American Homes 4 Rent

Greetings and welcome to the American Homes for Rent fourth quarter and full year 2019 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question, press star 1 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Stephanie Heim. Please go ahead.

Good morning. Thank you for joining us for our fourth quarter and full year 2019 earnings conference call. I'm here today with David Singlin, Chief Executive Officer, Brian Smith, Chief Operating Officer, Jack Corrigan, Chief Investment Officer, and Chris Lau, Chief Financial Officer of American Homes for Rent. At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are Our forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, February 28, 2020. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our earnings press release. Other notes or operating and financial results, including GAAP and non-GAAP financial measures, are fully detailed in our earnings release and supplemental information package. You can find these documents, as well as SEC reports and the audio webcast replay of this conference call, on our website at www.americanhomesforrent.com. With that, I will turn the call over to our CEO, David Singlin.

Thank you, Stephanie, and good morning, everyone. In my comments this morning, I will first recap our 2019 objectives and related results. Then I will provide an update on the trends we're seeing in the single-family rental home industry, discuss our growth expectations for 2020, And finally, touch on our recent announcement regarding the addition of a new trustee to our board. The fourth quarter 2019 represented a strong finish to what was a fantastic year for American Homes for Rent. As we entered 2019, we talked about four objectives. Operational excellence, consistent and accretive growth, financial strength and flexibility, and superior customer service. Now, I'll highlight our successful execution against each of these objectives. First, operationally, we generated excellent results, including strong core FFO per share growth of nearly 7% and industry-leading adjusted EBITDA margins. Second, on the growth side, we accelerated our unique development program. We have built a team with extensive home building experience, find the pipeline of land, and are ready to take this to the next level in 2020. Third, our fortress balance sheet remains intact, and we ended the year at a net debt to adjusted EBITDA of 4.7 times. As we enter 2020, we expect to retain more than $300 million of annual cash flow, have a fully undrawn $800 million credit facility, and have multiple a new institutional JV. And finally, our superior customer service continues to improve as our resident surveys and our Google ratings hit their highest levels in 2019. 2019 was a great year, but it is just the beginning. From a macro perspective, single-family rental fundamentals remain strong with high demand and limited supply. We enjoyed stable occupancies, rising rental rates, and increased showings per available home. We're extremely pleased with our diversified national portfolio, where the majority of our markets are characterized by favorable cost of living and taxes. These areas are precisely those that are experiencing high levels of new population and employment growth, with many of the households and jobs moving from higher cost of living areas. In fact, population growth within our markets is more than three times the national average, which is creating demand for new rental housing. We will continue to be part of the housing solution by providing high-quality homes through our development program and traditional acquisition channels. Moving on to talk about growth expectations. Today, American Homes for Rent is uniquely positioned to pursue its growth plans through three investment channels. First, through our traditional channels of buying homes. Second, through our relationships with national home builders. And lastly, through our in-house Build for Rent development program. As we look to 2020 and beyond, these three channels provide us the ability to significantly ramp up our investment pace. Over the past three years, we created a home development infrastructure to control our long-term external growth that provides flexibility and is sustainable through all housing cycles. In fact, the success demonstrated by our initial results convinced us that our in-house development opportunity is much larger than we initially thought. This opportunity provides us high-quality assets, the best returns on investment, and homes our residents prefer. We believe AMH is uniquely able to do this for several reasons. To start with, we have an investment-grade balance sheet, strong cash flows from operations, and ready access to capital, which provides us with the confidence to make multi-year capital commitments necessary for a development program that can require multiple years from sourcing an opportunity to delivering a project. In order to take greater advantage of these opportunities in the future and to provide additional diversified options of future capital, yesterday we announced a new joint venture with institutional investors advised by JPMorgan Asset Management. This is an exciting relationship, providing us a new source of attractive long-term capital as well as another high-quality partner. Our one-of-a-kind development program is operating in 15 of our 35 markets, led by an experienced team of senior personnel with significant prior home building experience. During 2019, we doubled our land inventory, providing us a pipeline for future deliveries. Before I move on, let me share with you a few unique attributes of our development program. It starts with amenities that residents desire. in the home and in the community. Various design considerations and energy efficient and durable materials reduce future maintenance needs and costs. We believe the ability to build new rental housing that residents want at an attractive yield is a game changer for the rental home industry and the housing market. And we have a big lead in this area. Given the favorable economy and compelling demographics and the investments we have made to our platform, we start 2020 firmly in the driver's seat and ready to accelerate our growth. In other words, we're looking at a future with great opportunity, and we've only scratched the surface. This is driving our industry-leading core FFO growth per share guidance for 2020 to north of 7%. Finally, I'd like to take a moment to discuss our recent announcement regarding our new trustee. On behalf of the entire board, I welcome Matt Bates to our board of trustees. Matt was president, chief executive officer, and a member of the board of William Lyons Homes, a publicly traded national home builder that recently merged with one of his peers. Matt's appointment reflects our commitment to having trustees with strong relevant experience as well as our commitment to refreshing the board with diverse and independent perspectives. Matt's experience leading one of the largest housing developers in the United States and his in-depth knowledge of our industry will be invaluable as we expand this important growth area for our company and successfully advance our plan to further enhance shareholder value. Overall, over the past year, we have added three new independent trustees with diverse but complementary experience. Wendy Webb brings investor relations, governance, and large-scale branded real estate development experience from two decades at Disney. Jay Willoughby brings a deep investor perspective and a keen eye for shareholder value creation through his role as Chief Investment Officer of one of the nation's leading investment managers, and is a member of the Sustainability and Accounting Standards Board. And now, Matt Vase brings executive and operational leadership and home building experience to our board.