Q1 2021 American Homes 4 Rent Earnings Call
Greetings and welcome to the American homes, four rent first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded at this time I'd like to turn the call over to Ann Mcguinness manager of Investor Relations. Please go ahead.
Good morning, Thank you for joining us.
Coronary 2021, earning price I am here today with David <unk>, Chief Executive Officer, Bryan Smith, Chief Operating Officer, Jack Corrigan, Chief Investment Officer, and Chris Lau, Chief Financial Officer of American homes.
At the outset and he too exciting at this call may include forward looking statements all statements other than statements of historical fact and put it in this conference call are forward looking statements that are subject to a number of things.
Second day, that's about actual results to differ materially from those projected in these statements.
These risks and other factors that could adversely affect that.
Future results are described in our press release and in our filings with the U S. E. T. All forward looking statements speak only as of today may seven.
2021 we assume no obligation to update or revise any forward looking statements, whether as a result of new information future events or other way, except as required by law a reconciliation to GAAP other non-GAAP financial measures. We're providing on this call is included in our press release and supplemental information package.
As a note our operating and financial results, including GAAP and non-GAAP measures.
Sales in our earnings release and supplemental information.
You can find these documents as well as I can see reports and the audio webcast replay of this conference call on our website at American homes, four rent dot com with that I will turn the call over to our CEO David thing Glenn.
Thank you Ann good morning, and thank you for joining us today.
Not long ago, we reported year end results and told you that 2021 was off to a strong start.
I'm pleased to share that this positive momentum continues.
<unk> continues to be at record levels and remain central to our success story.
The durability of demand tailwind, especially when considering the under supply of housing is based on the following three factors.
First residents are more aware.
And appreciate the value proposition of professionally managed single family rentals.
Residents and prospective residents perception of single family rentals has changed much over the past 10 years.
Our high quality class a rental homes are convenient access with a leasing process that is automated and easy to navigate.
Our homes contribute positively to the appeal and character of local community and bring stability to their neighborhoods.
And through our superior property management platform, we are delivering an exceptional resident experience. It is creating a newfound appreciation for professionally managed single family rental homes.
Given that institutional landlords currently accounts for less than 2% of the single family rental market are market opportunities that ever increasing based on rising rental demand.
Second housing is under supplied by a large margin.
More and more families with school age children are choosing to rent single family homes, even if they can afford to buy it.
According to a recent study by Freddie Mac.
The U S housing supply has nearly 4 million homes short, but what is needed to meet current demand.
Through our development program.
American homes for rent as part of the solution by providing new high quality homes and vibrant well located neighborhoods with quality schools.
Third.
We earned strong growth market with strong rental demand.
Demand for single family rental homes has been on the rise for many years, our homes are well located where people want to live in.
In markets with employment and population growth that outpaces the national average.
As a result, we're experiencing exceptional growth in markets ranging from Phoenix.
Las Vegas, and Salt Lake City, and the West to Charlotte and Tampa in Eve.
We expect these favorable demographic to continue.
We are capitalizing on demand tailwind.
You can see remains above 97%, while we recorded record high rental rate growth and strong collection.
Our development team continues to execute on its deliberate plants.
Atlanta acquisition opportunities have improved since our last earnings call.
Brian and Jack will provide more detail on the quarter.
Last quarter I told you about our commitment to grow grow grow.
Our three pronged strategy that includes our aim H development program, our national builder program and our traditional acquisition channel.
Our strategy remains the same.
And though its still early in the year, we're seeing an uptick in inbound inquiries for land acquisition opportunities.
And that's the day, we control more than 11000 lots.
Already at the low end of our 2021 goal of ending the year with 11000 net.
10000 lots.
Therefore, we now expect to end the year near the top end of this range.
Our flexible balance sheet continues to fuel our growth, we recently announced the recast of our credit facility upsize from our existing facility to support our focus on external growth.
This new facility includes the ESG component that underscores American homes for rent commitment to sustainability.
Now ESG principles.
And yesterday, we provided notice of our intent to call our series D and series D preferred shares later this quarter.
Chris will provide additional details on our redemption plan later on today's call.
Our plans for 2020, one reflect impressive breadth.
And I'm proud of our team's execution.
I'm bullish on our future and our growth plans as we enhance our leadership position in the industry by continuing to provide high quality homes and growing neighborhoods across America.
Now I'll turn the call over to Brian for more details on operations.
Brian.
Thank you Dave.
2021 is off to a great start.
