Q1 2023 American Homes 4 Rent Earnings Call
[music].
Greetings and welcome to the American homes, four rent first quarter 2023 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.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Nick Brown director of Investor Relations. Thank you Sir you may begin.
Good morning, Thank you for joining us for our first quarter 2023 earnings conference call.
With me today are David <unk>, Chief Executive Officer, Bryan Smith, Chief operating Officer, and Chris Lau Chief Financial Officer.
Please be advised that this call may include forward looking statements all statements other than statements of historical fact included in this conference call are forward looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.
These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC.
All forward looking statements speak only as of today makes it 2023, 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.
A reconciliation of GAAP to non-GAAP financial measures is included in our earnings 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. You can find these documents as well as SEC reports and the audio webcast replay of this conference call.
On our website at Www Dot A&H dot com with that I will turn the call over to our CEO David Thank Glenn.
Welcome everyone and thank you for joining us today.
The early spring leasing season is off to a strong start to damage. Our property management teams are doing a great job capturing the strong demand for single family rentals in our development program continues to deliver consistent and predictable growth through the addition of premium new construction rental homes.
Like everyone else, we are following the broader market disruptions from the banking system and choppy economic waters.
But no matter. What's ahead, we continue to have confidence that M. H and single family rentals, which have now matured into a core asset class have the ability to outperform in any economic environment.
To frame. This further three important things come to mind.
First as Jeff our sector fundamentals are strong our country continues to suffer from a persistent housing shortage in the current interest rate environment has created a housing affordability crisis.
In this backdrop the single family rental value proposition has never been stronger we offer is simple and accessible way for our residents to enjoy the American dream of single family living.
Second the a M H balance sheet shines in times of capital market uncertainty.
Our investment grade balance sheet staggered maturity profile and focus on long term fixed rate debt minimizes our exposure to near term interest rate volatility.
Additionally, our leverage profile, which ended the quarter at five four times positions us for further resiliency as well as flexibility for growth.
And third our ability to deliver consistent and predictable growth is unmatched as announced earlier. This week a M. H is now proudly the 39th largest homebuilder in the country based on the 2023 builder 100 list.
With our internal development program is the back though.
And no reliance on equity financing, we continue to grow our portfolio, where we want.
And when we want regardless of external market factors overall, we are in a great position as we navigate these uncertain times.
Now turning to the quarter, we started off 2023 on solid footing, delivering 41 core <unk> per share representing eight 6% year over year growth.
And as expected we are seeing our normal seasonality curve returned with an acceleration in demand heading into spring leasing season, which Brian will touch on shortly.
Onto the investment front and our three pronged growth strategy.
Our main focus continues to be our internal development program.
The other two acquisition channels remain largely on pause due to pricing dynamics in the open market as well as cost of capital considerations.
We continue to have ongoing discussions with market participants and we'll be ready to act should conditions change.
For the quarter, we delivered 466 am each development homes to our wholly owned and joint venture portfolios, keeping us nicely on track with our full year guidance expectation.
As the team continues to successfully navigate a dynamic supply chain environment. We continue to see gradual input cost improvements as we work towards deliveries with yields in the 6% area by year end.
Lastly, I am proud to report, we released our fifth annual sustainability report, which can be found in the Investor Relations section of our website. The report details the company's ESG performance and priorities with notable highlights including implementation of an environmental management system.
Expanded greenhouse gas inventory and other social initiatives impacting communities.
Sustainability remains a priority for the company and I am proud of how far our programs and initiatives have come in a short period of time.
In closing 2023 is off to a strong start and we are well positioned as we enter spring leasing season, and continued to navigate the uncertain and unpredictable economic environment.
As we continue our journey, we remain committed to being a resilient sustainable and inclusive organization that has earned the trust of those who rely on us while delivering long term value creation for our shareholders.
Now I'll turn it over to Brian for an update on our operations Brian .
Thank you Dave.
2023 is off to a great start with demand accelerating into the spring leasing season.
American households continue to seek the high quality professionally managed shuttles in the A&H portfolio for value and stability in these uncertain economic times.
This was evidenced by our historically high leasing volume for the quarter.
And we expect to continue into our busy season.
As a result first quarter same home average occupied days was 97, 2%, which.
Which represents a 30 basis point improvement over the fourth quarter of 2022.
Rate growth was also healthy with new renewal and blended rental rate growth of seven 8%.
Six 8% and seven 1% respectively.
