Everyone for joining us for our first panel on the first day of our Global Real Estate Conference. I'm excited to have AMH's management team with me. Right next to me is CFO Chris Lau. To his left is the CEO, Dave Singelyn, and then COO, Bryan Smith, all the way to the left. With that, I'll pass it over to Dave to go over AMH, and then we can jump into Q&A. Feel free to jump in any time with questions.
Thanks, Josh. Just a couple of very brief comments, and then we'll get into your questions. American Homes 4 Rent, for those that are not familiar, is a single-family rental REIT. We own approximately 60,000 homes. What I would summarize where we are today is a period of time where there is significant demand for all housing, especially in the single-family rental space. We are in more than 30 markets. Those markets are where people are moving to. All but two of those markets have a population and job growth greater than the national median.
Our growth program continues to be robust. We continue to grow even in this difficult economic cycle through our development platform. And our development program is unique. It's the only program that where we build a house in a platform where we're gonna own it long term and manage it. Other build to rent is other people building to sell to other operators. And that's important because when we build a home, we are going to put in higher quality materials because of the long-term durability and the long-term maintenance requirements.
And we also have the ability to acquire land in the infill areas or in the areas that people want to move. And we don't have the opportunity to buy that level of house from a national home builder. Those are their retail products. The stuff that they are selling to for build to rent are the homes that are outside the current population centers, and it's the next generation of housing. So, we look at those lands too, but, we're very pleased with our ability to grow in all economic cycles through our building program. We'll add approximately 2,200 homes this year through our Build-to-Rent program.
So that's a brief introduction. Operationally, a very strong quarter. There is an update on the website if you're interested. With that, I'll turn it back to you, Josh.
Yeah, definitely.
Do you want to add anything from operations?
Yeah. You know, I can just cover a little bit on the operating update. Dave hit it. There's a deck on the website, includes a July and August update in it, which I would characterize as an update that we're real happy with. Very consistent with the increased expectations that we outlined at the end of the second quarter. You know, with the business just performing really well. At this point, we're past the peak of leasing season. We're in the midst of turnover season, and things are performing well, largely driven by the continued really strong demand for single-family rentals that Dave was talking about.
And so what that means is, as we're continuing to work through some of the increased seasonal turnover that we started talking about at the end of the second quarter, those units are being met with really strong demand and great absorption, enabling us to hold occupancy in the mid-96s in both July and August while continuing to push rate as well. So for the 2 months quarter date update, we pushed new leases close to 8%, and renewals in the mid-7s. Which if you take a step back and think about from the longer-term historical context, those are some really strong levels of rate growth this deep into the year and this late into kind of the third quarter.
So real happy with the update, and Josh, turn it back to you.
Yeah, no, thanks, guys, for that. Maybe we could just start there. What's kind of driving that, like, deep into the season rate growth, like that, that demand? What are you guys seeing? Any additional color you can provide?
Yeah. Thanks, Josh. The demand for single-family housing has been robust. It's been fantastic. Specifically for our portfolio, we're seeing at the top end of the funnel, fantastic website activity, growth in new users year over year, just for the August update of over 25%. These new potential residents are coming to the website. They're searching more, they're utilizing the 3D tours, they're creating search accounts. A lot of this is driving improvements in applications. So top to bottom, the demand side looks really good into a time of the year that traditionally has had a little bit more of a slowdown. So we're in a really good position there, and that strength continues through to foot traffic into the houses.
So we're in a very good position to process a lot of those move-outs that we talked about from the peak move-out season of July and August.
Let me, let me add two points. One is, one of the demand drivers, for all of housing, especially for single-family homes and then specifically single-family rentals, is the fact that this country is undersupplied in housing. Today, there's more than a million households that are looking for high-quality housing. Couple that with the fact that that's not evenly distributed through the United States, and we're in those markets, as I indicated, where people are migrating to. We have population and job growth, and that's creating high demand. And then one last piece, and that is, over the last 10 years, people have become more and more aware of what the single-family rental value proposition is.
What we see today is, as we went through COVID and people wanted to look to socially distance, they moved into single-family homes, and they learned what the quality of that product is. Today's population, there's more renters today. I was just talking a minute ago about the number of single-family homes that are rentals today. It's $17-$18 million, and 10 years ago, it was $13 million, and that demand is continuing to grow. Our residents will buy homes, many of them at some point, but they are doing all of their life changes much later in life, whether it is getting married, having children, or buying a home much later in life. So all of those have really driven demand in single-family homes and single-family rentals.
Just given what you've seen kind of this late into the season, kind of what's your expectations for the back half of this year? Do you think that strength continues, and you don't really get a big seasonal slowdown like you typically would see?
Yeah, I do think that strength will continue. Dave talked about the value proposition, and one of the interesting things, too, is the relative cost difference between owning and renting our similar homes in our markets. Right now, it's about 28% less expensive to rent a home in our markets than it would be to buy it, that similar house. It puts us in a really good position going forward from... You know, it's showing a lack of supply. As Dave mentioned, the demand's really good, so I see this momentum continuing. Our expectation is to continue to process the move-outs, continue to prepare ourselves for high occupancy and be in a really good position going into next year.
So, yeah, I see this momentum continuing.
Okay. And for the residents who maybe moved out, was there any kind of common theme or changes in, like, reasons for a move out? It seems like moving out to buy is probably more difficult. Like, is it pricing driven or something else?