On the demand side, we continue to see the same shifts and demographic trends and consumer preferences that we've been highlighting for almost a year.
Millennials are aging getting married and growing their families driving the need for single family homes in our markets. During a time, where we are experiencing dramatic supply shortages.
Additionally, people have more flexibility to make housing decisions that are closely tied to the location of an office.
And most importantly are.
Our residents appreciate our high quality rental homes and the customer service they receive from our professional property management team.
Together these trends combined to drive an 85% increase in showings per rent ready property in the first quarter of 2021.
Portfolio wide our teams continue to execute at a high level.
We are turning homes efficiently in order to meet the seemingly insatiable demand in our markets.
Additionally, our best in class customer service and a relentless focus on the resident experience.
Underscored our brand reputation as the preferred landlord.
Turning to the first quarter.
Our ability to capture this exceptional demand translated into outstanding results.
Same home average occupied days remained above 97%.
And rental rate growth continued to accelerate with new lease rate growth of 10%.
And renewal rate growth of five 1%.
Lending to an overall growth rate of six 9% for the quarter.
This record rate growth is attributable excellent execution from our pricing and field teams.
And the fact that our homes are ideally located in highly desirable markets, which are characterized by strong job and population growth.
On the collections front.
Our resident base continues to be resilient.
Our collection levels remain consistent with past pandemic quarters, which is a testament to our team's efforts and tireless work with residents.
Despite these trends collections continue to carry a level of uncertainty, particularly as a result of the current regulatory environment.
Looking to April.
Our record breaking momentum continued in occupancy and rate growth.
Same home average occupied days for the month was 97, 7%.
And new lease and renewal rate growth were 12%.
And 5%, respectively, which blends to a growth rate of over seven 5%.
Because of these strong results and our momentum heading into May.
We've increased the midpoint of our same home core revenue guidance by 25 basis points to four point to 5%.
This increase primarily reflects our improved view on full year occupancy.
In closing I would like to thank our team for their continued dedication and hard work.
We are well positioned to deliver exceptional operating results as we entered this busy spring leasing season.
Now I will turn the call over to Jack.
Thank you, Brian and good morning, everyone.
S growth remains a top strategic priority for American homes, four rent our experienced teams continued to deliver consistently and efficiently.
Most importantly, our homage development program provides a predictable and growing production.
It anchors our growth programs and provides for portfolio expansion for the foreseeable future.
This growth positions us uniquely to help address the ongoing national shortage of housing satisfy the demand for rental housing brought on by changing home preferences and population migration and grow more predictably and accretively than our other growth channel.
Additionally, our a M. H development program is unique in its ability to be flexible and adaptive to market condition.
From a land perspective, our diversified footprint and our flexibility in project size positions us to sharp shoot land opportunity quickly.
As David mentioned as we continue to demonstrate our success in meeting market demand.
Receiving more inbound calls a day with land opportunities suitable for our build to rent a home.
With the current pipeline of more than 11000 lots owned or controlled and with the goal of controlling 11 to 13000 lots by the end of the year, we are laying the foundation for sustained growth.
To take it one step further using our average four to five year development timeline. This foundation translates into an expected annual delivery cadence of three to 4000 homes by the time, we get to 2023.
From a labor perspective are predictable production cadence allows us to leverage our long term relationships with trades for priority pricing and schedule.
Although the cost of lumber has nearly tripled represents a modest increase in our cost to build a home in the 6% to 7% range.
With rising rental rates, we have been able to maintain yields on deliberate homes consistent with our underwriting and the 6% range.
We're a national builder and traditional channels today, we remain in line with expectations, we outlined in our 2021 guidance last quarter.
However, we are beginning to see increased opportunities within our buy box.
And finally regarding our outlook for the year, our investment plan remains on track our highly skilled teams of development and acquisition professionals continue to cultivate and deliver attractive high quality assets to our portfolio.
In summary, I am proud of our execution, so far in 2020 one we.
We continued to take advantage of the differentiation from a one of a kind of M. H development program.
<unk> by our best in class balance sheet.
And we remain optimistic that we can deliver sustained and accretive growth into the future.
Now I will turn the call over to Chris.
Thanks, Jack and good morning, everyone.
I'll cover three areas in my comments today.
First a brief review of our quarterly results second an update on our balance sheet and capital markets activity and third I'll close with a summary of recent updates to our 2020 one guidance starting off with our results we reported an impressively strong quarter.
With net income attributable to common shareholders of $32 million or nine cents per diluted share.
