Q1 2022 American Homes 4 Rent Earnings Call
Greetings and welcome to American homes, four rent first quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to Nick from senior manager of Investor Relations. Please begin.
Good morning, Thank you for joining us for our first quarter 2022 earnings Conference call with me today are David <unk>, Chief Executive Officer, Jack Corrigan, Chief Investment Officer, Bryan Smith, Chief operating Officer, and Chris Lau Chief Financial Officer. Please.
Please be advised that this call may include forward looking statements all statements other than statements of historical facts included in this conference call are forward looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC.
All forward looking statements speak only as of today may six 2022.
We assume no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
A reconciliation of GAAP to non-GAAP financial measures is included in our earnings press release and supplemental information package.
As a note our operating and financial results, including GAAP and non-GAAP measures are fully detailed in our earnings release and supplemental information package.
Can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at Www Dot American homes for rent Dot com with that I will turn the call over to our CEO David <unk>.
Thank you Nick good morning, everyone and thank you for joining us today.
Before I get started I wanted to take a moment to thank Jack Corrigan for his contributions at American homes for rent over the past decade.
As many of you know Jack recently announced his upcoming retirement from his role as Chief investment Officer, Jack and I have been friends and colleagues for over 30 years and I am proud of what we've been able to build together.
In 2011, Wayne Hughes, our founder and former Chairman and I invited Jack to join US as one of the original partners in our new single family rental venture.
Jack quickly built an acquisition team of talented and determined professionals, who shared our vision.
During jacks 11 years with American homes. The team has always come first for him. He engaged inspired and cultivated a world class team. His leadership will now report directly to me.
Jack.
Although you will be transitioning away from your day to day responsibilities I look forward to your continued thought leadership is one of our trustees I wish you all the best in your retirement.
And now I'll turn the call over to you for some comments.
Thank you Dave.
I reflect on the last 11 years that American homes for rent three words came to mind.
The first word is proud I'm proud of the team that we built that continues to share our vision and the development of many of the leaders we have today.
I'm proud of leading what is arguably the first fully integrated platform in our industry.
I'm proud of contributing to the rehabilitation of many neighborhoods and creating thousands of jobs in the process.
And I'm proud of doing our part to alleviate the current housing shortage through our development team.
Second I am grateful I am grateful to Wayne used for his sage guidance throughout the years I'm grateful for all of the team members, who help make the business and asset class a reality and I'm grateful to all of you the investment community, who continues to support us and believe in our vision.
Finally, and most importantly, I'm confident that I'm, leaving the day to day operations of our growth programs.
Hans.
Thank you again, Dave it's been a fantastic ride and I'm looking forward to continue serving with you on the board of trustees.
Thanks, again, Jack and now onto the quarter.
On our February call I discussed the strong foundation, we built at American homes four rent.
Our focus for the next 10 years as we reinforce our position as the market leader in delivering consistent and outsized earnings growth.
Well its American homes at the forefront single family rentals have become a highly sought after housing option as more and more households recognize that homes are no longer centered around ownership.
Our strong first quarter performance was in line with our expectations core F. F O per share increased 18, 8% compared to the first quarter of 2021.
This highlights the insatiable demand for our rental homes as well as the power of our vertically integrated operations platform best in class teams and external growth programs.
As we mentioned in February we are focused on three areas in 2022.
Growth technology and ESG.
Beginning with growth providing high quality housing options is more important than ever before.
Our three pronged growth strategy with our internal development program is the foundation allows us to do just that.
Our country's housing shortage crisis was years in the making and will likely take years, if not decades to fix.
This coupled with changing lifestyle preferences for households makes our communities more desirable than ever.
At American homes, four rent, we are doing our part by developing premier build to rent communities, which is adding to our country's housing stock while offering families of superior housing and lifestyle option.
Additionally, we continue to see attractive opportunities to acquire well located homes through our acquisition channels How's.
However, given our nation's records home price appreciation and rapidly rising mortgage rate environment, we recognize that the landscape of future opportunities may be changing.
And while it's too early to speculate on potential opportunities ahead, our balance sheet puts us in a perfect position to take advantage of them as they may arise.
In a moment, Chris will review, our recent highly successful equity and debt offerings that now fully fund our growth programs for the remainder of the year.
Moving to technology.
We are a culture of constant innovation and had been working on developing next generation systems that further enhance our platform and the resident experience.
We recently announced key partnerships that demonstrate our commitment to technology and a recognition that new ideas may be developed either internally or through collaboration with partners across the ever changing prop tech space.
And now turning to our third focus.
ESG.
Sustainability is a principle that we take very seriously to ensure we have a positive impact on our residents team members and planet.
As such we are executing a multifaceted ESG strategy that is aligned with our business goals.
Currently our ESG focus is primarily centered around energy as an example, we are incorporating energy efficient solutions throughout our new developed homes.
Each one of our new homes as hers tested and certified.
In 2021 energy efficient homes specifications like energy Star appliances, led lighting, tankless water heaters and low flow plumbing fixtures made our new homes, approximately 40% more efficient than the benchmark and over 50% more energy efficient than the average home in the country.
In addition, we are currently installing solar on our community amenity centers.
This proactive approach is another example of our ESG leadership in the single family rental sector.
Recently, we were recognized as a top ESG regional performer by sustained illiterates certified as a great place to work and.
And were named as one of America's most responsible companies and most trusted companies by Newsweek and statistics.
In closing our first quarter reflects another period of strong stable and consistent results.
And our outlook for the business remains robust.
American homes for rent as the thought leader in the single family rental space and we will continue leading the charge in shaping the industry.
And now I'll turn the call over to Brian .
Thank you Dave.
As expected 2022 is off to a strong start.
The demand backdrop for our class a rental homes continues to be robust.
During the first quarter shows per rent ready homes remained at historically high levels and retention continued to improve.
In the first quarter, we delivered another round of consistent results.
Same home average occupied days was 97, 5%.
And rental rate growth showed continued strength with new renewal and blended spreads of 12, 3%.
Seven, 5% and eight 8% respectively.
Which drove eight 9% same home core revenue growth for the quarter.
Core operating expenses came in as expected with year over year, R&M and turnover growth of turning slightly elevated given the timing of our prior year quarterly comps.
