Q3 2023 American Homes 4 Rent Earnings Call
[music].
Greetings and welcome to American homes, four rent third quarter 2023 earnings conference call. At this time, all participants are in a listen only mode.
Brief question answer session will follow the formal presentation, if anyone should require finger assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Nick from Investor Relations. Thank you you may begin.
Thank you for joining us for our third 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, including 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 November three 2023.
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.
I would now.
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 take one.
Welcome everyone and thank you for joining us today.
Consistency stability and predictability continued into the second half of the year as we posted another strong quarter.
Robust rate growth and healthy occupancy remain above historical levels, which is a testament to the fundamentals of single family rentals and the team's strong execution of our operational initiatives.
For the third quarter, we delivered 41 of core <unk> per share or six 6% growth over the same period last year.
Due to these strong results and outlook for the rest of the year. We have raised our full year 2023 core <unk> per share guidance by one set at the midpoint to $1 65, representing seven 1% growth on a full year basis, Chris will add more details later in the call.
From a macro perspective, as we near the end of 2023 and begin looking towards next year.
There is no question that the U S economic outlook remains uncertain.
Over the past year, we have had the sharpest rise in interest rates in recent memory the challenging inflationary environment continues to persist and the pressure on consumer pocketbooks does not appear to be subsiding.
However, this year the single family rental sector. Once again proved its resiliency.
It continues to have some of the best fundamentals of all real estate sectors supported by the ongoing national housing shortage challenging home affordability dynamic and growing demand for the single family rental lifestyle.
Furthermore, thanks to our diversified portfolio footprint superior operating platform and one of a kind integrated development program.
<unk> has produced impressive results over the course of 2023.
We are confident that next year will provide another market cyclical durability for the asset class and strength for the <unk> platform.
Turning to the investment front, our disciplined and patient approach to growth remains unchanged. We are on track to deliver around 2300 homes as the stable and predictable channel remains the backbone of our growth strategy.
Conversely acquisition market opportunities remain limited given resilient home values and the high cost of capital environment.
Our teams are continuously assessing acquisition opportunities and we are acquiring only when the economics makes sense.
We are prepared to take advantage of any opportunities in a more material way when conditions change.
To capitalize on the current housing environment, we continue to be active on the disposition front.
Our teams have done a terrific job executing sales through the first three quarters of the year.
In addition to the portfolio optimization benefit.
Disposition proceeds represent a highly attractive form of funding in today's cost of capital environment.
Overall this was a great quarter that demonstrates the power of the platform and thanks to consistent execution from our teams and resiliency of the single family rental sector. We look forward to a strong close to 2023.
Now I'll turn it over to Brian for an update on our operations.
Thank you Dave.
Q3 was another solid quarter for Anh.
Demand for high quality, well located homes continued to drive seasonally stronger occupancy and rate growth.
Our team has done an excellent job navigating this year's peak turnover season.
And we are well positioned as we finish 2023 and head into next year.
For the third quarter, we posted new renewal and blended rate growth in the same home pool of 742% seven 1% seven 2% respectively.
Same home average occupied days remained healthy at 96, 4%.
Which drove 5.8% core revenue growth for the quarter.
These results were in line with our expectations and continue to remain significantly above historical averages for our portfolio.
On the expense side same home core operating expense growth of 10, 7% came in slightly better than our expectations.
Because of these results and our revised outlook on the fourth quarter, we have modestly reduced our full year expense growth guidance by 25 basis points.
Please remember that the third quarter represents this year's final period of elevated property tax growth, resulting from the timing of last year's accruals.
All of this drove same home core NOI growth of three 2% for the quarter.
Heading into the fourth quarter, both rate and occupancy in our same home pool are trending as expected.
October's, new renewal and blended spreads were 5%.
Six 1% and five 8% respectively.
And average occupied days was 96, 2%.
These blended spreads are more than 200 basis points higher.
And occupancy is more than a 100 basis points better than our long term averages for this period.
Before I wrap up I would like to provide a quick update on our resident 360 program.
The rollout is continuing as planned and are fully staffed teams are completing the training and implementation stages.
Although the program is still in its early phase we are already starting to see the benefits of our resident focused investments.
It was internal and third party resident surveys have showed marked improvement and maintenance satisfaction scores.
In addition, our goodwill review scores across the portfolio have improved.
