in part to changes in consumer preferences. Our second quarter applicant data highlights a clear trend that COVID is driving more apartment renters to high quality, suburban, single-family rental homes that are professionally managed with service similar to that of Class A multi-family communities. We saw an increase in applicants coming from multi-family of over 20% across the portfolio. We expect this fundamental shift in housing preferences to continue. I will now turn to our second quarter same-home results. First, we reported flat revenue growth as revenues were temporarily impacted by both an increase in uncollectible rents due to COVID, and the waving of late fees and month-to-month charges. If we exclude the approximately $6 million of incremental COVID-related bad debt, revenue growth was 2.9%. Second, our reported same-home expense growth of 6.1% for the quarter included $2.2 million of COVID-related costs that primarily consist of incremental utility reimbursement bad debt. As a reminder, we maintain most of the utilities in our name and pass through the charges to our residents. Excluding the pandemic-related charges, our expense growth was 3.2%. And finally, reported same-home NOI was down 3.4% for the quarter, but adjusting for the aforementioned COVID-related impacts, NOI growth was 2.6% despite the fact that we suspended renewable rate increases and waived late fees and month-to-month charges. Now I will go into more detail on some key second-quarter metrics. For our same-home pool, average occupied days for the second quarter was 95.6%. Our occupancy improved throughout the quarter and our June average occupied days was 96.1%, a full 60 basis points above June of last year. In July, this trend continued and average occupied days grew to 96.4%, which are 110 basis points higher than July of last year. Please note that all of this was achieved without the use of rental concessions. Further, our average monthly realized rent increased by 3.1% for the same-home pool in the second quarter. Rents on new leases grew by 4.4%, and renewal rents increased by 1.3%. The blended rate increase in the second quarter was 2.4%, which was above the 2% estimate we provided on the last call. For the second quarter, we have collected 96.5% of rents. Our rents received reflect actual cash payments without application of security deposits or the benefit of future collections under payment arrangements. Collections continue to be strong in July with approximately 92% collected through the end of the month, which is consistent with Q2 trends. This crisis is affecting everyone, and we are doing what we can to help those who have been severely impacted. To date, hardship requests represent a small percentage of our total residents; each case is being reviewed individually to determine the best task for that resident, which in some instances has resulted in the early termination of leases. Although, we are not forgiving rent; we made the socially responsible decision to suspend late fees, halt evictions, and offer renewals at no increase for leases expiring through July. Today, we are confident in our operations and the performance of our portfolio; as evidenced by the incredible demand and record leasing activity. For this reason, we resume grant increases on renewals for August expirations. Despite flat renewals for July leases, we expect renewal rate growth to be 1% to 1.5% in the third quarter. More importantly, we expect renewal increases to accelerate in the fourth quarter. Rent increases on new leases in July were strong at 5.4%, and we expect growth of 4% to 5% for the third quarter as we enter the historically slower leasing season. Further, we have given notice to our residents that we are transitioning back to our normal business protocols by resuming late fees and month-to-month charges where appropriate. Turning to maintenance, when the pandemic hit; we recognized that occupied maintenance would never be the same. In fact, our services would be more important than ever with our residents spending so much time at home. We quickly adapted our mobile services technology to adjust to the changing safety requirements, which included the addition of health and safety checks for both our residents and our technicians. This enabled us to keep our maintenance programs on track, and we were able to continue to deliver excellent service in this changing environment. We finished the quarter with no backlog and work orders, and our residents recognized our service levels as our customer satisfaction scores reach all-time highs. One of the convenient features that our residents appreciate is our innovative utility management program, which allows them to avoid the hassle of utility activation when they move in. From our perspective, the program facilitates the turnover process and gives us visibility into usage, and our residents' ability to pay. As I mentioned earlier, we saw a COVID-related increase in bad debt related to resident utility reimbursements in the second quarter. Additionally, we experienced above-average levels of HVAC system replacements due to abnormally high HVAC usage during stay-at-home orders. This resulted in an estimated $1.3 million of incremental HVAC capital expenditures within the second quarter of 2020, of which $1.2 million related to the same-home portfolio. Turning to dispositions; we sold 216 homes in the second quarter for approximately $48 million. At the end of June, we had 948 homes held for sale. Closings in July continued to be strong as we sold 91 homes for approximately $20.1 million and have an additional $25 million of dispositions in escrow. In summary, we are excited about the resiliency of our platform and the record demand that single-family rental housing demonstrated during the quarter. We are well positioned to produce strong operating results as we move into the second half of the year. I will now turn the call over to Jack.