This drove same home core revenue growth of seven 7% for the quarter.
As expected core operating expense growth for the quarter was 12, 2%.
Please remember that expense growth will be elevated for the first three quarters because of our property tax true up in the fourth quarter of last year.
On the revenue side, the second quarter is off to a great start.
Strong demand continues to fuel solid occupancy and rental rate growth.
April same home average occupied days was 97, 1%.
And new renewal and blended spreads.
Nine 4%.
Six 2%.
Seven 1%, respectively are well above our seasonal pre back pre pandemic norms.
Before I finish I'd like to briefly update you on our resident 360 program that we announced last quarter.
Our staffing and training plans are proceeding as expected.
And we are already starting to get positive feedback from our residents.
We look forward to providing additional updates as the program continues to mature.
In closing we are pleased with our first quarter results and the spring trends that we're seeing.
As I make my annual visits to our field offices across the country.
I continue to be impressed with our team's focus on providing the best resident experience in our space.
I would like to thank them for their hard work and dedication.
With that I'll turn the call over to Chris for the financial update.
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 in 2023 capital plan and third I'll close with a few comments around our unchanged 2023 guidance starting off with our operating results. We delivered another quarter of strong earnings growth with net income attributable to common shareholders of 117.
<unk> $5 million or 32 cents per diluted share on an <unk> share and unit basis, we generated 41 cents of core <unk>, representing each 0.6% year over year growth and 37 of adjusted <unk>, representing seven 4% year over year growth.
Underlying this strength was five 4% year over year core NOI growth from our same home portfolio as well as continued strong execution from our development program, which delivered a total of 466 homes to our wholly owned and joint venture portfolios.
Outside of development or acquisition activity continues to remain largely on pause as we patiently await further stabilization in home values in our cost of capital with that in mind, we acquired just 13 homes during the quarter consisting of pre existing national homebuilder contracts closings on the disposition side. However, we had a very active.
Start to the year as we continue to monetize noncore homes and take advantage of private market home values that remain historically strong.
During the quarter, we sold nearly 670 properties that were identified through our rigorous asset management process generating nearly $185 million of net proceeds.
Next I'd like to turn to our balance sheet and 2023 capital plan.
At the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was just five four times with $256 million of cash on the balance sheet and a 1.25 billion revolving credit facility was fully undrawn.
As previously announced during the quarter, we settled the remaining 8 million class a common shares from last year's foreign equity agreement, receiving net proceeds of $298.4 million.
As an update on our overall 2023 capital plan, we remain on track to invest approximately $900 million of image capital, which we still expect to fund through a combination of retained cash flow recycled capital from dispositions, our first quarter forward equity proceeds and modest debt capacity utilization.
Lastly, given the ongoing uncertainty in the capital markets I wanted to share an important reminder, around the sizing of our wholly owned development pipeline, which has been strategically designed to be fundable without the need for incremental common equity capital.
Is the current capital markets have reminded us as a critical element that enables our ability to deliver consistent and predictable growth from our image development program overtime.
Finally, before we open the call to your questions I wanted to briefly touch on our 2023 guidance, which remains unchanged in Yesterdays earnings press release.
As expected we delivered a strong start to the year and continue to see robust momentum heading into the second quarter. However, given that the heaviest part of the spring leasing season is still ahead of us and many aspects of the U S. Economy remains uncertain. We are currently maintaining our previously provided full year 2023 earnings guidance with that said.
We remain encouraged by the current trend lines across the <unk> portfolio continued to be driven by our country's housing shortage and unaffordably crisis. The strength of the image operating platform and our unique three pronged ability to grow in all economic cycles.
Thank you again for your time, and we'll open the call to your questions operator.
Thank you we will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow up if you have additional questions you may re queue and those questions will be addressed time permitting.
If he would like to ask a question. Please press star one on your telephone keypad, a 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.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Juan Sanabria with BMO capital markets. Please proceed with your question.
Hi, good morning, and thanks for the time, but just curious a little bit on the renewal spreads they seem to be moderating kind of calling universe to the new lease spreads.
So curious on the bigger picture thoughts or strategy, there and if you could give us a sense where.
Maybe may and June and June renewals are being sent out to the population.
I want to thank you for the question.
Well, what you're seeing really is based on the timing aspect of when the renewal offers are set and mail.