Full your expectations for expenses remain unchanged and.
And we expect these growth rates to moderate for the balance of 2022.
All of this resulted an impressively strong same home core NOI growth of 10, 8% for the quarter.
April operations showed continued strength as the demand for our homes remains high.
Same home average occupied days was 97, 4%.
We posted new and renewal spreads of 14, 2% and seven 6% respectively.
This resulted in blended rate growth of nine 3% for the month.
We are on track to deliver solid operating results and we expect a strong year as contemplated in our existing guidance.
Although the company is performing at a high level across the board, we still see opportunities to further strengthen our platform and improve the resident experience.
Our platform has been designed based on feedback from our residents and employees.
In the past, we have mostly relied on internal surveys at each of the resident touch points.
The supplement this feedback we partnered with a leading third party customer experience company to deploy our most comprehensive satisfaction survey to date.
This survey was completed by over 6000 households across 20 cities and included some of our own residents as well as residents of other single and multifamily operators.
The feedback confirmed much of our strategy regarding site selection and our streamlined processes.
It also identified focus areas to improve our resident satisfaction scores, which we are incorporating into our next generation system.
For example, the survey showed that the most important factors of the leasing process or convenience and speed and our self guided showings were at the top of their preference list.
We have one of the few leasing platforms that enable the customer to enter a vacant home as a prospect and leave as a resident.
Further the respondents confirmed that space for a home office was a key differentiating attribute in their decision making process.
Most importantly, the common thread throughout the feedback was the importance of clear and timely communication.
And this is precisely the focus of our mobile first next generation system that includes convenient multichannel communication options for our residents.
Okay.
In summary.
We're off to a great start and look forward to another strong operational year.
I, thank our team for their hard work and dedication as we approach the upcoming leasing season.
On a personal note I would like to thank Jack for his outstanding leadership.
Jack and I have worked very closely together for the past 11 years as American homes for rent has grown from a few houses to nearly 60000.
Jack I'm grateful for your Mentorship and friendship.
I'll now turn the call over to Chris.
Thanks, Brian and good morning, everyone I'll cover three areas in my comments today.
First a quick review of our quarterly results second an update on our balance sheet and recent capital markets activity and third I'll close with a few comments around our unchanged 2022 guidance starting off with our operating results consistent with our expectations, we delivered another quarter of steady execution and strong earnings growth.
With net income attributable to common shareholders of $55 $9 million or <unk> 16 cents per diluted share on an <unk> share and unit basis, we generated 38 cents of core SSO, representing 18, 8% year over year growth and 35 of adjusted <unk>, representing 25% year over year.
Okay.
Underlying this strength was another quarter of consistent operational performance generating 10.8% same home core NOI growth as well as continued strong execution from our growth programs, adding a total of 1131 homes to our wholly owned portfolio and 127 homes to our joint venture portfolio.
He owes the sum of which included 452 homes delivered from our aim H development program.
More specifically the 1131 homes added to our wholly owned portfolio represented a total investment of $414 million and included 325 homes from our image development program and 606 homes from our acquisition channels.
Additionally, during the quarter, we attractively acquired the outside interest in 200 M. H development homes that were previously held in our first development joint venture and on the disposition side, we sold 169 properties during the quarter generating total net proceeds of approximately $50 million.
Next I'd like to turn to our balance sheet and share a few updates around our recent capital markets activity at the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was six times, we had $57 million of cash on the balance sheet and our 125 billion dollar revolving credit facility had a $410 million drawn balance.
On the capital markets front. This was a busy but strategically important quarter for us as we raised an impressive $1 $7 billion and have now funded the entirety of this year's external capital needs first as we talked about on our last earnings call. During the quarter, we raised $864 million in an oversubscribed common.
The offering as a reminder, as part of the offering we issued 13 million shares or approximately $488 million on a forward basis. These forward shares remained outstanding at the end of the first quarter and will be utilized over the course of 2022 as we match funding against our investment programs and second after quarter end we.
Issued $900 million and a highly oversubscribed dual tranche of unsecured bond offering consisting of $600 million of three and five 8% 10 year bonds and $300 million of 30 year bonds priced at four 3%.
Additionally, consistent with our capital plan assumptions outlined at the start of the year after quarter end, we redeemed our $155 million five and seven 8% series F perpetual preferred shares.
Lastly, before we open the call to your questions I wanted to briefly touch on our 2022 guidance, which remains unchanged in yesterday's earnings press release without question. We delivered a strong first quarter performance and continue to see robust momentum heading into the second quarter. However, much of this strength was already contemplated in our full year outlook there was initiated.
A few months ago.
With that in mind and considering that the spring leasing season is still ahead of US we are maintaining our previously provided full year earnings guidance, which as a reminder continues to lead the SF our industry with core <unk> per share growth of 14, 7% at the midpoint demonstrating the consistent power of the image platform.
Finally, I would like to share one final sincere. Thank you to Jack we'll Miss you on a day to day basis, but look forward to your continued leadership from the board and with that we'll open the call to your questions operator.
Thank you if you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question is from Nick Joseph with Citigroup. Please proceed.
Thanks, maybe starting just on development broadly curious what you're seeing in terms of cost pressures and just any timing or potential delays on deliveries versus initial expectations.
Yeah, Good morning, Nick it's Dave.
With respect to our development program. It is on track as we outlined at a couple of months ago, our deliveries our supply chain is a we got well built out most of the product is committed for for the balance of this year.
And are the deliveries are on the pace that Oh, we expected at the beginning of the year.
So on the cost side, the majority of the cost or already in the portfolio.
Or are committed for this year's deliveries and so our development program is right on track and we're very I mean, the benefit of our development program is today. The acquisition program is a little bit more in flux with the rising interest rates, but input cost or a very steep.
Well right now on the development side may actually get more favorable if the homebuilders are see demand reductions.
Thanks, that's very helpful.
My second question, which is.
The acquisition market. So you mentioned interest rates moving up mortgage rates moving up.
What are you seeing in terms of the pace of acquisition and how does that play into the strategy just given some of the macro economic uncertainty.
Yeah, well as you indicated youre right Theres a lot of.