Jack Corrigan, Chief Investment Officer
Thank you, Bryan and good morning, everyone. Just four years ago we pioneered a unique development program to meet the increased demand for single-family rentals. This initiative features new home communities located within our existing footprint. Since then we have become the nation's leading builder of purpose-built single-family rental home communities. We are building homes and communities that are tailored to the way residents want to live and are designed to be efficient from a maintenance and management perspective. Most importantly, these homes fit nicely into our leading property management platform, which drives many of the decisions around design and location. Our proprietary AMH Development Program plays a critical role in our three-pronged approach to growth that also includes our existing National Builder Program and our Traditional MLS Channel. With control over our development pipeline, we have the ability to build better rental homes and drive consistent growth in various economic cycles. As an example, we have continued to deliver homes without interruption throughout the COVID-19 crisis. In the second quarter, we added 504 total homes to our platform including 64 new construction homes delivered to our joint ventures. 440 of the 504 homes were added on balance sheet, representing a total investment of approximately $112 million. Our AMH Development Program delivered 327 homes, many ahead of schedule as we were able to successfully accelerate some of our deliveries into our peak leasing season. Complete our portfolio, 98 additions homes were delivered through our National Builder Program and 15 homes were acquired via the traditional channel. Year-to-date, we have added 1,213 total homes to our platform including 723 homes delivered through our AMH Development Program of which 117 were delivered to our joint ventures. For our consolidated portfolio, we have invested approximately $385 million into our growth programs for the six-month period. This consists of 1,096 homes for approximately $285 million plus approximately $100 million in land and development pipeline investment. We remain on track to invest a total of $550 million to $700 million into our growth programs for the full year, which includes home additions, land, and pipeline investment. Now focusing on our new communities' concept, it has been extremely well received. In fact, all new community homes that were delivered in the second quarter are now 97.8% leased. We are providing a truly unique product that people love. In addition to the dependability of delivering new homes through our development program; there are several attributes that make this our preferred growth channel. The AMH developed homes are desirable, efficient, and durable. Our communities offer amenities like clubhouses, pools, playgrounds, and landlord-provided landscaping designed to create aesthetically pleasing neighborhoods. Our developed homes are created with the modern lifestyle in mind, featuring open concept floor plans; granite countertops, stainless steel appliances, luxury vinyl plank flooring, multi-car garages, and are constructed for long-term efficient maintenance. We recognize that one of the benefits of operating our own home development function is that we're able to adjust quickly to emerging trends. For example, we are adding office nooks in some new home designs to support residents' increased need for remote working spaces. These superior quality homes translate into premium yields and margins. This is good for us and good for our residents. Now in its fourth year, our development program has adopted a consistent cadence of delivery for new home communities. Earlier this week, we announced our 51st community, and we are already seeing strong demand for these new homes. Finally, our development platform is on track to deliver between 1,300 and 1,600 new homes this year on a full-year basis of which 1,000 to 1,200 of these homes representing $250 million to $350 million of total investment will be on the balance sheet, with the remainder going into our joint ventures. Now I will turn the call over to Chris.
