Q2 2025 American Homes 4 Rent Earnings Call
Greetings and welcome to the m amh second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow be formal presentation. If you require operator assistance, during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my in it, is now my pleasure to introduce you to your host, Nicholas from director of investor relations. Thank you, Nick. You may begin. Good morning and thank you for joining us for our second quarter 2025 earnings conference call. With me today are Brian Smith, chief executive officer and Chris Lau Chief Financial Officer.
Please be advised that this call may include forward-looking statements— all statements other than statements of historical fact. Included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected. In these statements, these risks and other factors that could adversely affect our business and future results are described in our press releases and in filings with the SEC.
All forward-looking statements speak only as of today, August 1, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Cam.
With that, I will turn the call over to our CEO, Bryan Smith.
Welcome, everyone, and thank you for joining us today.
We had another great quarter driven by our continued commitment to the AM8 strategy.
Our year-to-date results reinforce that we are focused on the right things.
Adding value and growing earnings across all areas of the business.
We do that by focusing on three key areas.
First operational, experts.
Where we leverage in-house technology to support efficient execution and deliver a superior resident experience.
Second portfolio, optimization.
Where data drives our asset management and investment decisions on market locations, asset type, and quality.
And third prudent Capital acumen.
Where we prioritize a high-quality investment-grade balance sheet that provides flexibility and diverse access to capital, as we remain committed to our AMH development program.
And our strategy is working.
As outlined in last night's press release.
We increased our full-year core FFO per share guidance by 3 cents.
To 186 at the midpoint.
Now representing 5.1% growth.
This guidance increase once again positions us at the top of the residential sector.
Demand for high-quality, well-located AMH homes remains strong.
In the second quarter, foot traffic was up more than 5% year-over-year.
Growth.
With more and more people coming directly to amh cam to start their search for a new home.
This translated in the second quarter, same home, average occupied days of 96.3.
And new renewal and Blended rental rate spreads of 4.1%.
4.4% and 4.3% respectively.
Together with better-than-expected collections.
Same home core revenue growth was 3.9% for the quarter.
These results, reflect the strength of our Revenue management strategy.
Which includes our lease expiration management initiative that we discussed last quarter.
On the expense front.
Core operating expense growth was 3.6%.
Leading the same home core, NOI growth of 4.1% for the quarter.
Overall, the second quarter was a great example of outstanding execution by the teams across all areas of the business.
After a successful spring leasing season.
Our team shifted their focus to managing inventory ahead of the move-out season.
For July, leasing activity remains steady with the same home, with an average occupied days of 96.1%.
And new renewal and blended spreads are about 3.6%.
3.9% and 3.8% respectively.
Importantly, as we think about the balance of the year, we expect the seasonal curve.
In 2025, to be flatter than 2024.
As we continue to execute on our revenue optimization objectives,
With the flatter seasonal curve, we expect leasing to seasonally moderate less in the third and fourth quarters than they did last year.
With blended spreads remaining in the high 3% area for the balance of the year.
Turning to external growth, we remain committed to our prudent and disciplined approach.
AMH development remains the backbone of our growth programs and is on track to meet this year's delivery expectations.
With initial yields continuing to improve on newly delivered homes.
On the acquisitions front, we review thousands of assets each month across our 30-plus markets.
While the vast majority still do not meet our buy box.
We are seeing some encouraging signs.
Including bit by bit, spreads are beginning to move in the right direction from certain home builders.
To close our year-to-date results, underscore the enduring success of the AM8 strategy.
And the team's outstanding execution.
And with our continued focus on operational excellence.
Portfolio optimization and prudent capital acumen.
And the single-family rental industry.
With that.
I will turn the call over to Chris.
Thanks, Brian, and good morning, everyone. As always, I'll cover three areas in my comments today.
First, a review of our solid quarterly results; second, an update on our balance sheet and recent capital activity; and third, I'll close with commentary around our increased 2025 guidance.
Starting off with our operating results. This quarter was an excellent example of the power of the AMH strategy and our ability to create value and grow earnings across all areas of the business.
For the quarter, we reported net income attributable to common shareholders of $105.6 million or $0.28 per diluted share.
On an FFO per share unit basis.
We generated $0.47 of core FFO, representing a 4.9% year-over-year growth. Additionally, we achieved $0.42 of adjusted FFO, which reflects a 6.3% year-over-year growth.
And in addition to our strong execution this quarter, we also received favorable property tax news out of the state of Texas.
As many of you recall, the 2022 Texas property tax reform that lowered a portion of the state's property tax rates expired at the beginning of 2025.
Since then, after much deliberation the state recently passed a new round of property tax relief. That once again, lowers property tax rates for 2025 and 2026 that has been positively reflected and are updated for your outlooks that I'll talk about in a few minutes.
Turning to Investments for this second quarter are amh development. Programme delivered. A total of 636 homes to our wholly owned and joint venture portfolios.
That was right on track with our expectations and continues to demonstrate our unique ability to create value in an otherwise, challenging acquisition environment.
To demonstrate this point during the quarter, our team reviewed tens of thousands of potential acquisition properties. The vast majority of these properties still do not meet our disciplined buy box criteria, and we ultimately acquired a total of just 5 homes during the quarter.
On the other hand, we continue to be active on the portfolio optimization front, selling 370 properties in the second quarter for approximately $120 million of net proceeds at an average economic disposition yield in the high 3%.
Next, I'd like to turn to our balance sheet and recent capital activity.
At the end of the quarter, our net debt, including preferred shares, to adjusted EBITDA was down to 5.2 times. Our $1.25 billion revolving credit facility was fully undrawn, and we had $323 million of cash available on the balance sheet, which includes partial proceeds from our second quarter bond offering.
