American Homes 4 Rent

Greetings and welcome to the AMH fourth quarter 2023 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 conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Fromm, Director of Investor Relations. Thank you. you may begin.

Good morning. Thank you for joining us for our fourth quarter 2023 earnings conference call. With me today are David Stinklin, Chief Executive Officer, Brian Smith, Chief Operating Officer, and Chris Lau, Chief Financial Officer. Please be advised that this call may include forward-looking statements. All statements other than statements of historical fact 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 our filings with the SEC. All forward-looking statements speak only as of today, February 23rd, 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 as required by law. A reconciliation of GAAP to non-GAAP financial measures is included in our earnings release and supplemental information package. As a note, Our operating and financial results, including gap and non-gap 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.amh.com. With that, I will turn the call over to our CEO, David Singlin.

Thank you, Nick. Good morning, everyone, and thank you for joining us today. As you may have seen in last night's press release, I announced my intent to retire at the end of the year. It has been an honor to lead this company over the past 12 years, and I cannot be more proud of the leadership team we have in place who are ready to take the reign. I want to congratulate Brian Smith, our Chief Operating Officer, who is named to be our next Chief Executive Officer upon my retirement. Brian is a talented and experienced executive who has driven our business strategy and operations since the beginning. Additionally, we have elevated Chris Lau to the role of Senior Executive Vice President and Chief Financial Officer. I know with this highly talented management team, AMH stands ready to seize the opportunities ahead. Now I will provide some brief comments before I turn the call over to Brian and Chris. 2023 marked another year of resilient and durable growth at AMH. For the full year, core FFO per share grew nearly 8%, driven by sustained long-term rental demand, superior operational execution supported by our strategic initiatives, and consistent production out of our development program. The single-family rental sector and the AMH platform continue to benefit from supply, demand, and balances. The national housing shortage, driven by limited homes for purchase in the open market, has created challenging home affordability dynamics for homebuyers. AMH is doing its part to solve this housing shortage. We are adding new supply to the market and offering high-quality assets in desirable family-friendly locations at a significant discount to the cost of ownership. We are well positioned to deliver consistent results for years to come. On the growth front, Our primary growth channel is internally developed homes that are well-located, of high quality, and have superior maintenance CapEx profiles as compared to our legacy portfolio. Having full control of the growth program allows us to dial up or dial down our delivery pace in certain markets to appropriately manage our capital plan. Our traditional and national builder acquisition channels continue to be largely on pause given our current cost of capital. When these acquisition opportunities become more attractive, we will be ready to quickly capitalize and supplement our in-house development deliveries. While the acquisition and capital market environments are not conducive to accretive growth from the MLS or national builder channels, it does continue to be a great time to lean into dispositions. The single family rental asset class has the unique ability to be managed on an asset by asset level. which provides the ability to recycle capital at a track with economics. On a personal note, it is bittersweet leaving AMH where I co-founded the company and had a hand in building the SFR industry and team from top to bottom. I am proud that AMH is well positioned to continue our success in delivering high quality housing to our residents and superior returns to our investors. I will see many of you over the next 10 months, but I know after I retire, I will miss the people I work with within and outside the AMH community. I am eternally grateful for those relationships that have been created. And now I will turn the call over to Brian for an update on our operations. Thank you, Dave.

I'm excited to have the opportunity to be the next CEO of AMH. Over the next 10 months, Dave, Chris and I will work together to ensure a smooth and seamless transition. Our strategy remains the same with stability, consistency and predictability at the center. On a personal note, I want to congratulate Dave on his planned retirement. Dave, thank you for your leadership, your mentorship and your friendship. I'm honored to follow in your footsteps. 2023 was another great year at AMH, characterized by strong execution from our teams and the full return of seasonality. Demand remains strong as we approach the spring leasing season. And although some metrics have normalized, we continue to see improvements in key areas, such as website traffic, which was up 11% year over year in the fourth quarter. Moving on to fourth quarter operating results, same home average occupied days was 96.2%, representing normal seasonal effects and slightly elevated turnover. This modest decline in occupancy was balanced by strong fourth quarter new, renewal, and blended rate growth of 4.5%, 6.2%, and 5.7% respectively. All of this drove 5.5% same-home core revenue growth for the quarter, meeting the midpoint of our full-year revenue guide of 6.5%. Turning to expenses, Fourth quarter core operating expense growth was 4.5%, primarily driven by negative property tax growth due to a true up in the same period of last year. For the full year, core operating expense growth was 9.1%, which was slightly below the midpoint of our expectations due to better than expected controllable expenses. All of this resulted in 6% and 5.1% same home core NOI growth for the fourth quarter and full year respectively. Turning to our 2024 outlook, the year is off to a steady start as we head into spring leasing season. For the month of January, same home average occupied days was 96%, and new and renewal spreads were 4.3% and 5.7% respectively. This resulted in blended rate growth of 5.3% for the month. On a full year basis, Our same home core revenue growth outlook is 4.75% at the midpoint. This is primarily driven by forecast growth in average monthly realized rent of 5% to 5.5%, which breaks down to an earn-in of approximately 3% from last year's leasing activity and the partial year contribution from expected 2024 spread in the high 4% area. On the occupancy front, we expect sector demand drivers to continue to fuel sustained occupancy levels in the low 96% area, which continues to be above our long-term average. Looking ahead to core property operating expenses, our 2024 same-home expense growth outlook of 6.25% at the midpoint reflects another year of elevated property taxes and inflationary impacts specific to our business. Chris will provide more details on the expense components in a moment, but I want to emphasize that overall expenses continue to moderate and our teams have done a great job keeping controllable expenses in check. Taking the midpoints of our same home revenue and core operating expense guidance, same home core NOI growth is expected to be 4% in 2024. In closing, I'm very pleased with our position as we start the year. We will continue to focus on operational execution from the core, continued commitment to providing the best possible resident experience, and responsible growth from our investment programs. With that, I'll turn the call over to Chris.