Chris Lau, CFO
Thanks Jack. In my comments today, I'll cover three areas; one, a brief review of our operating results, including a summary of how the pandemic impacted our second quarter earnings; two, an update on our balance sheet and liquidity position; and three, conclude with some wrap-up thoughts around our business and operations in the ongoing COVID-19 environment. Starting off with our operating results; for the second quarter of 2020, we generated net income attributable to common shareholders of $15.4 million or $0.05 per diluted share. On an FFO share unit basis during the second quarter of 2020, we generated $0.27 of core FFO and $0.23 of adjusted FFO, which compares to $0.28 and $0.25 during the second quarter of last year respectively. As disclosed in yesterday's earnings release, and supplemental information package; please keep in mind that this quarter's financial results do not reflect any add-backs or exclusions for the negative impact of the COVID-19 pandemic. In particular, the quantifiable negative impact of the COVID-19 pandemic included in our core FFO for the quarter was $9.4 million or $0.03 per FFO share and unit, comprised of $7 million of increased bad debt on rental revenues; $1.9 million of bad debt on tenant utility reimbursements, and approximately $500,000 of increased costs associated with enhanced cleaning and safety protocols. Additionally, keep in mind that this quarter's financial results also reflect the impact of our various socially responsible policy decisions such as the waving of late fees and month-to-month lease premiums and offering of flat increases on newly signed renewal leases that were expiring throughout the second quarter. Lastly with respect to our operating results, as we discussed last quarter; I'd like to remind you that we've taken a conservative approach to recognizing revenue amidst the uncertainty of the pandemic. For the second quarter of 2020, we recognize the revenue on 96.5% of our rental billings, all of which has been collected in cash through the end of July without the accounting application of any existing resident security deposits or adjustment for deferred payment plans, which means as we continue to work with each of our delinquent residents on a case-by-case basis, and pursue collection of their remaining balances additional second-quarter collections will be recognized as incremental revenues to future earnings. Next, I'd like to turn to our balance sheet; a key differentiator which continues to position us for both resiliency throughout the pandemic and outsized growth is the need and demand for high-quality single-family rental housing across our country has never been clearer. At the end of the second quarter, we had approximately $3 billion of total debt with a weighted average interest rate of 4.2%, and a weighted average term to maturity of 12.1 years. Our net debt to adjusted EBITDA was just 5x, well below our internal leverage target of 5.5x. And as a reminder, we do not have any debt maturities other than recurring principal amortization until 2022. And turning to our liquidity profile, which continues to remain strong at the end of the quarter we had $32 million of cash on hand and $130 million outstanding on a revolving credit facility which provides for total revolving capacity of $800 million. Additionally during the quarter we generated approximately $64 million of retained cash flow which we defined as adjusted funds from operations after common distributions, and sold 216 properties generating $48 million of net proceeds. Throughout the month of July, we continue to experience resilient collections similar to the second quarter, and sold an additional 91 properties generating $20 million of net proceeds. And at the end of July, we had approximately $56 million of cash on hand and $105 million outstanding on a revolving credit facility with no other changes to total debt during the month. And to wrap things up, despite creating unprecedented levels of global uncertainty; the pandemic has firmly reinforced a number of factors that uniquely differentiate our asset class, and more importantly the American Homes 4 Rent strategy. First, the pandemic is changing the way people want to live, with households migrating away from urban apartments to detached suburban single-family homes, as they look to de-densify from their neighbors and find more space for their families to live, work, and remote learn. And when coupled with our best-in-class mobile leasing technology, which was pioneered by the American home spread management team nearly eight years ago; our portfolio occupancy levels are reaching new record highs. Second, the strategic decision we made in 2016 to begin creating our one-of-a-kind AMH development program has never appeared more valuable, with a multi-year head start this foresight has positioned us for unique outsized growth as the only company in our industry with an integrated operating and development platform delivering high-quality, purpose-built single-family rental homes at a time when demand has never been stronger. And third, we continue to have the only investment-grade balance sheet in our sector, which took us years to cultivate; and when combined with our strong retained cash flow profile becomes a unique competitive advantage to accretively fund our growth programs, and ensure we continue to safely weather the COVID-19 pandemic. And before we open the call to your questions, we'd like to wish everyone's families health and safety during this time. And again say thank you to our teams across the country. It's because of your hard work and dedication that we at American Homes 4 Rent have been able to continue providing without interruption over 50,000 American households with the safety and comforts of home, which have never been more important than now. That concludes our prepared remarks, and will now open the call to your questions.
Operator, Operator
Our first question comes from Nicholas Joseph with Citigroup. Please go ahead with your question.
Nicholas Joseph, Analyst
Thanks, appreciate the color on the demand drivers that you're seeing. And I know you mentioned in your new residence survey seeing an increase of people moving from apartments to single-family rentals. Curious if you're seeing any trends across different markets? Or are those apartment renters or previous apartment renters moving within the same market or are you seeing kind of more mobility and people moving between markets? I just want to get some more color on your new renter survey.
