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Edited Transcript of SFR earnings conference call or presentation 28-Feb-17 3:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Colony Starwood Homes Earnings Call

Oakland Feb 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Colony Starwood Homes earnings conference call or presentation Tuesday, February 28, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Christie

Colony Starwood Homes - Director of IR

* Fred Tuomi

Colony Starwood Homes - CEO

* Charles Young

Colony Starwood Homes - COO

* Arik Prawer

Colony Starwood Homes - CFO

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Conference Call Participants

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* Jade Rahmani

Keefe, Bruyette & Woods - Analyst

* Anthony Paolone

JPMorgan - Analyst

* John Pawlowski

Green Street Advisors - Analyst

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Presentation

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Operator [1]

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Greetings and welcome to Colony Starwood Homes' fourth quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today's call, John Christie, Director of Investor Relations. Thank you. You may begin.

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John Christie, Colony Starwood Homes - Director of IR [2]

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Good morning and thank you for joining us today. Yesterday afternoon, we released financial results for the quarter ended December 31, 2016, and posted a supplemental report of financial and operating information on our website. These documents are all available in the Investors section of our website at www.colonystarwood.com.

On today's call are Colony Starwood Homes' Chief Executive Officer, Fred Tuomi ; Chief Operating Officer, Charles Young ; and Chief Financial Officer, Arik Prawer. They will make some remarks on the Company's performance and then we'll open the call to your questions.

Before we begin, we would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends, risks, and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

We refer you to the Company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The filings are available on the SEC's website, or at colonystarwood.com.

The Company undertakes no duty to update any forward-looking statements that may be made during the course of this call other than required by law. Additionally, certain non-GAAP financial measures will be discussed on this conference call. This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are available in the supplemental report which can be accessed in the Investors section of our website. And with that, I'll now turn the call over to Fred Tuomi.

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Fred Tuomi , Colony Starwood Homes - CEO [3]

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Thank you, John. Welcome to the fourth quarter 2016 earnings call. I'll begin this morning by highlighting our fourth quarter and full-year 2016 results, followed by a review of our strategic goals and commitment made at the outset of last year. Our first year is a newly formed Colony Starwood Homes.

Finally, I'll comment on our 2017 outlook and guidance which supports our expectations of another year of strong results for our industry and for our Company in particular. Charles will speak to operations and Arik will then provide additional details on our fourth quarter performance as well as 2017 guidance.

Our fourth-quarter operating results reflect the strong demand we've seen all year for our concentrated portfolio of high-quality rental homes in high-growth markets. They also demonstrate the dedication of our talented and experienced team members, who continue to find ways to further our leverage our platform and operate our business more efficiently and effectively. We are working smart to make renting easy.

At the end of the fourth quarter, occupancy of our quarterly same-store portfolio of over 28,000 homes was 95.5%. Year-over-year quarterly same-store revenue growth of 5.4%, combined with an 8.8% reduction operating expenses produced same-store NOI growth of 15.5% for the quarter.

Our fourth-quarter same-store core NOI margin was 66.2% with five of our markets achieving margins greater than 70%. For the full-year 2016 same-store set, occupancy was 95.9%; blended rent growth was 4.8%; core NOI margin was 63.8%; full-year turnover was 34.7%; and our 2016 core FFO was $1.69 per share.

All of these key metrics met and exceeded the original guidance we provided at the outset of 2016, just prior to the closing of our merger. In terms of investment activity, the acceleration of acquisitions that began in the third quarter continued into the fourth quarter. We purchased 549 homes in the quarter for a total investments of $132 million, or about $240,000 per home.

These homes are primarily located in our target markets of Charlotte, Phoenix, Nashville, Denver, and Dallas. They were purchased through multiple channels, including 138 homes acquired in small portfolios and a delivery of 63 build-to-rent homes. For the year, we acquired 1,079 homes for a total investment of $263 million, or about $244,000 per home.

We continue to see attractive acquisitions opportunities in our strike zone, and have encouraging pipeline in place as we enter 2017. Reflecting back over a year ago, just prior to the closing of our merger, we identified six key strategic priorities and commitments for 2016. Here's how we ended the year on each.

First, we said we would complete the merger of Colony American Homes and Starwood Waypoint in a swift and seamless manner and produced $40 million to $50 million in annual run rate expense energies. As we've discussed in the past, we were effectively managing the combined portfolio on a single Colony Starwood platform from the day of closing and by mid-year, we delivered well above the targeted $50 million of annualized energies.

Second, we committed to driving core operating results through revenue growth and expense management. For 2016, we achieved full-year same-store revenue growth of 6.2% and same-store core NOI growth of 11%.

Third, we stated we would simplify our business by winding down the NPL platform. In August, we completed the sale of substantially all of the NPL portfolios for $265 million, using the proceeds to pay down associated debt and fund core home acquisitions.