So the 6.2 in April in the May and the March numbers were set last year. When we may have had maybe a little bit more of a conservative approach to to demand as we entered this year. We were really excited about what we saw from across all the different demand metrics and it gave us a lot of confidence so.
Once it will be mailed going forward I think you can think of it more in the 7% range. So we are seeing acceleration out of April .
Great. Thanks, and then just curious on the kind of transactions there whole market value perspective.
Values have been fairly sticky maybe surprising most so just curious I guess, where do you think cap rates are today, and maybe where are you are able to sell these homes that you're disclosing a co.
Officially just to give us a sensitive.
Where that market is the on the transaction side.
Yeah, one it's Dave.
The market as you indicate ER has remained very very stable and we're seeing the pricing being pretty sticky as to where it was a quarter ago yields continue to be for if you would transact in the low to mid fives.
Where we're looking more in the upper fives or maybe the 6% area. So we were on the sidelines still being patient and disciplined in that with respect to sales Oh, let me.
Turn that one over to Chris Boerner, one yeah, I touched on it a bit in my prepared remarks, but as I mentioned, we saw really good traction this quarter through the disposition program, which is largely being driven by just the sheer scarcity of housing across the country, meaning that our <unk>.
Dispositions supply when we bring it to market continues to be met by really strong buyer demand.
Enabling us to achieve sales prices at or near asking prices.
Translating into average disposition cap rates in the high threes, or so which creates a really attractive capital recycling opportunity to recycle back into our growth programs.
Thank you Juan.
Our next question comes from the line of Chengdu Looser with Goldman Sachs. Please proceed with your question.
Hi, Thank you for taking my question. So you guys talked about you know potential potentially seeing acceleration here and you know what it's obviously new has been really strong you talked about <unk> being well above your seasonal pre pandemic norms. So as we think about that unchanged 2020.
<unk> same store guidance is there potentially some conservatism there would love your thoughts thank you.
Good morning, Johnny Chris here.
Again as I also mentioned in prepared remarks, Yeah look we reported a really strong first quarter, which we're very proud of and you're exactly right. We're seeing some real encouraging.
Leasing results from the early spring leasing season with March and April our new leases in particular accelerating up into the nine points to nine 4% area, but the key word that I. Just used was early right early and we need to remember that our heaviest leasing.
<unk> are still ahead of us in May and June and even into July to a certain extent. So it's really just too early to be revisiting. The guide at this point, but you know if our if our current trend lines stay on track, we're optimistic that we'll be able to share a nice update next quarter. After the spring leasing season.
Excellent. Thank you and switching gears, a little bit to the dispositions to 670, you know noncore homes. What is the criteria. How do you sort of think about your overall portfolio and.
Assess what homes, perhaps do not qualify as a noncore how many more such opportunities do you see for 2023 in terms of disposition and kind of you know hum.
Making that arbitrage yourself that you're in a high three cap rates are in terms of selling.
Hi, Charlie this is Brian .
We're very active in our asset management review process and the first thing that we look at is the location of those homes.
We've got some homes that were acquired as.
As part of a portfolio of transactions as an example that may not be in core locations four or so locations the first criteria.
The second criterion is performance and we look at performance both from a maintenance perspective and on the revenue side, our occupancy and especially collections. So we're paying very close attention to that that's the majority of the reasons for for dispositions are there some other kind of smaller reasons that.
There really aren't material.
Yeah.
Our next question comes from the line of Josh that are aligned with Bank of America. Please proceed with your question.
Yeah, Hi, everyone. Thanks for the time just it.
Correct me, if I'm wrong, but normally you get our occupancy up let's say Q1and I'm just kind of curious like what what's driving that is that for the strategy on your end demand or someone else really first of all thank you.
Yeah, Josh this is Brian .
But generally as we enter the beginning of the year demand rebound significantly from Q4, we saw that this year.
Q4 to Q1, historically speaking, we do see a pick up.
And then as we manage through the <unk>.
Started the busy season has started the spring leasing season.
Keep in mind. That's also to also tends to be our highest move out levels. So theres, a little bit of an ebb and flow to occupancy.
But the main the main answer though is demand is really strong.
And we've had fantastic foot traffic one of the metrics that we've talked about in the past, it's showings per rent ready property and those remained well above pre pandemic levels.
And I think the other thing too the most dramatic increase that we've seen so far this year comes from our website activity.
Traffic from new users is up nearly 20% from 2022.
So there are a number of really good factors that are playing into that strength of occupancy and rate growth.