We look forward to realizing the extensive benefits of this program over time.
In closing, we're very pleased with the results for the first three quarters of 2023 and.
And are well positioned for a strong close to the year.
Now I will turn the call over to Chris for an update on the financials.
Thanks, Brian and good morning, everyone.
I'll cover three areas in my comments today.
First a review of our quarterly results second an update on our balance sheet and capital plan and third I'll close with an update on our 2023 guidance, which was increased again in Yesterdays earnings press release, starting off with our operating results. The Amish platform produced another quarter of solid operational execution. Our teams did a great job.
Navigating peak turnover season.
While continuing to capture ongoing robust demand for single family rentals into seasonal occupancy and leasing spreads remain above long term historic averages on an <unk> per share and unit basis, we generated 41 of core <unk>, representing six 6% year over year growth and 35 cents of adjusted <unk>.
Representing seven 1% year over year growth.
Underlying this quarter was three 2% year over year core NOI growth from our same home portfolio as well as consistent execution from our development program, which delivered a total of 714 homes to our wholly owned and joint venture portfolios.
Outside of development as Dave mentioned, our traditional and National builder acquisition programs continued to remain largely on hold.
We had another active disposition quarter selling 224 properties at an average cap rate in the mid 3% area generating approximately $72 million of net proceeds next.
Next I'd like to share a quick update on our balance sheet and capital plan at the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was five four times, we had approximately $70 million of cash on the balance sheet and our one point to two 5 billion revolving credit facility was fully undrawn.
From an overall 2023 capital planning perspective, we remain on track to deliver between 2200 2400, total average development homes and invest between $900 million and $1 billion of total image capital, which contemplate this year's newly constructed homes deliveries as well as the ongoing investments into our development pipeline.
Joint ventures, and property enhancing capex programs.
Before we open the call to your questions I'll cover our updated 2023 guidance, which was increased again in Yesterdays earnings press release simply put the A&H machine is performing at a high level, our technology centric leasing platform continues to capture the robust demand for single family rental housing sustaining occupancy and leasing spreads well above.
Long term historic averages and despite the ongoing inflationary environment, the anh operating platform and our focus on innovative investments are producing controllable expense results that are tracking better than our previous expectations with that in mind, coupled with our unchanged full year property tax outlook, we have lowered the midpoint of our full.
Same home core operating expense growth by 25 basis points to nine 5%.
And in turn we've also increased the midpoint of our full year same home core NOI growth expectations to four 9%.
Contemplating our improved controllable expense outlook across the entire portfolio, along with slightly better than expected interest income on cash generated from our robust disposition activity. We have increased the midpoint of our full year 2023 core <unk> expectations to $1 65 per share, which now represents a year over year growth expectation of.
Seven 1%.
To close I'd like to reiterate that this has been another solid quarter underscored by seasonally strong occupancy and rate growth and despite the uncertain U S. Economic outlook <unk> continues to be in a great position as we close out 2023, thanks to our diversified portfolio footprint superior operating platform and one of a kind integrate.
The development program and with that well open the call to your questions operator.
Thank you 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 and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Ask that you. Please limit to one question and one follow up question one moment. Please while we poll for questions.
Our first question is from Juan Sanabria with BMO capital markets. Please proceed.
Alright.
First question just curious on thoughts on your 2024 debt maturities I know your balance sheets in great place with the unused line, but just what you're contemplating.
In terms of refinancing those explorations in 2024, and if you could just give us a sense of when that happens throughout the year.
Yeah perfect Great question, one morning, it's Chris here.
As you can imagine topic, a very top of mind for us something that we're watching very closely.
And in General I would say that our message is pretty similar to our message from prior quarters and that our plan all along has been to refinance our securitizations out into the unsecured bond market really working our way towards a fully unencumbered balance sheet.
The additional consideration at this point however is given some of the recent success, we've been seeing in the disposition market, especially relative to today's cost of debt.
They have an opportunity to address a portion of next year's maturities with some level of disposition capital, but realistically. This will depend on some of our disposition volumes over the next quarter or two and then to your to your question from a timing perspective.
Keep in mind that our 2024 maturities are they open up for repayment without penalty starting in this fourth quarter of this year, but don't actually mature until the end of 2024. So we have a very nice wide window to be opportunistic.
