American Homes 4 Rent

Greetings and welcome to the AMH Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the 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 pleasure to introduce you to your host, Nicholas Frum, Director of Investor Relations. Thank you, Nicholas. You may begin.

Good morning. Thank you for joining us for our fourth quarter 2024 earnings conference call. With me today are Brian Smith, Chief Executive Officer, Chris Lau, Chief Financial Officer, and Lincoln Palmer, Chief Operating 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 accurate 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 21st, 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. A reconciliation of GAAP to non-GAAP financial measures is included in our earnings 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 relief 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, Brian Smith.

Thank you, Nick. Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to take a moment to express our sympathies for those impacted by the recent wildfires in California. Not only is the LA community near and dear to our hearts, but it is also home to many of our team members and one of our corporate offices. We were fortunate that there was no impact to our operations, but it's been heartbreaking to see the destruction. Today marks my first earnings call since taking over as CEO. Our consistent outperformance over the past few years within the residential sector is a direct result of our relentless focus, which will not change. Over the past decade, we have strategically created a portfolio of high quality assets in superior locations. On the growth front, we have a vertically integrated development program that allows us to accretively invest in all cycles while remaining patient and disciplined across our other growth channels. And we will lean into innovation across our entire platform, introducing industry-leading technology solutions that allow us to continue to efficiently deliver the best resident experience in our industry. Our ability to remain focused and execute on this strategy has driven outstanding results, and we continue to be well positioned for the future. From a macro perspective, the single-family residential sector continues to benefit from strong long-term fundamentals. including limited supply of quality housing, a wide affordability gap, and outsized population growth in our markets. And with our disciplined and focused approach, we expect to extend our track record of consistent outperformance within the space. The future at AMH is bright, and I, alongside our outstanding leadership team, am excited to lead this great company through the next chapter of its journey. AMH had a strong finish to 2024, capping off another year of outperformance with 6.6% growth in core FFO per share. Consistent with the year-end strategy we outlined on our last call, the teams optimized revenue and strengthened occupancy during the fourth quarter. While we typically do not focus on sequential monthly changes in occupancy and rate, the chronology over the past quarter is important. Notably, we picked up occupancy in the final two months of the quarter, which is atypical for the end of the year. We also hit an inflection point for rate in November, giving us confidence in our trajectory heading into the new year. This translated into 4% same home core revenue growth, which was in line with our expectations for the quarter and contributed to our full year core revenue growth of 5%. Turning to expenses, Core operating expense growth was 4.8% for the fourth quarter and 4.3% for the full year, reflecting excellent execution by the teams who were able to control the controllables throughout the year. In addition, we received better than expected news on the property tax front that Chris will address in a moment. All of this resulted in 3.6% and 5.3% same home core NOI growths for the fourth quarter and full year, respectively. Turning to 2025, the leasing momentum from the fourth quarter has continued through January and into February, giving us confidence for the year ahead. For the month of January, same home average occupied days was 95.6%. New lease spreads accelerated to 0.7%, while renewal growth held steady at 4.5%. This resulted in blended rate growth of 3.3% for the month. Looking ahead to the top line in 2025, our same home core revenue growth outlook is 3.5% at the midpoint on a full year basis. On the occupancy front, we expect the usual seasonal curve to play out over the course of this year, with full year average occupancy landing in the low 96% area. which is similar to last year and what we consider the normalized long-term run rate for our portfolio. On the rate front, we expect average monthly realized rent growth in the high 3% area, which breaks down to approximately a 2% earn-in from last year's leasing activity and the partial yield contribution from 2025 blended spreads expected to be in the high 3% area. Lastly, bad debt is forecasted to be in the low 1% area in 2025, which will be a modest offset to the other revenue building blocks. Chris will cover the remainder of guidance in a moment. On the investment front, development continues to be our primary growth channel. Since launching our internally managed development program in 2017, we have built over 12,000 homes in 200 communities, adding much-needed supply to the national housing stock. We are proud to be part of the solution in addressing the nation's shortage of quality housing. Similar to 2024, we plan to deliver approximately 2,300 homes in the current year. As rent growth accelerates in the spring leasing season, we expect initial yields to gradually improve, averaging in the mid 5% area on a full year basis. This is similar to the going in yields of our 2024 deliveries which landed a touch below our most recent program expectations. Our newly built homes remain the highest and best use of our internally generated and recycled capital, a testament to their superior quality, location, and long-term return profiles. Outside of development, our expectations do not include any material traditional or national builder acquisitions this year because of the current pricing and cost of capital environments. We will stay true to our buy box and remain patient on the growth side, pursuing incremental opportunities only when they make sense. And when they do arise, as we demonstrated with our portfolio acquisition of nearly 1,700 homes this past quarter, we have the experience and infrastructure to quickly integrate a large number of homes onto our platform. Finally, we will continue to lean into our disposition program as properties become unencumbered through the refinancings of our remaining securitizations. This will allow us to continue to optimize our portfolio while consistently recycling capital at Attractive Economics. Before I hand the call off, I'd like to highlight some of our recent organizational changes. With our CEO transition complete, I want to congratulate Dave once again on his retirement as he concludes his advisory period and finishes out his final term on our Board of Trustees. We are grateful for his leadership and wish him all the best. Additionally, I am proud to announce the promotions of three key members of our leadership team. First, Sarah Bolt Lowell has been elevated to chief administrative officer in addition to her current role as chief legal officer and remains a named executive officer of AMH alongside Chris and me. Second, Zach Johnson has been promoted to EVP Chief Investment Officer. And third, Lincoln Palmer, who will be joining us today for the Q&A portion of the call, has been promoted to EVP Chief Operating Officer. All three have been integral members of our team for more than a decade. With this leadership team firmly in place and our relentless focus on execution, We're well positioned to extend our track record about performance.