So appreciate that and just curious on like new new move ins here or holes you survey, where folks are moving from are they coming from apartments other rentals or.
Any kind of color maybe you saw them.
They're indicating to you there.
Just can't find a home.
By this environment.
Yeah.
Yeah, we were at a number of surveys are on move in we're asking where they came from I mean anecdotal anecdotally. There are a lot of people who are on the sidelines.
Ultimately, we like to buy them that doesn't necessarily come out in the surveys, but when we look at is are they coming from multifamily or other single family.
And we've seen that kind of pretty steady and about 20% of our residents are coming from multifamily.
<unk> from from single family on the way in.
Okay.
Our next question.
Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Thanks. Good afternoon, you mentioned that the heaviest leasing season in the June and to certain extent to lie.
I'm just wondering what percentage of your leases have already been signed for those months, because obviously people signed the leases ahead of when they move in and typically renew one to two months in advance. So I would think you'd have a pretty good idea of where.
Judy would end up at this point.
Yeah.
Hi, Eric This is Brian .
We've had obviously a good number of leases signed for May.
But we're moving these houses pretty quickly with the exception of some of the pre leasing activity.
You know the the signed leasing activity for June is still relatively light.
But even though we're still and day five of the month of May and we're not ready to conclude on exactly where that's.
All I can tell you is that it's it continues to be very positive.
Okay, and then a question on new lease growth you mentioned that it jumped from 71% through February to over 90% I think 9.2 in March 19, four in April .
I was wondering what a typical seasonal increase would look like.
Whether it was somewhat stronger than than what you would have normally expected for this time of year and then secondly on that if there's a update you could give us on the loss to lease right now.
Yeah, I'll start with the loss to lease Eric it's similar to what it was last quarter.
In the 6% area.
And I think that the expectation historically for this time of year is that you'd see an increase in releasing rate growth.
Uh huh.
Towards the start and through busy season, you know historically, maybe in the 5% range or so so this is this has been really strong from a historical perspective.
Our next question comes from the line of Steve <unk> with Evercore ISI. Please proceed with your question.
Yeah. Thanks, Brian I was just wondering if you could make any broad comments on.
Any trends you're seeing in the various markets you know you've got a pretty widespread with like a San Antonio blended spread up for other market top nine and I'm just trying to see if you're seeing any trends by market. If there are supply issues.
Job issues, just anything that would maybe explain some of the large discrepancies within the markets.
Sure. Thanks, Steve.
I think the easiest place to start is with some of the mid western markets. They tend to be more susceptible to to weather and seasonality.
Indianapolis as an example.
I'm still a strong in the mid 96 as in the first quarter.
But as we got into March and April we've seen nice acceleration there. So some of the markets that may appear to be a little bit lagging in the first quarter have recovered into the early spring leasing season.
From a supply perspective, I think it's it's most visible in the Phoenix market. The Phoenix has been a extremely high flyer for a number of years.
And it's the one market, where we've seen an increase of supply that has kind of brought it back down to earth a little bit.
But the good news for us in that particular market as we have extremely well located assets.
And we expect any sort of pullback.
Pullback that we've seen to be temporary.
Great and then on the development front I don't know if you or David could you just comment on you know sort of how you're underwriting new developments today and you know I know.
No our material costs were really ramp it they seem to be coming down I'm, just curious sort of where yields are penciling today and are you starting to see any relief on the trade front.
Yeah, the Steve It is Dave Thanks for the question.
On the supply side or are the the material input cost side.
We have seen and we saw this prior to the last quarter. So this is a repeat of what we said in the first quarter, we've seen a significant reduction in lumber prices onto the at the market level, we have seen some reductions throughout the quarter.
In input cost, but they have kind of reverted back to where they were a couple of months ago.
However, we are seeing reductions in the input costs in our homes and it's really more a function of efficiency from putting in systems last year that we are now seeing the benefits of in managing and fine tuning the exactly the amount of product that.
We need to put it in each home.
So the input costs are coming down it's more a function of internal efficiencies from investments that we made last year I would correlate that a little bit to investments, we're making this year in resident 360, we would expect to see some benefits there next year, but that's where we're seeing the benefits Steve on your question on yield.
<unk>.
You know, where we are looking to.
Basically add to our portfolio would be in the upper six range. When we underwrite. The homes are we are still for the most part pretty much on the sidelines there as well, but we are seeing some movement, but we're not quite where we would be willing to start.