But also find the right timing over the course of next year, so that we're not unnecessarily pushing our timing to close to actual maturity.
Yes.
Great and then just.
I think you've kind of commented on this a little bit on the prepared remarks with regards to the investments in the systems.
Et cetera, just curious on how we should think about the growth off of 'twenty three base just to think about.
What kind of cost inflation, we should expect in 'twenty four for G&A and other operating expense line items.
Yeah.
Juan This is Brian Yeah, very good question.
The major investment that we made this year was into our resident 360 program and that just as a reminder wasn't investment into doing more of our own work in the field as an example, improving customer service from our property managers a lot of it had to do with operational initiatives.
And that program is fully staffed we're finalizing the training and implementation phases, but the majority of the costs at least from the personnel side.
In 2023 numbers, so I wouldn't expect a major increase in 2024 for that program.
Thank you.
Thanks, a lot.
Our next question is from Josh <unk> with Bank of America. Please proceed.
Yeah, Hey, guys. Thanks for the time I appreciate all the comments on the elevated taxes through three Q of this year given the accruals from last year, but any kind of color or insights you can give on where tax bills are coming in now.
Sure more Jeff's Chris here.
Just taking a step back and a general update.
I kind of touched on this at a high level in my prepared remarks, but no different than past years at this point now we have values, including post appeal information.
For for the majority of the portfolio.
And then Oh.
Though we're still waiting on official tax bills for for a majority of the portfolio.
We're beginning to receive initial indications on millage rates.
In a number of locations, including certain counties in some of our largest markets like Texas.
In Florida and Georgia.
Keep in mind, we still need to receive final information over the next couple of months.
But at this point, we're not seeing any data outside of our range of expectations, which as a reminder has a 9% mid point.
That just as a reminder is developed on a county by county basis, all across the portfolio.
Okay.
Okay I appreciate that Chris and then the resident 360.
You guys are rolling out or just kind of what should we look for as outsiders as far as like the impacts of the platform like is there any kind of metrics, we should focus in on over the next kind of 12 months.
Yes, Josh this is Brian.
Resident 360 program.
It's really all encompassing.
Focus on the resident experience. So we expect to see over time improvements and retention.
Better ability to control costs.
And most importantly improvements in the resident experience that will help us differentiate ourselves from others.
Early indications are that the program is working very well.
One of the measures that we that we follow our Google review scores.
We've seen improvements across the board.
To industry leading levels.
For those scores. So early indications are that that it's working well, we're looking forward to seeing the impact on retention and cost control in the future but.
We're real happy with the current progress.
Our next question is from Eric Wolfe with Citi. Please proceed.
Hey, Thanks for taking my question I'm, just curious based on your guidance any sense for where your loss to lease and earn in will be at year end.
Yeah.
Yeah, Eric this is Brian.
Currently our loss to lease is sitting in the 4% area.
And we expect our 2020 for earnings to be in the low threes.
Yeah.
Okay, and so the loss to lease by the end of year, probably just get a little bit lower than that.
Low 4%, just historically probably comes down like a percent or something by the end of the.
So you feel like close to 3%.
Sure.
Yeah I think.
A little trouble hearing you there, but I think.
You were talking about the direction.
The loss to lease we saw a slight reduction off of last quarter.
And that's compressed a little bit because of the success. We've had on the renewals really so if it continues the strength that will be nominal but we're looking forward to really good momentum into next year.
Our next question is from Steve <unk> with Evercore ISI. Please proceed.
Great first one Brian I, just I couldnt write all the numbers that quickly could you just repeat the October new renewal blended and then could you just give us a sense for where you're sending out renewal notices for say a November where where are renewals went out for say November December.
Sure sure Thanks, Steve.
To the October numbers, new spreads were 5%.
Our renewal leases $6, one and blended was five eight.
And then there is in regards to what we're what we've set for November and December we've mailed in the sixes.
And we're expecting the final results to be similar to what we saw in October.
Yeah.
Okay, and then maybe just on the development program as you kind of look into next year I know, it's early to think about full guidance, but just you would you expect that program to ramp and.
Where would you be pegging I guess development yields today on things that you'd be starting for next year.
Steve It's Dave good morning.
So on the first part of that question, which is a sizing.
We have capacity and we have a pipeline that we can significantly grow the development program.
The.
