Q3 2024 American Homes 4 Rent Earnings Call
Speaker Change: Greetings and welcome to the AMH third quarter 2020 for earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow before we'll presentation.
If you require operator systems during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Nicholas Fromm, Director of Invest Relations. Thank you, Nick. You may be good.
Good morning. Thank you for joining us for our third quarter, 2020 Board, Ernest Conference Call. With me today, David Singelyn, Chief Executive Officer, Bryan Smith, Chief Operating Officer, and Chris Lau, Chief Financial Officer.
Speaker Change: Please be advised that this call may include Ford Busking Statement.
Nicholas Fromm: All statements of the statements of the historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that says 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 findings with the SEC.
Speaker Change: All Forward-looking statements speak only as of today, October 30, 2024.
We assume no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except dis required by law.
A reconciliation of gaps to non-gap financial measures is included in our earnings press release and supplemental information package. As a note, our operating and financial results, including gaps to non-gap measures, are fully detailed in our earnings release and supplemental information package.
You can find these documents as well as the CC reports and the audio webcast replay of this conference call on our website at www.annage.com
With that, I will turn the call over to our CEO, David Singelyn.
Welcome everyone and thank you for joining us today.
David Singelyn: This is a special day for me. The day is my last earnings call before passing but on to Bryan Smith, the next steward of our great brand. I hired Bryan more than 12 years ago. He has worked alongside me to build this company, many of those as our chief operating officer.
Reflecting on the last 12 years, we have accomplished more than I ever imagined.
Together with Wayne Hughes, we see they once in a lifetime opportunity to pioneer the professionally managed single-family rental landscape.
Bryan Smith: Vincent, we've changed perceptions of housing in the U.S. and raised the bar on industry standards for servicing quality.
The control our own destiny expand our portfolio through every economic cycle and to do our part in addressing America's housing shortage.
We build new homes in desired locations across our markets.
We invest in our operations, we leverage technology, we look around corners, and most importantly, we focus on people.
We assembled a talon to team, including a strong leadership bench that has worked together for the past decade and is ready to leave this company into the next chapter of its journey.
Today, our 60,000 homes provide thousands of households with access to high quality homes at a meaningful discount to the current cost of home ownership.
Our residents appreciate the convenience, flexibility and ease of living we provide. Housing is a fundamental American need. And single family rental homes have emerged as an important part of the American housing landscape and solution.
Building AMH with Wayne and with your support is one of my proudest career accomplishments.
I leave AMA with gratitude, pride, and fond memories that I will cherish forever.
Thank you all for being a part of my journey.
Speaker Change: Amate is incapable hands and I'm excited to see the future successes. Not only at AMAGE, but for the SFR industry as a whole.
and with that I will now turn the call over to Bryan.
Thank you Dave. I remember joining the team over 12 years ago when AMH was only an idea.
Since then, we've accomplished many great things, including pioneering and industry.
But what stands out to me is the way that you've led the company by being focused on the people.
Booth our team members and our residents.
Amage would not be wearing us today without you.
Thank you for your outstanding leadership and friendship.
I look forward to carrying on the AMH legacy.
Looking ahead, the future is bright for a and age.
Long-term business fundamental to strong.
Speaker Change: and an omit of a national housing shortage, we continue to do our part by contributing new housing stock through our development program, working to meet the growing demand for high quality single-family rentals.
More importantly, you remain focused on creating the best resident experience in the industry.
Speaker Change: A&H homes are well located to high-glook markets, are known for their superior quality, and are supported by the best services platform in the industry.
Turning to the near-term environment, this year is quickly coming due to clothes, and we consider 2024 to be a job well done.
Operating results in the first half of the year were better than originally anticipated as the teamwork card to capture additional upside during the busy leasing season.
In the back half of the year, Nancy expenses has been key.
Speaker Change: Our success in control and cost during the heavy move out season is reflected in our results and the guidance revision highlighted in yesterday's earnings release.
Speaker Change: For the third quarter, the teams delivered right on top of expectations, with 4.4% revenue growth over the prior year.
Speaker Change: and on the expense of a better than expected results was driven by the team's focus on controlling the control of us.
Speaker Change: This resulted in total same home operating expense growth of 2.6% over the prior year.
All of this contributed to strong core NLI growth, a 5.4% for the quarter, and positive guidance revisions, which Chris will talk about in a moment.
For the month of October, preliminary estimates screen well. Which renewal rate growth increases a 5.4% continuing to anchor our rent growth activity.
Occidency and Newlies Rape Grove are 95.2% and 2% respectively.
Speaker Change: As we close up 2024, we continue to carry strong momentum, but also recognize that we are operating in an uncertain environment.
Given the upcoming election in general economic conditions.
Pockets of near-term supply in certain markets.
Contemporary disruptions from the series of significant weather events.
With that in mind, for the balance of the year, we'll be focused on setting up the portfolio for success in 2025.
and plan to optimize revenue by prioritizing occupancy ahead of the holiday season.
Moving to our growth programs, we are pleased to report that despite significant weather disruptions in the southeast.
Our development program remains on track to deliver approximately 2,300 high quality attached Singelyn family homes with economic yields averaging in the high fires for the year.
Speaker Change: and when excluding a reserve for CapAx, the nominal yield for these homes is closer to sex.
Speaker Change: As a reminder, our land pipeline of nearly 11,000 lots will continue to fuel our stable and predictable new construction growth channel for years to come.
In addition, as outlined in yesterday's earnings release, we were excited to announce that we recently acquired a single-family rental portfolio of nearly 1700 homes across 13 markets.
for a total purchase price of approximately $480 million.
These well-goated, high quality detachable family homes, only well with our existing portfolio for print.
As Chris will discuss in more detail on a moment, we have stepped on nominal NLI yields in the 6% area once these homes are stabilized on our platform.
This represents an attractive and a creative investment that reflects our discipline and responsible approach to growth as we continue to monitor the market for additional opportunities.
The power of the image platform was on full display during this transaction.