<unk> 32 cents of course, I told her share in unit, representing each 0.5% growth over prior year and 29 of adjusted episodes per share and unit, representing eight 9% growth over prior year.
Underlying this quarter's strength was the continuation of our record breaking demand trends that Brian discussed, which drove another strong performance in our same home portfolio.
Where do you generated five 6% growth in rental revenues, which was further benefited by 30 basis points of contribution from higher fees and partially offset by 190 basis points of drag from COVID-19 related bad debt translating into an overall, 4% core revenue growth.
Coupled with a 4% increase in core property operating expenses. This translated into core NOI growth of 4%.
However, normalizing for COVID-19 related bad debts, which continued to run consistent with pandemic norms. Our same home core NOI growth would have been over 7%.
Turning to our portfolio activity for the quarter, our external growth programs executed right on track, adding a total of 683 homes to our wholly owned and joint venture portfolios 402 of which were delivered from our <unk> development program.
Specifically for our wholly owned portfolio during the quarter. We added 580 homes for a total investment of $162 million, which was comprised of 299 homes from our index development program and 281 homes from our acquisition channels and on the disposition side, we sold.
180 properties during the quarter generating total net proceeds of approximately $46 million.
Next I'd like to turn to an update on our balance sheet and recent capital markets activity.
At the end of the quarter, our balance sheet remains in great shape with a net debt to adjusted EBITDA of four five times and net debt, including preferred shares to adjusted EBITDA of six times.
And as a further enhancement to our already best in class balance sheet. After quarter end, we closed a recast to our existing credit facility, which increases our revolving capacity to $125 billion lowers our credit facility borrowing cost extend our credit facility maturity date to April 2026, and proudly income.
Our sustainability linked feature tied to our ESG score, which can further lower our credit facility borrowing cost and demonstrates our commitment to sound ESG principles.
And on the topic of optimizing our cost of capital yesterday evening, we announced an intent to redeem our series D and E preferred shares that become callable throughout the remainder of the second quarter.
Our series D and E preferred shares have a combined value of nearly $500 million and an average coupon of approximately six 4%, which when compared to our current cost of capital provide another great example of the tremendous progress we've made over the past five years.
The mix of capital used to fund the redemption of the series D and E preferred shares will ultimately depend on market conditions, but given current pricing for all forms of capital, including preferred shares common equity and unsecured bonds. We anticipate that the preferred share refinancing will have at least one penny of benefit to our <unk>.
'twenty one.
It had been incorporated into our revised full year guidance ranges.
And on the topic of guidance I'd like to highlight a few of the positive revisions that were outlined in yesterday's release.
It's Brian covered demand for single family rentals in our leasing activity has never been stronger and although our original guidance already contemplated a robust environment. Our actual leasing activity is proving to be even stronger taking into consideration our strong first quarter performance and record breaking trends heading into April.
We have increased the midpoint of our same home core revenue growth expectation by 25 basis points to four points to 5% for the full year and core NOI rent expectations by 50 basis points to 4% for the full year.
Additionally, taking into consideration the robust leasing environment across our entire portfolio. We have also increased the midpoint of our full year 2021.
Per share expectations by one penny to reflect stronger NOI contribution from both our same home and non same home portfolios and when combined with the anticipated refinancing benefit from our preferred shares redemption. We now expect full year 2021 or ethical per share between $1 24.
And $1 30 at the midpoint of $1 27 per share. This represents an impressive year over year growth expectation of nine 5% and finally before we open the call to your questions I'd like to reiterate our excitement looking forward and share another big Thank you to our teams.
2021 is off to a great start not only do we continue to produce industry, leading earnings growth, but because of your hard work and dedication American homes for rent has become part of the solution to our country's massively under met housing needs and with that we'll open the call to your questions operator.
Yeah.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from Mccann from participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
In the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.
Thanks, maybe just starting with operations Yeah, how are you expecting occupancy to trend during the peak leasing season, and then maybe you can touch on days to release homes that do return.
Hi, Nick Thanks for the question this is Brian.
We're seeing fantastic occupancy.
As we talked about last quarter, we entered this year and kind of an unprecedented position.
And we've continued to kind of execute and pushing those those are that our occupancy rates into the high 90 Sevens.
And the in the near term I see that continuing.
We've had a huge up tick in demand even off of a record demand levels that we saw last year.
The some of the metrics that we talked about in the past some of the Interstate migration are still holding the calls per rent ready the foot traffic through our homes are steady if not increasing.
So in the near term, we expect to keep those occupancy levels kind of in the.
And the range that we're reporting now.