During the month of May, we took advantage of a narrow market opportunity to raise $600 million and $650 million in a 5-year bond offering priced at a coupon of 4.95%. These 5-year bonds provide a perfect complement to our existing maturity profile, reflect a better than previously expected coupon, and will be used to fund a portion of this year's anticipated securitization repayments.
And along those lines, after the end of the quarter, we delivered our notice to pay off our final securitization: 2015 DSSR 2.
After the payoff, which we expect to close during the third quarter, our balance sheet will become 100% unencumbered, with zero maturities until 2028.
And next, I'll cover our updated 2025 earnings guidance, which was positively revised across the board in yesterday's earnings press release.
Starting with the same home portfolio, we recognize our strong leasing performance and improved bad debt outlook, which we now expect to approximate 100 basis points on a full-year basis. With this, we have increased the midpoint of our full-year core revenue growth expectation by 25 basis points to 3.75%.
And on the expense side, although the majority of property tax information is typically received over the course of the third and fourth quarters, given the recent favorable Texas update, we've reduced the midpoint of our full-year core expense growth expectation by 25 basis points to 3.75%.
Collectively, this translates into an overall increase of 50 basis points to the midpoint of our full-year same-home core in a wide growth expectation to 3.75%.
Across all of our AMH development markets.
And when further combined with the modest upside from our opportunistically timed and well-executed second quarter bond offering, we have increased the midpoint of our full year 2025 core FFO per share expectations by a total of 3 cents.
Our new midpoint of $186 per share now reflects the high end of our previous range and represents a year-over-year growth expectation of 5.1%. As Bryan mentioned earlier, this once again positions AMH at the top of the residential sector.
And before we open the call to your questions, I'd like to share a little more context on the strength of this quarter.
It wasn't just a strong leasing season. This quarter was a reflection of the strength of the image strategy and our relentless focus on creating value. Across all aspects of the business, from operational excellence to portfolio optimization and prudent capital acumen, all of which contributed to the success of this quarter and our meaningfully improved full-year earnings outlook.
Thank you to the team for making the image strategy possible.
And now, Brian and I will open the call to your questions.
Unfortunately, Lincoln Palmer was briefly called away for a family emergency and won't be able to join us today. We send him our thoughts and support during this time with his family.
And with that operator, we're ready to open the line.
Thank you. We will now be conducting a question-and-answer session.
If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Thank you.
Our first question comes from the line of Juan Sandria with BMO Capital Markets. Please proceed.
Good morning, and thanks for the time. Uh, just hoping Chris, maybe you could, um, expand upon the seasonal changes you are expecting, uh, in the second half of this year versus last year, and the implications for both rate and blended spreads.
Yeah hey morning 1 um Chris here a good question uh you know I know very topical for a lot of folks um yeah let me share a couple thoughts just in general on the curve that come to mind.
You know, like like we've talked about before, um, we spent a lot of time analyzing the shape of our seasonal curve, uh, in general. And in particular, we, we've really been focusing on what our curve has looked like on a long-term basis, uh, versus more of the co and kind of Co recovery time frame. And you know what we found is that, with all things KO related, you know, it turns really got distorted and we saw an atypical elongating of our seasonal curve, over the last couple of years. Um, by contrast, uh, if you look at our stabilized business, prior to Coe, we really saw that the seasonal curve tended to peek out kind of late May early June. And that's exactly what we we saw this year. Uh, and then on top of that, you know, as we've been talking about 1 of our key objectives for this year, was to help flatten the shape of the seasonal curve, uh, so that we can avoid the type of of steep leasing deceleration. We saw in the back of 2024. Uh, and you know, we we've been really successful.
Accomplishing that this year, uh, through the lease expiration management initiative, we've shifted, uh, expirations from what was called 50/50 before (first half, second half of the year) to what is now more like 60% in the first half of the year and 40% in the back half of the year.
And what that's done for us is it's really enabled us to capture more new leasing opportunities during the prime leasing season. Importantly, it has shifted move-outs away from the third and fourth quarters, which we expect to translate into less leasing deceleration this year, as you pointed out. And, you know, if you want to illustrate that with some numbers, if we look at new lease spreads from, let's say, the middle of the year to the end of the year. In 2024, we saw over 600 basis points of new lease deceleration from the middle of the year to the end of the year. By contrast, this year we're expecting to only see about 150 basis points of seasonal deceleration, which puts us in a really great spot and makes us opportunistic as we head into the back of the year.
The home builders, but just curious, if you could expand on that and talk a little bit about the aforementioned earnings calls.
Bulk or portfolio acquisition opportunities with what kind of existing stable homes.
Yeah, thanks, Juan. This is Brian. In my prepared remarks, I talked a little bit about what we're seeing on the ground from the national builder opportunity perspective. I think it's been four or five quarters in a row where we've seen a lot of volume of deals come across our desk.
But really, how much change in willingness to negotiate on price? And a lot of those deals didn't meet our buy box, and we've talked about how got a wide we were, um, on on price to make it, make it fit, our our yield objectives, we see a little bit of a change of late and it's it's not completely across the board, but from some of the large National Builders and some of the markets that have uh maybe a little bit of extra Supply, we're seeing an expanded willingness to to negotiate on price.
And it gives us a lot of optimism as we get into the back half of the year, uh, on on that particular acquisition channels potential. Um, but I wanted to make sure that that, uh, that we highlighted, the fact that that we are, we are sensing a a meaningful change.
Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed.