Start loading up the truck.
Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Oh, great. Thanks for taking my question I guess, just sticking with you know internal operating efficiency can you talk about the average R&M and turn for the Anh developed homes for the rest of your same store pool. Just wondering you know how much more efficient you can be on that front.
Yeah.
So let me just give you a couple of numbers. So this is Dave.
When you look at our entire portfolio of what we call a cost to maintain number for.
For all of the homes for the first quarter. It was about 600.
And <unk>.
25 to $630, if you take out some of the landscaping cost.
That is what we would contract as part of the rent. If you look at what we are doing when we buy new homes from National Homebuilders, It's it's a little bit above 300, and when you look at our the cost from our development homes.
It's about $230.
So there.
When you look at the National builders and it and the development homes those or have the same age those are really comparable homes.
And it's a testament to the efficiency of our building your own homes and are building them with maintenance in mind and putting in.
Better materials into the homes, so that's a little bit of a background on cost to maintain.
Okay, that's very helpful.
And then I mean, clearly it sounds like Youre feeling pretty good about heading into the spring leasing with with the April results. So far in first quarter being slightly ahead of expectations. I mean, what is there that could surprise to the downside maybe on the expense side or you know maybe the volume of dispositions. You did did that have any a any impact on an earnings headwind just thinking about where things might.
Not be quite as rosy.
As we head into the rest of the year.
Yeah. This is Dave you know we're very it is I think you heard from both Chris and Brian We're very very pleased with our first quarter. We're very pleased with the momentum we have going into the second quarter with that said the leasing season.
Is just beginning at this point so there's still a long time for things to happen today, there's nothing that we really see that as a any real concern going into the balance of the year.
But again, it's still early in the year we are.
Here, we are at the end of the first quarter, we have three more quarters to go. So I'm. We're very very pleased with where we are very pleased with the first quarter and I think we.
Have very good momentum going into the second quarter.
But it's early.
Yeah.
Our next question comes from the line of Dennis Mcgill with Zelman. Please proceed with your question.
Alright, thanks for taking the questions.
First one just Chris on dispositions I think in the fourth quarter you expect it around 200 to 300 million. This year. Obviously running ahead of that pace are you expecting to slow or would the 200 and 300 million light on where you'll probably end up this year.
Oh Good morning, Dennis you know I think on a quarterly run rate basis will moderate a touch over the balance of the year, we're likely on track on a full year basis to do with it better than our outlook at the start at this point right now I can see the full year landing in the $3 million to $400 million area.
Yeah.
Okay, Great and then on Capex are both recurring I think was up around 20%, a nonrecurring or property enhancing up 10, or so for the quarter what would your expectations be for that for the full year.
Sure Chris here as well on a full year basis I think we shared this last quarter recurring capex, we could see up in or around the 20% area, probably pretty similar to the run rate. We saw in the first quarter and then from a property enhancing capex perspective.
Again fairly similar to what we saw last year I think last year on a same home basis, we landed in the $50 million to $60 million area, which will probably be pretty similar again this year in 2023.
Our next question comes from the line of Keegan Karl with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks for taking the time first one here just how are you thinking about turnover rate the rest of the year and the subsequent impact it would have on your expense growth.
Thank you again.
We are really happy with our retention rates right now obviously the.
The higher the retention rates the better protection, we have on on turn costs, but.
But our expectations for occupancy this year are that the retention rates are going to remain high.
In the event that we had more turnover.
The good news is we're able to bring these homes back to market quickly and were seeing outstanding releasing rate growth.
But obviously increase in turnover would have an effect on expenses as well.
Okay, and maybe it's too early to tell what I'm just kind of curious what sort of returns you guys see on resident and 360. It is it meeting your expectations so far.
Yeah. Thank you keep going at it is it's early in the rollout.
We were substantially hired for the physicians, but many of the markets are still in the training phase.
But the early indications that we're seeing from resident feedback from the markets that are fully trained has been it's been wholly positive. So the the return immediately as improvement in the customer experience.
Scores from our customers.
Our next question comes from the line of Handel St. Jude with Mizuho. Please proceed with your question.
Hey, it's apparently on for Handel St. Charles Thanks for taking my question I was just wondering on your bad debt. So it looks like it increased sequentially.
Sequentially up like 300000.
I'm just wondering what's driving that and is the focus on a particular region and how's that that overall trying to I guess your expectations. Thank you.