Towards the back half of the year when things return more to normal there is gonna be presumably a little bit of a workout period as the normal collection practices return. So I don't have full visibility into into the full year, but in the near term occupancy looks looks really good demands fantastic. Because this is a matter of executing on the turns.
Thanks, that's helpful and then.
Maybe just on.
Kind of H P. A more broadly and I know you don't include some charts in the supplemental but you know if you look at the asset sales.
H P a kind of coming through on those asset sales relative to kind of your own internal NAC.
And how do you think that's changed.
Over the last year.
Yeah.
Yeah. This is Jack thanks for the question Nick.
We've definitely seen HPA come through in our our disposition prices that we're getting for the houses that were.
That we're selling our <unk>.
Probably in the same range that you're seeing nationally.
Double digit.
Range and and so you know it's coming through.
It's not it's not a factor in our decision of what to sell and when to sell it you know we're also seeing pretty strong rent growth. So I think that.
We're going to keep with our program.
On how we determine what to sell and when to sell it and and let the HPA take care of itself.
Yeah.
Thank you.
Thank you. Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
Good morning, and congratulations on the quarter.
David probably ask you every quarter about.
You know the possibility to accelerate growth opportunities is just amazing.
When you know from our seat listening to your comments and thinking about how the business has evolved over the years you.
You know the opportunities ahead for your company.
Or is there a way to accelerate I guess, the you know the developments you talked about a goal of 16000 lots by end of year. I think you said delivery paid $3 to 4000 homes by 'twenty three.
Is there a way to accelerate that and if not what what's the limit or is it is it human resources whats what limits that are from growing faster.
Yeah.
Yeah, So good morning, Jeff.
No.
First of all I appreciate the comments on our accelerated growth and just to clarify our goals right. Now are between 11000 13000 homes that we are lots that we control by the end of the year not 16.
And we're at 11 today.
There's a couple of things, it's a competitive market for land out there and while we have been.
We've been very successful so far during the year.
To continue to be successful.
It is finding the right lots in the right neighborhoods.
That are contiguous to our existing homes contiguous to our competitors our homes as well and it's just finding the right lots at the right price and today, we're in 16 markets.
There's a lot more opportunity, we're finding acceleration and our ability to acquire land in and we expect to be at the upper end of that estimate so.
So we are definitely ramping up our 2021 is a very strong year for land acquisition compared to our history and we look for that to trend line to continue that as we move on the acquisition of land will continue to be a stronger.
Stronger and stronger.
Thank you and then my second question again is big picture, just listening to your comments about demand and acceptance of singles.
Single family rentals, and even you were saying a preference.
To rent versus own.
And I think you just commented you're in 16 markets again, it feels like.
This can really be brought it out to those markets in the U S. I mean do you agree or are there are you looking into more markets to grow or again.
You you're really focused on these these higher population growth markets, let's say.
Yeah.
Jeff If you look at 2021, a number of things have been very positive for us and we have added a market. This year I believe it was the Columbus market and.
And we continue to evaluate more opportunities for growth and you may hear in the future.
More opportunities, but as you've come to know with US we don't announce what we are looking to do until we really started that process. So there's a lot of evaluation. We recognize that we have a much more favorable cost of capital today, and I think that will facilitate some opportune.
These force.
Okay. Thanks, David.
Yeah. Thanks Chuck.
Thank you. Our next question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your question.
Yeah.
Hey, Congrats on a great quarter. Just first question is just on the guidance are you know I think it felt a little bit conservative to US maybe you can you just digging.
Digging a little bit here when you when you had about 190 basis points drag from bad debt in one Q, what what sort of baked in for the rest of the year. I mean, how are you guys thinking about that that that bad debt. Thanks.
Yeah. Good morning, Ron It's Chris here and I appreciate the other question other content.
You know I would say from a bad debt perspective, you know taking a step back I think we're really pleased with how the collections have continued to track through the first quarter and into April.
But we're also continuing to pay very close attention to what's going on.
You know what's going on out from a regulatory perspective recent news from a federal standpoint, ultimately I think we are unclear on how that's going to play out and so with that said much of the uncertainty that influenced our guidance at the start of the year.
It's still it's still out there and so for the balance of this year. We've left our original bad debt guidance intact of 2.5% to 3% for the remainder of the year.
You blend that with what we saw in the first quarter and that would put full year, probably a touch below the mid point of that but for the most part you know as of right now we we've left our view for the balance of this year untapped for intact from a guidance perspective.
Got it Yep Matt.