Moderator is going to be capital and so we will have sized the program appropriately against the.
The capital that is available we want to be prudent capital allocators in that program as it sits today I would expect that program to be somewhere in the same area is where it is today funding it primarily through retained cash flow and.
Recycled capital from our dispositions.
When you talk about yields.
We talked about this in prior quarters.
<unk> talked about moving to the six area.
We already had cost in a number of the properties. We are in the mid fives for both the first and second quarter and we know we are in the high fives to the third quarter. So nice improvement there and we're still are on track moving into or towards the 6% area and Thats, where I would expect.
We would start the year next year.
Yeah.
Our next question is from Handel St Juste with Mizuho. Please proceed.
Hey, good morning out there. So first question maybe for Chris I was hoping to just set some light on the increase in bad debt in the quarter.
Drivers there and when do you expect broadly to get back to the long term average thanks.
Yes, good morning handle.
You know looking in general I would remind everyone that bad debt will naturally fluctuate over the course of the year.
Especially when we're talking about the third quarter.
Which traditionally experiences slightly higher bad debt associated with seasonal move outs.
But overall third quarter bad debt once again landed pretty consistent with what we were expecting.
Leaving our full year expectations unchanged in the low 1% area.
And we're in that area as we've talked about a number of times as we continue to still have a number of CT systems across the country moving slower than normal.
It's holding bad debt modestly above our long term run rate whichever if ever on their calls and call. It the 100 basis points or slightly below area.
Okay.
Got it got it appreciate that.
Maybe one for you just thinking more broadly on transactions in the portfolio.
The MLS inventory tight I guess I'm more curious about the landscape of opportunities to buy from.
Midsize private operators I'm curious are you getting more inbounds and he sent that they might be more clients to cash in here and then more broadly what percent of the portfolio make the legacy portfolio do you think you'd be open to selling them, maybe upgrading via some some trades here. Thank you.
Yeah, So the acquisition market.
Just talk maybe about two pieces of it the acquisition market on one offs, you're 100% right. It is you know base.
Basically.
At a price point that for us is not acceptable and not tradable, we bought a total of eight homes in the third quarter, we underwrote.
Between National Homebuilders, and all our third party opportunities over 22000 homes and we found eight that met our quality criteria as well as the economic criteria with respect to acquisitions of portfolios.
I don't I wouldn't say, it's picked up but there are some that are being talked.
<unk> talked about in shop.
And the first thing that we look at is what is the quality of those assets where are those assets what is the age of the assets and.
What are the characteristics are they.
Detached homes are the three bedrooms or greater.
And the portfolios for the most part that we are seeing either don't meet those quality criterias.
Or and this is true for both the portfolios as well as the one offs the ones that we underwrote a were typically in the high fours as a yield and with very very few in the fives as I said, we only found to eight that we could transact on that Matt.
Our criteria.
Okay.
Our next question is from Jamie Feldman with Wells Fargo. Please proceed.
Thank you for taking my question.
So this was the first quarter or even kind of the first last six weeks or so where you saw the multifamily companies finally see some paint on supply.
Sounds like you know developers hitting the 10 year, hitting 5% and developers panicking little bit impacted business conditions.
So I would think this would also be the first time, you might see some impact of either tenant staying deciding to stay in multifamily for longer before moving to single family or maybe using some of those types of properties is the pricing comp hey have you seen any change in business conditions since the 10 year hit 5% or even as you know there's been more concern about.
Consumer credit our credit card balances growing in some of the other signs.
Signs, we're seeing in the economy about the consumer over the last month or so.
Yeah.
Jamie it's Dave.
When we talk about single family.
Fundamentals for.
They are different than multifamily.
The customer is going to be slightly different to resident profile will be slightly different.
And in your statements are correct, but I also would add a few other statements and that is this country has a huge.
A huge housing shortage.
Plus our households don't have quality housing in the.
The one thing that is coming to a.
More into light is the affordability question and today, it's a 28% more affordable in our markets to rent than it is to buy a home today and so residents are staying longer that is true.
But the demand remains very very strong and with respect to tenant health.
We've we've been through this we went through.
Covid, where tenant health was of concern.
And our systems.
Our set to monitor that and to communicate with residents is.
They have concerns and we will work out are acceptable.
And mutually beneficial solutions and there is significant demand behind them. So today.