Fourth, we said we would improve and strengthen our balance sheet. By year end, we had extended maturities and reduced interest costs by executing two securitization transactions and reduced our total debt by $350 million. Further, we increased our fixed rate debt from 10% in January of 2016 to over 80% as of today.

Fifth, we indicated our intention to be patient and prudent allocators of our investors' capital. By year-end, we lowered our debt; optimized our portfolio through non-core asset sales; and accelerated acquisition activity in our high-growth but underscaled markets.

And finally, we committed to enhance our financial and operating disclosures. Throughout 2016, we delivered and expanded an improved supplemental package, including guidance on key metrics and detailed operating results for our sizable same-store portfolio.

Needless to say, we are very proud of these accomplishments. But most importantly looking forward, we are excited about 2017. Regardless of one's view of the world or outlook of the US economy, the demographic fundamentals supporting demand for the single-family rentals should remain robust through 2017 and for the next several years ahead.

The growing number of household shifting into our target age and life-stage cohorts support this expected demand. We intend to seize this opportunity and use our competitive strengths, which include the cost of capital, market mix, market density, operating scale, margin advantage, technology platform, and management expertise to support significant growth of our portfolio.

Our guidance for this year indicates double-digit growth in core FFO per share, driven by strong same-store revenue growth, continued expense optimization and increased acquisition activity. This is a great time to be in our business and our guidance reflects our continued confidence and our ability to deliver superior results. Now I'd like to turn the call over to Charles Young.

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Charles Young , Colony Starwood Homes - COO [4]

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Thanks Fred. I'll provide some details on the drivers of our fourth quarter operating results, and provide some color on our operations outlook for 2017. The fourth quarter is typically a seasonal slower time for renter demand in our business. That's why we utilize our sophisticated leased expiration schedule to minimize the number of lease expirations during the slower demand quarters of Q4 and Q1.

Because of this approach, our quarterly same-store portfolio have fewer leases expiring in Q4 compared to Q3. Our Q4 annualized turnover rate was 30.4%, which contributed to a 34.8% turnover rate for the year. We renewed about two-thirds of our 4,521 leases that expired the quarter, similar to the renewal rate we saw in Q3.

For the quarter, 3,004 renewals commenced at a growth rate of 4.8% and ranged from 8.3% in Denver to 3.3% in Miami. As we've noted before, growth in replacement rent is more prone to seasonality. We had 2,169 replacement leases commence at a growth rate of 1.9% in Q4.

Changes in replacement rent varied widely from a 9.5 % increase in Northern California to a 6.2% decline in Houston. The drop in Houston replacement rent was driven by our goal to boost occupancy during the slower winter leasing season.

We have already seen the effects of this effort and as of February 23, same-store occupancy in Houston had risen to 96.1%. Combining rental income and continued strong growth in fee income, total quarterly same-store revenue was up 5.4% year over year. On the expense side, our same-store property operating expenses were down 8.8% year over year in Q4.

Lower insurance costs are a key driver but we also achieved a year-over-year decline in repair maintenance expenses. This is being driven by several factors we expect will continue in future quarters. As more of our residents settle into their homes for an average three-year stay, we are enjoying significant reductions in repair and maintenance cost line.

Educating our residents about their responsibilities for maintaining their homes and our access to continually improving and wide-ranging suite of self-help tools is also driving costs lower, both for us as well as our residents. Our technicians are also becoming more efficient, taking on a greater number of work orders without an increase in staffing.

Using our Atlas technology platform, our in-house staff can plan in advance of each work order to achieve a more intelligent dispatch and better route optimization. National procurement programs are leading to lower material cost and better warranty usage. Finally, market density enables us to achieve better pricing with our external vendors.

Combining revenue growth and expense savings, Q4 2016 same-store NOI growth was 15.5% year over year. For the full-year 2016, we delivered industry-leading results in a number of key operating metrics. Turnover of 34.7%; 95.9% occupancy; same-store blended rent growth of 4.8%; and core NOI margin of 63.8%.

Through expense optimization and scale, we have maintained our property management cost at approximately 5% of revenue. We are preserving that edge by further optimizing our field structure. Since January 2016, we've increased our field employee utilization by 50% to 95 homes per property level employee, a great example of the benefits we are harvesting from our market density.

Looking at 2017, we will continue to focus on using our technology and our market density advantages to drive revenue, operating efficiencies, and NOI growth. We expect our strongest performing markets will be those characterized by continued strong job growth in our more seasoned portfolios including Denver, Northern California, and Phoenix.

We expect Houston will underperform the rest of the portfolio with stable occupancy and growth in renewal rents, offsetting continued softness in new demand. We anticipate our most improved markets will be in Florida, where the benefits of the portfolio seasoning are starting to translate into lower expenses and higher operating margins.