But that does feel feel pretty conservative, but okay. That's helpful. The.
The other sort of moving on them you know I think you. It's the demand is just off the charts. When you look at sort of your new leasing.
And your renewals.
Can you just help us understand what sort of operating leverage comes with that that sort of demand right in terms of either your turn times in terms of leasing up the development assets. Maybe can you just maybe provide a little bit more color of what what's the upside that comes with that level of occupancy.
Hi, Ronald this is Brian.
Yeah, it's interesting there theres a number of different factors that come into play but by being in this in this really good position. We've we sped up our turn times are our turn times a year ago were in the mid 50 range mid 50 days cash to cash now theyre in the mid thirties.
Plays out under that elevated occupancy as well, but in addition to rate. We've also tightened some of our underwriting standards increased security deposits in some areas. So we're pulling a couple of other levers that we'll have good future benefit.
Again, the the demand has just been fantastic and we're in a position where we can we can make really good long term decisions.
Great Congrats guys. Thanks.
Thanks, Ron.
Thank you. Our next question comes from the line of Jade Rahmani with Keyw. Please proceed with your question.
Thank you very much with the surge in home prices that we're seeing are you exploring at all adding a rent to own strategy.
Perhaps as a disposition tool for some of the portfolio that you plan to call.
Yeah.
Hi, Jade this is Jack Corrigan. Thanks.
Thanks for the question.
Sure.
We have not ventured into the lease to own realm, it's kind of fixes your your sale price and.
With with.
The 4 million.
Underserved families with homes, we've we expect home prices to continue to go up and and aren't really interested in fixing her art proceeds on stuff that we're going to ultimately sell.
In addition to that with the shortage in housing that you noted as well as the emphasis on growing ancillary revenues are you interested at all in the adding of for sale housing business and also potentially providing property management services to folks who are who.
Who acquire build to rent communities.
Yeah, So jade it's Dave.
As I mentioned with Jeff.
We look at a number of things, whether it's adding additional markets or adding additional business lines and.
Many of those are areas, we do discuss with our board frequently.
And when are we enter one of those we will we'll talk about it but we tend not to talk about the what we may do in the future.
We do it so.
I will just reiterate that we are in a very very positive place today compare to prior years, a very favorable cost of capital. We do have our operating systems are are very flexible and robust and we can scale them significantly. So it does create the ability for a lot of opera.
<unk> in our system.
Thanks, and then just one quick clarification, you said the cost to build a home is up 6% to 7% was that solely the lumber impact or are you also including the appreciation in land prices.
Yep. Thanks Jade.
It's that's strictly the lumber.
Our costs are the other costs the other input costs that we have due to our growth then and additional experience over the last five years, we're able to.
Get some efficiencies and and volume discounts that we werent able to earlier so.
Those are basically offsetting each other but the actual hit to our our budgeted construction cost is low is really the lumber.
Thank you.
Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.
Hi, guys congrats on a great quarter.
I think in the Ah.
I guess the intro comments, Jack mentioned seeing increased by box opportunities I think it was in the context of the build for rent platform. So I was wondering if you could elaborate on that and then maybe touch on what youre seeing in the market for traditional way acquisitions.
Yeah. This is Jack thanks for the question.
In terms of land, what we're seeing is.
Just being out there in the market for five years and in executing on a number of our land acquisitions for the land brokers from the land sellers are now know us in the markets that we've been abolition for years and so we're getting inbound calls win win there's land opportunities.
Oh it was that we would have to pursue in the past them. So.
In terms of MLS.
Transactions.
We've always been in the market are the it landscape is pretty competitive.
But we're seeing our share of the opportunities and and we're optimistic just seen early signs that we may be able to increase our our production and that are in that arena.
Oh, Thank you I appreciate the color there.
And then maybe a question for Brian So I'm seeing that period end occupancy is at.
And of that 98.
1%.
Which is great and I'm, just looking at average occupied days and 97.3.
Is 97 four in the previous quarter. So I'm, just trying to kind of wrap my head around the monthly momentum you've been seeing so how did January February play out and then kind of explain how that ramp up kind of happen.
Sure. So the difference between Q4 and Q1 was minimal but.
At the end of month occupancy.
This is before some other explorations move out and so we need to turn those homes quickly, but the the momentum that we've had this year, we've seen increasing our average occupied days rates from from the beginning of the year and I mentioned in my prepared remarks that we were in the high 97% or 97 seven for April so it's been ticking up.