I see the market being where it was in prior quarters, its still very strong very solid demand out there.
Okay. Thank you for that.
And then our team has been thinking a lot about you know the different performance among your development assets versus your.
Acquisition or legacy assets are you able to give some color around the different either capex profile operating expense profile, even blended rent growth profile of your development assets versus the non development assets in the portfolio.
Yes, Jamie this is Bryan Thats, a very good question, we're obviously tracking that as well.
<unk> development homes.
Are starting to come into the same park portfolio and what we've noticed is it's really playing out as we expected.
Homes are quicker to turn lower cash to cash quicker to get back up.
And re lease so that part is playing out as expected on the Capex side. The expectations are that that capex will be really low on these new houses they are built to be durable and they're new and that's playing through.
Almost across the board so from a capex and expense profile perspective, it's playing out as we as we expected and then on the.
Turns speed and occupancy side, we're seeing nice benefits there as well.
Our next question is from Michael Goldsmith with UBS. Please proceed.
Okay.
Afternoon. Thanks, a lot for taking my question. The last three years have been anything but normal but from here do you see 2019 is a good benchmark for what normal looks like where have we seen changes in macro and demand factors that change the profile and how does that impact how we should think about rent spreads as we move into the end of the year.
Thanks.
Yeah. Michael This is Brian that's a great question.
Last three years have been have been a little different I would say.
But when we're talking about comparing how we performed in 2023 to historical averages we're looking at.
The 17 18 19 period.
The most interesting thing is that with the return to seasonality that we're seeing now the seasonal curve looks very similar to what it looked like before except the bar has been raised and the bar has been raised both from an occupancy perspective and from a rate growth perspective, I talked about those in my opening remarks.
That is a result of a number of different things.
I believe that the.
Single family rental value proposition is finally being appreciated there was an acceleration of that during the Covid period, and I think that's fair to stay where the experience is very different than what you could find.
And that industry prior to the institutions coming in and providing real focus on the resident experience. So there's been a fundamental change their migration patterns of play.
Very nicely into.
Better performance of our portfolio. So there are a number of macro things that are that are helping us change the way, we expect to perform relative to pre pandemic.
I don't want to put words in your mouth, but it sounds like you believe that that is structural and.
And temporary correct.
Yes, I believe that's the case, we we've had improvements and execution.
Execution and improvements and appreciation for the value proposition.
And as a follow up question.
Have you seen any changes in consumer behavior are they pushing back on rent increases are you seeing more price sensitivity around signing new leases or more move outs due to rent increases.
In the last several months.
Yeah, I think the easiest way to look at it as the health of the applicants coming in we've seen incomes as an example in Q3 23 versus <unk> 22 increase more than the rents for the homes that they were applying for us. So there's really good help there.
Sorry is there so much demand for our product.
That was it that health is really really continuing.
In terms of.
Existing residents.
Negotiating more than they have in the past if you look at the improvements I talked about the difference before between today and pre pandemic.
In terms of the movement of that Bell curve keep in mind that our retention is way up from where it was pre pandemic.
So these these are.
Existing residents are renewing at a higher rate, even though their rents have increased more than they had in the past.
Yeah.
Our next question is from Adam Kramer with Morgan Stanley. Please proceed.
Hey, guys. Thanks for the question and good morning out there.
I wanted to ask on the disposition side.
Selling homes.
And to the extent that you kind of get a sense for it.
The end buyers or are you selling homes are on the MLS to kind of end user right. Obviously, that's a tight market. So it would seem like there would be good opportunities. There recently other institutions, maybe mom and Pops, who subsequently runs out the homes. We just interested in kind of given what's going on in the housing market to hear about learn about what's happening on the disposition side.
Yeah, Adam it's Dave.
Yeah.
I would agree with your premise we're selling today.
Entirely on the MLS to end users and are selling the homes when they're vacant today.
Today, the demand from other odd.
Operators other managers.
Is significantly less than we have seen in the past, but the demand for homes with the lack of supply on the MLS makes the demand very very strong.
We are selling homes that we identified through our asset management process.
Time on market is.
In short, we're selling at a 99% of asking price and.
We're selling them at prices.
That are yielding a mid threes today, and so a very very attractive.
Source of capital and it's a good recycling of the portfolio to keep expenses, where we want them in the future.