Great. Thank you. Um,
I guess just thinking about the change in the outlook for core Revenue growth, can you just talk about any other pieces? I know you talked about Blends, uh you know, fixing the seasonal curve, any other any other uh, pieces of that uh, calculation that have have moved in any and anything you can address in terms of how market conditions have changed across your markets, better or worse.
Yeah, sure. Jamie, Chris here. I can start overall, and then Bryan wants to fill in anything else at the market level. Um, you know, just as a reminder, overall revenue outlook increased 25 basis points at the mid to 375.
Uh, with the real driver, uh, being improved, full year, bad debt Outlook, like I mentioned in prepared remarks that we now expect to approximate 1% or so on a full year basis. Um, you know, that's further supported by the really strong year-to-date leasing activity. We've seen uh, where we still expect to see full year average monthly realized rent growth and call it the high threes.
And then our unchanged full year, occupancy Outlook. And the low 96 is, uh, which like we've been talking about, um, reflects less deceleration in the back, half of the year compared to 2024, uh, as we see the benefits of our lease expiration Management program. Um, and all those pieces will get you back to the, uh, the increased, uh, Outlook of 375 at the mid.
And then Jamie this is this is Brian, uh, from a market perspective. Uh, we're really pleased with what we're seeing in our Florida markets as an example. Uh, it's been well documented that there are some Supply pressures there, but our Florida portfolio is holding up really well. Uh, it it really gives us additional confidence on the flattening of that curve to see occupancy in Q2 and excess of 90% And that region. Uh and and really good demand. Um, so we're optimistic about the back, half on some of our major markets.
Okay, thank you for that. Um, it actually leads to the second question, which is, you know, you had very strong results in the Midwest.
Seattle. Um, but you look at where you're acquiring more, and it is some of those Florida markets and some of the heavier home builder markets. Can you just talk about that strategy? And, you know, do you think over time the, you know, the Midwest markets weaken and those other markets get stronger? Or just in general, why be growing in markets that do have more supply risk?
Yeah, thank you. I mean, commentary specifically on the Midwest. We've really enjoyed strong performance in our Midwestern markets for a long time.
Uh, you're looking at a snapshot of today. There's still characterized by very low supply.
Of the quality of of, of home and, and the quality of location that that we have in our portfolio. Uh, and we don't see that stopping anytime soon. Um, if you look at the relative affordability across different markets in the United States, the the midwestern markets are uh comfortably within the top 10. So people are still able to move there and have a high quality of life and our specific portfolio there. As I mentioned is extremely well located. Good school districts.
To continue.
Uh, it's a similar commentary on Seattle. Seattle has a couple of different characteristics in the Midwest. Um, again, very low supply.
Especially, uh, at at the entry level. Um, and and the pricing levels that were that were releasing our homes at Seattle though, uh, on on contrast to the Midwest, uh, is really expensive to own a home. It's about twice as expensive to own versus rent comparable property.
And our development program continues to deliver nicely into that marketplace. Uh, so we expect long-term continued success there, just with the economic engine. Um, and we expect the Midwest to continue to produce, certainly through any sort of future that we can see.
Thank you.
Core isi, please proceed.
Yeah, thanks. Good morning. Um, Brian, uh, you talked about kind of the the home builders willing to negotiate on price can you? But I don't think you really kind of done much yet, but like, where do you see that spread for the deals you're looking at with them against your development Pipeline and I guess at what point would the development pipeline, perhaps slow down, if you could buy more kind of new products from the home, builders
Yep. Thanks. Dude, that that's a great question. It, it's interesting. The the the price changes that we've seen. Um, are generally characterized by being in markets where we're not not developing we don't have the amh development program.
Uh, but in the markets where we do have those programs, it's critical.
To to make sure that we're comparing Apples to Apples. Um, so the inventory that we're seeing in our development markets, uh, is not as well located, and it's not as high of a quality of build. Um, and in many cases it's characterized by being attached or town homes. So it's a different product in our in our 15 development markets, um, but it's 1 of the benefits of having the Diversified portfolio footprint and that we can look at opportunities across uh all 30 plus markets. Uh and we're seeing the price movement in in our, in our non-development markets, in terms of how far it needs to move before we do anything meaningful.
Uh, the our our calculation, the yield calculations on, on the ask prices today aren't that different than what we talked about the last quarter, um, thinking about yields in the high fours. Uh, and we need to see a meaningful move off of that to be able to, to, to do anything of volume. Maybe some more in the neighborhood of approaching 20%,
Alright, that's it for me. Thank you.
Thanks Steve.
Thank you. Our next question comes from the line of Eric Wolf with City Bank. Please proceed.
Hey thanks, apologies. If I missed this, could you talk about where I can see was in July? And you mentioned that you expected a flatter seasonal curve than normal in the back. Half on on Blended lease rates and how that might also translate into, sort of a lower occupancy change as well. Um, I think last year your August was down like 120 bits from from top to bottom, so it was just curious. You know what, that might look like this year.
Yeah. Thanks Eric. Chris, Chris detailed some specifics on on the curve of expectations for the year really as they pertain to rate. Uh, I think the key, the key Point, um, that's it pertains to the occupancy and our outlook for the balance of the year, it was really centered around our lease expiration Management program and the benefits that we're expecting to see with, uh, dramatic reduction in lease expirations and, and therefore move outs, that gives us more power. Uh, not only in the pricing side but to be able to preserve occupancy and maybe a slightly slower demand environment due to seasonality,
And and Eric, you're right left. This is Chris here left deceleration on the occupancy side as well as as you probably saw first half of the Year, same home occupancy was 962. Uh, the guide contemplates full year, uh, same home occupancy in the low 96s. As you can see, you know, we're expecting a little bit of seasonal, moderation, in the back, half of the year, but not a ton by contrast. If you look at same time last year, uh, call it, June is through end of the year. We saw about a 100 basis points of occupancy. Moderation, so much flatter as we see the benefits of lease, expiration management.