Sequentially January February March and now into April the the issue is when residents move out how quickly you can we can we prepare these homes for release many of which are are actually pre leased or pre leasing programs have become a much more significant.
So there's a certain element of frictional vacancy, which you are seeing and that's kind of the change but overall the momentum has been fantastic and now we're entering the busier spring leasing season.
Just full speed ahead, so things other things look really good on the occupancy side.
Right.
Helpful. Thank you so much.
Yes.
Thank you. Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.
Thanks for taking the question.
Chris you know, even with the bad debt remaining elevated two and a half 3% from Orlando still.
A five handle on revenue this year seemed a lot more likely than a low four so can you just give us a sense for where you are presuming occupancy fall off to once you know regular collection processes.
Yeah sure. Thanks, John.
And you know I think Brian actually started to touch on this a bit in his response to probably the first question.
But you know tying back to that <unk> looked at things are starting off very very strong this year and I think we're really happy with what we're seeing on the demand in the leasing side.
But just as Brian mentioned you know much.
Much of the uncertainty that you've talked about on our last call, which was just a couple of months ago is still there and.
And so yes, we've updated our guidance ranges to include the strong start to the year in the first quarter and the trend lines, we're seeing into April but intentionally we've not touched to be conservative aspects yet.
That are built into our guidance for the remainder of the year.
Ryan mentioned them, but you know, we're still focused on whether or not there could be a temporary occupancy speed bump. If you will later in the year as collection tools potentially returned to normal and then the other question too is is whether or not any traditional seasonality may return to our business. During the second half of this year, which by the way it would be a good sign in terms of further.
And a return to normal, but you know a little unclear how thats going to play through in the back half of the year. So so just more specifically.
Terms of the building blocks, if you will of our same home revenue guidance.
On a full year basis, our guidance assumes occupancy is kind of in the higher 96 inch full year.
Rate growth.
In the lower force unchanged from from what we saw before which as a reminder, it's still being muted by that pull through from last year's flat renewal policy that blends to rental rate growth and probably a little bit north of a $4 five or so.
And then we see that being benefited by another 30 basis points or so of contribution from BS.
And then offset by the 70 basis points of headwind from from the bad debt assumption and then all that blends out to our midpoint on same home revenues of 4.25%.
Okay. Thank you.
Chris Obrien.
Hoping you could kind of stare out and think through the collections on previously written off rent. So when it's when the folks to get them to care about their credit score.
If you write off $100, which line 21 huge claw back $25 $75 like what's the what's the propensity of our ability to claw back.
Folks that have the rent market rent.
Hi, John This is Bryan.
I think it's a difficult number to predict.
We have an expectation that there will be some people who will pay when it returns to normal, but but it's very hard to say the.
In fact, there are even some regulations around what you can do to credit scores for pandemic related delinquencies in certain states. So there's a lot of uncertainty along that I have a hard time.
Predicting exactly what's going to ultimately pull through them, but I think there will be there will be a little bit at some point.
Okay. Thanks for the day.
Thanks, John.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Dennis Mcgill Zelman <unk> Associates. Please proceed with your question.
Hi, guys. Thanks for taking the time.
Could you elaborate a bit on the competitive land comment I know, there's a lot of opportunities you guys have to drive efficiencies in your process and utilize your scale as you move forward versus in the past, but what would you say is kind of a range of land costs being up at this point today versus a year ago. If you had.
I will say other comparable quality locations.
That's a good question and obviously it varies market by market.
The.
Overall, I would say that it's a comparable too.
What you're seeing on the MLS some somewhere in the high.
High single digits to low.
Double digits.
Meaning what you were saying that home pricing.
Comparable no on.
Well, it's comparable to what you're seeing on home prices.
Okay.
And which markets are you finding it would be most competitive today.
Well Phoenix Phoenix is pretty competitive.
Competitive, they're all fairly competitive I, wouldnt say ones Boise.
Definitely competitive, but I would say in general the west Western markets are a little more competitive than the.
The east, but they're all fairly competitive.
Yeah.
And then just thinking about the Phoenix as an example, since you mentioned that there when you start looking at rent increases that could be 10 12, 20% in the case of Phoenix.
Realizing that home prices are up a lot and so maybe the consumer doesn't have a lot of alternatives if they're in need of single family shelter, but clearly incomes aren't up as much over the last year, even a couple of years. So what do you think is the balancing factor to make the economics work for for tenants that are moving in.
Yeah, well I think a lot of the tenants that are moving in are moving in first of all Phoenix has always been one of our lower rent markets.