Bryan Smith, CFO
Hi, Nick. It's Bryan. We look at the applicant pool; we look at from a couple of different perspectives. First of all where are they coming from in terms of type of housing which is the multi-family piece that we talked about before, and that was a clear trend that there was a big migration from multi-family into our single-family homes? The second piece was the out-of-state and out-of-area component, and probably the most dramatic data that we've seen there is the coastal movement; so if you look at movement outside of California for example, we saw over a 50% uptick in movement from California to Boise; 15% uptick in movement from California to Nevada; that's year-over-year. So we're seeing some nice migration from the West Coast and then if you flip it to the East Coast, we saw some dramatic increases in movement out of New York into Florida and into North Carolina. So we're seeing some pretty good movement that ties in with the narrative and kind of the intuition on some of the other pieces that we talked about. If you start to talk about movement within market; we have seen some movement outside of the city core, but it's a little bit more difficult to measure. But our data is real solid on the state to state migration.
Nicholas Joseph, Analyst
Thanks. That's very helpful. And then maybe, Chris, just on the bad debt; appreciate the conservative policy, when you take into account security deposits, how does that change the equation? What sort of protection do you have already from a security deposit standpoint relative to the bad debt that you wrote off this quarter?
Chris Lau, CFO
Yes. Thanks Nick. Good question. On the balance sheet; so general policy is that we typically have one month, sometimes a little bit more than that in security deposit on each one of our tenants. And as of the end of the second quarter we just about $90 million of security deposit cash on the balance sheet, which as a reminder none of which has been applied for accounting purposes, and calculating of our bad debt. And then, Nick, while we're on the topic, I just want to reiterate a couple of points for people from an overall bad debt perspective. Just keep in mind collections are tracking really well as a reminder I just mentioned this in my prepared remarks, but through July we've collected 96.5% of our second-quarter billings; July and August are tracking very nicely, very similar to the second quarter. And keep in mind, the bad debt policy and approach we've taken this quarter is very consistent with what we outlined on our call last quarter; and really the function of just uncertainty and lack of history in the pandemic so far. And so we've taken a conservative approach, but very importantly our teams are out there actively working with every single one of our delinquent residents on a case-by-case basis; pursuing each of the that are still outstanding from the second quarter and they're already being successful on collecting some of those into the third quarter. And so when those dollars are received they'll be recorded as incremental revenue in that period. We've just been prudent and cautious on the timing of when it's recognized, and I think the key word to keep in mind here is timing.
Operator, Operator
Our next question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question.
Richard Hill, Analyst
Hey, Chris. I want to follow up on your comments about bad debt; make sure I was fully understanding how your policy and how you accounted for it. So my understanding is that you account it for all the rents that you did not collect as cash and then as a result any future collections will be recorded in future quarters is that correct?
Chris Lau, CFO
Let me clarify one thing; so our approach to calculating bad debt always has been and continues to be to evaluate each tenant on a case-by-case basis, and recognize revenue and bad debt if necessary based on the likelihood of collection. It's just that for purposes of the second quarter we've taken a conservative approach to those estimates, and the accrual that we originally booked in the quarter has now been fully collected in cash by the end of July. So I just want to clarify that beginning part and then the second part is absolutely correct. Think of it this way; any dollar that is collected from August 1 onward that relates to the second quarter will be treated as incremental revenues in the period that it's received.
Operator, Operator
Our next question comes from the line of Haendel Juste with Mizuho. Please proceed with your question.
Haendel Juste, Analyst
Good morning everyone. It seems that the operating strategy moving forward is to leverage your record high occupancy and favorable demand to increase rent more assertively into the fourth quarter, which I find interesting. As you head into the winter season, the focus appears to be on retaining occupancy; I understand the overall objective is to enhance revenue. I'm curious about how much occupancy you would be willing to compromise in order to raise rates or whether you believe you can continue to increase rates while maintaining your current occupancy levels. Thank you.
Bryan Smith, CFO
Hi, Haendel. It's Bryan. It's good question. This is a unique position that we're in going into the third quarter with phenomenal momentum; we start to see slow down generally in August and September with families going back to school, kids going back to school, but we're not seeing that this year. So we're in excellent position occupancy wise. The demand is phenomenal. If you look at the delta and demand that I talked about in the prepared remarks regarding June; it continued to accelerate into July. Our applications per rent-ready property in July were up 50% year-over-year and 30% sequentially. So we're seeing just phenomenal demand and we're going to capitalize on that by maintaining high occupancy, and pushing rate where generally we might back off going into the end of the third quarter. I'm hopeful that we can maintain these occupancy levels and have it translate into better leasing rate growth.