For example, in Miami, we've seen same-store core NOI margin improve from 54.4% in Q1 2016 to 62.6% in Q4 2016. In Tampa, our same-store margin improved from 59.4% in Q1 2016 to 64.9% in Q4 2016.

Lastly, I'd like to highlight one aspect of our business which illustrates the revenues, customer service, and competitive advantage potential of our rental home portfolio. Our unique smart home technology, which enables systems in the home to be controlled remotely, is proving to be a growing source of expense control, and ancillary revenue.

Residents are introduced to our smart home technology during the leasing process, when they are offered the option of visiting the home on their own. Today, over 60% of our prospective residents are choosing this self-show option. This makes our leasing consultants more productive while demonstrating to the customers the benefits of a high-tech rental home.

Upon move-in, our residents can subscribe to the smart home service for a monthly fee. In some markets, the adoption rate is running as high as 65%. We currently have smart home technology installed in 95% of our vacant-ready homes. We are excited about the opportunities smart home can provide going forward.

As I look back over the 2016, it was tremendous year overall and especially on the operation side of the business. We finished Q4 in a strong fashion and put a positive finish on an outstanding year.

I want to extend a heartfelt thank you to our dedicated and talented team members for their hard work and their accomplishments throughout the year. A wonderful team combined with our high-quality portfolio and unique technology capabilities have us well-positioned for another great year in 2017. I will now turn the call over to Arik.

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Arik Prawer, Colony Starwood Homes - CFO [5]

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Thank you, Charles. Today, I will provide some color on our financial results, update you on a couple of important capital markets, and balance sheet management event that took place in January, provide an balance sheet overall update, and conclude with our 2017 guidance.

For the three months ended December 31 2016, the Company recorded revenue of $146.4 million. On a GAAP basis, we recorded a net loss of $10.5 million, or $0.10 per share, which includes depreciation and amortization. Core FFO for the quarter was approximately $51 million, or $0.47 per share.

For full-year 2016, core FFO came out at the top end of our guidance range at a $1.69 per share. Strong operating metrics for same-store occupancy and revenue growth, along with early achievements of merger synergies and overall reduction in same-store expenses drove the solid 2016 results.

Stepping back for a moment to reflect upon the significant steps we made in 2016 to enhance and simplify the balance sheet. It's worth highlighting the following. We came into the merger over a year ago, with over $1.5 billion of warehouse financing in multiple structures, a balance sheet comprised almost exclusively of floating-rate financing and a complicated non-core NPL business.

In short, we termed out or paid down substantially all of the $1.5 billion of warehouse financing in two $500 million cost securitization transactions. Moreover, we entered into very well-timed and executed swap transactions to effectively fix those financings at 3.3% and approximately 3.6%. Overall, we managed our fixed rate debt from just 10% a year ago to effectively over 80% today.

In addition, we completed a well-executed $300 million convertible note offering this past month, which effectively refinanced our convertible notes due 2017. This had the impact of lower interest expense, extending maturities and increasing the conversion price by over $7 per share from the prior convert.

importantly, this also effectively addressed debt maturities through 2019. We also exceeded our own timing expectations, in substantially exiting the NPL business last year, thereby simplifying our overall business to focus on core single-family rental as well as redeploying the capital to fund acquisitions and pay down debt.

So 2016 was an active and productive year overall and in particular, from a balance sheet point of view, we ended the year with a longer debt maturity profile, no near term maturities, a lower overall quantum by over $350 million, lower overall costs and substantially fixed rate profile. All of this has put us in a much stronger position to support future growth.

Looking ahead, we will remain focused on improving our balance sheet by continuing to extend maturities, mitigate interest rate exposure, diversify our funding sources and lower leverage over time.

Finally, I'll discuss our guidance for this year. For full-year 2017, we are projecting core FFO per share in the range of $1.85 to $1.95. This represents double-digit growth over the prior year. We had a robust same-store set of over 28,000 homes, along with an operating platform that continues to deliver strong results. This, in conjunction with a strong macro backdrop of rentership, supports our outlook for the year.

Specifically, our operational assumptions for 2017 include same-store occupancy averaging between 95 % and 96% for the year; turnover of 34% to 36%; same-store revenue growth of 4% to 5%; same-store expense growth of 2% to 3%; and same-store core NOI margin of 63% to 65%. In terms of capital allocation, our acquisition target is $300 millions to $400 million.

This excludes any significant portfolio transactions. We anticipate a monthly run rate of $30 million for a single asset acquisition. We will continue to grow the build-to-rent pipeline; opportunistically review small to midsize portfolios, generated from our outreach program and remain positioned to act on large portfolio transactions.

We ended last year with a $900 million capital recycling program. I am pleased to announce that we are over two-thirds through that program with the remaining $300 million of assets earmarked for future dispositions. We expect $150 million to $250 million of dispositions in 2017 as we continue our ongoing portfolio optimization program.

