American Homes 4 Rent

Greetings and welcome to the American Homes for Rent first quarter 2021 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. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Anne McGinnis, Manager of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for our first quarter 2021 earnings conference call. I am 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 facts, included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that suggest 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, May 7th, 2021. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. A reconciliation to GAAP of the non-GAAP financial measures we are providing on this call is included in our press release and supplemental information package. As a note, our operating and financial results, including GAAP and non-GAAP measures, are fully detailed in our earnings review 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 AmericanHomesForRent.com. With that, I will turn the call over to our CEO, David Singlet.

Thank you, Anne. Good morning, and thank you for joining us today. Not long ago, we reported year-end results and told you that 2021 was off to a strong start. I'm pleased to share that this positive momentum continues. Demand continues to be at record levels and remains central to our success story. The durability of demand tailwind, especially when considering the undersupply of housing, is based on the following three factors. First, residents are more aware of and appreciate the value proposition of professionally managed single-family rentals. Residents and prospective residents' perception of single-family rentals has changed much over the past 10 years. Our high-quality Class A rental homes are convenient to access with a leasing process that is automated and easy to navigate. Our homes contribute positively to the appeal and character of local communities and bring stability to their neighborhoods. And through our superior property management platform, we are delivering an exceptional resident experience that is creating a newfound appreciation for professionally managed single-family rental homes. Given that institutional landlords currently account for less than 2% of the single-family rental market, our market opportunity is vast and ever increasing based on rising rental demand. Second, housing is undersupplied by a large margin. More and more families with school-age children are choosing to rent single-family homes, even if they can afford to buy. According to a recent study by Freddie Mac, the U.S. housing supply is nearly 4 million homes short of what is needed to meet current demand. Through our development program, American Homes for Rent is part of the solution by providing new, high-quality homes in vibrant, well-located neighborhoods with quality schools. Third, we are in strong growth markets with strong rental demand. Demand for single-family rental homes has been on the rise for many years. Our homes are well located where people want to live, in markets with employment and population growth that outpaces the national average. As a result, we are experiencing exceptional growth in markets ranging from Phoenix, Las Vegas, and Salt Lake City in the West. to Charlotte and Tampa in the east, and we expect these favorable demographics to continue. We are capitalizing on demand tailwinds. Our occupancy remains above 97% while we record a record high rental rate growth and strong collection. Our AMH development team continues to execute on its delivery plans, and land acquisition opportunities have improved since our last earnings call. Brian and Jack will provide more details on the quarter. Last quarter, I told you about our commitment to grow, grow, grow. Through our three-pronged strategy that includes our AMH development program, our national builder program, and our traditional acquisition channel. Our strategy remains the same. And though it's still early in the year, we're seeing an uptick in inbound inquiries for land acquisition opportunities. As such, today we control more than 11,000 lots, already at the low end of our 2021 goal of ending the year with 11,000 to 13,000 lots. Therefore, we now expect to end the year near the top end of this range. Our flexible balance sheet continues to fuel our growth. We recently announced the recast of our credit facility upsize from our existing facility to support our focus on external growth. This new facility includes an ESG component that underscores American Homes for Rent's commitment to sustainability and found ESG principles. And yesterday, we provided notice of our intent to call our Series D and Series D preferred shares later this quarter. Chris will provide additional details on our redemption plans later on today's call. Our plans for 2021 reflect impressive growth, and I'm proud of our team's execution. I'm bullish on our future and on our growth plans as we enhance our leadership position in the industry by continuing to provide high-quality homes in growing neighborhoods across America. Now, I'll turn the call over to Brian for more details on operations. Brian? Thank you, Dave. 2021 is off to a great start. On the demand side, we continue to see the same shifts in demographic trends and consumer preferences that we've been highlighting for almost a