Haendel Juste, Analyst
Got it. Thanks Bryan. One for you, Jack, maybe a conversation or some comments around the challenges and opportunities in the development pipeline; is hearing that construction costs are coming down. I am curious what you're seeing out there, what you're hearing and how it's impacting your yields and your desired volumes. Could you be stepping up homes? Your development activity more into 2021 as a result of the strong demand but then also curious on what you're seeing on the cost side and how that might be impacting yields? Thanks.
Jack Corrigan, Chief Investment Officer
Thank you for the question, Haendel. Yes, regarding costs decreasing, we saw a slight reduction in March and April. However, as builders noticed an increase in demand, they resumed their construction and land purchases. Therefore, I wouldn't anticipate further decreases in costs. In fact, we're likely facing record lumber prices, which may add about $3,000 to $4,000 per house. While this won't significantly impact our yield, it does increase overall costs. We've also identified some cost savings in other areas. We continued building during the pandemic, which allowed us to establish solid relationships with many of our suppliers and subcontractors. Looking ahead, we intended to expand our pipeline and production through 2021 and beyond. However, the land we are currently purchasing is primarily aimed at production for 2022, possibly late 2021, so I wouldn't expect any immediate impact from our current land purchases until 2022.
Operator, Operator
Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.
Ryan Tomasello, Analyst
Hi, everyone. This is Ryan on Jade. Thanks for taking the questions. I wanted to get your updated thoughts on the company's technology and specifically the property management platform. At this point would you characterize it as a proprietary and type of technology or is it mostly a hybrid of services provider by third party vendors like a Yardi?
Bryan Smith, CFO
Hi, Ryan. This is Bryan; it's a good question. It's a little bit of a combination as many of you know; we do use Yardi as our back-end accounting system, but the system as a whole is proprietary. We've had we have custom applications that we've built. We've integrated other third-party software solutions; it's a bit of a combination but the real value to the system is how well it's integrated. If you take the example of our leasing platform or Let Yourself In Technology, we've been using that since 2013 and the value of that program is how well it's integrated into our leasing teams one, a prospect tours a home one of our leasing team members is immediately assigned that particular prospect, and can provide excellent service digitally or via phone depending on what the prospect's preference is. So I think the value in the system, there are some third-party applications that have been integrated; there are some custom applications but the real value is and how well it and seamlessly it's integrated. It's something that we're continuing to work on and utilizing kind of the back end foundation of Yardi.
David Singelyn, CEO
Ryan, it's Dave. I want to add something regarding the proprietary side. As Bryan mentioned in his prepared remarks, we were able to quickly adapt our maintenance programs over the last three months. As we noted during our previous call, we initially slowed down maintenance when the pandemic began, but we were able to swiftly reconfigure our technology platform, obtain PPE, and efficiently serve all our residents. By the end of the quarter, we had no backlog in our maintenance, demonstrating the flexibility and responsiveness of our proprietary technology, which enables us to react quickly.
Ryan Tomasello, Analyst
Great, appreciate all that color. And then with the increase in demand for single family housing that we're seeing, are you interested in pursuing additional JV opportunities to expand into maybe adjacent home types or markets in order to further scale the business overall.
David Singelyn, CEO
Yes, Ryan, it's Dave. You're absolutely right; the demand for single-family rentals is extremely strong. We see a significant opportunity to increase our inventory, primarily through our development program because it offers better economics. Additionally, we plan to supplement it by sourcing from national builder inventory or MLS inventory. Jack mentioned the initiative to expand our development program, and we are actively pursuing more land acquisition. This will yield greater benefits in the latter part of next year and into 2022. We are also in discussions with several national home builders to explore further opportunities, whether that involves adding them to our books directly or through joint ventures, and we will make that decision when the right opportunity arises.
Operator, Operator
Our next question comes from line of Jeff Spector with Bank of America. Please proceed with your question.
Jeff Spector, Analyst
Great. Good morning. Thank you. I guess one follow-up to that topic on markets based on the strong demand and surveys applications, are there certain markets that are surprising you where you're seeing move-in trends markets that you are considering to enter? Any changes from your prior strategy on markets.