Thanks, Brian, and good morning, everyone. Before I get into my regular updates, I wanted to say thank you to Dave. Dave, I genuinely appreciate your many years of vision and mentorship, and I look forward to helping carry on the AMH legacy. Additionally, I also wanted to say congratulations to Brian, and I look forward to our next chapter. Now, turning back to my regular updates, I'll cover three areas this morning. First, a brief review of our year-end results. Second, an update on our balance sheet and recent capital markets activity. And third, I'll close with an overview of our 2024 guidance. Beginning with our operating results, we've closed out 2023 with another quarter of consistent executions. with net income attributable to common shareholders of $76.6 million, or 21 cents per diluted share, and 43 cents of core FFO per share and unit, representing 8.8% year-over-year growth. And for full year 2023, we generated net income attributable to common shareholders of $366.2 million, or $1.01 per diluted share, and $1.66 of core FFO per share and unit, which represents the high end of our most recent 2023 guidance range. From an investment standpoint, during the quarter we delivered 503 total homes from our AMH development program. This was comprised of 456 homes and 47 homes delivered to our wholly owned and joint venture portfolios, respectively. On a full year basis, we delivered a total of 2,317 AMH development properties, which was modestly better than the midpoint of our expectations. Outside of development, our traditional and national builder acquisition programs continue to remain largely on pause as we acquired just 25 homes during the quarter. On the dispositions front, we saw another quarter of solid activity, selling 241 homes at an average disposition cap rate in the mid 3% area generating $72.5 million of net proceeds. Next, I'd like to turn to our balance sheet and recent capital activity. At the end of the year, our net debt, including preferred shares to adjusted EBITDA, was 5.4 times. We had $59 million of cash available on the balance sheet, and our $1.25 billion revolving credit facility had a $90 million drawn balance. Additionally, throughout the fourth quarter and beginning of January, we sold approximately 3.7 million Class A common shares under our ATM program at an average sales price of $36.36. These sales generated total net proceeds of approximately $133 million and will be used to fund a portion of our 2024 capital plan that I'll talk more about in a couple of minutes. Additionally, last month we opportunistically took advantage of an attractive market window and proudly became the first single-family rental REIT to issue unsecured green bonds. In addition to being an important capital raise, our green bond issuance further highlights our commitment to responsible business practices and sustainable building standards. From an execution standpoint, the transaction was meaningfully oversubscribed with investor demand, which allowed us to drive attractive pricing with an all-in interest rate of 5.5% and upsize the transaction to $600 billion, which will be used to fund a portion of our 2024 capital plan. Thank you to the team for making this transaction possible and helping us set another industry milestone. Next, I'd like to share an overview of our initial 2024 guidance. For full year 2024, we expect core FFO per share and unit of $1.70 to $1.76, which at the midpoint represents year-over-year growth of 4.2%. And for the same home portfolio, at the midpoint, our expectations contemplate core revenue growth of 4.75%, which Brian discussed a few minutes ago, along with core property operating expense growth of 6.25%, driven by property tax growth in the low 7% area, which, as expected, is beginning to reflect moderation from the past few years, and 5.25% growth on all other expenses, reflecting the general inflationary environment and insurance expense growth in the high single digits based on a successful renewal campaign that becomes effective at the end of this month. In putting together our same-home portfolio revenue, and expense growth expectations, we expect 2024 same home core NOI growth of 4% at the midpoint. From an investment standpoint, as we shared last quarter, given the nature of the ongoing capital markets environment, responsible and controlled growth remains a top priority in 2024. With that in mind, we have strategically sized our 2024 investment programs to remain consistent with last year. and expect to deploy between $1.1 and $1.3 billion of total capital in 2024, adding between 2,200 and 2,400 newly constructed AMH development homes to our wholly owned and joint venture portfolios. Specifically, for our wholly owned portfolio, at the midpoint of our ranges, we expect to invest approximately $1 billion of AMH capital, consisting of $750 million for 1,900 homes added from our development program along with $250 million of combined investment into our wholly owned development pipeline, pro rata share of JV investments, and property enhancing CapEx programs. Additionally, as we talked about last year, we have two legacy securitization loans that mature during the fourth quarter of this year. As a reminder, the two securitizations have a combined principal balance of approximately $940 million with an average interest rate of 4.4% and are now freely prepayable without penalty. After the success of our January green bond offering, we recently gave notice to pay off one of our upcoming maturities by the end of the first quarter. In addition to responsibly addressing a portion of this year's maturity schedule, the payoff will unencumber approximately 4,500 properties that can now be fully reviewed by our asset management and disposition teams. respect to our remaining 2024 maturity we expect to opportunistically monitor the market for refinancing windows and have contemplated a mid-year payoff in guidance with that said we have the ability to be patient and if necessary can comfortably backstop our remaining 2024 maturity using our one and a quarter billion dollar revolving credit facility from an overall capital plan perspective taking into consideration our investment programs and securitization maturities We expect total 2024 AMH capital needs to approximate $1.9 billion that we plan to fund through a combination of retained cash flow, approximately $400 to $500 million of recycled capital from dispositions, equity capital including approximately $130 million of the ATM equity net proceeds I talked about earlier, $600 million from last month's green bond issuance, and approximately $500 million of additional capital that we plan to raise for the unsecured bond market over the course of 2024 or warehouse on a revolving credit facility if needed. Finally, as we also announced this week, given the ongoing growth in our business and taxable income, our Board of Trustees recently approved an 18% increase in our quarterly distribution to $0.26 per share. Needless to say, this is yet another testament to the strength and consistency of our platform as we continue to create value for our shareholders into this next chapter for AMH. And with that, thank you again for your time, and we'll open the call to your questions. Operator?