Yeah.
And then maybe just a follow up I think it's been kind of widely reported that a peer of yours as you know looking into getting into third party management of other people's assets.
I know, it's something that you guys have talked about in the past, although probably haven't heard about it from you guys in a few quarters at this point wondering you know if it's something that you would look at if you are looking at or maybe kind of what the development, obviously running kind of be able to internal portfolio, maybe it's just something to kind of not not high on the encore.
Yeah adamant.
We have looked at this.
If you go back a couple of years I think there was a little bit of talk on these calls about evaluating third party that we talked about that it was an evaluation.
Initially we thought the program was very very compelling.
Gonna be able to generate a lot of incremental income without committee much of our balance sheet to the program.
So we evaluated for more than two years, we have tested it with a number of institutional relationships and what we found was this.
The margins that we were getting were a lot lower than we are than.
And then what we were expecting going into the program. There is significant amount of incremental cost to manage the owners.
To produce the unique reporting that the desired.
All of the different owners had unique expectations and that in part created distractions and those distractions were of concern that that would impact the core business, which is really where we make our money. So.
With the limited synergies and the distractions, we made the decision at this time. This is not a platform that we are pursuing.
Thank you so much Dave really appreciate it.
Yep.
Our next question is from Alan Peterson with Green Street. Please proceed.
Thanks for all the times, Chris you mentioned controlling bowls are benefiting 'twenty three expenses, but can you give us a sense on the tax appeals that you guys filed over the course of the year and if you're seeing any benefit to expenses from those or if you anticipate any benefit into next year from those tax appeals as well.
Yeah sure good morning, Alan.
Latest update is as we were expecting this has been a very heavy appeals volume year for us.
At this point, we have filed something in the ballpark of over 23000 individual appeals we've heard back on a good number of those not all of them are back in hand, yet, but at this point the important piece that we've been watching closely.
Is the Texas Appeals process and at this point, we're now pretty much through appeals in Texas and as we were expecting.
We did see a higher post appeal value than we were originally contemplating at the start of the year, we've talked about this in past quarters.
And we expect that to likely be offset by this year's property tax relief rate reductions when those bills get officially released over the next couple of months or so which continues to be another component of our unchanged full year property tax outlook of 9% at the midpoint.
And then I would just add you know in Texas, even though this year is likely going to be a push as we think about the benefit of the property tax relief rate reductions and the fact that those are going to be in place through next year you know.
To the extent, we continue to see moderation in home values translating into potentially values in Texas, we see that as being potentially a positive read through into next year just in terms of level of property tax growth.
Understood and I appreciate that and maybe just shifting over to the top line and the performance that you guys are seeing in your markets southwest is a little bit weaker than the south East Brian can you give us a sense for what's driving some of the underperformance in markets like Las Vegas, San Antonio for example.
Yeah. Thanks Alan.
I think the easiest way to look at it is there's been some increased supply and a few of the markets San Antonio.
Top of the list.
We see this increase in supply, especially for our well located homes to be kind of temporary in nature.
Specifically in Las Vegas, we have seen a little bit of a pullback on rate growth.
But occupancy has rebounded nicely in October so we're already seeing a little bit of a reversal there I would expect.
Migration patterns.
California for Las Vegas to be very healthy for a really long long time to come.
Alan It's Dave Let me just add a couple.
This is a short term absorption issue on additional supply. This is not something that is new to 2023, we have seen this a couple of times already in Phoenix, we've seen it in Charlotte.
And it's very short term.
As homes come on and as soon as they are absorbed we have gone back to very very strong.
Strong fundamentals.
The underlying fundamentals of both of those are all of those cities is still very very strong.
<unk> with respect to job growth and population growth and migration.
Trends requiring housing so what we're looking at in my mind is very short term we already is.
Brian mentioned have seen that absorption pretty much get picked up in Las Vegas in October.
Yeah.
I appreciate that thanks for all the time.
Thanks Alan.
Our next question is from Danielle <unk>.
With Scotiabank. Please proceed.
Thanks, Dave you mentioned capital as the Governor to your development pipeline growth. So you don't want it to be a bit more specific on capital sources and uses.
Next year, there's likely to be a funding gap between cash lots of dividend plus.
Net dispositions to fund around another $1 billion of development.