Bryan Smith, CFO
Hi, Jeff. It's Bryan. When examining the individual markets, there are some changes you would expect in the current environment. We've noticed some softness in Las Vegas due to tourism; however, we're really pleased with the high level of demand in our existing portfolio. Additionally, I appreciate our strong portfolio diversification, which means we are not overly reliant on any single market or industry and its impact. On a surprising note, the Orlando market has shown robust payment and good collections, even with some softness in occupancy. The Las Vegas market has fully recovered from a slight decline at the beginning of the crisis and is now posting strong occupancy numbers in June and July, which reflects interstate migration trends. Overall, things are progressing as we anticipated in each market, with widespread strength.
Jack Corrigan, Chief Investment Officer
Jeff, this is Jack. I would like to add that we are growing in 15 markets where we have conducted extensive research on demographics, including population and job growth. We strongly favor these markets, but we continue to monitor demographics in our other 20 markets to evaluate the potential for growth there as well.
Jeff Spector, Analyst
Thank you and my second question, I'd like to focus on the work from home; given it's such a key topic and clearly through the demands and applications you mentioned one of the positives of your product is let's say that extra room to work from home. I guess can you provide any details on your current renter base. How many are actually working from home on the applications or website traffic? Like can you talk a little bit more about that and just trying to get a feel for how permanent this shift is?
Bryan Smith, CFO
Yes, Jeff, it's challenging to quantify precisely. We had stay-at-home orders in most of our markets, leading to a significant number of people working from home. Interestingly, even before the pandemic, we developed a community outside of Seattle that had a relatively long commute to the city center, but the demand was remarkable when we launched the new units; they filled up immediately. We were thrilled with the demand levels and closely examined where our prospects and future residents were employed. They were primarily technology workers who were either fully remote or commuting to Amazon or Microsoft just once a week. We noticed this trend before COVID started, and once the pandemic occurred, it accelerated significantly, sometimes due to legal restrictions, but I believe some trends will ultimately become permanent. For example, Google announced they would continue working from home until the middle of next year, and Zillow, the tech real estate company in Seattle, made a similar announcement. We're witnessing a major trend, and I anticipate that a large part of the work-from-home arrangement will persist. This aligns well with our strategy, as Jack mentioned, affecting how we design our homes and some of our model layouts and plans. We're benefiting from having that extra space; the additional bedroom is highly preferred based on the feedback we've received from prospects over the past few months.
Operator, Operator
Our next question comes from line of Buck Horne with Raymond James. Please proceed with your question.
Buck Horne, Analyst
Yes, hey, thanks. Good morning. I was wondering if you could go through maybe the economics of operating an entire community that you purpose-built for yourselves, and how do the economics and operation of that differ from if you're maybe doing a smaller pod of more infill homes in a market, and/or what economic differential is if you're buying some units from a national builder maybe in one of their master plan communities. How does how the numbers differ between those types of development?
Bryan Smith, CFO
Yes. Hi, Buck. That's a good question. When we purchase from national builders, we typically do so in two main ways. Firstly, if we place a large enough order, we can specify the requirements, which means the maintenance is not significantly different. Alternatively, we might buy during quarter closeouts when they are willing to sell existing products at a discounted rate. In these instances, it is somewhat of a mix between our standard purchasing and developing new homes. Regarding community sizes, whether we have a large community of around 80 to 100 lots versus a smaller infill location with 20 lots, the differences aren't substantial. There are advantages, particularly during lease-up periods, for larger developments like those with 150 units, which helps with getting them leased. For larger projects with 20 lots or more, we can manage the landscape maintenance, which helps maintain a fresh and appealing appearance, providing a significant benefit for us.
Jack Corrigan, Chief Investment Officer
Yes and Buck if I could just add a couple of things too. The larger communities especially when we're phasing in the deliveries give us some really nice pre-leasing opportunities. We have visibility into exact dates when homes will be delivered. We're still working through that program, but I think that there's going to be a lot of upside on that going forward. And then finally another thing that we've been working on that I think is facilitated by the larger communities is the opportunity for ancillary revenues surrounding connectivity, and some smart home features that are more difficult to apply to the regular portfolio of disparate assets. So we're working on some technology there that I think will be very valuable to the residents.
David Singelyn, CEO
Yes, hey, Buck. It's Dave. You'll have all three of us on this. Let me contrast your question about the national builder with our in-house development. The benefits that Jack and Bryan outlined are indeed true; our operations are significantly improved for maintenance since we build with that in mind. Additionally, there are investment advantages. We can construct better homes at a lower cost because we don't have to pay the developer's profit or incur sales and marketing expenses. This means we not only achieve better maintenance but also benefit from reduced investment when developing homes ourselves.