Thank you. And at this time, we'll conduct our question and answer session. Please note, all questioners, please limit yourselves to one question and one follow-up question for each time that you queue up. To ask a question press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two 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 star keys. One moment please while we pull for questions. Our first question comes from Juan Sanabria with BMO Capital Markets. Please say your question.

Hi, good morning. Just curious if you could talk a little bit about leasing trend expectations for 2024, assuming your guidance. If I look historically, the fourth quarter tends to be a bit below the average for the following year, given some seasonality. So just curious on some of the puts and takes assumed at the start of the year in your full year guidance for 2024?

Hi, Juan. This is Brian. Thank you for the question. As we talked about before, our objective exiting 23 was to be in a position of strength on occupancy with good momentum into January to capitalize on that real increase in demand that we typically see at the end of January into February. The beginning of the year is playing out largely as expected. We've seen great acceleration into February, and we posted some healthy rate growth numbers into January and expect a little bit of improvement, I think, into February. But for the full year, our expectation on new lease rate growth will be in the low fours and renewal rate growth to be in the 5% area, blending into a high four for 2024.

Great, thank you. And then maybe just if you could talk a little bit about bad debt, how much of the kind of COVID non-compliant is still left, and what was the prior run rate pre-COVID just to get a sense of any maybe potential conservatism in the bad debt assumptions assumed in or built into guidance for 24?

Yeah, sure. More than one. Chris here. Why don't I start and then Brian can fill in some other details of helpful But taking a step back, I would say that bad debt is really continuing to play out pretty consistent with our expectations. Fourth quarter is a good example, landing once again in the low 1% area. And as we've shared on prior calls, collections and our collection processes are essentially back to normal at this point, except that We have a number of municipalities and court systems across the country. They're still moving a little bit slower than historic norms. Uh, and, and that is the piece that continues to really hold bad debt modestly above our long-term run rate of, you know, called 80 to a hundred basis points or so. And then, you know, look at this point, we really haven't seen much change from a local court system perspective since our last update. And since that is completely out of our control, we really just can't count on it in guidance yet. And so, you know, as a result, our outlook contemplates that bad debt remains in the low 1% area or so over the course of this year. But, you know, look, I think we would love to be wrong on that assumption and potentially see some bad debt tailwind over the course of this year. We just can't count on it. And then if you'd like some mathematical context here, Hypothetically, if our bad debt returns to normal on a full year calendar basis, that would translate into about, you know, call it 30 to 40 basis points of additional same home revenue contribution.

And then one specifically in the answer to your question on COVID residents that are still within the houses. We've made really good progress on that delinquency resolution. There is a little bit left. I think it's isolated to a couple of different areas Seattle comes to mind And as well as parts of Atlanta, but again, it really is tied to local municipalities and court systems Thank you our next question comes from Jeff Spector with Bank of America Great thank you and first congratulations to Dave and Brian my first question is

If we can focus on the January new, comparing to your peer, your new rate in January came in much stronger. Can you talk about that a little bit more? Is it specific markets? What are you seeing? What could you share with us? Thanks.

Sure. Thank you, Jeff. This is Brian. We're taking a very balanced approach to our pricing and the way that we're managing the entire revenue line. We were very pleased with our January results. As I said, we were expecting a really strong return in demand. Some of the seasonality that we saw in Q4 continued into the beginning of January, but we were still able to post some really good new lease rate growth, and it's not isolated to any specific markets. A little bit of it is a testament to our diversified portfolio, but it shows Pretty good strength relative to, I think, some of the other numbers from other residential peers. Just pretty good strength across the board.

Thank you. Maybe one for Dave. Dave, if you could talk about maybe an initiative or something you're most proud of and looking forward to really focusing on over the coming months until you officially retire that maybe investors are not fully appreciating. Thank you.

Well, first of all, Jeff, thanks for your kind words at the beginning. But when I look over the last 10 years, it's been very, very rewarding to look back and see the accomplishments of building a company, building an industry. But I think at the end of the day, probably the biggest accomplishment and the biggest reward is the team that you build, the people that are around you. having time and watching their growth and being able to mentor them and see them succeed. And, you know, it's not an easy thing to step down. It is, and I don't know if there's, you know, a right time. You always want to stay doing what you're doing. You can't really step down when things aren't going well. But this just seems to be the right time. We've spent a lot of time making sure we get the right people in the right seats. We've talked about a lot more internally than externally, probably, our succession programs. And that really is leadership training at all levels throughout the company. And today seems to be the right time. We are well, well positioned. I mean, our growth prospects going forward are the stability of this company, uh everything is working very very well and the team is i mean brian is ready and chris is ready it's just it's just the right time and so uh and look i've been doing what i've been doing for a really long period of time um 12 years 13 years here i uh before this uh ran was the ceo of a publicly traded company up in canada for 10 years so It's just the right time, Jeff. So thank you for your words.