Change that's occurring today, but the first quarter, we had a very very strong quarter of acquisitions.
The interest rate and the market forces. Those changes are very very recent really havent worked through the marketplace, but we are watching.
In reviewing our acquisition input parameters are frequently not monthly anymore, we're down to weekly so there may be adjustments, but it is.
It is very dynamic, but it's a little too early.
To predict where those will end up.
The market has a way of a stabilizing so we may see a tremendous opportunity.
Let me just remind you. This is the really the benefit of having three ways of acquiring <unk>.
And having capital already in the bank. So are we we expect there'll be some opportunities as the market Repositions itself, we are well positioned to take advantage of those but our development program our key growth program.
It has not impacted the input prices is more tied to inflation not to our interest rates.
Nick This is Chris I would just add and underscore David's point that between the January equity offering and then last month's bond bond offering before rates really took off and put the balance sheet just in a great spot, where we can be nimble and flexible, but but you're ready to go if opportunities present themselves.
Thank you and congratulations Jack.
Thank you Nick.
Our next question is from Richard Hill with Morgan Stanley . Please proceed.
Yeah, you have Adam on for rich and good morning, guys.
Just wanted to kind of ask about renewals and are a recognized it accelerated a little bit here and kind of the April disclosure versus the versus the first quarter and in first quarter was a little bit above you know kind of what what you disclosed in the December quarter wants to kind of ask you know how you kind of manage the business around renewals, if there's kind of a.
Ceiling or a cap that you guys kind of wouldn't push past and it just kind of your thoughts I guess around around the renewal spreads.
Yeah. Thanks, Adam This is Brian , but we don't have a specific cap and internal cap or managing the revenue line Holistically and we're also being responsible in our renewal offers a retention.
Our renewal increases have continued to accelerate our retention has remained strong two giving us confidence that we're making the right decisions on that side.
No caps, where we're looking at each one individually remaining responsible.
Our residents are long term residents are very valuable to us and we're managing that line Holistically really.
I think we've got really nice momentum if you look at the.
The entire revenue line.
Or are the midpoint of our guidance contemplates 100 basis point acceleration from from last year, which was really strong as well.
So no caps looking at it individually and really proud of.
I'm happy with the progress, we're making on that side.
That's great guys and then just just to follow up on on bad debt and there was some some peers have kind of mentioned bad debt, you'll kind of more of a focus now I mean I recognize kind of your your geographic exposure is it different than peers, so sort of fully recognize that I'm wondering if there's kind of anything to highlight from the first quarter with regards to bad debt that maybe you know.
Varied from your from your expectation going into the year.
Hey, good morning, Adam Adam Chris Chris Here I can jump in.
Generally speaking I would say consistent with our expectations our collection trends really held pretty strong into the first quarter and it started the year with us as you I'm sure you saw bad debt landing just about one 2% for the quarter. If you think about the components of that as expected we continue to see.
A gradual reduction in rental assistance payments, we were expecting that coming into the year and what we're seeing that paralleled by an improving collections picture overall as you know as we all know our collection practices have now returned to normal and the broader job market remained strong. So you know based on where we sit here today, our full year outlook remains general.
The same is as they started the year with the expectation that our collections and bad debt levels continue their I'll call. It gradual return to normal over the course of this calendar year.
Great. Thanks, so much for the time guys.
Thanks, Adam.
Our next question is from one Santa Maria with BMO capital markets. Please proceed.
Hi, good morning, Thanks for the time.
Just wondering if you guys could speak to tenant price sensitivity.
Any signs it doesn't sound like on the renewal side at least given.
Strong retention, but any signs of maybe a less ancillary revenues are people not choosing to upsize a supersized. If you will on various options you provide them given that the changing macro backdrop.
Yeah.
Hi, This is Brian .
We're not seeing price sensitivity per se in the marketplace you look at the the great re leasing rate growths that we that we posted in April .
And our strong renewal increases.
We're not seeing a ton of price sensitivity and where we are we're quickly adjusting our prices on the on the re leasing asks are.
With regards to some of the other components on the fee side.
No change in the way that those have been approached by our residents.
Great and then you mentioned the survey in your prepared remarks and in some areas of improvement are just hoping you could maybe flesh those out and how those may.
Impac.
The Pea and our performance and growth going forward.
Sure. The survey was really a wonderful tool for us.
Not only did it give us good insight now, but it it sets a baseline going forward are traditionally we've been really focused on feedback from our own residents through internal surveys at the various touch points and this is the first time, we went outside and surveyed not only our own residents, but other other renters.
Who are renting from other institutions and mom and Pops. So I feel like we've got some really good feedback a lot of it supported are really the key tenants of our strategy importance of location proximity to quality schools et cetera.
But we went down to a level and actually surveyed on specific property attributes.
And some of the attributes feedback are really supported our move to hard surface flooring. As an example, so there was some very good insight that came from that.
In terms of areas for improvement I think the key underlying theme as I mentioned in my prepared remarks was the importance of communication across all of the renter, our router market I.
I think we do a good job of communicating now offering them online tools and a better ability.
The ability to communicate electronically with our residents the most but we still see that as a as a potential differentiator going forward. So as we think about the importance of our next generation system improvements and communication. The ease of communication is really at the center of it I think that's the thing that's supporting our strategic direction, there and that's what.
We're really focused on delivering next year when that new platform comes out.
Just a quick tangential any insights on incremental services you could offer us as a result of that survey.
Yeah, no not specifically.
Preferences really were around the attributes are home location.
We were surprised that smart home technology really was lower on the preferential list than many people would expect.
Thank you very much.
Thanks, Juan good to have you back into queue. These days.
Yeah.
Our next question is from Brian <unk> with Evercore ISI. Please proceed.
Hi, Thank you. So a couple of quarters ago, you talked about reducing your going in yield targets are to capture more opportunities and I'm. Just curious have you seen any pressure there now in the other direction, just given where the tenure sits today and increased financing costs.
Yeah, Thanks, Brian stake.
As I mentioned, when we are talking to Nick yes.
Yes, it's a very dynamic market today, and the fact that our base. We have three different growth channels allows us to remain active in our growth programs. Our development program today is going to show it.