Good morning, Barry Chris here.
Look generally speaking I would say that first quarter bad debt landed very consistent with what our expectations were at about one 4% for the same home pool.
Some color there if you recall from our discussion last quarter. We continue to have a small subset of our residents that are taking a little bit longer to work through the COVID-19 resolution process, just given that some of the court systems are still moving a little slower than normal.
You will also likely recall from our discussion last quarter that guidance conservatively assumes at our full our that our full year bad debt runs somewhere in the one 4% area just like it is right now.
With that said, it's too early to comment quantitatively, but we're optimistic that we will have opportunity to potentially work through some of this process quicker.
And could have potential for improvement in the back part of the year, but again, it's a little bit early and too premature to count on that just yet.
Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Alright, Thanks for taking my question just on the dispositions could you remind us are those primarily done yet MLS listings or do you sell to.
Investors as well.
Hi, Linda this is Brian .
It's a very good question because the shift has been to almost.
Entirely MLS sales this year I think it has to do with the disconnect between the value of these assets to the to the homeowner versus those to the investor.
Chris cited some pretty aggressive exit cap rates, but to answer.
Answer your question, it's been almost all MLS.
Okay.
And then just one follow up on Nashville occupancy declined a little bit there more than our portfolio average just any any color there.
In Nashville is a very strong market for us we saw outstanding occupancy last year.
We had maybe a little bit of elevated move outs in March, but we expect that to recover its still its still very strong.
Yeah.
Our next question comes from the line of Daniel Chicago with Scotiabank. Please proceed with your question.
Thanks, I have a broader question on portfolio construction and sort of it's sort of a follow up to Steve's question.
In an economic downturn, how would you think your your secondary markets would perform in relation to your more primary market exposures on average and you know any commentary you see the value of geographic diversification today versus you know maybe building market concentration of Geo markets. Thank you.
Yeah No this is Dave.
We're still a believer in diversification, it's easy when you have both strong and weaker times not all markets are performed the same and so this is a good way to balance out the risk what we're seeing right. Now today is those markets that have been.
The appearance of being a little bit weaker we see very strong demand behind them.
If you look at the Midwest, We know right now where we are where we are.
Where we have our portfolio is an area, where there's going to be a lot of growth. There is Cisco is going in with the new plant in the future. So we're very very pleased with the construction of our portfolio. Today are Brian did mentioned earlier that we have a robust asset management.
Process, where we review properties every month, we review markets are probably every quarter.
And where we want to go into as well as where we may want to exit and we have exited a couple of markets in the past, but we are very pleased with where we are currently positioned and those homes, whether individually or in a market that don't fit our long term growth the XP.
Patients are we will marcom for disposition and sell them overtime.
Thanks, Dave.
And then a quick follow up on the bad debt just wondering how much rental assistance you you received this quarter.
Not sure. If you had bought it wasn't won't give last year, but you know what are those two numbers.
Yeah, we're definitely tricking trickling down as expected in the corridor. We received just over a million dollars of rental assistance and I think that that compares to just about 5 million same quarter last year.
Our next question comes from the line of Adam Kramer with Morgan Stanley . Please proceed with your question.
Hey, thanks for the time.
Wanted to ask about some more I think to an earlier question just on kind of the February March acceleration in the new at least grow through strong kind of month to month acceleration wondering just kind of internally, we've got kind of a change in strategy or something that you guys saw.
Any particular markets or kind of just broadly that maybe caused you to approach the new lease growth of a little bit differently again February to March.
Yeah. Thank you Adam It really comes down to the way that we're monitoring demand. So just to remind you we take our properties to market and our pre leasing stage upon notice.
And were quite aggressive in many cases on our asking rents at that point, we're carefully monitoring all the activity on that specific house.
And in terms of who's looking at it whether we're setting up.
Tours showrooms and ultimately ended up through the application phase. So we saw outstanding demand. It gave us a lot of confidence we held prices improved our pre leasing activity, but it's really it's a revenue optimization team is paying attention at the asset level.
And it is very nimble and we're able to capture that as soon as we saw that nice spike in February .
Great. Thanks, so much and then just maybe thinking about the full year guidance looking over so we're still early here.
But just thinking through kind of maybe what range of kind of new and renewal or blended rent growth is kind of baked into the assumption for the full year for the full year.
Guidance.
Yes, Adam it's Chris here, you may recall from last quarter full year guidance contemplates blended spreads in the five to six area.