Our next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Yeah, thanks. And congrats again, Dave and Brian. I just wanted to see, maybe could you provide any February stats? I realize the month is not over here, but just trying to sort of frame out the new and the renewals. You know, I think, Brian, you said 5% or so on renewals for the year. Obviously, the first quarter is off to a good start, and I don't know what that implies as an exit rate. I'm just trying to kind of figure out kind of your level of conservatism on the pricing side. Thanks.

Sure. Yeah, thank you, Steve. As I talked about earlier, we saw a really nice acceleration of demand at the tail end of January continuing into February. There's a little bit of a lag before that translates into new leases, but February is off to a fantastic start. I would expect new and renewal leases to be a tick better in terms of rate growth over January. And the effect of that improvement in demand will probably be more obvious in the March occupancy numbers as an example. But we're off to a great start. Rate growth is steady and improving slightly. On the renewal side, there's going to be an expectation that it returns to kind of normal seasonality where the renewal strength is relative to news is strong in Q1 and Q4 with news outpacing renewals during the spring leasing season. And that's our expectation for this year.

Okay. And then maybe turning to development, Dave, I was just wondering if, you know, you could sort of frame out the 23 development and the yield, the expected yields on the 23 deliveries and, And then I know those had some challenges with supply chain and maybe the cost structures weren't the best on those homes. But, you know, what are you expecting for 24? And, you know, how are you thinking about new development yields moving forward just in light of kind of the higher rate environment and given where your stock's trading?

Yeah, well, first of all, I'm looking, let's just look at the development program in totality. I'm If you go back three, four, five years ago when we first started development, one of the things we said is that it allows us to control our own destiny and we can grow in all economic cycles. And that has really proved out today where our other growth channels, our acquisition growth channels, National Builder, MLS, are essentially closed because of the opportunity set that's out there. When you look at 2023, and the first thing I think we all have to remember is that these homes that we are delivering today, the land was acquired four or five years ago, maybe six years ago in some cases, and that's when they were underwritten. And all the yields that we are delivering are significantly greater than what we underwrote when we acquired them. In the last couple of years, Steve, you're 100% right. It's been challenging. We have seen the input cost of home building across all home builders. It's grown more than we've really seen historically ever before. With that, we've been very fortunate. We've had very strong rental rate growth alongside it, and our yields are actually, as I said, significantly greater. 2023, we talked about the hope of having a little bit of benefit tailwind as we got to the back half of the year, maybe a 5% reduction in some of the input costs. We saw a little bit of it, but not to the extent we thought we would. Homebuilding at the beginning of 2023 coming out of 2022 was pretty slow, but the homebuilders did catch some wind. through incentives and otherwise. And the demand for supplies, demand for labor went back to normal. And the benefits didn't materialize to the extent we thought they would. We got the most, the biggest benefit still happened, and that was in lumber. So today we, last year we delivered in the high fives as we underwrite. That's still 100 basis points higher than anything that we are seeing today. from national builders or MLS in our consistent underwriting between the two channels. And as we go into 2024, again, keep in mind that many of these were underwritten and acquired many years ago. Much of the product is in place, land and land improvements. And so they will be still very accretive. And I'm very, very pleased that we have them in our portfolio. But we'll be looking directly to your question. Probably high fives, maybe a little bit at six, but let's keep ourselves in the high fives at this point for deliveries in 2024.

Your next question comes from Keegan Carl with Wolf Research. Please go ahead.

Yeah, thanks for the time, guys. I guess maybe first, just on your property enhancing CapEx, it was down materially both year-over-year and sequentially. Just wondering if any of this is related to the resident 360 program or something else drove it, and then what would be a good run rate going forward?

Hi, Keegan. This is Brian. I think what you're seeing on the property enhancing CapEx is the results of our continued LVP hard surface flooring program where we're replacing carpet. We've made significant progress on that, and now homes are going into turns that have the hard service floorings. So you're going to see a little bit of a reduction on that. The other component of that is what we call revenue enhancing CapEx, which are specific upgrade projects that we're evaluating on a unit by unit basis. They're not nearly as significant, but they provide good returns on a project basis. So yeah, we've seen a reduction, I think, That probably will hold, but we're going to continue that program until we're completely out of the carpet business.

Got it. And then shifting gears, maybe one for Chris here. Just focusing on your real estate tax growth, I guess, are you doing anything differently from a forecasting perspective, just given what happened the last two years? And obviously, given legislation in Texas, just curious there, what sort of benefit you'd be expecting?

Uh, sure. Morning, Keegan. Thanks. Um, you know, look, I, I would just remind, uh, for 2023, uh, our, our expectations, uh, were, were pretty much right on, uh, and even 2022, uh, outside of the, the Texas curve ball. Um, you know, look overall, um, no different than we talked about last year, property taxes continue to play out pretty consistent with what we've been expecting. Uh, 2023 was, was in that 9% area that we started the year with in terms of our expectations. And then, you know, trend line and expectations into this year, again, very similar to some of the preliminary thoughts that we were outlining last year. Expectation is that we're going to begin to see some level of moderation as rate of home price appreciation has come off the historic highs of the past couple of years. But with that said, you know, we shared this view last year also. We're not expecting property taxes to snap back to long-term average overnight. As we know, property taxes are inherently backwards looking. And although things have cooled, there are good portions of the housing market that have remained really resilient, right? Places like Florida and Georgia continue to remain strong where we could still see property tax growth in those states, you know, in the high single digit to low double digit area, all of which has translated into this year's view in the low sevens. which again reflects moderation from the past couple of years, but we'll still likely run above our long-term run rate of 4% to 5%. But I would finish it off by saying, you know, things are very much playing out as we've been expecting.