Art of Earthspite Footprint, Fest and Class Operating System, and Asset Management Program, allow us to maximize the value of portfolio for AMH, while providing a seamless exit solution for sellers, a true win-win scenario.
Speaker Change: In closing, the teams have done a great job executing our strategy in 2024 and we will be well prepared entering the new year.
With our CEO transition nearly complete, I am excited to leave the business into the next chapter of the Great Amnage story.
Speaker Change: with that I'll turn the call over to Chris.
Thanks, Bryan. Good morning, everyone. Before I jump in, I want to share an additional congratulations and thank you to Dave.
Chris: Dave, you truly helped pioneer in industry and positively changed housing across America. And under your leadership we fill a image into the industry leader that we are today. Thank you Dave, and I wish you all the best.
Now turning back to the quarter, I'll cover three areas in my comments today.
Chris: First, a review of our quarterly results, including a summary of our estimated financial impact of the recent series of hurricanes.
Chris: Second, an update on our balance sheet and recent capital activity and third, up close with commentary on our further increased 2024 guidance and some additional thoughts around our recently acquired book portfolio.
Starting off with our operating results, we delivered another strong quarter demonstrating a strength of the A-mage platform and our ability to efficiently control costs during the heaviest move-out season of the year.
Simply put our teams that a great job executing on our objectives of controlling the control of this quarter with net income attributable to common shareholders of 73.8 million dollars or 20 cents per diluted share.
which included a $3.9 million estimated total loss from Hurricane Sparrow, Debbie, and Helene.
and after quarter-end, as we all know, Florida was further impacted by Hurricane Milton, which we preliminarily expect to result in another three to four million dollars of hurricane damages in the fourth quarter.
Chris: This hurricane season delivered an unprecedented series of consecutive storms and are teams to a fantastic job standing up to the test, working tirelessly to protect our residents and portfolio through our industry-leading disaster preparedness and response programs.
Chris: Through their hard work and a little bit of good fortune with some of the storm paths, our portfolio avoided catastrophic losses with our damages largely consisting of cleanup costs and repairs such as roofing shingles, landscaping, fencing and other minor items.
Chris: Excluding our estimated hurricane loss during the third quarter, which generated 44 cents of course of faux per share and unit representing 6.3% year of year growth in 38 cents of adjusted F of faux per share and unit representing 8% year of year growth.
On the investment front, for the third quarter, our image development program delivered by total of 753 homes to our Holy Ewned and join venture portfolios.
Specifically for our Holy Own portfolio, we delivered 640 homes for a total investment cost of approximately $250,000, which was right in line with our expectations.
Outside of development, we continue to actively monitor the one-off acquisition markets, the majority of opportunities continuing to be outside of our disciplined bybox. With that in mind, we acquired just 16 properties during the quarter for approximately $5.5 million.
Chris: and on the disposition side, who saw another active quarter selling 256 homes, generating over $81 million of net proceeds at an average economic disposition yield in the 3% creating a highly attractive capital recycling opportunity.
Next, I'd like to turn to our balance sheet in recent capital activity.
Chris: At the end of the border, our net debt including preferred shares to adjust the debatoff was down to 5.0 times.
Chris: are $1.25 billion revolving credibility, was fully undrawn. We'd approximately $3 million of standing on a four basis that were settled after quarter-end for approximately $110 million, and we had over $160 million of cash available on the balance sheet.
As a reminder, during the quarter, we repaid our 2014-SFR3 Securization using proceeds from our June bond offering, which un-comfort over 4,500 homes that can now be reviewed by our asset management and disposition teams.
Next up, cover our updated 2024 guidance which was increased again in yesterday's burning press release.
As we've talked about many times before, we've been thoughtfully and proactively investing into our platform and expenditure management programs for years.
These investments are now paying off, enabling us to control the control levels and produce expense results better than our previous expectations. With that in mind, we've reduced the midpoint of our full year non-providy-tax-related expense growth expectations by 100 basis points to 4%.
And on the topic of property taxes, we've now received most of our final assessed values and are happy to report modestly better than expected assessment outcomes in a number of states including Florida, Georgia, and Texas.
and all the most tax rates aren't published until the fourth quarter given our favorable assessment outcome. We've reduced the midpoint of our full year property tax expectations by 100 basis points to 6%.
Considering our improved outlook for both property taxes and controllable expenses, we have lowered the midpoint of our full year same-home or operating expense growth expectations by 100 basis points to 5%.
In turn, we've increased the mid-points of our full year, same home core NOI growth expectations to 5%.
Chris: and full year core FFO expectations to $77 per share, which now represents 6.6% year of year growth.
Chris: Next, I'd like to share a few additional thoughts around the bulk portfolio we acquired after quarter end.
As Bryan mentioned, the portfolio consists of approximately 1,700 properties located in 13 markets. It was acquired for a total purchase price of roughly $480 million that was funded through a combination of cash on the balance sheet and modest capacity from our credit facility.
Chris: Additionally, the portfolio is highly synergistic with our existing footprint and includes over 1,500 properties that are directly within the AMH by box. These properties are currently being managed by third party property managers and will be transitioned to the AMH platform over the next several months.
Once on our platform, we expect to unlock the AMH value by bringing in place rents up to AMH standards and implementing our best and class expenditure controls.
Chris: This process will likely carry into 2025 and once stabilized to image standards, we expect the portfolio to generate an in a wide deal of approximately 6% and an economic deal in the high five after reserve for campus.
In finally, with respect to the approximately 150 homes that did not meet our by box, we expect to efficiently sell these properties through our disposition program over the next 12 to 24 months, and we'll likely recycle between 40 and $50 million of capital.
Chris: In before you open the call to your questions, I'd like to leave everyone with one final thought.
As we begin to close out 2024, it's important to recognize the incredible efforts of our team and the results they've achieved this year.
As we hope for during the first half of this year, our team to a fantastic job, capturing a strength of leasing season, driving meaningful upside against our expectations.