Got it. July, I guess, was consistent with that sort of low 96%.
Range... Yeah, July. Yeah, July was 961, holding strong.
Zhou Securities, please proceed.
Hey, uh, good morning out there. Uh, so I guess, Brian, um, there's been, uh, lots of concern—let's call it—about the development platform this year with lower yields versus last year. Some concerns about tariffs and higher input costs. Um, but you guys have been able to raise the guide, uh, partially this year because of some better outcomes in the development pipeline. And you mentioned yields, I think we're up a little bit, so I guess I was hoping you could talk a little bit more on how you've been able to achieve that. Is it better yields? Is it less cost inflation than feared? And then maybe what your expectations for development yields are over the near term? Thanks.
Yeah, thanks. I think you covered a lot of it. I'll break it down a little bit. First of all, the change in our expectations on the contribution of development outside of the same home.
It was really due to outstanding execution by the team and a quick lease-up.
Uh, there there are a lot of different factors at play here. We've we put some new initiatives in that are starting to take. Hold on the pre-leasing side and pre-marketing. We saw some of that benefit early on. Um, and importantly, we were able to lease through a little bit of backlog carried over from from last year, quickly in delivering communities. So we could maintain pricing power matching deliveries with with demand. So it's, it's been a very important move, um, strategically for us for us as well.
Uh, in relation to, to yield expectations for this year. As I said, in my prepared remarks, uh, we're on track for what we expected initially, uh, of mid 5 yields for, for 25 deliveries, um, starting in the low fives and kind of progressing, nicely through the year. Uh, there are a couple of things uh, that we see there. Um, on the cost side. Uh the team has done an outstanding job of managing costs. We we've been looking at this implication of potential tariffs. It's been a hot topic for a long period of time.
Any increases that we may have seen, or will see from Terra tariffs, are being more than offset by improvements in the labor market due to decreased activity.
Uh, plus some efficiencies that our teams are gaining as they become more established in the particular marketplace or through value engineering and architecture. There's a lot of good things going into play.
And you're putting all these things together and we're we're we're controlling our vertical costs very well. In fact, uh, our vertical costs for construction, on the new development are are flat year-over-year and we're expecting that flat, uh, no change in that as we exit 25, and, and begin 2026. So it's it's really coming in and working out as planned. Um, and it gives us a lot of confidence, uh, you know, going into next year.
Appreciate that. It's a great color. Uh Chris I made 1 for you just on the property tax side. You mentioned a nice Boost from uh lower um the Texas initiative. So I guess I know we're still waiting a bit from uh for other states key States like Florida, and Georgia. So so I'm guess I'm curious what you
Are you expecting or kind of embedded in the guide for that? And then, um, what do you guys see as maybe a long-term run rate for real estate taxes? Thanks.
Good, good question. Uh, and I think you said it exactly right in part of your question. Uh, in that, um, you know, reminder for everyone, we're still really only halfway through the property tax year. Um, you know, at this point we've received initial assessed values for really only a little over half the portfolio or so. Um, as I'm sure everyone recalls, um, you know that really then starts at the beginning of the appeals process that runs over the course of summer and then into the early fall. Uh, and then reminder that we still receive the remainder of our values over the course of the third quarter, uh, and then the majority of tax rates aren't received until the fourth quarter. Um, so we're still early, uh, with the exception of the favorable Texas news, which I mentioned, and you just pointed out that that really was the driver of the revision to our full year property tax outlook at this point, which is a reminder, is in the high $33 million to $375 million or so.
Lower edge of of long-term average. Uh, and as we think forward, you know, tough to predict, you know, 26 or Beyond at this point. But we do know uh that rate of home price appreciation continues to moderate. Um and and we see that as being a a potentially favorable setup uh to property taxes looking forward.
Thank you.
Our next question.
Comes from the line of Adam Kramer with Morgan Stanley. Please proceed.
Great. Thanks for the time, Chris. You guys have, you know, had this look like a strategy around disposing of of full homes. That, you know, is really low cap rates. Um, wondering now it's sort of the getting to the end of the, uh, you know, secure debt sort of coming off and and sort of that that freeing up homes to dispose of wandering, from how many homes you guys think you have left here to potentially still sell? Um, and sort of what the longer term I guess. Sort of Outlook is for that disposition strategy that you guys have employed and then I guess along similar lines. Not that deep but I think it's 52 in the quarter you know. I would imagine it's below.
Below the midpoint of your sort of target range. So, how you're sort of thinking about managing, uh, the net debt deep with, uh, sort of managing, the balance sheet and, you know, in terms of trade-off with these positions.