And so in conclusion, we finished our first year with industry-leading operating results, solid earnings, and a strong balance sheet. As Fred mentioned, we met or exceeded all of our key metrics, which we laid out at the beginning of last year and landed at the high-end of our revised FFO guidance range.

I want to thank all of our dedicated team members in the field and the corporate office for driving such strong results all around. We look forward to the opportunities in 2017 and have a platform, asset base and geographic footprint to continue to deliver solid returns for our shareholders this year and beyond. I'll now turn it over to the operator for questions.

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Questions and Answers

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Operator [1]

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Thank you.

(Operator Instructions)

Handles injuries with Mizuho. Please proceed with your question.

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NEW SPEAKER [2]

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Question for you on the expense outlook. I know in 2016 a tough act to follow. But I'm curious as to 2% to 3% growth that your outlining. Can you talk about what you're seeing some of that pressure again in ascendant year. Concert tough but maybe there are opportunities to reduce some on the cost side. And then as part of that can you talk about your turn times during the fourth quarter and what your unit your target for year-end?

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NEW SPEAKER [3]

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Sure handout, in terms of expense growth the easy way to think about 50% of our expenses are really not controllable taxes in a insurance the be completed is little over 40% of our expenses. We are forecasting as the municipalities catch up to the recent HPA transfer. Worked forecasting about 6% growth in that line item. And then were forecasting a little on the control side little bit of savings year-over-year. That a way of disaggregating and in terms of the turn times I'll let Charles --

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NEW SPEAKER [4]

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It's Charles. Two questions I heard there around further opportunities for efficiencies and intern time. And efficiencies point of view as you know the scale and density that we've created through the merger Eva some great low hanging truth that we took advantage of and 16 but we still have some of that to work on. And in 17 further opportunities to find efficiencies in our in-house technician use which moved up throughout the year. With opportunities within our supply chains to find lower-cost we took on a deal with a large manufacturers that I got to pay dividends to be -- that was spent a lot of our time on our proactive and reactive strategies meeting that we've been able to avoid calls up to 22% which is an increase from mid-teens in 2015. Our platform also allowed us to kind of go back and work on vendor warranty items which will give us a benefits for fiscal year 2016 we complete about 60% of our all of our service calls in house. We want to try to move that up a little higher. So that's we're some of the going through. Ultimately in our top five CapEx convoys we were able to bring those down to 9%. We want to push that further in 2017. The real good up opportunities. And I down time we made good progress we started a year with of his the coming out of the merger. We were pretty not where we want to beat we set a goal of 40. We got to 43 in Q3 we moved up a little higher in Q4 to the high 40s. Some of that is seasonality. Our goal for the year is to for 2017 is to get out a 40 days across all of our markets. We have had a lot of markets that are already doing that. We have some markets are at 29 days two or three markets are in the 30s. We know it's doable. We to get that rolled across country.

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Fred Tuomi , Colony Starwood Homes - CEO [5]

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Handout, this is Fred. We've harvested some through 2016 the obvious things but that for treat is Monday tough and we of ways to go. And will never stop making more efficient use in the more effective.

And we are intelligent platform with information with analyze information and to deploy new technologies in the field to our customers and far field employees back here. So we're excited about that here. We'll never stop making stepwise improvement and we've got long list of opportunities yet to harvest.

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NEW SPEAKER [6]

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Got it. Continue along those lines. You mentioned $50 million of merger synergies last you. I'm curious if there's anything left on that front as you assess the opportunities ahead of you. I guess beyond the obvious concentration of clustering benefits, I'm wondering if there's anything tangible maybe more material on this type of synergy front. That you think you can possibly attain this year.

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NEW SPEAKER [7]

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I think related to what you're just talk about. I would call the merger synergies anymore. We are done with that. We are substantially complete the process and harvesting dosages by midyear 2016 but we are not stopping there. Now we don't look at so much as merging two companies and how do we eliminate unnecessary expense than synergies.

We want to call them optimizations. We dividends portfolio as Charles mentioned that we have the technology platform with people. Become better and better what they do on a daily basis. There just ongoing efficiency improvements and we got plenty of those. Charles didn't stop at the merger plan when he optimize staffing the field extra. That was first that. We really do that.

Plan in place pre-merger. We implemented at the end of February 16. That is already organized and consolidated making great efficiencies in staffing and headcount in the fields. At least two rounds. Of significant through 2016 and had more the pipeline. It's just more optimization versus calling them really merger synergies sort of over that now.

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NEW SPEAKER [8]

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Got you. Got you. One final on the balance sheet Arik for you. You mentioned the improvement on the balance sheet side. EBITDA basis about 12 times. With the target year and for 2017 and what you think is a right long term target and when do you think you will get there.