The construction of that is contemplating something in the Sevens first and second quarter, then moderating into more of the mid single digits in the back half a bit here.
And we're optimistic that we are on a nice path and track in the second quarter.
Currently slightly above that but we need to see how may and June play out.
Our next question comes from the line of Brad Heffern with RBC. Please proceed with your question.
Yeah, Thanks, everybody I'm, Chris just sort of sticking with the earnings claim.
Is there a color that you can give on sort of the sequential trajectory, obviously 41 cents in the first quarter times four is the top end of the guide so I'm curious if there's a C.
There's no impact or a one time benefit in the first quarter that could result in the rest of the year being lower or would it really just the result from some sort of degradation in the fundamentals.
Yeah, you know.
Brad I hate to get into too much detail on quarterly numbers. You know, obviously, we don't guide to the quarter, but a couple of different considerations from a timing perspective, obviously, we see strongest leasing activity through second and third quarter from a seasonal perspective also keep in mind that we begin to.
Get into turn in turn expense season, as we get into the third quarter. But then also very importantly, as we think about the trajectory of NOI and <unk>. This year property taxes are going to play a factor as well so let's not forget about just the timing of how property taxes fell last year, notably out of Texas, where our accrued.
Those were lower in the first three quarters, which then or true up in the fourth quarter of last year, and we'll see that play through this year as well we saw in the first quarter with our property tax level realistically property taxes for the first three quarters will run in the low <unk>.
Double digits.
We'll see that then adjusted in the fourth quarter landing full year based on our current midpoint of guidance at 9% on property taxes.
Okay. Thanks for that and then you also took me right where I wanted to go next just on property taxes I guess.
Are there any preliminary thoughts you can give I know, it's early and the millage rates are critical to but presumably you've gotten some values.
Some of the states, including Texas, So I'm curious how those look versus maybe what you heard from consultants or what was in the guide.
Yeah. It's a good question for the most part our property tax information is is pretty quiet, so far that which is how the first quarter typically is from a calendar perspective.
You may recall that the property tax calendar falls, such that we really start receiving the bulk of our initial assessments during the second and the third quarters.
That then kicked off appeals season that runs over the course of the summer and then to your point exactly actual property tax rates and bills are commonly received towards the end of the year. So at this point.
We don't have a ton of new information in hand, and our full year view remains unchanged and in around 9% on Texas you bring up a good point you know, Texas is something that we're watching very closely.
We started talking about this a little bit last quarter is as you may all recall.
Texas is in a position of a large state budget surplus and currently there are proposals that call for about $15 billion up those surplus funds to be used towards property tax relief.
As we understand it currently the exact form of that property tax relief is still being discussed at the state level.
Which is expected to be finalized over the next month or two as Texas finishes its budgeting process and so it's a little bit premature, but we are very much optimistically watching that process.
Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.
Hi, This is Adam on for Sam.
Early in the year quite a bit of noise from various msas lighthouse tenant protection and rent control. So I was wondering if you had any MSA as you've been watching specifically or potentially new developments on that front that you've heard.
Yes. This is Dave.
Regulatory.
It probably means different.
Different things.
For different companies and we have always attempted to be proactive and do the right thing and very fortunate that we don't have any.
Significant government inquiries at this time.
With that said you know.
Government affairs and the.
The government are regularly.
I think we've always kept our eye on and we've been very proactive in that sense. We setup a we're the first to set up a government affairs function to really provide education of what the single family rental value proposition is.
To all the different regulatory and government bodies, and I think that as a.
Provided a very it's been a very very good move and we have actually had a lot of successes in changing opinions as to what single family rental is and the value that we provide to the communities and economic growth in those communities as a result.
Thanks appreciate the color.
Our next question comes from the line of Austin <unk> with Keybanc. Please proceed with your question.
Yeah.
Great. Thank you you've spoken about historically new lease rates are up in that 5% range into the spring leasing season, and you're clearly outperforming that average this year, but how much of a seasonal slowdown do you typically see from the peak in asking rent values towards the back half of the year and does a higher increase in the first half necessarily true.
<unk> laid into an outsize T cell or or what have you seen sort of historically.
Yeah. Thank you Austin this is Brian .
Historically.
Historically, I'm thinking pre pandemic and there's a bit of a new normal now.
The way, we look at it prior to the pandemic it would be kind of five range during the during the spring leasing season tapering down into the two or three range with the inverse happening.