Yeah, great questions. Um, you know, I can, I can start with the first, uh, piece of it, uh, in terms of of what we see for opportunity going forward. Um, especially as we are releasing previously, collateralized homes out of the securitizations, uh, you know, a couple reminders, um, last year 2024, uh, we paid off 2 citizens, uh, that freed up about 9,000 homes. Uh, that had been encumbered for about the past 10 years or so. This year, uh, through our 2 SEC payoffs, we'll be freeing up another 9000, homes or so. So, 18,000 homes that we, we've, we've our hands have been somewhat tied from an asset management perspective for the last 10 years or so. You know, a lot of observations we've made in there from an asset management perspective. Um, you know, that we'll be able to execute ongoing forward. Um, you know, I think we've maybe shared this before, best guess at this point, there could be 10 maybe 10 to 15% of
Those homes, that that may ultimately become, you know, very attractive, disposition candidates over the next couple of years. Um, they're they're not going to work through the disposition system immediately, um, as everyone knows. Uh, these homes are are being sold via the MLS, uh, which means we let Lisa's role residents move out those homes. Go into the MLS, which naturally creates a little bit of a Runway ahead of us. Um, creating great Capital recycling opportunity, for the next several years. Uh, as we think about
Recycling into the development program and otherwise, and then to your point on, um, on Leverage. Uh, you're right, um, leverage continues to to tick down, uh, low 5 today. Um, you know, we're, we're generally comfortable with and targeting uh, net debt to eidas somewhere in the fives, which means we've got great capacity on the balance sheet to take advantage of incremental, growth opportunities that we're watching very, very closely. You know, that could could be in the form of of incremental development. Uh, we're watching all things from an acquisition perspective, very closely Brian talked about what we're seeing in terms of the dialogue with our national Builder relationships. Uh, and then as everyone knows, you know, we're very bullish on and, and watch the, uh, portfolio consolidation Market very closely.
Great. That's really helpful. Thank you, Chris. Um, and just maybe, uh, sort of the lease expiration initiative. I think you get a helpful update on that early, or just wondering, is that process sort of done, or is there more to go?
Uh, with that initiative.
Yeah, thanks, Adam. It's uh
We're really pleased with the results that we've seen with that initiative, but it's really just starting.
It's going to be extended into other areas of the business. For example, right now it's just focused on renewals and making some movements between the different months. But ultimately, it'll be extended into optimizing initial leases.
Uh, and I think it'll be a powerful tool as we manage communities. They have some slightly different dynamics, or you have a couple hundred homes in a single community. The expirations and timing are going to be really important. So, there are optimization opportunities there as well.
Expect to put into the program over time.
Thank you. Our next question comes from the line of an investor with Bank of America. Please proceed.
Great. Thank you. Uh in your opening remarks, you touched on several times the operational excellence and we saw you in March in La. I know you you talked a lot about your uh, you know, company specific initiatives with with AI advancing rapidly here, I'm just curious. You know how these advances are helping you with those operating initiatives.
Yeah, thanks, Jeff. It's a great question, and it's really nice insight into some of the success we've had, um, on the leasing side as an example.
Uh, we talked in the past about our focus on technology and and giving new technology tools to our teams to if not only improve the resident experience, but uh, excelerate Leasing, and there's benefits across the board. Our, our initial foray into how we're leveraging AI, uh, is starting on the leasing front and we've fully implemented, uh, a front-end system that is a fantastic thing. For the residents, it's allowed us to, to provide answers to any prospects questions. 24/7, um, managing huge volumes. And what it's done is it's freed up our licensed, leasing professionals to be able to to
Spend more time with with the residents of the incoming residents, making sure that they're solving for their housing needs rather than just um, allowing them to what's available. So there's a lot of good benefits that you're seeing there. Um, I talked a little bit earlier, too about our pre-leasing initiative, AI is empowering that as well.
And you can see some of the success we've had in the lease up, uh, in of the new home of the new development homes.
Uh, and just to put it into proper context, that lease-up is our current with this better engine without the use of concessions. In some markets that have supply, more concessions are common. So there are a lot of good things. The AI benefits will be seen on the leasing side first.
In the future, we're optimistic about applications.
Improving the communication platform with our residents.
Um, there are some really good things that are in the works. We haven't completed the rollout there yet.
And then ultimately, I think I think the AI improvements in um in in the new tools that we're able to to put in the hands of our field teams will make the maintenance experience. Not only much better, but much more efficient, so we're very excited about the possibilities to come on that side.
Okay, thank you.
And then, you know, in terms of your company just getting more aggressive and leveraging these initiatives, the platform your team, you know, what you're learning from your developments. Um, you know, I continue to read about more and more money, lower cost Capital looking to invest in single family rentals. And I know you you've discussed you you decided to, you know, stop the third party management, you know, just curious with the, you know changes in your cost of capital, any reconsideration there to for your you know this way your company gets even more aggressive and a smart way but more aggressive leveraging this, you know lower cost of capital out there and your platform. Thank you.
Yeah, Jeff, I think we've talked in the past about how we tested a third-party Property Management initiative and some potential benefits there. We spent a couple of years managing exactly the type of homes that we thought fit well into that model.
And our conclusion was pretty simple. We have such opportunity within our development program with optimizing the way we manage communities, with improvements that we can make and our services platform. We felt that the best thing to do strategically was to focus on those opportunities in the near term.
Over the long run. Uh, it's definitely possible that we would be able to leverage our platform, uh, in other ways. But but as we said here today, the opportunities are just too too great internally in front of us, uh, to focus on anything else.
Thank you. Our next question comes from the line of Julian Boolean with Goldman Sachs. Please proceed.
Maybe we are seeing signs of better pricing power as some of the competitive supply pressures are starting to ease.
Yeah, thanks, Julian. It's a combination of a number of different things.
Um the the lease expiration management or we have relief from move outs hasn't really started yet so it hasn't shown up in in any of our pricing power, but but it is a factor into our confidence for the back half of the year.
Uh, we're seeing some really good pricing power in some of our markets. You look at the outstanding performance, um, we talked about it on the call earlier, uh, of Seattle. The Midwest has has been fantastic. Uh, it's a testament to to our Diversified portfolio footprint. There, there are some markets that are that are pressured, but it represents a very small proportion of our portfolio.