Thank you. And our next question comes from Jamie Feldman with Wells Fargo. Please state your question.

Great. Thank you. This is Cooper Clark. I'm from Jamie. Just wondering, we've heard from your peers that BTR supply has been increasing in cities like Las Vegas and Phoenix. We appreciate the quicker absorption here when you do see pockets of supply, but wondering what markets in 2024 you would call out as higher supply where you may see slight weakness in a given quarter?

Yeah, this is Dave. Let me take a piece of this, and then maybe Brian can add. I would actually disagree with a little bit of that sentiment. We are seeing some more build-to-rent, but it's not necessarily in the core part of the city. It's much farther out in secondary and tertiary market areas. The build-to-rent, there is a lot of build-to-rent that came into the marketplace three, four years ago, whether it's from the national builders or from some type of entity. Many of those projects have been on the market. We have seen many of them for us to take them over midstream. But the location and the quality of where they are, we have decided to pass on. Likewise, there is a lot of build to rent product that is being shopped to parties like ourselves. The majority of build to rent, the idea was to build it, rent it, stabilize it and sell it and monetize it. Again, these assets are, there's a number of them that are out there and they are looking to trade. But when you look at the pricing of those, they are in the in the force. Over the last quarter, over the last year, really, we have seen every quarter, thousands and thousands of tape of properties on tapes not thousands of tapes but thousands of properties on tapes from national and local builders and when you look at them as to the quality and look at them to the pricing they're in the boards and are underwriting and they're just not an attractive opportunity the national home builders what you see the trend today is a lot of these homes that are, quote, built to rent or were identified as built to rent are now being reclassified by the national home builders as for sale or for retail sale. And that's just a statement of the evidence that it's very, very difficult to move these homes unless they're well located or they take a deep discount on them. And that's sometimes what they need to do on secondary and tertiary markets. I don't see as much build-to-rent actually trading as people may be talking about. You want to add anything to that, Brian?

Yeah, Cooper. Specifically looking at supply in certain markets, you're correct. Phoenix is one of the markets that's seeing some additional supply, not only in build-to-rent, but also in just regular way scattered sites. It's evident, I think you can see in the performance from an occupancy perspective. Phoenix has been a top performing market for the past five years, both in rate and in occupancy. But we are seeing a little bit more supply. John Burns estimates that supply is about 25% year over year in Q1. The good news for us is that we believe that will be absorbed relatively quickly. We have a fantastically well-located portfolio in Phoenix. And we see this as a temporary supply. We expect the Phoenix to return to kind of historical performance pretty quickly. Las Vegas, there has been an increase in supply in Las Vegas, specifically from Builder Rent, but our portfolio is performing very well there. And we're still seeing occupancy into the 96s. The other market really comes to note for me is San Antonio, where we've seen some increased supply as well. But as we talked about earlier, This is part of the benefit of having the well-diversified portfolio, and that we do have markets that have seen a decrease in supply, specifically in the Midwest. So we're really happy with the position that we're in now.

Great. Thank you.

Our next question comes from Eric Wolf with Citi. Please state your question.

Hey, thanks, and congrats, Dave and team. If I look back at 2023, you ended up beating your guidance by about $0.05, with around $0.02 of that coming from higher sems to underline. So I'm just curious what ended up surprising you to the upside to drive that $0.03 extra and how you're thinking about some of those blind items in 2024.

Yep, sure. I think it sounds like Nick. Morning, Nick. It's Chris here. Yeah, as we look back on 2023, I think we – you know, are really pleased with how the year ended up playing out. And also, in particular, the momentum we're carrying out of 23 into 24. I would say, you know, notable areas as we think about the outperformance from a same-home perspective. I think we did a great job on the rate side, you know, leaning into and pushing rates over the course of the year. I think we saw that especially through the spring leasing season and some of our updates at the end of the second quarter. i would say that was kind of the theme of the first half of the year and then the other piece we talked about this a lot in the second half of last year is what a great job the team did around controlling controllables controlling controllable expenses in in large part as resident 360 started to be rolled out across the portfolio we saw nice expense controls around r m and turn in the third and the fourth quarter and so i think it was really um rate growth through the spring, nice top line trajectory, balanced with tight expense controls, notably in the back half of the year and through turn season, that really translated into the outperformance last year. And as we think about this year, just taking a step back, I would remind us all that, look, it's early, right? It's early in the year. It's not lost on us that You know, there's still some economic uncertainty out there in the environment that we're thinking about this year. There's still some question marks out there across the environment. And we're going to make sure that we come out of the gate prudently at the start of this year. But I think it's very important, again, we really like the position that we're in. We exited 23 nicely. We had a great fourth quarter. And we're seeing really nice trend lines into January and February, like Brian was talking about.

That's helpful. And then the second question on your disposition guidance for the $400 to $500 million, what's assumed in terms of cap rate on those? And I'm just guessing that they're probably below the implied cap rate on your stock. So I was just curious how ATM issuance fit into your capital plan as well.