Its strengths and benefits to our organization, we've mentioned over and over that our the development program gives us a growth channel when there's disruptions in the marketplace are providing us high quality homes at a significantly higher yields than the other growth channels, but.
As you indicate there is a lot of change that changes very very recent it's mainly in the last week, maybe in the last month and the acquisition channels take time to reestablish themselves. So we are monitoring it we are having frequent meetings are much more frequent than we.
Normally do to basically adjust to what this new marketplace, it's going to look like.
When there is disruption there is many times significant opportunities that will come out of it and as Chris indicated a little bit earlier, our balance sheet is well positioned to take advantage of those opportunities that may arise in the future.
Got it thanks, and as you think about adding to your land bank what markets look the most attractive to you today, and where you're kind of seeing the most opportunities.
Yeah.
Having a diversified.
Portfolio in a diversified development program allows us to grow in many markets.
We are actually trying to fill in some of the markets that we opened up recently.
We are starting now to deliver homes and are all 16 of our development markets.
And so.
What we are seeing in that area is similar to what we are seeing in the acquisition, it's too new to see how the land is being adjusted but the land is a small component of the overall cost of 15% to 25% depending on where you are.
And the other input costs are pretty well established are already for the balance of this year. So.
We're.
Our growth program or our development land our portfolio has grown.
This year were.
Up to about 20000 in total that we control either through owning them outright through option agreements or we have them under contract are 14000 of them are we actually own or have options. So we're in good position for the next few years growth program out of.
Our development program.
Alright, thanks very much.
Yes, Thanks, Brian .
Our next question is from Joshua.
Generally with Bank of America. Please proceed.
Hello, everyone.
Just wanted to explore your opening remarks on the ESG front, and particularly the solar panels.
Hum.
How quickly is that something you can deploy and is that something you're just adding to new construction or something that you're going to put on existing assets.
Assets.
Yeah, Hi, Josh it's Dave again.
The the ESG and the.
And the energy side and the solar side.
It's really about the energy management about reducing the greenhouse gases carbon emissions.
It starts with the amount of energy used as you heard in prepared remarks, our new developed homes utilize.
50% less energy than the average U S home.
And when you go through when you look at our sustainability report that we just released a we outlook.
Outlined all of the greenhouse gases that we do use on both scope one two and three levels.
Our portfolio of total homes use is 10% less than a similar portfolio geographically of average U S homes, but with respect to solar and an alternative energy.
Sources.
It's an area that is very very state and actually very local dependent.
And how the utilities operate and how the utility and energy rules in that state.
Work.
We have hired a you saw the press release about a month ago, where we talked about a relationship we have with a group called elevation and they're working through each and every one of the markets that we're in and they are looking at solar from both a.
New home basis, as well as our existing pumps, but at the end of the day, we have to look at the balance of putting solar on their homes as to what the profitability and ability to recover some of the cost of that solar as well and it's a deep analysis, we are putting sol.
Or are on assets that are ours already where you don't have to look at how you recover the cost.
Because we are the beneficiaries of that so whether it's a amenity senators or the like we're already installing solar throughout our portfolio.
Yes.
Alright, it'll be interesting to watch.
Maybe just one follow up.
As part of that kind of customer survey that you mentioned before.
Solar in and kind of I guess.
Alternative energy part of that survey or is that something that maybe you will add in the future be interesting to kind of true.
Tenants think about it.
Yeah, Hi, Josh This is Brian . It was included a solar wasn't specifically included but environmental friendliness was in it.
Surprisingly low on there.
Preference list it was.
It was down near the bottom so I think it's something that we're going to watch.
And as I mentioned before this survey will provide a nice baseline. So we're going to look and see how we exactly asked that question and see if there's any changes going forward as our program evolves.
Thanks, Brian .
Thanks, Josh.
Yes.
Our next question is from Sam Choe with Credit Suisse. Please proceed.
Hi, guys I just wanted to touch on the 200 homes that you acquire from the JV I'm, just the decision around that and how those homes kind of fit.
And you are on balance of your rental portfolio.
Yeah good.
Good morning, Sam.
It's Dave.
The 200 homes that we acquired were from our first development joint venture. These are homes that we built these are homes that are the high quality homes that are.
R R.
How have the maintenance long term maintenance characteristics that we're looking forward with the superior finishes at most they would be deemed to be superior finishes by most homebuilders.
They're very high quality assets and it really demonstrates one of the benefits of a joint venture and that is you can acquire those homes.
As the joint venture partners looking to monetize and Thats really what this transaction was was the ability for our joint venture partner to monetize for us to acquire the homes at a what I would deem to be a very fair price to both parties for.
For the quality of the asset so it's a transaction that.
I think it really demonstrates.
The power and benefit of our joint ventures.
Okay. That's really helpful. One more for me just on the collection side I know your residential peers faced pressure into California market. I don't think your exposure is that high but just wanted to check what were your exposure stands in those markets.
Our California exposure.
Yeah.
Yeah, Yeah exactly yeah, I think most of those are identified for disposition am I correct.
Yeah, that's less than 1% of our assets are in California.
Got it okay. Thank you so much and Jack congrats.
Thank you Sam.
Our next question is from a handle C test well lets see how please proceed.
And then are you up and down.
Please check and see if you have your line alone.
Hey, Hello.
Yes, we can hear you morning handle alright [laughter].
Before my question I wanted to say Jack it's been a pleasure working with you and getting to know you. The past eight years, you've been a trailblazer you taught me a ton and you will be missed my friend.
My question.
Much anvil.
My question May be do you is that you know I tried to tease that out to you before but perhaps now that you've got one foot out maybe taking it out the door or perhaps some thoughts on third party management. Our industry here has been evolving developed quite a bit of expertise our very strong operating platform with all these EBITDA very instrumental part of so curious if you're now at a point, where you would consider it.
Hi.
Should perhaps think about the opportunity set there. Thanks.
Yeah, Hi, Dave.
Third Party management.
Is definitely.
An area that we are looking at it provide economic benefits. It provides intangible benefits, we don't have anything to announce at this time, but it is an area that we.
Our seriously evaluating and considering.
Yes.
Okay fair enough a follow up on the unconsolidated Jay these are.
You guys did about 200 homes this past quarter, I'm guess I'm curious on the opportunity going forward.