On top of the debt maturities next year. So is it fair to say you're comfortable staying patient looking for a bit of a reprieve in rates to issue unsecured is it maybe a heavier concentration within your J DS or even slowing new starts.
Any additional thoughts there. Thank you.
Yeah. So.
I agree with all of your things one is we're not really.
<unk>.
Setting any expectations today on decline in rates, if they occur it's going to be.
Tailwind for us.
Use of Jbs as you have seen in 2023 is a very very important part.
Of the capital program for Us.
It allows us to Alan.
Allocate properties that are much better in a JV structure than maybe in on our balance sheet and so we have the ability to bifurcate them as we go into next year.
I would expect it to look a little bit like 2023 from a capital standpoint.
And the majority of the reliance will be on recycled capital and retain capital may be a little bit of incremental debt.
But that's not compete the reliance.
Creating the program unless the the capital cost significantly change.
And if they do we have the ability to ramp up.
Great. Thank you for that and then could you comment on the opportunity set for portfolio deals in the market have you guys been underwriting any and how you would view that trade off it's an opportunity where its horizon relation to the development pipeline.
Yeah, we have we've seen a few portfolios we've underwritten a few portfolios.
I think we're aware of the larger ones that are traded and as I indicated earlier it first needs to start with the quality and location of the assets and quality is a number of things that it's the age of the property. It's the characteristics of the property.
But we also want to be in.
In the better located areas, that's the real benefit of our development program is that we have the ability to build.
In the <unk>.
Parts of the market, where the homebuilders are actually building to sell these or the better located properties, so where we have a focus through our asset management of having.
Building, a higher quality portfolio of long term and the portfolios that we have seen really haven't fit well into that plan.
Our next question is from ice Tinware Schmidt with Keybanc capital markets. Please proceed.
Great. Thank you.
Would you have lost the lease really holding strong late into the leasing season, I guess potential for that to improve really early next year as you move into the peak leasing season, I guess should you be able to continue to drive.
Lease rate growth above historical trends in 'twenty, four and absent any broad macro slowdown what would change I guess the pricing power you have right now.
Yes, hey, thanks Austin.
Our plan is pretty simple we plan on finishing this year strong.
And being fully prepared for the spring leasing season.
Generally we see a really nice uptick in demand around mid January that starts to translate into into real strengths into February and March.
There are a number of factors that gives us a lot of confidence on rate going into next year.
Talk about the affordability gap between renting and buying in our markets being 28% at this point plus the loss to lease plus the fact that we don't see any major supply changes into next year.
A lot of confidence that we should be able to continue to do better than historical averages.
So it seems fair to think that you could be back into the 5% to 6% loss to lease early next year as things start to ramp.
Just you know any comments on that and then I also wanted to revisit Brian I think it was your comment about the strong retention you've had relative to pre pandemic, even though I know turnover is up slightly year over year, but one you know what are the biggest move outs you know more recently and then two do you think you can drive downturn over further from current levels and are there targets you have.
Internally that that you could get to over time that maybe you can share.
Thanks.
Yeah sure Austin.
I think it's a little early to tell on exactly where rates are going to land next year, we will have.
Better color for you on I think on the next call.
Retention the comments I made were comparison between what's happened in 2023 and pre pandemic, we've seen really nice improvement when you compare it to last year. If you remember there were differences with <unk>.
Delinquency resolution and Theres, a little bit of noise from the Covid period.
But operationally improve retention is one of our major focal points. It was a major point of the resident 360 investment and our teams are constantly looking for ways to improve our retention by improving the resident experience. So I'm optimistic that theres room there.
Our next question is from Jesse Letterman with Zelman and Associates. Please proceed.
Hi, Thanks for taking my questions and congrats on the strong quarter.
Fair disposition pace this year, it's been.
Highest ever of course, it's an attractive source of capital can you just talk about how comfortable how comfortably high.
Do you feel with that going given different friction costs associated with dispositions and maybe talk a little bit about the puts and takes of what those costs are.
Yeah.
So Jessie stayed on dispositions, you're 100% rate. This year is our highest year in our history as well.
We're going we're at 1300.
At the end of the third quarter.
About 200 to 225 of those would be in the in the third quarter itself October continues to be strong as we go into future years.
We will continue to.
Use our analysis and our data to look at other properties that meet.
Meet.