Um, so we're doing good things on the management side. I think our revenue optimization has matured to the way we price homes. Marketing is a little bit better, so there's a lot of good things at play. And then I would expect to see the benefits from the lease expiration management program later on in the year.
Got it that's helpful and Brian we we've seen your main sfr peers and and and some of the apartments run up, pretty wide gaps between new and renewal rates versus those metrics of State, a lot closer together in your in your uh, portfolio wanted to check if that feels like a bit of a strategic choice.
Based on your end, does it feel like maybe you're holding back a bit on renewals because you don't feel like it's healthy to have those wide gaps? Or is there maybe an impact to renewal rates from your lease expiration management strategy?
Yeah, thank you. I think it's a, it's a great question and it, and it goes to the core of our strategy. Um, especially as the way, we we manage renewals, and how we think about them, we want to make sure that our residents are getting great value and that they know that they're getting Great Value. So, those renewal rates have to be tied into current market rates adjusting for any sort of kind of delay in terms of, uh, sending those out 60, or 90 days before they need to be executed. There's some seasonal effects, but we want to make sure that any offer we make to our residents, uh, is a very good value to them and holds up from a market rep perspective. Uh, and as such, you're seeing the sophistication that we have on pricing as another contributor to those type bands.
But we've improved the way we communicate with our residents quite often. Um,
Through a dialogue with them on a renewal offer, it’s a very easy explanation as to why this is a good thing to do— to renew—and you’re getting good value.
Thank you. Our next question comes from the line of David Seagull with Green Street. Please proceed.
Thank you. Uh, when you did your analysis of historical leasing trends, I'm curious what you, um, thought about how the history of turnover rates used to be, um, a higher level of turnover than what you're seeing since 2020. And how has that informed your views of what turnover should look like going forward?
Yeah, appreciate the question David Chris here. And then, uh, you know, Brian can add in, if you like to, I think ultimately what you're seeing in the first half of this year is, is really timing associated with lease expiration management, right? As we know, we've been shifting, uh, strategically shifting expirations from the back half of the year, to the front half of the year, uh, to align with with leasing season. Um, but as we look at the data on a quarter by quarter basis, the actual retention rate, you know, the percentage of residents choosing to, to stay with us has remained relatively consistent. So it's really timing related in terms of Shifting of of overall expirations. And then in turn move outs and we would expect that to moderate down and in the back half of the year, uh, and on a full year basis. Uh, our our view around turnover rate is is pretty similar, uh, to last year, uh, and, and turnover days days to reroute.
Resident as well. You can see that reflected in the fact that our view on occupancy on a full-year basis is relatively flat year-over-year.
And, um, it looks like fee income has been growing, uh, to double-digit percentages in the first half. I'm curious what, um, specific, um, aspects of the fees are driving that, and, uh, how sustainable is that into the, you know, the back half of the year?
Ization from lease expiration management. We've seen um fees shift accordingly, as we get into the back half of the Year, we'd expect that to moderate that down and uh, you know, generally speaking in the guide we're contemplating fees to to run relatively similar to growth in in rents.
Thank you. Our next question comes from Nicholas Fromm.
the line of my
Smith with UBS, please proceed.
Good morning. Thanks a lot for taking my questions. Maybe a good place to start is just can you provide an updated assessment of remaining supply impacts across the portfolio? Thanks.
Yeah, thanks Michael.
If you look across our 30-plus markets, we're seeing very limited supply in the vast majority.
Uh, I talked a little bit earlier about a couple of markets that have had outstanding performance in the Midwest.
Seattle, where there's just a clear shortage of quality housing—certainly housing that's comparable to what we're offering on the rental side.
Uh and then if you flip it to the, to the markets that have been widely discussed, where there has been some additional supply pressure, uh, thinking about Phoenix, thinking about Texas thinking about uh, some of the markets in Florida.
Uh, we’re performing very well in those markets, the
Additional supply in Florida hasn't had much of an effect on us from an occupancy perspective. Maybe a little bit in rate, but our performance there has been outstanding.
And even in Phoenix, where there's a lot of supply pressure—again, well documented—we're still in excess of 95% occupancy.
Um, and it's just a matter of time until that gets absorbed. I wanted to keep factors that we have, not only the benefits of the diversified geographical footprint.
But it has to do with our product type and location within these markets. Uh, and that's why you're seeing really the durability of our portfolio, whereas others might be pressured.
Got it. Thanks for that. And, uh, as a follow-up, you know, occupancy remains above the pre-COVID levels. Is there an ideal occupancy level for the portfolio? And if we do see a stronger housing market, could occupancy kick back down? Is move-out to buy a home on the rise? And, and...
Yeah, thank you, though. The way we're looking at it, you know, pre-
Kind of the expectation was a 95% range. And we've talked about it, um, you know, since the end of the pandemic that those new expectations have been increased to a 96% range. There are a number of different factors that support that.
uh,
We're doing a better job of execution. I think the value proposition is being more appreciated. The difference is in...
Uh, cost of owning versus renting, is 1 of the contributing factors. Um, over time we would expect to be able to maintain that. That's that's kind of our long-term goal. And if you look at the way that the first half of the Year played out, or we moved a bunch of additional expirations into the first half and had incremental move outs, we were still able to maintain a very high level of occupancy, which is a testament to a couple of different things that the depth of the demand uh and second, our team's ability to execute turn these homes quickly and get them back up and leased up in the marketplace.
So, in the event of some, some changes in, in the for sale Marketplace, we would expect, uh, to be able to, to adjust to any impact. Um, and I would expect this to be able to preserve occupancy as well.
Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed.
Hi, thanks for taking my questions. Um, could you give us an update on resident income to rent ratios? Are you seeing resident incomes trend higher in your portfolio for new residents?
Yeah, thank you, Linda. We're really pleased with what we're seeing from our incoming residents. It seems to tick up a little bit each month.
Um, or each quarter, I guess. Uh, but our ratios are still very strong, uh, income to rent and access of 5 times.
And uh we've seen stated household income for movements in in Q2 accelerate past the 150,000 household, Mark that we talked about last quarter. Uh, and at the same time credit scores are are still remaining strong. So we're very pleased with with the level of income uh, and the strength of the incoming residents.
6. And what would be the potential impacts on AMH's portfolio?
Yeah, in terms of, predicting the likelihood, that's a difficult 1, but in the event that it this does, or when it does, I think it's good for everything. I think a healthy, uh, housing market is positive across the board. It's positive to the economy, um, specific to our business. I think, you probably see a change in some of the homes that are currently being offered to for rent. Some of the Shadow Supply that that has, uh, peaked in in, uh, some of the Texas Market as, as an example. So, there are some benefits from that side. Uh, increase activity is good. Our ability to process move outs, um, and release these homes into a very deep level of demand gives us confidence that we can preserve um the occupancy. And and you know, we expect uh, with with the affordability Gap too, to be able to continue to have pricing power
Thank you.
Thank you. Our next question comes from the line of Brad Hefner with RBC Capital Markets. Please proceed.
Yeah. Hi, everybody. Thanks. Um, on the acquisition front, you talked about home builders already, but I was wondering if you could talk through what you're seeing, either on portfolio deals or for scattered sales as well.
Yeah, sure. Good morning. Brad Chris here. Um, you know, look on on the portfolio side for starters, it not a lot uh, to talk about on on the, on the scattered side side, but on portfolios. Um, you know, definitely something that we watch very closely. Um, you know, we're we're very optimistic on the number of assembled portfolios that we know are, are out there. Um, and, you know, no different than we've talked about before. What we especially, like about those opportunities is the potential to uniquely unlock value by bringing those those portfolios onto our platform. Uh, just like we're, we're currently doing with the portfolio. We acquired in in the fourth quarter. Um, you know, in terms of, you know, activity out there, I think we shared this before. Um, you know, there was a number of of discussions and dialogues more broadly going on out there in in the the market kind of end of of 24 heading into 25. It does feel uh like a number of those have kind of slowed down just given some of the uncertainty in the environment.
But we know that those assembled portfolios are out there. Ultimately, they're they're going to need exit and liquidity and, you know, us and our platform provide a very valuable solution. Uh, for them, you know, we can cast a a nice broad net given the diversification of uh, our portfolio. Uh, and like we talked about uh a couple of questions ago. Um, great capacity off of the balance sheet, uh, in terms of Leverage capacity. Um, and yeah, I think we're very optimistic.
On those types of opportunities. But I would remind everyone uh that we are also very disciplined on on the buy box. Um but for the right opportunities uh we're we're very bullish on them.
Okay, got it, thank you. Um, and then I was wondering if you could talk about what you're seeing on the land side. The lots under control seem to go down every quarter, so I'm wondering, is that just a reflection of land pricing being unattractive, or are you trying to resize the book there?
Yeah, thanks. Brad.
On the land side. What you're seeing with with the the decrease in the in the pipeline is really by by design a few years ago, we had a very robust pipeline, we felt it was a great luxury coming into all the different changes that we're seeing in the marketplace. Uh, but the size of it today is, is more appropriate for our expectations on kind of delivery pace of the 2300 or so per year. Um, there's been some optimization of of that pipeline um but it sits at a at a healthy level today in terms of what the the land market looks like, it's it's been surprisingly resilient from from pricing perspective but some observations on the ground. Uh for us are we're we're seeing more deals of the higher quality uh land opportunities.
Before.
Last few quarters, I would say, could be characterized by maybe tertiary locations slightly inferior. We're starting to see better quality, and we're also seeing an increased willingness from the sellers on flexibility.
For the stage of delivery, and what I mean by that is, is what stage in terms of horizontal development that these lots are going to be delivered to us. So, there has been some change on that side, which we're happy about. Um, going forward, at this point in the near term, we're going to be replenishing based on deliveries to kind of maintain that healthy level, where it sits now.
Our next question comes from the line of Jesse Letterman with Zelman and Associates. Please proceed.
Hey, thanks for taking the question. I have another question on the land market. Obviously, homebuilders of late have been focused on tying up land via option. I'm curious about your appetite for that. For example, on deals that you've tied up over the last few years, with the for-sale market slowing, presumably, if you had them tied up via option, you’d have the ability to go back and renegotiate, which could be a solid tail end relative to your underwriting at that time. So, I'm curious about your thoughts on that vis-à-vis buying them outright?
Yeah, thanks, Jesse. We're, we're flexible lacrosse, really all all options. In terms of how we take down, take down land. Um, we've, we have agreements where we have flexibility, we have some, uh, as I said earlier, in my previous remarks, it may be more developed to finish, Lots or, or are coming back to the marketplace that something we haven't seen in a long time. Uh, we're very flexible and entrepreneurial, and I'm really trying to find the best way to get the best real estate the best land, uh, as quickly as we can and and to vertical and and ultimately producing homes. So our team is very creative. I we've talked about it in the past the, the the team has a very extensive public Home Building uh, experience and expertise on exactly how to structure.