Maybe how steady of a source of acquisitions.
Could that buying into the unconsolidated these become thanks.
Yeah, I think it's a.
A source of opportunity I don't know I would use the word consistent it is.
He.
<unk> transaction, when they have a monetization need and we.
We will be there with the desire to acquire them. So this was a great transaction for us and.
There is an opportunity to acquire more we will be there and discussions.
Yeah.
Okay. One last one maybe for you Brian subject to lock the lease that I don't think you guys provided I figure maybe you could provide what that figure is but I guess I'm more curious on the calculation to last I recall I think your figure with somewhere in the low double digits. Some of your peers are closer to 20% I'm not asking you to explain their figures, but maybe give us some color on how you calculate.
You figure how you define market rent.
Yeah.
Sure. Thanks Sandro.
Our loss to lease is consistent with what we talked about last quarter low double digits.
Calculation simple, it's the lease rate.
As compared to the existing market rate.
And we calculate the market rate through using a couple of different external data sources, plus our own internal expectations adjusted for for timing seasonality and supply levels of individual market, but it's remained consistent quarter over quarter low double digits.
Yeah.
And just to be clear when you say market your.
MSA Submarket specific just maybe how you're trying to define a triangulate to the market.
Yes, we are.
Down to the to the neighborhood level and our in our analysis. So those inputs are coming in from our proprietary data.
And then we're incorporating those external data sources, we feel pretty good about it.
Those estimates.
But theres a lot of support behind them.
Okay. Thank you guys.
Yeah.
Thanks, Andrew.
Our next question is from Jade Rahmani with <unk>. Please proceed.
Thanks, very much in terms of the current market conditions are you seeing investors already pulled back from the market and the home acquisition environment keeping in mind that the vast majority of such investors are not institutional well capitalized like American homes for rent they tend to be much.
Smaller and also a big proportion of its fixed and flip.
Yeah. It does.
Morning, Jay.
You know the the market changes are very very recent and it takes a little bit of time before our investors of all sizes react. So I expect there will be some impact from the market changes too.
To be able to sit here and say today that we've actually seen it in practice no I think it's a little early but you know.
It is very very dynamic out there today.
Thanks, very much and in terms of your own capital plans.
Are you slowing the pace of acquisition.
In terms of existing homes that you acquired through the MLS.
Yeah.
<unk> indicated previously it's something that we are evaluating very very frequently as the market is changing.
As of this time, no we're still comfortable with our guidance.
But we will keep you apprised as the market continues to change it actually may give us more opportunity.
As the market changes, but right now no I would say our guidance is still intact.
Thanks very much.
Mhm, Thanks Jade.
Our next question is from Dennis Mcgill with Zelman and Associates. Please proceed.
Hi, Thank you guys.
Dave just to continue on that.
And when you when you were talking about things changing in and monitoring and you guys are sitting down and looking at this more regularly now what particularly are you more focused on is it the cost of financing the cost of capital that could change the values that are out there are you thinking about some of the economic risk to tenants in the household because I'm trying to balance that against the comment.
Started off with about it taking decades to sort through a supply shortage.
Yeah.
You need to start with the fact that demand for housing and demand for single family homes is so robust today and everybody needs a housing source.
So demand is there and as Brian has indicated not only is demand there, but we are seeing the inflation of this country pushed through and pull through a housing as well when.
When we talk about acquisitions, what we're talking about is.
Our cost of capital and matching that to what the opportunity set is.
In the country at a given time and so as we are looking at it we're tightening up a little bit of our buy boxes.
And evaluating what the opportunity set is against that.
Okay that makes sense.
And then maybe for Brian you mentioned I think that renewals in April were up seven six and the first quarter. Obviously seven five typically I think you'd see maybe a little bit of seasonal bump there, but also with the loss to lease thinking that maybe there was some more acceleration is is that a number that you feel like has sort of capped out in any loss to lease would just come more in duration.
Versus seeing further acceleration in renewals or is April kind of a one month a.
Pause and then you'll see some acceleration after that just wondering if you have any thoughts there.
Thank you Denis I don't think I'm ready to say that that is.
It's topped out.
There are a lot of factors that come into the renewal pricing.
We're really pleased with not only the the increases that we're getting but also the high levels of retention that we're seeing too.
And as we enter the prime leasing season, we're going to continue to adjust those was offering rates are as necessary to manage really the whole revenue line.
Our expectation for for the full year for renewals, it's going to be somewhere in the mid Sevens I think which is really strong considering now that's on top of a strong year last year as well.
Yeah.
Okay makes sense and then Chris one for you we've talked about this in the past, but the gap between your blended rent growth over the last year and the average rent increase at least in our same store pool sort of widening out a little bit can you just explain maybe what's causing that and what you think about that differential going forward will that start to shrink back down.
Yeah sure good morning, Dennis.
But look there's there's an ebb and flow to it.
And I would start by just reminding that Theres always as you pointed out there's always some level of natural delta between spreads and how that pulls through into change in average monthly realized rent.
You know keep in mind, a couple of obvious statements here, but of course, you need to factor in the mix between new and renewals, which today is increasingly skewed towards renewals given our record low turnover rates, which is which is a good thing.
So that's a factor and then to we of course need to factor in the downtime between resident on turning homes as those new lease spreads as we know are quoted are simply on a lease over lease basis, and then lastly, there's just a number of other small factors that kind of go into it there was the mix of month to month leases, there's a mix of short term leases.
And then there's the impact of any households, it may be working their way through the eviction process that could be counted in physical occupancy, but are not economically a vacant to the recognized revenue lines. Just another small friction point, there and I don't mean to get too much into the details, but just to point out there's a lot of moving pieces, but as we think about it overall again, there's always some level.
Delta and.
I would just close by saying that as we think about our first quarter average monthly realized rent growth. It played out very similar to what we're expecting and what our guidance expectations are which as a reminder is in the high sevens on a full year basis for growth in average monthly realized rent.
Those details are helpful. So as we think about it and model. It since we don't have a lot of that transparency would you suggest that that stays similar cap or is that something you'd expect to shrink at some of those nuances play out.