year. Millennials are aging, getting married and growing their families, driving the need for single family homes in our markets during a time where we are experiencing dramatic supply shortages. Additionally, people have more flexibility to make housing decisions that aren't closely tied to the location of an office. And most importantly, our residents appreciate our high-quality rental homes and the customer service they receive from our professional property management team. Together, these trends combined to drive an 85% increase in showings per rent-ready property in the first quarter of 2021. Portfolio-wide, our teams continue to execute at a high level. We are turning homes efficiently in order to meet the seemingly insatiable demand in our markets. Additionally, our best-in-class customer service and relentless focus on the resident experience has underscored our brand reputation as the preferred landlord. Turning to the first quarter, our ability to capture this exceptional demand translated into outstanding results. Same-home average occupied days remained above 97%, and rental rate growth continued to accelerate with new lease rate growth of 10% and renewal rate growth of 5.1%, blending to an overall growth rate of 6.9% for the quarter. This record rate growth is attributable to excellent execution from our pricing and field teams and the fact that our homes are ideally located in highly desirable markets. which are characterized by strong job and population growth. On the collections front, our resident base continues to be resilient. Our collection levels remain consistent with past pandemic quarters, which is a testament to our team's efforts and tireless work with residents. Despite these trends, collections continue to carry a level of uncertainty, particularly as a result of the current regulatory environment. Looking to April, Our record-breaking momentum continued in occupancy and rate growth. Same home average occupied days for the month was 97.7%, and new lease and renewal rate growth were 12% and 5%, respectively, which blends to a growth rate of over 7.5%. Because of these strong results and our momentum heading into May, we've increased the midpoint of our same home core revenue guidance by 25 basis points to 4.25%. This increase primarily reflects our improved view on full-year occupancy. In closing, I would like to thank our team for their continued dedication and hard work. We are well-positioned to deliver exceptional operating results as we enter this busy spring leasing season. Now I will turn the call over to Jack. Thank you, Brian, and good morning, everyone. As growth remains the top strategic priority for American Homes for Rent, our experienced teams continue to deliver consistently and efficiently. Most importantly, our AMH development program provides a predictable and growing production cadence that anchors our growth programs and provides for portfolio expansion for the foreseeable future. This growth positions us uniquely to help address the ongoing national shortage of housing satisfy the demand for rental housing brought on by changing home practices and population migration, and grow more predictably and accretively than our other growth channels. Additionally, our AMH development program is unique in its ability to be flexible and adaptive to market conditions. From a land perspective, our diversified footprint and our flexibility in project size positions us to sharpshoot land opportunities quickly. As Dave mentioned, as we continue to demonstrate our success in meeting market demand, we are receiving more inbound calls today with land opportunities suitable for our built to rent homes. With the current pipeline of more than 11,000 lots owned or controlled, and with the goal of controlling 11 to 13,000 lots by the end of the year, we are laying the foundation for sustained growth. To take it one step further, Using our average four- to five-year development timeline, this foundation translates into an expected annual delivery cadence of 3,000 to 4,000 homes by the time we get to 2023. From a labor perspective, our predictable production cadence allows us to leverage our long-term relationships with trades for priority pricing and scheduling. Although the cost of lumber has nearly tripled, it represents a modest increase in our cost to build a home in the 6% to 7% range. With rising rental rates, we have been able to maintain yields on delivered homes consistent with our underwriting in the 6% range. For our national builder and traditional channels, to date, we remain in line with expectations we outlined in our 2021 guidance last quarter. However, we're beginning to see increased opportunities within our buy box. And finally, regarding our outlook for the year, our investment plan remains on track. Our highly skilled teams of development and acquisition professionals continue to cultivate and deliver attractive, high quality assets to our portfolio. In summary, I am proud of our execution so far in 2021. We continue to take advantage of the differentiation from a one-of-a-kind AMH development program supported by our best-in-class balance sheet. And we remain optimistic that we can deliver sustained and accretive growth into the future. Now I will turn the call over to Chris. Thanks, Jack, and good