Our long term criteria and those that don't and those that don't will go into the disposition.
Category, whether it is our existing properties or land.
You know it should be noted that we look at all of that we are we've actually been a net seller of land in in this year.
We right size all of our program.
I wanted to add one thing as we go into 'twenty, four but more importantly for 25.
One of the benefits of our securitization is getting refinances those homes will get unencumbered and there will be some homes in the securitization that today are not practical to sell that will probably a screen as disposition candidates.
In 25 after they are unencumbered late 'twenty four.
That's very helpful. Thank you.
Next question.
Occupancy and I understand your occupancy is still above pre COVID-19 averages and you made some comments, saying you think that.
You can see in rent growth.
A new normal a bit higher than pre COVID-19 levels, but can you talk about how you think about the puts and takes of occupancy versus rent growth. So now you are at 96, 2% for October.
Are you looking to keep that above 96% are you, okay with it trending down closer to pre COVID-19 levels I'm, just trying to understand how you view the tradeoff between occupancy and rent growth. Thanks again.
Yeah. Thanks, Jesse this is Brian.
We're focused on optimizing the entire revenue line.
And the interplay there obviously is occupancy and rate.
We've made really good improvements in revenue management over the last four or five or six years that I think are benefiting us today.
As I said before my expectation our expectation is that there is going to be a new norm at occupancy. The demand backdrop is fantastic will be in a good position going into next year. The single family sector and value proposition is as strong as it's ever been so we haven't.
Good expectations on continued strong rate growth.
Yeah. Thanks for the time guys. So you know one of your peers given what they've recently done with hires I think it's clear that you build to rent platforms validated just kind of curious you know I know you touched a little bit earlier and returns, but just could.
Could you dive into what the returns look like on the homes have been delivered over the last several years and how they've been trending relative to your expectations and then how much additional yield you typically would get on development versus what you'd buy in the MLS on a stabilized basis.
Well this is Dave let me take the second part.
And that is the difference in yields and while I think that's important and it is significantly different.
I said today, we are seeing acquisition opportunities in the fours.
And having very difficult time, finding any opportunities there that meet any of the buy opportunities. Our development program is approaching the six so you've got 100 basis points plus between the two and we have seen it historically.
But I think the benefit of the development program in my mind is much greater than just that one piece. It is the locations of the properties that we are building. It is the quality of the properties that were building because we don't build them like.
A national homebuilder, because we are going to own it long term.
It's not a criticism of the homebuilders, it's a different objective long term. So we're building with higher quality materials is all about the durability of the assets and so I like that.
I think the the development program has significant benefits. It is how you execute the development program that is very important it has to be a program that you control the design and the execution and the site selection.
In the process and so you know.
I don't necessarily comment on others, but.
I do believe it is a very successful program I believe that it's been.
They acknowledged a number of times, we saw a number of years ago people attempting to get into build to rent as a standalone without having an operating platform and you really need the synergies of the two to make it successful.
Think other people acknowledge.
Quality and the benefits of a development program.
And then Big picture you know, we're heading into an election year and I think it's fair to assume that is so far is going to have some noise around it I'm. Just curious can you walk us through how you work with local governments to communicate value proposition of ASUR.
Far and then how you're developing platform differentiates you.
Yeah, I'd say, it's a true ground game.
On the government affairs and we are.
I think that may be the only one I am not 100% sure of that but we have a dedicated team.
It's experienced in government affairs, and it's all about education and talking about the benefits of single family rentals. They desire that our tenants have there is misconceptions.
That are.
Being put forth.
By various politicians.
And at the local level is where all the decisions are made so it's truly truly a ground game and.
We can talk about a lot of different instances, but.
It's having a team to get in there give you the ability to get your permits and at the end of the day. What we are doing is we are building more housing in this country and isn't that where the real problem is in affordability et cetera. It's in the fact that we don't have enough high quality how.
Housing and we have this housing shortage. So if we can solve the housing shortage and we can get the building permits.
That are necessary to provide the housing I think a lot of the concerns that are being talked about resolve themselves, but they won't resolve themselves unless we provide adequate housing.
We have reached the end of our question and answer session I would like to turn the call over to management for closing comments. Thank you operator and to all of you. Thank you for your time today.
We will talk to you again, I guess next year.
On our next earnings call. So have a good day have a good weekend.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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