These land deals, um, and they're doing a very good job of that. One other interesting point on the land side, um, that we're seeing a slight change in is...
We have been in discussions for finished lot takedowns from some of the homeowners and some of the land developers, and those opportunities didn't exist, um, you know, 2 or 3 quarters ago.
So anyway all options are in play, but uh it's 1 of the benefits of of controlling the the entire um Department, uh, the full vertical. And, you know, we look forward to to optimizing that too. And and Jesse you you you may recall, we we've been active on on the optioning front, over the past couple of years, we've had, you know, thousand 2,000 losses. So option over the last couple of years, definitely a, a valuable tool, um, that that we've used. Uh, also as as I'm sure, you know, um, option in capital is is expensive, right? You know, average option in capital is is double digits, plus these days. So as as, as you know, Brian's point is, we're looking at everything that's out there. Um, you know, commonly that the math can skew in favor of the balance sheet, just given relative cost of capital Delta, but it's definitely something that we've used in the past and continue to watch very closely.
Thank you. Our next question comes from the line of Osama with Deutsche Bank. Please proceed.
Uh, yes, good afternoon everyone, and congrats on the solid quarter. I just wanted to ask on the regulatory front, whether at the federal, state, or local level, anything that's kind of bubbling up that you guys are watching and that, uh, maybe investors should be aware of.
I think so. We're paying very close attention to what's happening at the local, state, and federal levels.
Uh, we don't have any, you know, really new to report. Um, there's been some favorable developments. We talked about them in the past. Last year, there was some very favorable anti-rust passenger legislation that was passed.
And on the flip side, I think everyone's aware of some of the changes in Washington state that we talked about on our last call. But since then, nothing, nothing really.
New to note, other than the fact that internally we're very invested in our Government Affairs program and our strategy of making sure we get the word out, that AMH in particular is part of the housing solution. We're bringing new supply into the marketplace.
That, uh, helps to address this housing shortage. Um, and I think we're doing a better job of getting the word out, but we still have a long way to go.
Great. Thank you.
Thanks Ty.
Thank you. Our next question comes from Jade Ramani with KBW. Please proceed.
To the segment. That would also be helpful. Thanks.
Hi Jason. Yep. Senior housing is something that we've we've talked about from time to time. Um, over the last decade, there's a couple of points that I think are important. Um, as I, as I mentioned earlier, on, on the call,
We have so much opportunity with what we're doing. Um, just staying close to the core AM8 strategy.
And although, senior housing make might be something that we that we look at in the future. Um, there's nothing kind of uh in in the near term that that we're going to be we're going to be acting on on that side uh in terms of the data, the demographic data of our resident base
Um, we haven't looked at um exact breakdown by by different age cohort. The the interesting part um that we track those for the incoming residents. The average age of those households is is 38 and it's been relatively consistent for for a long period of time. Um, so there might be might be a gap between that and, and the senior housing question,
Got it. Thank you. And then, separately, do you see the company holding a similar amount of land under development as a percentage of assets over the long term, as to what's currently on the balance sheet?
Yeah, this is Chris, we're we're in the right area. Uh, as Brian mentioned, the land pipeline in general, uh, has matured, uh, very nicely. Uh, and as we think about that, as a percentage of the balance sheet, you know, we've been very vocal from the start, um, that we are committed to maintaining all things development land and in process construction to a single digit percentage of the balance sheet, uh, which which I do not expect to uh, to to see changing going forward.
Great. Thank you.
Thank you. Our last question.
With KeyBank Capital Markets, please proceed.
Great, thanks. Um, on the lease expiration optimization, what do you think the free cash flow benefit from your recent efforts is, and what does that value creation potential look like? And why have you guys spent a lot of time discussing the seasonal impact in the back half of the year? I guess, how should we think about then the seasonal ramp into the spring and early summer versus what that looks like historically?
Yeah. Thanks Austin. You know, from a high level perspective, the, the lease expiration management initiative is is really wrapped into the way that we're we're optimizing Revenue as, as a, as a company. Uh, we see benefits on the occupancy side, uh, clearly on the right side because of taking
Better environments. Uh, it's really an example of of a lot of the things that we're doing to to optimize the the the entire Revenue line in terms of of putting a an exact figure on on and quantifying the current benefit that'd be difficult to do but it's wrapped into a larger initiative that is going to give us you know really good uh momentum for for years to come
Yeah, a couple of other nice benefits just so you're aware, you know, as you think about the shifting of leasing to the front, half of the Year 1, it gives us um, increased visibility uh, to leasing's present activity earlier in the year to uh it increases the proportion of of new leasing opportunities. We can capture in the in these, uh, strength of spring. And then 3, it, it, minimizes or it lessens the proportion of new leases, uh, being captured in the slower back, half of the year, which will favorably, translate into earn in effect into the following year as well. So holistically great win-win program, all the way around.
Yeah, no, it makes a lot of sense, I, I guess. Do you think while it hasn't necessarily translated into improving retention, does it drive down that days to resonate because of the the, you know, the traffic that you see during that, you know, window early in the year,
Oh, over time, that's definitely part of the expectation, right? We're taking back vacant units during the strength of the spring leasing season, which, over time, our expectation is that this should, on the margin, be benefiting days to re-resident.
Can you remind us what the days to resonance are for you guys? You know, as you’re currently standing, so we can think about it over time. Thanks.
Yeah, sure. It varies over the course of the year. If you want to think about the second quarter, it's in the low 40s or so days to re-resident, which is fairly similar year over year.
Thank you. There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks.
Time today. We really appreciate the continued interest in AMH and look forward to speaking with you next quarter.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.