You know at this point in time, I would probably hold it constant to where it is right now just because as you can tell theres. So many different moving pieces to it that it's kind of difficult to predict each one of those so I would hold a constant to where it is now and you can see that reinforced by where we have our guidance set on change in average monthly realized rent.
Okay perfect.
Good luck guys.
Thanks Dennis.
Our next question is from.
Linda Tsai with Jefferies. Please proceed.
Hi, good morning.
It seems like you collect a lot of data is there any way to tease out how much of the demand for homes is due to homeownership affordability versus the desire to rent.
Hi, Linda this is Brian .
I don't know if we can specifically tease out that information.
Really the demand indicators that we're following just support the strength that we continue to talk about our website activities.
Activities at 25% year over year as an example, our leasing call volumes up all of the all the indicators are pointing positive.
And then if you look at the the move out reasons and where our residents are going where they move out there's really no mark change them too to homeownership, so even though we're not teasing out that specific.
Data point.
We feel really good about about demand and its sustainability.
And then Theres one last one les.
A data point that I did want to add.
There was a recent study by John Burns regarding the lease affordability.
As it relates to the cost of ownership and in our markets that sits at about an 8% discount it's about 8% cheaper to rent than it is to own and our marketplace. So maybe that data point and gives you a little bit of color and Linda. This is Dave I'll have one more data point and that is our our average household income.
Of our residents as a in the six digits, it's well over $100000 does that.
That means they have the financial wherewithal and in most cases to own a house. The desire is to have the flexibility and the freedom of what and quite honestly the high quality homes and the convenience of what our homes offer.
So there is a.
There are people that choose a single family homes due to the characteristics of single family homes, and that's evident in the numbers.
Of our single family homes today versus 10 years ago, it's risen by.
4 million homes from 13 million to $17 million.
So.
Thanks, and then on the topic of the spring leasing season can you give us some sense of traffic last quarter, you said applications from New Jersey, New York were up 33% and non Amy States were up 12%.
Any color on how those numbers are trending.
Yeah, those those migration trends are holding.
We're still seeing really good migration from California into our markets. The beneficiaries generally are the west coast markets, but there is some benefit to Texas as well and you think about the migration activity, it's still up over 100% pre pandemic levels. So it has held.
Give us a good confidence for for continuing to push.
Push rents and have higher are.
We maintain a high occupancy.
Thanks, just one last one.
Can you discuss the competitive environment, when you're purchasing through MLS Flash. The traditional acquisition channel you know how often are you coming up against other institutional buyers in MH markets and if you end up negotiating with each other to the extent you know do you end up negotiating each other teams that you were able to identify them as another bidder.
Yeah. This is Dave, but generally you don't identify them as another theater, while you were in the bidding process.
We make offers we underwrite our homes and.
Many many states that our competitors are not in that's the value of having a well diversified portfolio.
Being in 22 states more than 30 markets we.
We will see after the fact to the buyers are we do review all of our where we've had an interest and we can see who actually closes on the home, but generally don't know while you're in the bidding process. It's not like the auction process, where youre standing at the courthouse steps and you know who is bidding against you.
Yeah.
Thank you.
Mhm.
Our next question is from John Pawlowski with Green Street. Please proceed.
Thank you Dave could you share the cap rate on the 200, Hum bulk acquisition and what market that was it.
Yes, so the cap rate of the <unk> with the in place rents is going to be in the low fours and at market rents its going to be a mid to high fours.
And John I think you asked market composition, the 200 homes, largely southeast Atlanta, Jacksonville, Charlotte Nashville.
And then there was a small sprinkling of salt Lake in there as well.
Okay great.
Brian just a few market level questions could you give me some color on Charleston, and Columbus.
Kind of 250 basis points do you ever do year over year decline in occupancy in Charleston, Little under 200 basis points in Columbus, a while generating below average leasing spreads so any color on those markets.
Sure sure.
Yeah overall, our occupancy improve year over year by about 20 basis points.
Carlson.
Not one of our larger markets, but it is susceptible to to move outs, we had a little bit higher move outs than we anticipated.
Part of that is due to its reliance on the military community.
News there is we've.
A positive absorption and.
So a nice improvement in April so I would look at it as a temporary a temporary pullback.
Goodbye Columbus, Columbus is a fantastic market that has seen a ton of growth lately and again, it's just the timing of some move outs and we've seen recovery there as well into April .
Okay. Thank you.
Thanks, John .
Our next question is from Austin, where Schmidt with Keybanc. Please proceed.
Great. Thank you Dave I'm, just curious if you have any markets that you've seen you know a higher inventory of homes on the market in those homes.
Staying on the market for a longer length of time than this time last year.
No I don't know that there is as of the two three weeks ago. When we've looked at the data I don't think there's any market that has got a long dated.
M D.
These on market now.
Now will that change potentially it will change.
But this is again, where the market dynamics are very very recent and I would expect that we will see it but I don't have any evidence of it yet.
Because of our recent it is.
Yeah, that's that's fair, but I guess with the balance sheet in a great position to fund sort of the current plan.
Have you considered trying to sell additional assets.
Assets to have some excess dry powder to the event you know in the event you can take advantage of pricing today, but then also you know on the other side on the buy side. If there is any change in pricing that maybe you'll have more attractive opportunities later this year.
Dispositions are really more a function of our asset management.
<unk> and looking at where we are.
Evaluating those assets that we believe in the future. We will not have the same growth programs or may have some structural issues that we would like to sell.
They decided to get out of the market again, we are looking at that on a very frequent basis. We don't look generally at our disposition program as a source of capital. It does gives us a source of capital that's the secondary benefit.
Got it and then just last one for me I think most of the focus has been around renewables, which I recognize is a more significant ponant the blended lease rate mix and particularly given the lower turnover, but I believe your guidance assume new lease rates would average in the high 9% range and and you had.
And it's in the low 97% range. So it seems like even if you lose some occupancy from this point that youll recapture the higher new lease rates that you've seen accelerate since the first quarter and I'm. Just wondering if there's anything I'm missing or that might you know what might drive new lease rates drastically lower to get you down to that nine you know high 9%.
Average you've assumed in guidance. Thank you.
Yeah. Thank you Austin this is Brian .
We're really pleased with the new lease rate growth through the first quarter and then continuing into April .