As we transitioned into move-out season in the back half of the year, our teams produced some of the best controllable expensive results in image history. Once again creating further upside compared to our expectations.
All told our current 2024 core F.A.A.B. growth outlook of 6.6% now stands 240 basis points above our original guidance at the start of the year.
No question, this year has exceeded our expectations. And for that, we say thank you to the team and we'll open the call to your questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Econformation to indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Chris: for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.
Chris: So that we may address questions from as many participants as possible. We ask that you limit yourself to one question and one follow up. If you have additional questions, you may re-cute and time permitting, those questions will be addressed.
One moment please, what we pull for questions.
Chris: The End
Thank you.
First question comes from the line of Juan Sanbria with BMO. Please proceed with your question.
Juan Sanbria: Good morning. Just hope you could talk a little bit about the pressing dynamic.
for new customers. It seems like renewals are pretty steady, but you kind of talked about focusing on maintaining occupancy and setting yourself for it.
Setting herself up for 25th of just curious, your expectations for new leasing balance of the year and into 25.
and what the impact of supply is that you're facing any kind of early discounting that you're doing or you're seeing across your various markets fixed.
Chris: Yeah, thanks, well, this is Bryan. We're really pleased with our spread results through the first three quarters of the year, remaining very strong in the Q3.
Chris: Domain is fantastic. There's the shortage of quality housing that everybody talks about. And what we saw was a little bit of some temporarily effective activity towards the end of Q3 as a result of some of the things that I talked about in prepare to mark namely a number of names storms.
Chris: That reduced that to give you a little bit to be seen in a little bit of a moderation of new lease rate and to October which is typical of the season as well.
but our team did a very good job of recalibrating or asking rates and we're optimistic that we're going to be able to pick up occupancy as we get through the bow so that those two four. That'll set us up really well for 2020-5.
and the balance of Q4, U.S. where expectations are from a new lease rate growth. And we're thinking somewhere in the low one, but still a little bit early.
but a couple of that with the fact that renewals represent a much greater proportion of the leases and our expectations for the battle to the year remain strong and thank you for in the High Force with the low to mid-fives for the full year.
Great and just as a follow up could you give a little color on that deck they ticked up as a percentage of revenues to quench the religious curious of where we stand, or cleaning up the remaining kind of post-COVID that that issue is et cetera.
Yeah, sure, Juan. Chris here. You know, look, I would say that collections have been tracking right on top of what we were expecting.
with third-quarter bed debt running in the low ones, very much reflecting the typical correlation that we see with move-out season that we started talking about last quarter.
Chris: And then as we move into the fourth quarter, I'd expect that debt to seasonally moderate down a touch, bringing full year into the 1% area, which is right on top of what we have contemplated in the guide.
Speaker Change: Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thanks for taking the question and congratulations, Dave, on the transition.
So thinking about...
Speaker Change: Thanks for watching!
Clean up from the storms all that versus just seasonality, and then I guess just thinking Beyond 4Q. I mean, how do you think that accelerates into the beginning of the year?
Speaker Change: Thanks for watching!
Yeah, thank you Jamie. As we talked about there are a number of different things that are kind of contributing to
Reality, though, is that there's just a ton of demand for our product, our well-located
high-quality homes, single-family detached homes, and that's going to play out really nicely as we get into next year. The objective is to finish the year strong as we talked about with
Speaker Change: really capture the momentum of that top-line opportunity from day one going into next year.
As you look into next year, there are a couple of things that we're starting to see. There were some estimates on market rent growth given by John Burns for our markets.
for 2025 in the 3-4% range. So we're expecting to capture some of that going into next year as well.
Okay, that's helpful. And then I guess thinking about the acquisition, you mentioned nominal yield of six percent, cash after CapEx high five. Can you just talk about the going in yield on the portfolio and where you think the areas are where you can get that number up?
whether it's revenue optimization, economies of scale and R&M, adding it to your blanket insurance is kind of what are the what are the big levers here to hit your numbers.
Thanks for watching!
Yeah, sure. Jamie, it's Chris here. I'd be happy to take that one.
Speaker Change: But, you know, just for a second, if I could zoom us out to the bigger picture, I think that this transaction is also a really great example of the broader consolidation opportunity at large that we've been talking about for some time now.
Speaker Change: And in particular, what we really love about these types of transactions
is our ability to unlock value in these portfolios by consolidating them onto our platform, right? And to your point in terms of this one, if we wanna use it as the example, look, for starters, we paid approximately $280,000 per unit.
Speaker Change: that represents a very attractive entry point with in-place cashflow yields right around 5% or so, given that the portfolio is currently being managed by a number of different third-party property managers.
Speaker Change: However...
Once the portfolio is transferred to our platform and operations are optimized up to our standards, and that's really across the board, right?
It's optimization around the top line, collections, and bad debt, and then really overlaying our best-in-class expenditure controls. You mentioned insurance.
Speaker Change: I would also add in our expenditure management programs around controlling of the controllables, leveraging of our property management platform, etc.
all of which
Translating into stabilized yields in the high 5 to 6% area, once on our platform, which represents 75 basis points plus of yield creation because of the AMH platform.
And, you know, I know Bryan mentioned this briefly in prepared remarks, but I think it's worth underscoring. You know, this transaction really creates a win-win-win all the way around, right? No question, creating value for AMH and our shareholders.
but also adding value to the residents of the portfolio through the quality of our AMH service programs, and then providing, of course, a seamless exit solution for the seller of the portfolio as well.
Thank you.
Speaker Change: Great, thanks.
Speaker Change: Thank you.
Our next question comes from the line of Eric Wolfe with Citi.
Please proceed with your question.
Thanks, it's Nick Joseph here with Eric and congratulations Dave. Given your October occupancy, but you know when you look at either your lease percentage or forward exposure, what does that tell you about where occupancy should go over the next few months and how comfortable are you letting occupancy drop further from here just given the strong demand that you talked about?
Speaker Change: Thanks for watching!