morning, everyone. I'll cover three areas in my comments today. First, a brief review of our quarterly results Second, an update on our balance sheet and capital markets activity. And third, a close of the summary of recent updates to our 2021 guidance. Starting off with our results, we reported an impressively strong quarter with net income attributable to common shareholders of $30.2 million, or $0.09 per diluted share, $0.32 of core FFO per sharing unit, representing 8.5% growth over prior year, and 29 cents of adjusted FFO per shared unit, representing 8.9% growth over prior year. Underlying this quarter's strength was the continuation of our record-breaking demand trend that Brian discussed, which drove another strong performance in our same-home portfolio, where we generated 5.6% growth in rental revenues, which was further benefited by 30 basis points of contribution from higher fees and partially offset by 190 basis points of drag from COVID-related bad debt, translating into an overall 4% core revenue growth. Coupled with a 4% increase in core property operating expenses, this translated into core NOI growth of 4%. However, normalizing for COVID-related bad debts, which continue to run consistent with pandemic norms, our same home core NOI growth would have been over 7%. Turning to our portfolio activity for the quarter, our external growth programs executed right on track, adding a total of 683 homes to our wholly owned and joint venture portfolios, 402 of which were delivered from our AMH development program. Specifically, for our wholly owned portfolio, during the quarter, we added 580 homes for a total investment of $162 million, which was comprised of 299 homes from our AMH development program and 281 homes from our acquisition channel. And on the disposition side, we sold 180 properties during the quarter, generating total net proceeds of approximately $46 million. Next, I'd like to turn to an update on our balance sheet and recent capital markets activity. At the end of the quarter, our balance sheet remains in great shape, with a net debt to adjusted EBITDA of 4.5 times and net debt including preferred shares to adjusted EBITDA of 6 times. And as a further enhancement to our already best-in-class balance sheet, after quarter-end, we closed a recast to our existing credit facility, which increases our revolving capacity to $1.25 billion, lowers our credit facility borrowing costs, extends our credit facility maturity date to April 2026, and proudly... includes a sustainability linked feature tied to our ESG score, which can further lower our credit facility borrowing costs and demonstrates our commitment to sound ESG principles. And on the topic of optimizing our cost of capital, yesterday evening, we announced an intent to redeem our Series B and E preferred shares that become callable throughout the remainder of the second quarter. Our Series B and E preferred shares have a combined value of nearly $500 million and an average coupon of approximately 6.4%, which when compared to our current cost of capital, provides another great example of the tremendous progress we've made over the past five years. The mix of capital used to fund the redemption of the Series B and E preferred shares will ultimately depend on market conditions. but given current pricing for all forms of capital, including preferred shares, common equity, and unsecured bonds, we anticipate that the preferred share refinancing will have at least one penny of benefit to our 2021 core FFO, which has been incorporated into our revised full-year guidance ranges. And on the topic of guidance, I'd like to highlight a few of the positive revisions that were outlined in yesterday's release. As Brian covered, Demand for single family rentals and our leasing activity has never been stronger. And although our original guidance already contemplated a robust environment, our actual leasing activity is proving to be even stronger. Taking into consideration our strong first quarter performance and the record-breaking trends heading into April, we have increased the midpoints of our same home core revenue growth expectation by 25 basis points to 4.25% for the full year, and core NOI growth expectations by 50 basis points to 4% for the full year. Additionally, taking into consideration the robust leasing environment across our entire portfolio, we have also increased the midpoint of our full year 2021 core FFO for share expectations by one penny to reflect stronger NOI contribution from both our same home and non-same home portfolios. And when combined with the anticipated refinancing benefit from that preferred shares redemption, we now expect full year 2021 for FFO per share between $1.24 and $1.30. At the midpoint of $1.27 per share, this represents an impressive year-over-year growth expectation of 9.5%. And finally, before we open the call to your questions, I'd like to reiterate our excitement looking forward. and share another big thank you to our teams. 2021 is off to a great start. Not only do we continue to produce industry-leading earnings growth, but because of your hard work and dedication, American Homes for Rent has become part of the solution to our country's massively undermet housing needs. And with that, we'll open the call to your questions. Operator? Thank you.