And our expectations for the full year or that new leases will be in the tens. So we're predicting to be a little bit ahead of where we thought initially but not not materially a lot of it again goes back to the strength of demand.
US recognizing that historically has been some seasonality in our business.
And towards the back half of the year, maybe a little bit of moderation off of the 14 that we posted in April .
Okay. Thanks for the detail.
Our next question is from Buck Horne with Raymond James. Please proceed.
Hey, good morning, Thanks, and congratulations Jack on the either retirement, well well very well our.
Gary.
Thank you I'm curious if you've seen any changes recently in out of market migration or lease applications from out of market.
Tenants any any change in that flow of people.
Hi buckets Brian .
No. It's still strong I talked earlier on the call about the California migration, which is which is quite significant it is.
Still holding.
On the east coast as well.
From from out of state.
It's we're still at over 80% higher than we were pre pandemic. So those trends are continuing.
It's.
It's really benefiting states like North Carolina on that side of the portfolio.
But yes, we're seeing it continue.
Ben.
A nice bump to the levels of demand and really good high tenant quality as well.
Awesome. Thank you.
And lastly, I wanted to follow up on the comments around the third party management potential I'm. Just wondering if you could add any contours around what you could do or theoretically with.
What the possibilities are there what kind of Japan.
Capacity do you guys have already with your infrastructure to manage a significantly more homes.
Yeah buckets.
Bucket stay the.
Theres two elements, maybe three elements to the <unk>.
<unk> third party management platform.
And the biggest a limiter is what you are inferring to and that's how many homes can you manage that that is the piece that today I would say we have it.
That is it's fully developed.
Ryan's our property management platform can add a significant number of homes. The systems are in place and the people are in place and the people that we would need to add or individuals that we add each and everyday anyways as were growing.
Where are you.
We're looking at the the owner side is in the management of the other side as well as some of the regulated regulatory environment around it as well at this point.
Okay.
Okay. Thank you.
Mhm, Thanks Buck.
Our next question is from Tim.
Kidney front with Goldman Sachs. Please proceed.
Hi, Thank you for taking my question first of all Jack Congratulations and good luck.
Thanks, a lot Jamie.
Great.
Two quick ones from me did you guys see or are you seeing any acceleration in move outs to purchase homes is there any rush to lock in rates.
Hi, Sandy this is Brian .
We're not seeing any change and move outs to buy homes are as our.
As our retention has improved our move outs have gone down and the proportion that are leaving to buy houses has not really changed much over the past year plus.
I understood and second on very quickly.
In terms of regulation, obviously, you know has been a.
Quite debated and constant narrative on this dynamic and the media and new circles, but anything you are seeing are doing differently to manage headline risk anything thats concerning you.
Well regulatory this is Dave.
Regulatory risk here, we have mentioned is a risk.
This company from day one.
We provide housing we provide E item that every American every American citizen needs American resident needs and that's going to bring a scrutiny and so his oversight something that's new no or regulatory Oh.
Reviews, something that's new no what we have said over and over is we attempt to do everything.
The right way, whether it's how we treat our residents a little bit of how we look at pricing a little bit of how we deal with natural disasters, how we.
Interact with our employees and you can see some of that outlined in our sustainability report.
And I believe that coupled with the fact that we may be the only single we are the only single family rental company that manages homes that is actually adding to the solution of the housing shortage in America and all of that is.
Worked very very well with us do we have regulatory.
Inquiries, yeah well.
A couple that are industry related we've been asked to provide some information, but we've had no investigations that have no investigations at this time.
So for us.
Regulatory matters will exist as long as we're around we have a director of government affairs that helps educate our politicians.
Or our local communities because it's all about education.
So.
We don't have anything that concerns us personally, but it's something that we do have to keep our eye on.
Thank you so much for your color comments, yes.
Yeah.
I think Tony.
Our next question is from Brad Heffern with RBC capital markets. Please proceed.
Hey, everyone.
One two parter for Chris.
G&A, it's been elevated the past couple of quarters. So can you give any color on the trajectory there for the rest of the year and then has there been any change in thinking about the potential redemption of the next tranche of preferreds.
Just given I know theres capital locked in for that has permanent capital become more attractive.
Yeah, Good morning, Brad.
First on on G&A.
Very consistent with what we talked about last quarter and what was contemplated in guidance. Our general expectation is that we'll likely see a full year G&A increased this year and call it plus or minus 10% area with really two components included in there one are the.
The inflationary component that we ballpark to be around call it 7% or so this year.
And then in addition to that there are a couple of very important strategic investments that we're making this year and to a number of our corporate areas.
For example, our technology platform, our ESG efforts and then our focus on government affairs and all bets are tracking very consistent with what our expectations were at the start of the year and then on the preferreds you have a great point.
As I'm sure you saw we've already announced and close the call are closed.
The calling and redemption of the series F.
Those are done at this point on the Gs look as of right now guidance still contemplates that those are going to be redeemed, but small enough that they're not really needle moving either way, but I agree with you it's something that we're watching very closely.
And you know, we're thinking about it relative to two where capital markets and cost of capital trend over over the next couple of months, but it underscores one of the great benefits of preferreds in that they truly represent perpetual capital. So theres no actual maturity or forced decision that we have to make.
But we've got the.
The luxury if you will of of unilateral optionality, where if it makes sense, we can call them in.
Or if it doesn't makes sense relative to where the markets and cost of capital considerations are at the time, we can continue to let them sit out there and we can and will have that option available to us, but anyway. As we think about the year at this point I would say that the Gs or are small enough that we're not really terribly needle moving either way from a from an earnings and our guidance impact standpoint.
Okay. Thank you.
Thanks, Brett.
And our final question will be from Nick Joseph with Citigroup. Please proceed.
Hey, it's Michael Bilerman here with Nick.
Yes, Dave I guess, if you step back obviously the cost.
One has risen.
Pretty substantially just not only give them HPA, but given the move in rate.
<unk>.
And when you think about where rates are today and I mean this is this.
This happened a couple of times over the last 30 years.
The in place.
Mortgage rate.
For all outstanding single family mortgages is likely well below where current mortgages are.
Which could impact sort of movement outside of normal.
Neat.