With the renewals if my memory serves but our expectations have changed a little bit because of the improvement in demand over the past couple of years, So I wouldn't see the.
Really positive results in March and April .
Indicating that it could cause a more dramatic slowdown I think demands still strong we've talked about the position that we're in.
It's still early but we look forward to updating as the year goes on.
That makes sense very helpful. Bryan. Thank you and then just secondly, we've heard about some other companies talking about land values decreasing you know pretty materially.
Instances as much as 30, 35% and I'm just curious if youre seeing reductions in land values as well and should we start to see you you know banking land sites again going forward. It feels like that number has kind of come down as you you know patiently I guess, a weighted adding to that.
Future that future bank. Thanks.
Yeah, Austin, it's Dave <unk>.
Land is actually I would characterize as something of a little bit of a mixed bag.
There are definitely opportunities on an individual basis here and there we've seen.
<unk> seen a couple where you have the ability to extract some very very good value.
I think Theres a recent report that came out.
This week that looks at land values and when you look at land values in the E M B a category.
They really haven't come down much in the BS or the season DS or the B's and C's.
They have and they've come down probably in the in the 10% range that's not in the Twenty's and <unk> that we have seen.
We expected to see a little bit more but we haven't seen it with that said you know what.
The land prices holding firm a little bit of reduction in the input costs, mainly from our systems. The fact that our revenues are continuing to get stronger and stronger we're seeing our yields increase and as we indicated those that were are going to be.
Delivering later this year.
We will be in the 6% range versus a five and a half to date.
With that said we are still looking for the upper sixes were not quite there yet on what the opportunities are but we are seeing progress towards the opportunity in the future.
Our next question is a follow up question from Steve <unk> with Evercore ISI. Please proceed with your question.
Yeah. Thanks, Dave It was exactly on that point you just referenced so just to be clear the AR on the.
On the supplemental where you talk about the deliveries this year, you're saying that six to 700 million is kind of yielding six but for something that you start new today, you would be targeting more of a six and three quarters, which is not really in the cards. So is it fair to say that youre not really starting new things. These are just kind of completions and you've got to see either.
Rent op or our costs down to get to that yield that you're targeting on new investments.
Yeah, So Steve, but maybe we should clarify a couple of points. So the stuff that we are delivering this year will blend out below a six we're delivering homes today that are more in the lower to mid fives, we'll call. It mid fives and we expect to.
Delivering homes later this year at the 6% range. The reason for that is the fact that these homes have been started in prior periods and a number of the homes that we are delivering today or maybe all of the homes that we delivered in the first quarter were contracted or at least framed win.
<unk> prices were much higher but we also have the capital in place. So we're match funding.
To that respect.
We also have a significant inventory of land, we have 14000 lots today and those are in different stages of land improvement.
But what one of the things to keep in mind about that land inventory as much of that land has been acquired two years ago, and we have seen significant land appreciation since we acquired the land and so that's going to.
Be very favorable to us as we deliver those homes.
For land that we would be acquiring today, yeah, we would be looking at the ability to underwrite in the high sixes and very few opportunities are out there today, but we're much closer to getting to opportunity potential than we were a quarter ago or two quarters ago. So were.
Moving in the right direction I think it's the prudent thing to do to be a little patient and a little disciplined in that process and that's what we are doing it doesn't mean that we will be slowing down deliveries. The pipeline has been built in prior periods stuff that we would acquire today, we'd be at 25 at earliest delivery unless it's.
Land, that's already been had the infrastructure work and then we could accelerate it a little bit, but we'd be looking at 'twenty five 'twenty six deliveries with any land that we acquired today.
Okay. Thanks, Dave So just to be clear, it's really new land investments that really wouldn't occurred today, because you can't get six and three quarters, but you would still start new homes somewhere in the sixes on the existing lots you currently own.
That's correct and you know again when you think about the funding of that a lot of the funding of the funding of the land and much of the land improvements.
It has been funded with capital that was cheaper than the capital that we see today, so on a match funding basis.
We're gonna be in pretty good place.
But we will we will see better yields on those than those that we are delivering the first quarter of this year as a result of input costs coming down but are they may not be at the upper sixes.
Yeah.
Thank you we have reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.
Thank you operator.
And thank you to all of you for your time today, we will see many of you shortly at NAREIT have a good afternoon take care bye bye.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Good luck.