To begin with so a high percentage increase on that isn't isn't the same as the high percentage increase on a say Denver or some.
Some of the other markets but.
A lot of other people that are moving in to Phoenix are coming in from higher rent places. So they don't they don't really feel.
The hit as much.
So or at all and so that that's kind of what we're seeing.
Hey, thanks.
Migration dynamic.
Correct.
Hey, Dennis It's David Let me just add a little color to a couple of those questions. When you look at land and the competitive landscape of land, which which is absolutely true. This competitor one of the advantages we have no different than our damages from the MLS market as we have many many mark.
It's that we are in and we're evaluating all the markets at all times So I'm.
Not all markets will have the same inflationary impacts at the same time. So there are opportunities are created by being in multiple markets and that is part of the ability to grow the way we are growing.
And with respect to demand.
Part of the demand in my mind.
It was really being created by the fact that people today recognize that single family rentals are a high quality housing option.
Changed and I said this in the prepared remarks, it's changed a lot over the last 10 years.
And the institutional professional management.
It is now becoming very widely known and appreciated and we have seen significant increases in demand and I'm not taking away from the housing industry.
Because we have 4 million to $8 million of picking which survey you want to look at of under supply of housing and you probably know these numbers better than I do Dennis but.
Theres just a lot of demand out there for housing.
And we were trying to satisfy part of that would be part of that solution by building homes.
Yeah, No I think that's good perspective, David I guess to your point are you are you implying that when you look at some of the rent increases that you're actually getting above market rent increases because of some of the amenities and services that you are bringing us in institutional landlord or.
Or are you just referring to generally the broader market demand for single family rental driving these numbers.
No I think the concept I think it is this market.
Driven it's but I think the market is going up because people are looking at single family homes is a option that they didn't evaluate or.
Put into there.
Options 10 years ago, and so the entire market is moving up as a result of the institutional and professional management that's out there and I believe we've also raised the quality of housing.
With with the local operators they've had to increase their service levels.
And the quality of their homes to remain competitive.
That's great I appreciate it as always good luck.
Thanks Dennis.
Thank you. Our next question comes from the line of Keegan Karl with Bahrenburg. Please proceed with your question.
Hey, guys. Thanks for taking the time.
I think first can you give us some color on what the sustainability metrics are that are placed in the revolving credit facility.
Oh sure Morgan Keegan good good question, it's tied to actually our grasp.
ESG score.
And it's it's tied to actually year over year improvement.
And so long as we meet.
Improvement hurdles in our grasp the ESG score.
That would provide for a slight benefit to our borrowing spread.
Got it and then I know it was a topic of discussion earlier on the development side of things, but have you given any thought to pausing developments temporarily just given the rising cost of lumber and labor shortages.
Yeah. This is Dave.
Hum.
The development program is a long view.
Viewed program.
And what we are doing today in land acquisition is really fueling forward five years from now.
And when you look at the yields that we get on our developed homes the quality of the developed homes other far superior to other growth channels.
And it was 20% higher yields so instead of being a five to six and part of that is the to provide for the fluctuation in commodity prices, sometimes it's going to be stronger and sometimes it's going to be a little bit less but even with the accelerated prices or the higher prices that we saw.
See today, we believe them to be temporary in some areas.
We're still having product that is superior to other product that we can acquire and it is still far superior economic returns to what we can acquire another channel even at these prices.
Hi.
It should just reiterate free you know you I think Jack said this but.
Today, Yes, we've seen some increases in the cost of new homes that we put into our inventory.
But rental rates on the other side of the equation or accelerating at an equal pace or greater pace and that means our yields are being maintained so we're not seeing any degradation in our underwriting yields even though we are seeing some increased cost because we're also enjoying an increased revenue.
Compared to our underwriting so right now no we are not looking to slow down our development pace.
I would also I would also add to that kick in that operationally to stop and start youre going to lose credibility with your trades in a lot of other things that you're you're trying to do as well as a make your employees pretty nervous so.
I would not be a fan of a trying to do that.
Got it thanks for your time guys.
Thanks.
Okay.
Thank you. Our next question comes from the line of Tyler inventory with Janney Capital markets. Please proceed with your question.
Mr. Vittorio your line is live.
Hey, good morning, Thank you.
For for Chris here, just in terms of core Opex, 4% for the quarter on a low end of that guidance range for the year I was there anything one time going on in the first quarter can you talk a little bit more about how you see <unk>.
<unk> progressing the rest of the year and then is there anything contemplated in the guide for labor.