Speaker Change: Yeah, thanks, Nick. Thanks, Nick. This is Bryan.
Bryan Smith: We talked about
A little bit of the affected activity due to a few different things and at the end of Q3 October activity has picked up nicely though. So we're expecting to Pick up some occupancy or a little bit of occupancy over the last couple of months of the year Then the objective is to have really nice momentum
Leasing momentum going into 2025 and we seem to be on track with that.
Thanks and this is Eric. I guess given that there's only two months left in the year, could you share your early thoughts on earn-in for next year or anything else that you think we should be considering when it comes to your growth potential? I think you mentioned John Burns Consulting is predicting like three to four percent rent growth. I don't know if you think that's a reasonable starting point, but just anything you can kind of say about what you think about your growth potential for next year.
Chris: Sure. Eric, Chris here.
You know, Bryan started to touch on it, but look, the demand is there, the need for housing is there, and our expectation is that activity is coming back strong as we come into the new year, like it always does.
And obviously we'll have nice updates on that for you as we get into next year. In terms of the building blocks of what we know at this point as we're beginning to think about the top line.
Chris: you know, probably low twos or so. Bryan talked about the fact that, you know, latest, you know, third-party market estimates for rent growth, market rent growth next year is in the 3 to 4 percent area.
Speaker Change: and then lost to lease, you know, it depends a little bit on the next couple of months of activity, you know, low single digits or so. So anyways, still early to be talking too quantitatively about 2025, but like we keep saying, the demand is there, the need for housing is there, and we feel good about it.
Thank you. Thank you.
Got it. That's helpful. Thank you.
Speaker Change: Thank you guys.
Thank you. Our next question comes from the line of Handel St. Just with Mizzou Host Securities. Please proceed with your question.
Speaker Change: Hey guys, good morning out there and congrats to you Dave and also Bryan again. I wanted to follow up on the reduction in the OPEX guide specifically the tax
Speaker Change: side of that. You mentioned better-than-expected property tax assessment outcomes from Florida, Georgia, Texas. I guess I'm curious if that outperformance was from millage rates or property assessed values flatlining and any kind of early read for 2025? Curious if this is a tailwind that
Speaker Change: We can see continuing into next year. Thanks.
Chris: Good question, Hendel. Chris here.
Chris: Just talking about our update so far, keep in mind, you know, at this time of the year, we now have values back for the majority of the portfolio.
Speaker Change: But as I mentioned in prepared remarks, we still don't have much information on property tax rates.
yet. Those are generally available a little bit later into the fourth quarter, but given the assessed value data that we have on hand at this point, like I said, we feel good about our reduced full-year midpoint of 6%.
to the second part of your question on 2025.
Speaker Change: I think you probably know what I'm going to say in that it's a little bit early to be talking about specifics. So, you know, I'll tread lightly on this one, especially given that our property tax forecasting process really runs over the course of fourth quarter and into the beginning of next year.
Speaker Change: But, look, as we've talked about many times, our general expectation is that we've been expecting our rate of property tax growth to continue cooling, given that home price appreciation growth has continued moderating since it peaked in, call it, 2022 or so.
Speaker Change: With that said, you know, we know that we've, you know, actually already captured a bit more moderation this year than we were originally expecting, and we're also mindful that we have a couple of unknowns on the table for next year.
Speaker Change: and we're watching very closely a couple of multi-year revaluation states.
Speaker Change: that have seen some pretty hot HPA over the last couple of years that we'll be resetting next year. But again, I would take that against the backdrop of a more broadly cooling HPA and Property Tax Value environment. And like I said, we'll have a much better update for you next quarter after we get through our budgeting process.
Appreciate the color, Chris. Thank you. One follow-up just on the portfolio purchase. I don't know if I missed it, but did you guys mention...
Speaker Change: The timeline to which you expect to get to that 6% stabilized yield is at the end of next year. And then I guess I'm more curious broadly on...
Speaker Change: the motivation, maybe who the seller is, if you could share, but also their motivation here. Was it just perhaps...
Speaker Change: an opportunity given maybe lower rates and perhaps the ability to get maybe a better price and just also the tone of conversation that you're having more broadly with other potential sellers. Are you sensing that maybe there's a, you know, greater chance of likelihood of more
Similar type of activity not just for you, but more broadly in this space into the next year. Thanks
Chris: Sure, Chris here again. I'll start and then...
Bryan can chime in as well. Just from a timeline perspective
You know, in prepared remarks, I characterized it as over the course of 2025 that the way that we're expecting it to play out is it will take the next several months.
Speaker Change: to get the third-party management relationships transitioned over to our platform. That'll take us probably into the beginning of 2025 or so. And then at that point, we can start overlaying our AMH practices and begin to bring things up to our standards.
Again, that does not happen overnight, but I think by the middle of 25 or so, we should be in a pretty good spot, but we'll continue to keep you all updated over the next quarter or two as we really start to get into it.
Hendo, this is Bryan. The second part of your question...
Speaker Change: regarding some seller specifics. I really, out of respect for the transaction, don't want to get into too many specifics on their motivation.
But I can tell you what we offered in the transaction.
Speaker Change: We've talked at length about our diversified footprint. That makes us very flexible in looking at various parts of the United States and portfolios that come online. I think that was an advantage. The strength of our asset management.
platform was clearly valuable in the transaction, our ability to effectively solve some of the seller's issues, provide a seamless transaction,
Speaker Change: We have a lot of expertise in this space. We were able to quickly get in and get comfortable with the assets and get comfortable with the value lift that we would see on our platform. So it was just a really good transaction for us.
Speaker Change: specifically to bulk opportunities that we're seeing in the marketplace. We have seen an uptick in activity of late. We reviewed a number of other portfolios over the past three or four months.
Speaker Change: and I think as expected we're going to start seeing more of those come through. Keep in mind though that we're very specific and intentional on asset type.
Speaker Change: quality and location.
Speaker Change: some of the ones that we've seen of late.
Speaker Change: checked some of the boxes but not all.