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NEW SPEAKER [9]

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Thanks handout. If you look at the way that the EBITDA given today, it's actually net to EBITDA. It's in the 11 --, we're taking this lower leverage in the best way to see where were going is a recent history of where we've been. We just a $50 million last year. We are not going to grow the point of view with no leverage or underlevered relative to our complex.

So you'll see us getting into the single digit range and that the combination of growing the top line and continuing to pay down -- growing the EBITDA and continue to pay down the debt. I think embedded in that is longer-term, we see unsecured capital be available to this base. Those leverage levels are for other assets classes are lower, we think that this asset class given lack of development expense, and the fact that it's worth just as much or not or occupied. That debt EBITDA leverage level maybe higher for this industry. With that said, we have a path to getting single digits and then beyond.

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NEW SPEAKER [10]

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Got it. Got it. Okay. Thank you.

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Operator [11]

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Jade Rahmani, KBW. Please proceed with your question.

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Jade Rahmani, Keefe, Bruyette & Woods - Analyst [12]

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Good morning everyone this is actually Ryan on for Jade. Thanks for taking my questions. And just wondering if you can provide some commentary on what you technologies invested year making that you think you are that you think have the greatest potential of a drive improvement on whether NOI our expense management 10 over tension or resident release days anything you can comment on.

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NEW SPEAKER [13]

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In my opening statement, this is Charles. In my opening same and I spent a little bit time on the smart home we've implemented throughout the portfolio. It really has benefit the multiple fronts. You know, one during construction minimizes the lock change in the number of keys that we have to have. It minimizes the utility costs as we control the temperature in the units.

Gives us access you know who's there minimizes the impact of that the surprise of items disappearing. It ultimately it's created a lot of convenience and efficiencies for our leasing professionals. We've been able to double their productivity over the year. A lot of that is because over 60% of our showings that are self showings through the technology.

That ultimately we were able to sell as a monthly fee to our residents post movement and we just started that process. We early in the markets that we've really good adoption of worth of 65% several fronts we see that adding a lot efficiencies coupled with our call center we see some benefits on the leasing side obviously it had some impact on the utilities and maintenance side so we're optimistic in the long-term.

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Jade Rahmani, Keefe, Bruyette & Woods - Analyst [14]

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Just moving on to capital, can you provide some commentary on just how you evaluate equity issues overall? Particularly if you look at it relative to NAV or cap rate or earnings and earnings multiple?

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Fred Tuomi , Colony Starwood Homes - CEO [15]

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Yes Brian. This is Fred. Those are discussions we had with our part on an ongoing basis. Each opportunity we have to meet with our board. We discussed those concerts in the capital needs for the Company the capital sources for the Company which are diverse and then the opportunity out there to deploy the capital and then the time horizon was the right time to use various forms of capital including equity.

We've had numerous discussions will continue those discussions with the board but were not going to comment anything specific in terms of our viewpoint on that specifically so. Just suffice to say we really appreciate the one up in all of our sectors evaluations which makes it more encouraging. Those are discussions with the board. Will just wait until we have a definitive view.

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NEW SPEAKER [16]

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One more if I may is regarding growth opportunities. You mentioned the build to rent strategy. Ages provide some commentary on the current outlook for the M&A market M&A if you see an increase in both performance and market for sale?

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NEW SPEAKER [17]

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Both portfolios does come probably be between. We looked at several over the past 12 months. We've got a couple we played now. But those are longer-term a process. It's more difficult the counterparties have a lot of more issues the portfolios are more diverse in terms of geography and quality. So it's just more difficult to really fire off those transactions.

Of course the buyers want to break them up. The sellers don't want to do that. It takes time to get to a point. We are seeing a more encouraging pace in the small portfolios. They're not as efficient as a large once but there more at the markets you can execute more on those. Just as an example our current pipeline that we have coming into 2017.

We've got just about 1200 homes in some form of agreements. That may be under contract. It may be LOI, and maybe negotiations. Of those 1200, it's roughly half between new build and small portfolios and bites small portfolio I mean it could be the small as 10 in be 50. It could be 200 but certainly not in the thousand range. So there's it seems to be a good steady supply of small portfolios new players that had these homes that are willing to peel off either a section of them or all of them.

So we've had good traction lately on through Q3, Q4 and more excitedly through our problem that we've had so far this year looking to 2017. So those are there at the long ones. A large portfolios as I said the longer process and then M&A that's just more of a situation comes up more frequently, we are anticipating some of that over the next year or so. I expect to be in active participants.

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NEW SPEAKER [18]

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Great. That's for taking my questions.

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Operator [19]

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Anthony Paolone with JPMorgan. Please proceed with your question.

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Anthony Paolone , JPMorgan - Analyst [20]

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You may have just answered this for me but in thinking outlined for new builds and how that plays into the $30 million a month deal run rate is that about half it sounds like? Or some other number?