Oh, sure. Yeah, let me tie those together. You know best guess on on dispositions is that will probably see an environment fairly similar to to this past year 2023. You know, four to $500 million of sales with with dispo cap rates probably somewhere in the threes again but but look tying into the broader capital plan look I would zoom us out for a minute. And as you know, we have a large $1.9 billion capital need for this year when you take into consideration both our growth programs and securitization refinancings. And although the planned primary funding blocks for this year consist of retained cash flow, importantly, recycled capital from dispositions and debt, We're always evaluating all options. And when the stock was trading at a small discount to consensus NAV as an example, all things considered, including our relative cost of borrowing in the mid fives and the totality of this year's capital needs, a little bit of equity made sense. But again, I would remind you, we're only talking about $130 million. It's not needle moving in terms of capitalization of the company. But we think it's a very nice compliment to help round out this year's larger total capital need.

Thank you. Our next question comes from Handel Sanjusa with Mizuho Securities. Please state your question.

Hey, good morning and congratulations to both Brian and Dave. Dave, I wanted to go back to your comments on development for a moment. I wanted to understand perhaps the opportunity to maybe flex up the development deliveries this year from the current guide of $750 million. I think last year you started off with an individual guide of $650 million, and then you ended up with $850 million for full year 23. So I'm curious, kind of the opportunity and what perhaps you might want to see, and could we see potentially you flex up to, you know, a level similar to what you did last year? Thanks.

Yeah. So let's... talk about the opportunity set. First of all, we are in a really, really good place not only to be able to flex up, but also to maintain a very consistent growth program into the future. We're sitting with 12, maybe 13,000 lots right now in our inventory. And those are all in different stages of development. Some are in land and some are ready to go vertical. But that is really going to give us a very, very predictable long-term growth program for many years. We do have a couple of holes in that program, but it's very, very little. It's just a market here and a market there where maybe in the 26 or 27 unit delivery outlook, we need to plug a hole. So those are the fine tuning, and we'll take care of that. The ability to flex up is there, Handel. It's all about looking at the capital that you have. The capital that is going out from year to year, you have to look at exactly where it's going. In 23, some of that capital was going into not deliveries, but it was going into some land development preparing for deliveries either this year or next year. And so you got to look at both the numbers of homes as well as the dollars. It's not a perfect science that they correlate perfectly because sometimes there's a little bit of a timing difference between how much land development is going on versus deliveries. We do have the ability to flex up, and we have the ability to flex up more than just in development. We talked about today we're on the sidelines with National Builder and MLS. We're on the sidelines not because we won't grow through the National Builder MLS because the opportunity set's not there. It's all a function of what the capital markets look like as well as what the acquisition opportunities look like. but it's also about maintaining consistency and predictability in your growth program. So we can flex up. We've got to be careful how much we flex up. If we flex up, it can be borrowing from next year because you have to have the land developed. So I know that's a long-winded answer. That's a little bit roundabout, but hopefully that addresses your concern.

It does. It does. And I appreciate that. Maybe some comments on the backfilling of the land itself. Curious kind of what you're seeing out there in the market. Any notable changes of any sort and then potentially any new regions or markets you may want to get into or increase exposure to? Thanks.

Yeah, it's I don't know. Let's talk about markets first. I don't know that there's any additional markets that we want to get into today. uh one of the things about where our development program is is that when the opportunity was there two years ago two and a half years ago to to buy land at very attractive prices in the covid period we took advantage of that i think in one year we bought nearly eight thousand seven thousand lots or eight thousand lots we are very very well positioned going forward today land is available um but The pricing of that land, no different than the pricing of MLS right now, is a little bit on the richer side. So we're in a very, very, we're in an enviable position that we do have a land pipeline. I believe we, you know, in 2023, we bought land, but it was a very limited amount of land. It was plugging some of those holes I was talking about. in future years delivery program, 26, 27, and 28. But land will become available. We are very choosy about where we're buying our land. We're buying the land contiguous to national-owned builders where they're buying retail product, not built-to-rent product. And in the long term, that will pay dividends. But we can be patient. We can definitely be patient. That is the benefit of having the pipeline that we do have. So I'm really happy that our development program is in very good shape for many years. And there will be times that we will be able to ramp up acquisitions of land at a greater pace than we are doing. But we are plugging the holes, and it will be a very consistent program for many years regardless.

Our next question comes from Adam Kramer with Morgan Stanley. Please go ahead.

Hey, guys. Thanks for the time, and congrats to Dave and Brian. Just wanted to ask, maybe a two-parter here to start, just where does the loss to lease sit today? And then maybe, and you talked about it a little bit earlier, Brian, but just roughly where are you sending out renewals for, I guess, for March and April at this point?

Thanks, Adam. Our loss to lease is sitting in the low 3% range today. In terms of renewals, we're sending out renewals, well, February and March, we've gotten many of those results back already. And those are trending slightly better than January. We're sending out renewals in the 5% to 6% range into April. And again, as we talked about, our expectation for the year is renewals would be in the 5% area for the 12 months.

Great, thanks. Maybe just switching gears and a little bit more of a conceptual question. Just wondering on acquisitions, it seems like it's kind of not being incorporated into guidance. I think you kind of bought a little bit here and there over the course of 2023. And I guess the conceptual question is, you know, look, if the acquisition market, whether it's MLS or builder partners, were to come back and be more attractive, would you consider that? Or is kind of the full focus on development kind of given the given all the advantages that that program has, and you'd probably stick to development even if the acquisition market came back. And then I guess, you know, if you were to kind of, you know, go back into acquisitions more because that market did improve, you know, do you kind of have the G&A scale and kind of ability to flex that acquisition kind of spigot back on? Yeah.