That drive movement in America, I guess, how do you sort of see this.
Evolving if rates continue to stay elevated and housing prices to elevated because of all the construction cost pressures that you've talked about outside of land, which is only 15% to 20%. So just.
How do you think it's going to evolve and I recognize we're going into an unprecedented time, which we had some history of insight, but how do you sort of see it playing out.
Yeah, So Michael upon pack.
To your question, there's a couple of areas.
Let's let's start with <unk>.
The demand for our product and then we will talk about the cost of the development side.
Demand for our product today is very very strong we are under supplied in housing in the United States are and the demand for our products meet.
Stronger is as you indicate homebuilders see a change in the demand due to home affordability, resulting from rising interest rates.
The rising interest rates impact the home values, what we have talked about for years is a benefit of our development program is having three prongs to growth. It means that you have ways to grow in.
Most economic cycles, and the input cost of the cost of building.
The lumber the the all the other materials are really tied to a demand equation themselves and as homebuilders see the.
The demand for their products.
Their new homes, but that's going to put less demand on the input cost and that should be favorable to us, but if you look at just the input cost for 2022.
The majority of those costs are locked in if you look at probably what's the largest cost it's gonna be lumber and lumber cost for homes that we will be delivering in the second quarter or about the same cost as what you see in the first quarter the homes in the third quarter, it will be about $2000 higher but the fourth quarter will be lower.
Then what we have in the first quarter. So we are actually seeing the input cost right now for everything that we have locked in.
Pretty stable to where they have been.
Keep in mind that rental rates are rising as well and so the if you look at the deliveries that we have in the first quarter of this year are they are about 5859, but when you break it down and look at it and analyze it those markets that we.
Been delivering homes consistently those more stable markets.
We delivered over 6% yield where.
We delivered less than 6% yields in the new markets that we are delivering in those markets that are just delivering their first homes that don't have the scale benefits.
Benefits yet built into them those that scale benefit will come as we start delivering more homes in those markets.
So today.
Yeah, you know the cost the largest inflator cost right now is the land, it's probably up 2025%. If you look at the average of all the other input cost and its a big blend of items, it's up about 10%. So the whole thing's blending out to about 12, 5% higher.
You said you were talking a lot about the cost and I guess my question Dave was more.
Akin to how the housing market and movement of people.
It is going how you sort of see it evolving a little bit.
From a liquidity standpoint, right I mean people if their cost their embedded current cost.
It's so low.
For them to go out and buy a new home that is likely going to cost as much as it is with a mortgage rate that can be much higher.
Just wonder whether that's can assign the the market a little bit and how does it.
Eventually sort of work its way out.
Yeah, well the other I mean, there's a lot of factors in there and it starts that you have 48 million households that don't have housing today, and there's a lack of quality housing and.
So if I understand your question I think youre really talking about the movement of households from one housing source to another.
There will be people that probably are going to get locked into some of their homes.
Today, but there's.
For me that this is going to.
Increase the demand for single family rental homes.
At worst it's gonna be teen the.
The demand that we see today, which you know is.
Is the strongest demand we've seen in 10 years since we've been doing this.
And we still haven't solved the problem. The housing issue of how do we house 4 million households, and so many more product that product is going to probably get stymied a little bit.
On the homebuilding side and that's just going to further increase the demand for single family rentals, because these people need to multifamily these people need somewhere to go.
Last question, just you guys issued bonds in the quarter.
You took those out at I think about 97.
Par.
Typically most companies will sort of.
Go out with a yield that they think is attainable and price those bonds.
Accordingly.
Let's go through the mechanics of why you chose to do it that way.
The income statement impact.
Amortization of the of the <unk>.
Proceeds effectively but by doing that so just.
Walk through a little bit the decision to do that.
Yeah sure Michael Chris here.
I think youre exactly right.
And keep in mind. It is commonplace for all bond coupons to get round it off using an issuance discount to the nearest logical number oftentimes expressed an eighth store so.
In our case, given the strength of the capital position and the fact that our external capital needs have now been funded for 'twenty. Two you know we were able to round our coupon down a touch more on this offering via the discount but at the end of the day I think you're on exactly the right track in terms of income statement impact whether it comes through in coupon interest rate for amortization of debt discount. It's all included.
As part of financing cost of <unk>.
Right.
Youre going to have the same amount, but obviously, there's some I guess cash differential.
For those uneducated on how bond math works the headline.
Right.
Different than the yield to maturity and I think there was a fair amount of confusion.
In the market that weak given the coupon spread but a yield to maturity spread that was much narrower relative to your closest peer. In addition to the 10 year moving 10 15 basis points over the course of that week. So I think.
Just understanding whether it was a one off or a way that you just went about it.
It was just a helpful to clarify.
Yeah.
Yeah.
We're going to agree and then there's a number of components and Youre right. I mean deals will move from week to week and day to day based on treasuries and market movements and spread at the end of the day. If you look at rate versus coupon rate is still sub 4%.
3925, I think was was right before discount if I recall correctly at the top of my head.
Probably the most comparable data point, if you're trying to compare across deals is ultimately credit spread right because of that.
Can't control and then an underlying treasury and I think if you and again not to get too much into the numbers of comparing us versus other deals that are in the market nearby our transaction, but I think when you look through to credit spread youll see that our deal priced tighter other you know relative to others that we're near US and I think that's a reflection of credit profile balance sheet and the fact that our credit ratings are also on positive outlook as well.
Yeah, and I think that's exactly right I think normal cases.
Things get adjusted in the spread over the course of a marketing.
Where most of those new issue discounts or in some cases the premia.
Or in the basis points not in a 3% type discount. So it was unusual relative to bonds that had been issued in the past in the REIT sector and I just wanted to clarify sort of the drivers of your decision to not doing that.
Okay. That's helpful.
Yes.
Okay. Thanks, Chris.
Congratulations.
Hey, guys.
Thank you Michael.
We have reached the end of our question and answer session I would like to turn the call back over to David for closing comments.
Thank you operator, and thank you for your time today in closing I reiterate.
What Michael and I were talking about that demand for our homes remains robust.
Thanks to our recent capital raises the company is in a great position to execute on our growth programs. This year. So we will talk with you next quarter have a great day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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