Labor or wages not sure how that situation books for your maintenance staff or your leasing agents.
Sure Tyler Thanks for the question Chris here.
No I would say nothing.
Notable or unusual from a first quarter standpoint.
Part of it is really just to do with quarterly timing and.
You can see the fact that much of that is just being driven because of the timing of property taxes, but on a full year basis, we still see property taxes in.
In the 4% to 5% area.
And then on other expenses you know everything excluding property taxes, you know view there as is unchanged as well.
Those being kind of in that 5% area combined.
And specifically around inflationary pressures on materials labor.
Something that was very much contemplated in our in our expectations. When we started the year. So when you start to break down that 5% in particular, you can carve out the R&M and turn component and we see that probably being in the fives, specifically for that area and that's really contemplating a couple of things that are contemplating the fact that yes, there's theirs.
Good demand out there and inflationary.
The pressures on materials and labor, we contemplated that.
As well as you know recall we included.
Earmark, if you will.
Ill turn cost potentially later in the year as certain of our AR collection tools may return to normal so long winded way of saying yes.
We're very mindful of that.
And contemplated that in our guidance at the start of the year.
Excellent and just a follow up on the rent growth topic, a little bit more you, obviously, a correlation certainly between rent growth from it.
And home prices, but you know what's going on in the housing market in terms of where home prices are right now playing a bigger role in your revenue management decisions in terms of how you're thinking about price in your your your homes right now.
Hi, Tyler this is Brian it does factor in HPA, and and and rents are related there used to be traditionally there was a longer lag than there is now but if you take a look at some of the markets with the high growth HPA in the Phoenix area is similar to the rent growth that we're seeing.
Moving.
There's a supply shortage, there's a supply shortage of for sale product, there's a supply shortage for for single family rentals, and that's that's really giving us the pricing power that you're seeing now.
One of the key points, it's important to note too is.
Is that we're seeing an increase.
An increase in income from our applicant pool year over year, a pretty dramatic increase it ties into some of the comments that Jack made earlier about the migration, we're seeing out of California, and Phoenix as an example, and the expectations for what they are paying on a per square foot basis. So there are a lot of different contributing factors.
Supply is clearly one of them of the.
The value proposition of our platform in a single family homes kind of the single family rental industry improvements there are playing in as well. So there are a number of good a good things that are giving us that pricing power.
Okay I appreciate the detail. Thank you.
Thank you. Our final question. This morning comes from the line of Brad Heffern with RBC capital markets. Please proceed with your question.
Hey, good morning, everyone going back to some of the development questions earlier.
We've obviously heard about the cost pressures, we've also heard about.
Things being delayed lumber not showing up on time, so it's not showing up on time et cetera has there been any pressure on the delivery schedule from from things like that.
Not to date one of the advantages. We have is we have a limited number of floor plans in and.
And so like Windows.
In short supply for a while and it took a while to get them. So we just started ordering nine months out instead of three months out so it's.
We're getting the same windows. So we we.
We take advantage of our production style.
<unk> management.
Okay got it and then Chris maybe I was hoping you could talk a little bit more about the perhaps and how you see leverage targets moving over time you've had this.
You've been hanging out this kind of four five times range on on corporate debt and then spin around six times with the perhaps.
As you sort of take.
Take these out over time.
The overall leverage multiple for the company and look more like that six times and how did the rage rating agencies think about that as well.
Good question, Brad Thanks, Thanks for asking it and Youre right on the numbers and you know I would start by saying, yes, we've always traditionally.
We've spoken much more about a straight net debt to EBITDA metric, but internally, we look at leverage a number of different ways and we've always also looked at it on a debt, including preferreds basis, it's a little bit more holistic and that's also how the rating agencies generally look at it as well and so.
So if you take the five five times net debt to EBITDA that we've traditionally targeted and then you add on top of that.
Our traditional level of preferred that brings us into the six times are in I would say that's right in the area.
We like to see the balance sheet.
So as we're thinking about the mix of capital to refinance our D any preferreds.
You know again I mentioned this in my prepared comments, but you.
We're very mindful of all forms and cost of capital right now.
And ultimately the mixed it comes in.
On a holistic basis I would expect that to be very much in the same areas, where we are now on a leverage basis in the sixes.
Okay. Thank you.
Thanks, Brett.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Franklin for any final comments.
Thank you operator, and thank you to all of you for your time today.
We are pleased with our results this quarter.
And I'm excited about our growth potential from the balance of 2021 and for future years again. Thank you have a good day goodbye.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.