We're just really, really pleased with the one that we did close.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Steve Sacwa with Evercore ISI. Please proceed with your question.
I guess, just going back to some of the comments, Bryan, you made about the occupancy and the October trends. You know, the 95.2 puts you about 100 basis points below kind of the fourth quarter last year.
Speaker Change: I guess with 1% pricing on new and let's call it low fives on renewals, you know, how confident are you that that 95.2, you know, comes up materially and I guess would you expect the
year-over-year decline in occupancy say 4q to 4q to kind of match the decline you saw in 3q to 3q
Speaker Change: Yeah, thanks, Steve. Bye.
Speaker Change: If we're looking at the occupancy trends for Q4, we are confident that we've seen a nice change in activity in October. It's translating into...
really a strong close to that month. It's not over yet completely, but...
Speaker Change: We were very pleased with that uptick coming out of a post-Labor-Day September that had a lot of other things going on. We are confident that we'll be able to pick up some occupancy. Most importantly, really good momentum as we exit the year.
Speaker Change: So, I wouldn't expect to have a huge increase as we get into November and December, but I would expect it to move positively and then have that momentum continue into 2025.
Speaker Change: Thanks for watching!
Speaker Change: Okay, thanks. And then just going back on the on the transaction, you know, I sort of recall comments, you know, Dave saying, hey, we're pushing into the development program because we can build the homes that we really want, customize them the way we want them.
Speaker Change: and you could get, you know, stabilized yields on new projects around six and you're, you know, buying this portfolio in the low fives with ultimately the stabilization going to a six. So just trying to understand the rationale of why not put that money just into more development assets versus buying older assets.
Speaker Change: That'll get you the same yield as new development.
Yeah, thanks Steve. I appreciate the way you're looking at it and I think the answer is that they're both good. The development program is fantastic for a number of reasons that we've talked about for a while. What it really does, it gives us a nice stable base.
Speaker Change: That's predictable. We're able to use that as a foundation of our growth programs.
Speaker Change: And then we're set up to take advantage of other opportunities as they arise.
Speaker Change: In the case of this portfolio transaction, the asset quality is fantastic. It fits our buy box from just about every angle. We're very pleased with the results.
Speaker Change: The quality of locations, quality of finishes, and it's going to be a really nice supplement to our growth program. So I would look forward to being able to execute well on both the development and on any fantastic opportunities like this that may arise.
Speaker Change: Let me just add one comment, and that is the
Speaker Change: Investment philosophy has been consistently, the development is a consistent and predictable channel to growth.
Speaker Change: But acquisitions, whether from any of the channels, whether it's one-offs,
Speaker Change: from New Home Builders, or in bulk.
Speaker Change: are the supplemental way to grow. You don't have the ability to throttle your development from time to time.
you know, in any meaningful way.
Speaker Change: but incremental opportunities, especially of a portfolio like this, which are really good, well-located assets that are under-managed in the hands of third-party property managers.
Speaker Change: is going to be a very, very good supplemental investment for us. So there's no change in investment philosophy, it's just that we have started to see, as Bryan indicated, some of the investment opportunities on the bulk side.
Thank you. Our next question comes from the line of Joss Dennerlin with Bank of America. Please proceed with your question.
Speaker Change: Yeah, thanks Josh. I think the general observation that we have is that there was
Speaker Change: Like I said, we're unique in that we have this diversified footprint and a robust asset management program.
Speaker Change: But we're pretty firm in our belief.
Speaker Change: product, not to mention in a couple of cases the location was a little bit outside of our of our investment box.
Speaker Change: And I guess when you think about like the other opportunities set out there, are there, are most portfolios that you're gonna, like that are coming to market, do they have more townhomes, attached homes that were like developed or are there a lot of portfolios out there that have been kind of just aggregated one-off?
Speaker Change: Yeah, that's a very good point.
Yeah, that's a very good observation, Josh. The portfolios that I'm referencing right now were pretty heavily weighted towards more recent build-to-rent, and that seems to be the trend in that space. The scattered-site portfolio, like the one that we closed,
Speaker Change: There's a higher proportion of single-family detached there, and we see a lot of opportunity in some of those assembled portfolios.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Julian Bullen with Goldman Sachs. Please proceed with your question.
Thank you for the question and all the best, Dave. Bryan, you talked about demand continuing to be strong, which sort of sets you up well going into next year. I guess, what specific sort of metrics or data points are you looking at that give you that confidence? And relatedly, one of the data points I think you've given in the past is sort of the stated incomes of incoming residents continuing to improve. How much of an indicator of demand is that? Is that showing you that sort of higher income households are coming into the portfolio and seeing better value in renting versus owning?
Speaker Change: Thanks for watching!
Bryan Smith: Yeah, thanks Julia. There's a couple of good questions in there. Let me start with with some of the demand metrics that we're seeing. If you look at Q3, we had nearly a million new users come onto our website, come onto our platform.
Bryan Smith: search functions when they're setting up accounts and monitoring activity in available homes. We saw a huge uptick in that activity so people are coming in to the ecosystem. We're really pleased with that. Again, it's a testament to the quality of our assets and locations within the markets.
Speaker Change: When you start to talk about the profile of the incoming applicants, we're very pleased that incomes remained very strong in the Q3, in excess of $150,000 of state or household income.
Speaker Change: It's again a testament to the quality of our assets. These are these are homes that single-family detached with a yard, well located, and we're starting to see the benefits of that focus on that level of quality.
Speaker Change: Great, thank you. And maybe as a follow-up, it looked like turnover continued to trend lower year over year, and that obviously had some benefit on the controllable expense side. Do you expect that to sort of continue for the coming quarters given mortgage rates sort of continuing to be stubbornly high here?
Speaker Change: Yeah, we're really pleased with retention in the corridor. It's a testament to a number of different things, market conditions. Also, our team's done a fantastic job of executing, very focused on the resident experience.