So, Adam, this is Dave. Absolutely. We're not opposed to National Builder and MLS. We look at them as a wonderful supplement to our development program. Our development program, what we have said over and over, is it allows us to grow in every economic cycle, and that's what is today. But it doesn't mean that we're opposed to the National Builder and MLS program. Today, we still have a acquisition team. They continue to underwrite homes every single day, whether it's from National Builders or MLS. The MLS, as we know, has a lot less inventory available on it, but we do underwrite it, and we're underwriting thousands of homes every month and every quarter. We're just not finding them attractive today. As As time goes on and cycles, if you go back and you look at where we are today, it's probably very akin to history. We have to go back a long ways, though, probably to the 1980s when you saw the very, very rapid increases in interest rates, et cetera. But those cycles always repeat, and there will be a time when it is going to be very, very attractive to buy any type of product. against your cost of capital. And yes, we have the entire infrastructure in place. It's not only in place in the acquisition side, it's also in place in Brian's management side of the business. So any opportunities that are out there, big or small, we have the ability to execute on them.

Our next question comes from Michael Goldsmith with UBS. Please state your question.

Good afternoon. Thanks a lot for taking my question. As you think about the equation to maximize revenue, right, lease spreads have remained quite strong. Occupancy has kind of come down a little bit from a sequential on a year over year basis. Can you just provide a little more detail around the strategy around occupancy versus pushing rate? And did that allow you to push rate a little bit harder than maybe you have in prior years?

Yeah, thank you, Michael. I want to just start with a reminder that we're trying to optimize the entire revenue line. And rate obviously is a component that does affect occupancy. Our plan this year was to enter from a position of strength. 96% occupancy is strong both under any historical lens that you look at. And our expectation as we go into the spring leasing season is that we will have some pricing power. We look forward to absorbing some homes and maybe a slightly better rate environment. But we had really good rate growth on new and renewals in Q4, continued into January. And keep in mind, that's before the demand is really going to kick back in. So we're in an excellent position coming in there. But we're not looking at any individual component in isolation. We're looking at maintaining a very balanced and consistent pricing strategy for the residents that maximizes revenue in the long term.

Thanks for that. And then similarly, turn turnovers kind of turning up a tad. You know, I suspect that's kind of goes hand in hand with with rate. Are you seeing any pushback from residents on renewal rents?

Yeah, Michael, there's there's a couple of components there. You identified one of them. The other one was the return to seasonality that we talked about in Q4. What we're seeing right now is a little bit of negotiation from the rates that we're mailing to the ones that are signed. You can think of the negotiation band somewhere in the 30 basis point range, so it's not huge. But we're having really high-quality assets that are well-located, and we're finding really good value that the residents are appreciating.

Thank you very much.

Our next question comes from Brad Heffern with RBC Capital Markets. Please state your question.

Hey, everyone. Thanks. I was wondering if you could provide some data on move outs to buy a home. Where have they been recently and where does that sit versus historical levels?

Sure. Thanks, Brad. This is Brian. As expected, we have seen a decrease in the proportion of our residents who are moving out to buy. In Q4, it was under 30% for the first time that I can remember. And it continues to tick down just a little bit into January, into the 28% range. Historically, that's run mid-30s. So it is a decrease, but it still is the major reason for, or major destination for our residents who move out.

Okay. And sort of related, can you talk about what the expectation is in guidance for how turnover trends in 2024?

Yeah, the right way to think about it, Brad, is it's a factor into occupancy. I would also think about it in terms of, you know, full year recall is really the return of seasonality that we started to see into late second quarter, third quarter in the back half of the year. So when we're comping on a full year over year basis, it'll probably see a slight uptick in turnover full year, but really more representative of kind of the return to normal seasonality, kind of post-COVID environment that we settled into in the back part of 2023, and all contemplated in this year's occupancy guide in the low 96s.

Thank you. Our next question comes from Linda Tsai with Jefferies. Please state your question.

Hi. I'm not sure if you answered this, but is there any further color on the occupancy guidance? I'm just wondering why that would stay relatively flattish from where you are today when, you know, overall demand seems pretty solid and you aren't really being impacted by new supply.

Hi, Linda. This is Brian. We posted occupancy of 96% in January, and our expectation for the year is a low 96%, so we are expecting to have some absorption. really think about it in terms of what Chris just spoke about in that we saw a return to seasonality, and our expectation is that seasonality will persist this year. So the end of the year may have a little bit of a rebalance after the heavy spring leasing season.

Thanks. And then my second question is just on the negotiation range of 30 BIPs, which isn't that high, how much does that usually trend and does that change a lot depending on, you know, what part of the year you're in?

There's not a huge amount of seasonal variability there. A lot of it has to do with the fact that our offers are fair and they work well in the context of what's being offered for release in the marketplace at that specific time. Historically, if you go back to pre-COVID periods, it was probably a little bit tighter in the 10 basis point range. We've expanded it a little bit just in light of everything that's happening in the world. But yeah, it is still pretty close and we're comfortable at that range.

Thank you. Our next question comes from Jesse Letterman with Zellman & Associates. Please state your question.