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NEW SPEAKER [21]

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Tony, the numbers about the pipeline but 1200 homes currently under a former agreement. Have new build have small fully us. That's over and above our normal single asset acquisitions strategies which is about $30 million per month run rate. So that's in addition to.

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Anthony Paolone , JPMorgan - Analyst [22]

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Okay, got it. And is there any contemplation around warehousing land you started going talk about that path a little bit how do you think about that?

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NEW SPEAKER [23]

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We decided not to go that path just at this point of our Company's stage. We are able to roughly hundred new build that we have the pipeline. We have relationships that we have already consummated it was about 15 different builders. Some are small local regional summer large national. With that about another 20 builders that are in active discussion.

So we have plenty of action on that channel. During deeper into it is a possibility. I don't prefer to take that risk on our balance sheet right now in terms of buying undeveloped land. Are taking construction on our balance sheet at this point in time. We're happy to have a diverse set highly capable builders out there on a regular basis completed homes on a regular basis. Come in the capital upon completion and quickly get a lease revenue producing

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NEW SPEAKER [24]

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I'm just trying to understand physically are you buying things like you by just a bunch of house on one block and the development

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Anthony Paolone , JPMorgan - Analyst [25]

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For some of the last ones available to build inventory. How does work?

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NEW SPEAKER [26]

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The answer to that is yes. To all those options.

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NEW SPEAKER [27]

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Some bidders love to get some momentum going and then new communities like for us to buy a strip of homes upfront, just to get it going. Some builders get a little bit of fatigue at the end. They're trying to close out an existing communities and have maybe 10 or 15 training dose remaining homes. Great uptick for that's a big close up shop to move onto the next one. And someone just sparkled in between. So some are local builders are fine. Great opportunities that have not yet taken down in various communities and we'll go exit cute those communities. We are excited that we already have seven fully contained communities that are 100% build to rent rental communities. They're not way out communities from 30 to 50 to 100 homes to build fully contained a complete rental communities which is a full concepts.

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NEW SPEAKER [28]

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Okay. And then can you comment on acquisition yields that you think you will achieve in 2017 on the these?

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NEW SPEAKER [29]

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Acquisitions deals at remain fairly confident. We're seeing NOI yields cap rates 5% to 6% depending on the market. We're buying in Denver. Were on the lower end of that. On the upper and Charlotte national Atlanta Dallas. Were fully loaded expense loaded numbers.

The way that I look at this especially now is we continue to buy homes. It's not only the yield that we expect to get, but the way we underwrite them as with full burden of property management. In actuality, as we onboard homes, we're not adding any additional property management overhead.

You're going to see anywhere from 40 to 60 basis points higher in actuality and when you look at our sub scale markets like Charlotte, Raleigh, Nashville and to our extent in Denver and partially in Phoenix, those markets aren't yet at the full optimization scale. Everyone that we had not only the homecoming and a better yield that we underwrite but the existing homes become more efficient and more effective. So it's a compounding effect as we build out these subscale markets in terms of overall portfolio efficiencies.

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NEW SPEAKER [30]

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Okay. And just last question. On the 4% to 5% same for 2017 which contributions things like and ancillary revenue and driving that?

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NEW SPEAKER [31]

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Is a small but growing contribution as tall mentioned we are very encouraged by the initial take rate or absorption of the smart home technology. But we're still in the early stages of deploying the residence. On the turn for a couple of years now. We've been using it as a self showing tool for well over year. We've got great adoption there. We've got almost two-thirds of our showings are done through the smart home. But we just recently started rolling it up to the resident base. A couple test markets like Phoenix, Las Vegas, and Texas.

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NEW SPEAKER [32]

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So we are seeing very encouraging results. Were going to ramp up steadily but we won't have a meaningful impact until 2017. Ancillary revenue, the first felt low hanging fruit of ancillary revenue is really just stopping the leakage. Revenue leakage. By not getting every charge that you're legitimately doing at the lease. That includes optimization of Lovies determination fees, damage fees, et cetera. And so we started off pretty good with that. But we still have room to improve.

We've got a lot of that in 2016 and we will continue to do that in 2017. All those are kind of baked into our guidance. Other types of ancillary revenues, such as cable, participation, Internet participation, et cetera. We met early in the stages in the discussion. It's a little more attractive deals done couple decades ago in multi-family business.

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NEW SPEAKER [33]

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Okay. Thank you very much.

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Operator [34]

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David with FBR Capital Markets.

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NEW SPEAKER [35]

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Mostly my questions have been answered. Going back to the in-house maintenance. I think you said your targeting over 36% utilization on that. Can you help us understand a dollar amount on that? And then is that the biggest survivor of producing maintenance costs or perhaps is it one of the other initiatives that you're working on?