Speaker Change: and a lot of the investments that we've made into the platform, I think, have improved that experience. So there's a nice benefit there on our retention levels as well.
Speaker Change: Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
John Pawlowski: Thanks. Chris, with respect to the financing of the portfolio acquisition, I'm curious how you weighed issuing equity versus just selling more assets into what is still an extremely aggressive bid that owner-occupants are willing to pay for your homes.
Speaker Change: Sure. Morning, John. Good question. And, you know, as we're talking about...
Speaker Change: Financing of the transaction, I think it's important to keep in mind that the transaction was closed and financed directly from the balance sheet using cash and capacity off of the revolver.
Speaker Change: And I think it's important to point out that, you know, in part...
Speaker Change: This portfolio was made possible because of the strength and opportunistic flexibility of the balance sheet, right? That's what enabled us to be able to act quickly.
Speaker Change: And provide that seamless exit solution that we keep talking about for the seller because we were able to close directly from the balance sheet while importantly maintaining leverage at targeted levels
Speaker Change: with net debt to EBITDA still in the fives, right? And so what that does is that now keeps us in a position to be able to take advantage of incremental debt.
Speaker Change: and Equity Capital for further consolidation opportunities and more growth. More broadly, as we think about the capital plan, you're exactly right in terms of the attractiveness of the disposition program. We are fully leaning into that. For this year, we continue to be on track to sell plus or minus 1,500 properties or so.
Speaker Change: And we think that there's good robust opportunity there heading into 25 and beyond as well, especially as we continue freeing up the remaining previously encumbered homes by the securitizations that are being refinanced off of the balance sheet.
Speaker Change: Thanks for watching!
Speaker Change: Okay and then last one for me is a two-part question just so I understand the build-to-rent impact on same-store numbers and so could you help quantify the NOI growth lift that the rolling in of build-to-rent properties has had on 2024 same-store NOI growth this year and I have a follow-up.
John Pawlowski: Thanks, John.
Speaker Change: The builder of the new builds, the AMH development homes, still represent a relatively small proportion of the same home pool, less than 10%.
Speaker Change: So the lift will be real, I think, in the future as more and more of those homes roll in.
John Pawlowski: The profile of that small subset screens very nicely, though.
John Pawlowski: slightly elevated occupancy.
John Pawlowski: quicker turn times, catch-to-catch turn times, so that they're performing well, but there's such a small portion of the same home pool that the effect isn't really being seen yet.
Speaker Change: Okay, is there any effect given certain quarters have smaller sample size of lease signings? Has there been any basically lift to new lease or renewal growth rates this year from the rolling in of built-to-rent communities?
John Pawlowski: Thanks for watching!
Speaker Change: Again, they're small. The releasing rate growth for Q3 for new development homes was higher than the scattered site portfolio. Scattered site portfolio had slightly higher renewals due to kind of a more baked-in loss to lease. But again, still a small portion. I don't think it had any...
John Pawlowski: noticeable effect.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.
Adam Kramer: Hey, thanks for the time and congrats to everyone. I just wanted to ask, I guess this is a little bit of a similar question around kind of InfoProperties versus built-to-rent.
Speaker Change: So maybe if you could quantify the difference in kind of how each property type is behaving relative to some of the new supply, I think we've heard a lot about kind of new supply. I think a lot of it is...
Speaker Change: You know, maybe more built to rent, more periphery of markets. So maybe just walk us through kind of how your BTR is performing relative to infill, kind of with regards to the new supply impacts.
Speaker Change: Thanks Adam. I think the easiest way to...
Speaker Change: to get insight into that question is to take a look at what's happening in Phoenix. We've talked about it in the past, but Phoenix is really the center of Bill Durant and if you follow some of the John Byrne statistics
Speaker Change: They've had the largest ads there.
Speaker Change: But the proportion of those builder rents that's actually single-family detached, like our product, is in the 20% range. So there's about 80% of the supply coming into the market is attached to townhomes, row homes, or horizontal apartments.
Speaker Change: If you look at the performance of our Build-A-Rent product, which is, like I said, single-family detached in Arizona, we have fantastic occupancy.
Speaker Change: in the 96-plus percent range, which exceeds that of the scattered site in that particular market.
Speaker Change: So our product that we're bringing to market through our development program is performing extremely well relative to the other BuildDirect product that's coming out, and in the case of Phoenix, relative to the Scattered Set portfolio as well.
Speaker Change: Great, that's really helpful. And just on bad debt, I was wondering if you could just remind us the kind of pre-COVID bad debt.
Speaker Change: I would imagine still elevated today relative to that number, so maybe just on kind of the path to getting back there, is that something that could happen next year, is it a multiple year, is that something where hey maybe we stay elevated relative to history over the long run even, just maybe kind of the levels of bad debt.
Speaker Change: Sure. Adam, it's Chris here. To the first part of your question, on the reminder,
Speaker Change: Naturally, that debt has always had some level of seasonality to it, no different than what I was just talking about in terms of what we've been seeing this year.
Speaker Change: with slightly higher levels of bad debt in the second and really third quarters, very closely correlated with move-out season.
Speaker Change: And what was encouraging about that is that that was even with the fact that we still have a number of municipalities and local court systems like we've been talking about that are still continuing to process at a slower speed.
Speaker Change: I think speaks to the health and financial resiliency of our resident base. And then as we've gotten into the back half of this year, just like we were expecting, we saw a kick-up in bed debt correlated with move-out season.
Speaker Change: Thank you for your time.
Speaker Change: And as we move into 25, it's still a little bit early to say exactly where we think 25 is likely going to be, you know, at this point right now. You know, nothing has really changed just yet in terms of processing time at the local, municipal, and court system level. So we do think that's probably going to be a factor into 25.
Speaker Change: But otherwise, you know, resident financial health collections in general feel good. And, you know, we feel good about the levels that we're at. And I would remind you also that we're talking about, you know, realistically tens of basis points away from where we were historically pre-COVID.
Speaker Change: Thank you. Our next question comes from the line of Daniel Tricarico with Scotiabank. Please proceed with your question.