Hey, thanks for taking my question, and congrats on the retirement, Dave, and congrats to Brian and Chris on the new roles. My first question is just on February, and it's great to hear things have improved a little bit from January. How would you say the improvement feels on pricing power specifically in February and maybe what you're expecting in March compared to you know, kind of the normal seasonal lift, maybe when seasonality was more of a thing pre-COVID to start the year?

Yeah, thanks, Jesse. It's playing out largely as we expected. The acceleration of demand end of January is really driving excellent results in February. February is not done yet, but we expected to enter the year in a good position. 96% occupancy is certainly that So we can push pricing as we accelerate into the spring leasing season.

Great. My second question is kind of on your development pipeline. And it seems like your development pipeline as a percentage of gross assets has inched higher here over the last couple of years. And more recently, presumably, as other acquisition and growth avenues dry up. On the current trajectory, it looks like it might reach your 10% target that you've talked about. How do you think about that going forward? Have you rethought about the target, or are there any things you can do to keep that in a range you're comfortable with? Thanks.

No, it's a very astute observation. That is one of a number of things that we look at in sizing the entire program. And so we want to make sure that the risk profile of our company remains the way it's been from day one, that we don't change the risk profile. The company is primarily 100% a rental company. And that's what we want to maintain the balance sheet looking at. We also want to have enough, it's a balancing program. We want to have an adequate pipeline. to be able to have future growth in all economic cycles, as we've talked about previously. And I think we have found a balance. I think where we are is kind of where we need to be. But we will flex up at times when there is unique opportunities. Right now, the program is that acquisitions of land and of existing assets is very difficult. So we're in a very, very good place, but we do consider that, the balance sheet. We consider the capital markets. We consider the shape and the look of our pipeline as we are structuring our development program from period to period.

Thank you. And our next question comes from Austin Verschmidt with KeyBank Capital and Markets. Please state your question.

Great. Thanks. How does the low 3% loss to lease compare to historical levels for this time of year? And on those renewals that you said you achieved for Feb and March, it sounds like you're fairly wrapped up for those months. How is that acceptance rates, the acceptance rate trended relative to what you've seen also, I guess, over kind of this time of year?

Yeah, thanks, Austin. The low... 3% loss to lease that we see currently. Obviously, it's been a little different the past couple of years with the massive acceleration in new lease rate growth. Our current position, though, is a testament to our revenue management team and the ability that we've shown to be able to recapture some of that. Low 3% this time of year I think is a very healthy position. Keep in mind there's going to be seasonal variability to that as we get into the spring leasing season. new leases tend to accelerate pretty heavily at that point, which would cause a change in that loss to lease number with the rest of the portfolio. And then looking forward to the results from February and March. They're not done yet, but we've seen retention as expected. Probably a better visibility into February than we do into March, but it's really playing out as planned.

And then just anything on the rent-to-income ratio as you kind of

get a little bit maybe at the margin you know greater pushback than what you've historically seen anything on that rent to income ratio that's stretching um above levels that you know leads you to dial back the rent increases at any point no in fact we've been really pleased with the fact that incomes have kept pace with with changes in rent certainly from our applicant pool um that's been uh some something that we've seen you know even the past three four years as rents have accelerated greatly the health of our incoming residents is very strong.

Thank you. And our next question comes from Tayo Okusanya with Deutsche Bank. Please state your question.

Hi, yes, good afternoon. Again, congrats Dave and Brian as well as Chris. My question is around just some of the SFR legislation that's out there, the anti-SFR legislation. Wondering if you can kind of give us an update on kind of what you're hearing about some of this legislation, possibility of it, you know, kind of moving forward in Congress on a federal level or even some of the things that are happening in any states that you have exposure to.

Yeah. This is Dave, and thanks for your first comments. Legislation, regulation, hasn't that been the story for 12 years that we have dealt with? It just keeps changing shape. from year to year. Let's keep in mind where we are. We're in an election year, and there's going to be a lot of rhetoric out there. And what we have seen in the past is that there's been a lot of talk about a lot of different regulations, and very few of them have reached a finish line, especially at the federal level. With that said, all of that rhetoric does get heard, gets heard at the local levels. And this is where having a robust government affairs function and getting in front of it and having the relationships at both the federal and the local levels is very, very important. And we have invested a lot into that program. We will always, always have rhetoric out there around this. At the end of the day, the one thing that I think you will see with American homes is we have always been fair. We have always been thoughtful in how we have treated people. At the end of the day, that's what's important. And we are part of the housing solution here. We are building homes. And the reason that there's so much rhetoric around regulations is the fact that housing is very expensive. Housing now is approaching 40% of many households' income. That's up from low 30s. But the problem isn't the providers of housing. The problem here is that we don't have enough housing. We have a housing shortage. And that has to be dealt with. And that needs to be dealt with by actually relaxing some regulations and providing incentives to people to create the housing necessary to house Americans in this country. And so, yeah, it's out there. I don't see it any different. I do think it's a little bit ramped up on the rhetoric side, but that really ties to the fact we're in an election year. And let's keep that in mind where we are in the cycle.

Fair enough. Thank you.

Thank you, Taya. Thank you. There are no further questions at this time. I would like to turn the floor back over to David Singlin for closing remarks.

Well, thank you to all of you for participating today. But just from my perspective, Thank you for your support over the past 12 years. Over the next 10 months, I will be out with Brian and Chris, hopefully meeting many of you, and I look forward to that as we transition the role to Brian of the CEO. So have a good day, and we'll see you over the course of the year. Take care. Bye-bye.

Thank you. This concludes today's conference on Parties May Disconnect. Have a good day.