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NEW SPEAKER [36]

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36 is where we in Q4. We want to get that number up towards 40%. And you know it's hard to put an exact dollar on it. We think about it. We are able to do more with us a number of technicians that we have. In 15 we were averaging about three work orders for technician. Some were getting up six. Five or six. In Q4 of 16, we were over technicians. We're moving that up. We want to continue moving the. That allows us to do more with less. But ultimately a lot of the efficiencies are going to come out of the overall R&M platform as I mentioned boarding calls being more efficient with our use. Using the procurement costs reductions that we met getting to the AC. Wasn't placed last summer peak that will pay dividends. And then there's some seasoning going on in our portfolio as well. As we look at the cost to maintain the numbers will turn back to what we expect that long-term average of 2600 to 2800. You put altogether 2017 you will feel more comfortable on the movement. And in Q4 actually on the cost of maintaining was within the range of 2700 per house per month per year.

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NEW SPEAKER [37]

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David, just a couple of comments to that. There's no real magic number. To in-house maintenance utilization. We met at the high 30s maybe we get to the it's really every single service request automatic technology platform either through a laptop or a residence phone. We dispatched that work in the moment to the most efficient channel. On every single service request we've made a determination whose closest to it who has a right skill set who can get there and the request that timeframe at the lowest cost? So our technology perform platforms that run our service dispatch system excels our calls. So that our venture activity -- we look at whether vendor or in-house is almost a trade. Typically our in-house technicians will take a quick easy ones that would require a little less skill are going to request less time. And then it's really the moment decision based on our technology platform. Our vendors actually operate on our platform. It's not like we have an in-house platform and then we have to get contract the vendors and the process. One platform one process our vendors utilize the same smartphone technologies mobile as our individual employees.

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NEW SPEAKER [38]

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The optimization is big move in 2016. We will continue to pay dividends and 17 in terms of in terms of looking work order is available as friends at and making sure that we're drive time our service to call.

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NEW SPEAKER [39]

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In staffing you never want to staff to the peak because you're going to be underutilized during the troughs. So we see that kind of as it take her optimization process that we can flex up and down as necessary.

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NEW SPEAKER [40]

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Okay. So no magic formula is the answer?

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NEW SPEAKER [41]

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Other than hard work ( Laughter )

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NEW SPEAKER [42]

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Thanks.

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NEW SPEAKER [43]

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Sure.

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Operator [44]

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Dennis McGill, Zelman & Associates please proceed with your question.

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NEW SPEAKER [45]

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First question can we just go back to leverage compositions that you are having? I just want to make sure we are looking at the numbers with the ratio. What that even the numbers for 2016 that you looked at as far as the leverage ratio?

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NEW SPEAKER [46]

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If your adjusted EBITDA numbers and we don't have. Just straight from our financials. We've got a $20 million if you just look at our QA annualized. And then

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NEW SPEAKER [47]

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You made a comment about getting the sickle digits. Was that 27 the comments?

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NEW SPEAKER [48]

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That was a 2017 late run rate comment. So as you look towards at the end of year towards 2017, and where EBITDA is going it's a run rate. Is a run rate.

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NEW SPEAKER [49]

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Okay. Got it. The margin guidance, I guess two-part questions, but what when you look at the guidance for the full-year compared to 2016, it doesn't feel like a whole lot of expansion. I just wanted to see if that was conservative or if there's something just kind of pulls come together. And then kind of along the same lines what with the guidance apply for the overall NOI margin expansion versus just a same-store pool?

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NEW SPEAKER [50]

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The same-store pool is substantially -- this is over 27 20,000 same-store inspired the these numbers no difference there. In terms of the expenses, again, we're again controlled versus not controllable. The controllable excesses we're forecasting 6% I'm sorry that not controllable we're forecast about 6% growth driven by CAC taxes and then we're forecasting a slight as I continued enhancement over the 2016.

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NEW SPEAKER [51]

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Just interpreting that right then if you think about if you're seeing good revenue growth at the moment is its adjusting incremental margin expansion from here is my challenge in? Or is it just a function of how 2017 is playing out?

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NEW SPEAKER [52]

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The functional of this is 100 basis points wider than 2016. Emma member in 2016, we enjoyed you know putting in about $50 million in synergies basically all big in for the whole year. Obviously as time marches, we get more efficient marginal the comes more difficult. With that said, we're still a very innocent in terms of how we in terms of how we procure and utilize human capital.

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NEW SPEAKER [53]

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I would just add that several of our markets have had 70% margins. And we're really proud of that, that 's driven given our number of returns and 16. We're going to maintain is margin. It's going to be harder to get above 75% in Denver where we are right now. Will continue to push and optimize. But the opportunity for extension are really as I mentioned in my remarks what we are in Florida. Were signed to move those up in the low 60s and continue to push and that's where we see some expansion but we're running officially in lava markets right now.