Daniel Tricarico: Thank you. For your markets that haven't seen as much HPA since COVID, some of your Midwest markets, they're now seeing stronger new lease rate growth outperforming the broader portfolio. Is this a dynamic that you'd expect to continue next year?
Bryan Smith: Hi Daniel, this is Bryan. We're really pleased with the performance of our Midwestern markets. And you're right, they may not have seen the same level of home price appreciation as some of our other markets over the past few years.
Bryan Smith: But our portfolio within those markets is really, really high quality.
Bryan Smith: burdens of ownership in many cases.
Bryan Smith: So I think it's more of a testament to the quality of our assets and really the lack of supply of similar quality assets in those marketplaces. So we do expect a continuation of a really good performance in those markets in 2025.
Bryan Smith: And Daniel, Chris here, you know, a helpful point to make, to Bryan's point,
Speaker Change: Robert Greenfield, MySpace Company. Many thanks to the Center for Intelligent Marketing and the glands for providing this ception to us. If you have any questions please contact me through call, phone, mail, email, and visit
Speaker Change: in a number of Midwestern markets, notably Indianapolis, that we've had difficulty growing in recently.
Speaker Change: Thanks for that guys. Bryan, I think I'll stick with you. Backing into the development yields for new deliveries in Q3, it seems to reflect a decrease versus the first half of the year deliveries.
Speaker Change: I think you had mentioned nearing 6% NOI yields on those, but any thoughts on what's driving this decrease, if that is in fact true? And is the 6% figure a fair number for target yields on deliveries next year?
Bryan Smith: Thanks, Daniel. I think what you're seeing squeezing into the third quarter is really just a little bit of timing and
Speaker Change: potentially market mix and even down to the unit mix level. We're still pleased that for the year, we're expecting yields in the high fives.
Speaker Change: And I would expect to have a similar performance into 2025 on development deliveries. At least that's the visibility we have into the next few months or so. But the team is actively looking at ways to optimize that going forward.
Speaker Change: https://www.youtube.com or the link in the description below.
Speaker Change: Thank you. Our next question comes from the line of Linda Tsai with Jeffries. Please proceed with your question.
Linda Tsai: Thank you. Regarding the portfolio of 1,700 properties you purchased, what's the average age and how does that compare to AMH's overall portfolio? And then, are there any homes that are located in new markets?
Speaker Change: In fact, I can actually just run through a number of fast facts on the portfolio for everyone's understanding. You're exactly right. 1,700 properties, all existing rentals.
Speaker Change: average year built was 2007, average size is about 2,100 square feet, three to four beds
Speaker Change: And, you know, in-place rents approximately in the $2,000 area or so. You know, so the physical nature of the portfolio overlays really nicely with our existing footprint.
Speaker Change: with, as we keep talking about, great opportunity for upside as we optimize the portfolio up to our standards.
Speaker Change: And, you know, just for some additional context, occupancy in the portfolio right now, net of bad debt, is low, running probably in the low 90s or so. And margins are high 50s to 60 area. And once optimized and brought up to our standards.
Speaker Change: given the natural overlay and fit with our existing footprint, our expectation is that these properties will perform just like and alongside any of our other existing legacy image properties.
Speaker Change: Thanks. And then just in terms of John Byrd's comment of 3 to 4 percent rent growth next year, are there certain markets you'd highlight as exceeding this and conversely being below?
Bryan Smith: Yeah, I think the band, this is Bryan, the band of three to four, most of our markets are pretty concentrated there. The leader in rent growth according to Burns across our markets would be Savannah and Hilton Head which would be obviously the top end of the range and on the other side expectations of rent growth in San Antonio would be kind of on the lower end.
Speaker Change: Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
Brad Heffern: Yeah, thanks. Chris, a stat that you didn't give, can you say what you underwrote for the lost lease on the acquired portfolio?
Speaker Change: Sure. Thanks, Brad. I'm a little hesitant to get into that level of specificity on the portfolio, but I will say that's just one
Speaker Change: piece of the optimization opportunity.
Speaker Change: you know, implementing our pricing standards across the portfolio, as I mentioned.
Speaker Change: Economic Occupancy Net of Bad Debt is in the low 90s, we've got a nice opportunity to bring that up to AMH standards.
Speaker Change: and then big opportunity overlaying our level of expenditure controls.
Speaker Change: bringing in our efficiency from an insurance management perspective.
Speaker Change: All of the good stuff we're seeing right now in terms of controlling the controllables to R&M, Tern, and CapEx of the homes. And then, of course, leveraging the scalability of our existing property management platform.
Speaker Change: Okay, got it. And then on the revised expense guidance, expenses were obviously low in the third quarter. The guidance implies a re-acceleration to the highest figure of the year, plus or minus. Is there a like a comps or timing issue driving that or is there something else?
Speaker Change: No, you know, look, we're super happy with what we're seeing on expenses. Keep in mind, we had a very efficient expense comp in the fourth quarter of last year. So a little bit of timing and comp there. But generally speaking, look, I said it in prepared remarks, we could not be happier with our controllable expense results this year. And a really good takeaway to think about here is that many of our investments that we've been talking about, like Resident 360, are really paying off. And they're not just helping us control expenses.
Speaker Change: But importantly, they're also helping us maintain outstanding customer service scores, right, which is something that we haven't talked about yet.
Speaker Change: And we can see that measured by both our internal surveys.
Speaker Change: Thank you. Our next question comes to the line of Austin Wurtsmith with Key Bank Capital Markets. Please proceed with your question.
Austin Wurtsmith: Great, thank you. You've referenced the 3-4% market rent growth projected for next year.
Austin Wurtsmith: I guess given your operating platform, quality of portfolio, and just kind of the fragmentation of the business, I guess how has your portfolio grown relative to market rent growth forecasts over the years? I'm just curious if there's any outperformance that's worth flagging.
Speaker Change: I think Austin, the market growth estimates that Burns put out are specific to our markets. I think over...