Buck Horne, Analyst
I really appreciate all that information, it’s very helpful. For my second question regarding renewals, could you share your thoughts on pricing for renewals? What types of offers do you have planned going into September and October? How are you planning to increase renewal rates from this point forward?
Bryan Smith, CFO
Hey, Buck. It's Bryan. So we went out flat as in July and then and started instituting increases for August, but we didn't do it in every market; there were a couple of markets where we had some softness that we really wanted to kind of test the environment, and get more information as to whether people were going to be, economies were going to be opening up or whether there was good news coming. We got some additional confidence in operations to continue to push those rates into September, October and November and although we're not back to kind of pre-COVID levels; we're moving in that direction. So September for example had increases in all markets on average, and as you move into the October, November time frame, I think you can think of it in terms of offers in the high 3% range.
Operator, Operator
Our next question comes from the line of Dennis Harder with Credit Suisse. Please proceed with your question.
Douglas Harter, Analyst
Thanks. Chris for something that's kind of the one-time impact this quarter, can you talk about kind of how those are going to progress over the next quarter or two kind of based on where we are in reopenings and various state rules and regulations?
Chris Lau, CFO
Sure. Let me kind of carve them back out for you again; the three largest components, the first two really coming down to collections impacting both rents and then obviously our chargebacks and expenses as well. I think it's a function of how collections trend from this point forward as I shared or as we all shared in our prepared remarks, July is tracking very nicely similar to second quarter and the beginning of August is as well, but from this point forward I think it's going to be a function of how collections continue to trend. Also recognizing that we should be seeing some benefits, and are expecting; and already beginning to see some benefits from the recovery of our second quarter outstanding receivables that we took a conservative position on from a revenue recognition standpoint in the second quarter. So I think it's going to be relevant that we continue to watch collections to rent and then also chargebacks, but it's going to be a function of the ongoing collections environment as I mentioned is tracking well so far, but there's still uncertainty ahead of us as well.
Operator, Operator
Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.
John Pawlowski, Analyst
Hey. Thanks for the time. The build-to-rent pipeline, the economics of it are going well in terms of total portfolio. I just like to better understand case studies and project level economics of when things go wrong because I think it's important as a pipeline ramps to understand the risk behind it. So could you give some color Jack or Bryan when communities go sideways on you guys by what margin are your yields missing original underwriting and how slow of lease of pace is for the projects that are kind of laggards within the pipeline? What does that look like?
Jack Corrigan, Chief Investment Officer
Hi, John. This is Jack. Thanks for the question. We haven't experienced many issues. When you mention problems, we've encountered a few situations where we underestimated our rents by 10%, but we haven't had any major setbacks in expenses. I'd say there have been two or three projects where once they were leased up, the rents turned out to be 10% lower than we anticipated, while there were others that were 10% higher, which balanced out. Once leased, we start adjusting the rents back to normal. One mistake I made early on was building from the back to the front instead of the other way around, which led to potential residents having to deal with a lot of construction traffic. In those instances, lease-ups were slower, and we offered pioneer pricing to those willing to endure that. However, once these projects were fully leased, rents began to return to the expected levels. We're generally quite good at underwriting our projects.
Operator, Operator
Our next question comes from the line of Dennis McGill with Zelman Associates. Please proceed with your question.
Dennis McGill, Analyst
Hello. Thanks for taking my question. First one, I think would be for Chris. Can you on the 92% of July collected in July; can you tell us what the year ago July was? I just want to clarify.
Chris Lau, CFO
Good question. I don't have exactly a year ago off the top of my head, but keep in mind you can use second quarter as a proxy of what we've collected there at this point in July. We're tracking it over 99% of second quarter levels.
Dennis McGill, Analyst
In second quarter would be about 300 basis playing below second quarter 2019?
Chris Lau, CFO
No. It's important to note that bad debt typically ranges from 90 to 1000 basis points. Additionally, payment times and cycles have increased slightly, making it not entirely fair to compare July this year to July last year. A more relevant comparison is how we are performing relative to the second quarter, keeping in mind the longer payment cycles. We will provide another update as we progress further into the quarter, but so far, I am pleased with the payment patterns and our experiences up to this point.
Operator, Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.