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NEW SPEAKER [54]

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Great last question just on the CapEx I think collectively in 2016 it was a little over 20 700 per home. When you see that in 17 especially comments you are making around the tenants and their calls and so forth? The 2017 a little higher. We are slightly over 1600 on the CapEx site for the year.

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NEW SPEAKER [55]

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Fair enough. 7 we still like to we feel comfortable with our range given that 97% of our portfolio of the combined portfolio is performing below that to an 800 number. We did run a little higher in 16 but R&M side we did very well. Keep in mind on the CapEx side, 64% of what we're spending on the CapEx are on these long life items. Like roofing HVAC plumbing and so we won't have to go back and prove those items. As the portfolio settled and we don't expect that we will have the same level of CapEx you've coupled that with strategic dispositions. We expect that number will come down from where we were in 2016.

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NEW SPEAKER [56]

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Just making sure I'm looking at the right numbers in what you were referring to. 2620 800 compared to those 3025.

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NEW SPEAKER [57]

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If you look at the quarterly pool for Q4, we came in at 2716 when you analyze that number in the supplemental.

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NEW SPEAKER [58]

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And that improvement went down to the 2620 800 is that driven more by the CapEx piece or the repair management in turnover piece? CapEx piece will be the big driver. But we do think there will be further reduction in the repair maintenance side base the previous foundations we've had. But CapEx is going to be them over there.

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NEW SPEAKER [59]

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Okay. Okay. Thank you guys good luck.

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NEW SPEAKER [60]

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Thanks.

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NEW SPEAKER [61]

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Last question's comes from trying 12.

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Operator [62]

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John Pawlowski, Green Street Advisors

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John Pawlowski, Green Street Advisors - Analyst [63]

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Good morning. Can you share the rent growth and you under the opinion of 45% for 17?

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NEW SPEAKER [64]

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Our guidance we put out the key is FFO $1.85 to $1.95 per share. And then we provided some operating metrics that support that. And the revenue growth is for to five. That pretty much mirrors up with rent growth assumption. Versus any kind of occupancy pick up you, maybe a little bit of occupancy available but we assumed occupancy was safe last and it's going to be the rent growth and blended rent growth. The mix between renewal versus replacement it's going to be pretty consistent with what you saw in 2016 I would say maybe a little bit better because we were under little bit of pressure in South Florida which is now much more stable. Houston is a little bit of a still a little bit of an unknown to help that is going to replay, given that we've had really good experience there with occupancy as well continue renewals. So we're not going to give retail guidance in terms of components of that. I could say that it's pretty much between four and five in the mix underneath that would be fairly consistent makes. We according right now January, we achieved renewal increases of 4.7 February is up to 4.8. We according for the next two months 55, 57, 58. So we are going to continue strong renewal through the year. Our placement our seasonal and are flexible with the pedal to the metal during Q2 and Q3. And that justice estate occupancy in two quarters. Thanks. That's very helpful. Could you share move outs and home purchase activities in Q4 2016 was that rate for the same-store pool and the year ago period?

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NEW SPEAKER [65]

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Yes so for the year, there's a little bit of seasonality adds at the blows over each quarter. For the year we around 25, 28% for bought homes. What's interesting though we look at January. That number is down to 20%. And we compare that to January of the previous year it was almost 30%. Where Maxie turned out at least early here in 2017. We're going to see an eye on it.

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NEW SPEAKER [66]

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That's % moving versus a single family home?

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NEW SPEAKER [67]

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Correct.

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NEW SPEAKER [68]

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Okay.

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NEW SPEAKER [69]

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And I'm curious Charles, your comment -- if given great context the past and the $2700 per home and all that in a its cost. It's pretty wide disparity in average home across the portfolio. The range from 50 years roughly 2 40 years. If you could control for geography differences, what with the annual cost to maintain a home be were the youngest -- homes versus oldest homes?

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NEW SPEAKER [70]

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It's hard to segment precisely, but you know, the younger newer portfolio homes have a lower cost to maintain. With that being said as we're buying new homes today we are improving it to a standard that we saw have learned over the five years of being in this business to have to get to a place of our long-term run rate. And when you're left -- when you have a home that's left in the CapEx is lower. As we've segmented the portfolio a bit, if a home is newer than 1990, there's typically about 25% reduction in that cost to maintain.

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NEW SPEAKER [71]

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Thanks.

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Operator [72]

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At this time I'd like to current all over to Fred Tuomi for closing comments.

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Fred Tuomi , Colony Starwood Homes - CEO [73]

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Great. Wall thank you everybody we appreciate your continued interest and support. We will talk to you next quarter. Thank you.

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NEW SPEAKER [74]

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This concludes today's conference. You may come disconnect your lines at the time. We thank you for your participation.