Speaker Change: Over the past few years, excepting the period of COVID where it was very unpredictable, we've tracked at the...
Speaker Change: probably the top end of that rent growth. But I would expect the current expectations probably reflect some of our performance in their estimates.
Speaker Change: So I think it's a good starting point. I think couple that with lost lease, couple that with our expectations and really the value that single family rentals have relative to ownership today puts us in a really good position into 2025.
Speaker Change: Thank you. Bye-bye.
Speaker Change: Can you just give us a sense of how competitive the process...
Speaker Change: has been and kind of what you expect in terms of
Speaker Change: and a number of betters.
Speaker Change: and really then what gave you the upper hand to get this deal.
Speaker Change: All across the finish line.
Speaker Change: Yeah, I think it's really deal-specific. Discussing the one that we closed, it was competitive. We've seen a number of other portfolios that have been listed and marketed and widely marketed.
Speaker Change: And then from time to time we're having direct access to some of the
Speaker Change: And we also have a couple of other partners and owners to discuss. So it's really a mixed bag. But as we said, we're a very logical solution to a lot of kind of the seller's objectives and goals.
Speaker Change: and we expect to see them from all channels, brokers, marketed, and direct through some of the relationships that we have.
Speaker Change: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. You talked about uncertainty in the market. Has there been any signs of increased price sensitivity for customers or does that uncertainty that you talked about like help keep your tenant base in place and renew?
Michael Goldsmith: Thank you.
Speaker Change: Yeah, thank you, Michael. I think what I was really referring to was the effect that a number of different things have had over the past couple of months on activity.
Speaker Change: and the movement. You can see it in other areas of housing as well if you look at
Speaker Change: MLS sale activity in September, it was a 14-year low. So there were things going on in the U.S. There still are things going on with the election and so forth that have caused that that activity to temporarily slow in the back part of Q3.
Speaker Change: In terms of price sensitivity, we were very pleased with the results that we posted to the first three quarters, including Q3 in the context of
Speaker Change: All the other residential companies. I think those those numbers will really shine And then as we get into q4 you're seeing seasonal return seeing the effect of some of these kind of temporary disruptions and that's led to a moderation of our new lease rate growth
Speaker Change: Thank you.
Speaker Change: recently.
Speaker Change: Yeah, in the past, you do see, obviously you're kind of catching up for the period of limited activity. Most recently in Florida, you had storms back-to-back. You're talking about weeks of...
Speaker Change: of people focusing on things more important than moving around.
Speaker Change: And then, when things calm down, when things get back to normal, you do see a little bit of a pickup. We're seeing a little bit of that in Florida, but again, the storms are still pretty recent. It's maybe not as dramatic as you might expect, but we do see a little bit of a pickup as everything calms down.
Speaker Change: Thank you. Our next question comes from the line of Omotayo Okosanwa with Deutsche Bank. Please proceed with your question.
Speaker Change: Yes, good afternoon everyone. Dave, congrats from us as well.
Omotayo Okosanwa: Just in terms of the stock performance as the call has been going on has just been deteriorating. Again, it's clear that investors feel somewhat disappointed about some of the fourth quarter operating trends.
that are being discussed. So I'm just trying to understand a little bit again as it pertains to the new leasing trends and even some of the October occupancy, if one was to really kind of think about, you know, what, you know, supply versus weather versus kind of.
Omotayo Okosanwa: classic seasonality, really how much can one really kind of attribute each of these three factors to some of those forecasts and then also specifically, are there any kind of regional biases where it's impacting some market a little bit more than others?
Let me start. I don't agree with your comment about disappointment. We've had a fantastic year.
Our year has exceeded expectations. Our goal at the outset to the first half of the year
Omotayo Okosanwa: was to capture the top light-up side, which we did.
Omotayo Okosanwa: And then the second half, as we talked about last quarter and this quarter as well, is really focused on controlling the controllables, cost controls, while maintaining outstanding customer service.
really leading to a superior resident experience. All the things that we've talked about we executed on this year.
And that was the impetus for the raises that we've had through the first 10 months of the year. So we're in an excellent position. We talked about our goals for the balance of this year. We talked about how fantastic demand is for our well-located, high-quality products.
Omotayo Okosanwa: And we're going to finish this year strong and be ready for another outstanding year in 2025.
Omotayo Okosanwa: Thank you.
Speaker Change: Our last question comes from the line of Jade Rahmani with KBW. Please proceed with your question.
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Speaker Change: Hi, this is Jason Saption on for Jade. It would be helpful to hear what you're seeing in the Florida property insurance markets and whether there are any spillover effects into adjacent markets.
Speaker Change: Thank you. Bye.
Speaker Change: Hey Jason, Chris here. You know, look, I can talk about it a little bit more broadly. Keep in mind that we insure our portfolio and place our program, you know, at the national and portfolio level. Of course, market mix is important, but it's placed at the portfolio level.
Speaker Change: You know, recall that for this year, you know, our renewal was already completed very successfully at the start of this year.
Speaker Change: Our annual premium increase for this year had moderated down into the high single-digit area. And so at this point, you know, we're really preparing for our 2025 renewal.
You know, and we fully recognize that this has been an active hurricane season, but at the same time
The insurance market is pretty well capitalized today, and in a much healthier position than it was several years ago. And when you then take that and couple it with the AMH reputation in the insurance market because of the quality of our disaster and preparedness programs,
Even though it was an active hurricane season, we still feel good heading into our 2025 renewal, and we'll have more updates on that for you next quarter.
Speaker Change: Thank you. There are no further questions at this time. I'd like to pass the call back over to Management for closing remarks.
Thank You operator this is Dave and and I'll close this call a little differently I'll close where I started today's call and that is to thank all of you for your support and being part of my journey
David Singelyn: over the past decade plus. With Bryan and Chris at the helm, I know AMH is in capable hands as it ventures into 2025 and beyond.
Speaker Change: So I thank you and all have a good day. Bye-bye.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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