Yeah, so move-out to buy has always been our largest reason for move-outs. And we saw a decrease in that over the past year, but it wasn't as dramatic as I would've thought. Until August, we've seen. It was a really significant pullback sequentially from July. So that's gone down a bit as a reason, but keep in mind that if you look at our move-outs today relative to pre-COVID, the volume of move-outs is much lower. The proportion is kind of remaining the same until this change that we've seen in August. In addition, with on the counter side, we are pushing rentals, and that has gone up as well.
So that's- What's the move out of August?
Move out to buy? It's into the 20%, in high 20s.
Just a question. On the 28% less expensive to rent, do you know roughly how much mortgage rates would have to fall for that number to finish at zero?
Yeah. So if you go back two to three years ago, we were pretty much in parity when interest rates were at 2%. So they need to get back to the low- to mid-2s.
Even with the higher rent increases to-
Higher, higher what?
Even though the rent increases have been over the last few years until around-
Yeah. So, actually, the reality is the rental rate increases, as aggressive as they have been, have not kept up with home price appreciation.
Correct.
And so. Do you know the. You know, you've got to get back to the twos. And the home price appreciation is the driver there.
Maybe flipping that question around a little bit, well, how much further would rents have to increase to get to parity with where... what's happening with the homeowner-homeownership side?
Well, that's, that's the 28%. So we're right now, we're 28% cheaper, so you got to do the inverse math of that. So it's probably about 35%.
Okay.
What do you guys think about affordability from, like, an absolute standpoint? You commented on the relative gap, which is pretty substantial. But how do you think about just, like, in isolation, affordability of rents?
Yeah, I think the easiest way for us to look at that is the applicants who are coming in and who are getting approved in our system, and their income has kept pace with the rental increases. Part of that's due to kind of the depth of the demand pool. Some of that's due to some of the migration patterns that we saw. As an example, people leaving California to move to Nevada and Arizona are bringing presumably, you know, higher level wages into those marketplaces. But we've been really pleased over the past few years to see the income keep pace, if not slightly outpace the changes in rent.
Yeah. That's the key, the rents today and the income levels today of the people applying for our product, that ratio hasn't changed negatively. It's actually, I think it's 0.1 of 1 per... You know, 1 turn higher right now, so-
What ratio do you guys take out?
Well, the average in our system is over five times income to rent. Our minimum standard is three times. I would tell you the five times isn't fully baked, because if you come in, and you and your spouse are renting, and your income qualifies, then we don't even get your spouse's income. So there's more than five times in our system.
Can you remind me the rent-to-own, on the owned unit, with HOAs insurance, all that stuff, you would be-
Yeah.
Of course, the owner?
That, that's right. And we pay that-
Okay
As the landlord, but it's the fixed cost. There's a maintenance component and, and all the fixed cost.
The maintenance component, so if you have a $2,000 a year with recurring CapEx or something, you would have, you would include that within what's offered?
Yeah. So it's done by, it's done by a third party. The affordability, the 28%, both sides are done by a third party. And they are the average cost that it costs to maintain a similar house as a homeowner. Now, for us to maintain, it's a lot cheaper because we have our own people doing it, and we don't pay all the markups.
So I kind of wonder-
Yeah
With, like, insurance premiums, right?
Mm-hmm.
Don't know, whatever-
Yeah
Y ears. If you're a renter and into the math, if you're fully aware of everything you'd be on the hook for, then does that cause you to, you know, pay more for rent because, you know, but they only have, like, $1,000 a year for insurance? It's part of it.
Yeah.
Yeah.
It's one of the fixed costs, for sure. Yeah, I mean, it's... Today, we've had very strong demand, if you-- and we've had very strong, rental rate increases over the last year, and they're continuing as we, go forward.
How much of that 28% vary by market?
Of the top 20 markets that are, the lowest is 11%. So I don't know what the top is, but the lowest was 11%.
What was it?
I don't recall.
And maybe, just turning-
Yeah
T o the operating platform, you've made a couple investments. Could you just go over just the rollout of that, and if there's anything that we're seeing actually in results yet?
Yeah, I think the most significant one this year was called Resident 360. That's an investment across our platform into the resident experience. We saw kind of one of the first deliveries with the new enhanced website in January, which I talked about, kind of the results on that side. But more importantly, it includes a significant investment in our field personnel, the maintenance, the services department for maintenance, and in turn work. We made it an investment, not only both in the platform, but in our people to increase the self-performance, to increase the in-house work.
The feedback from our in-house maintenance experience, over the past few years was much higher satisfaction levels and better cost controls, so we continued to invest more heavily into that program. We rolled that out nationally. The teams are hired. They're almost fully trained, and we expect to start seeing some real nice benefits to that in the coming year. What we've seen so far is excellent feedback on the customer service side from surveys. Google Reviews, as an example, are up across the board nationally. So it's being very well received by our residents, and we're real excited about the results of that particular program in the future.
Yeah. Let me expand on the Google scores that he refers to. That's one of the ways that we can measure the quality of our customer service. Google scores that are presented are lifetime scores, but you can go in and see the number of surveys that have been posted in the current year. This year, we have seen our scores increase, and again, looking at our top 20 markets against our peers, and that's both public and private large institution. Our Google scores in every single market outperformed every single peer in 2023. So that's a significant improvement from what we have seen in prior years.
Maybe back to 360, a bit more anecdotally, can you explain some of the things like that you're self-performing now versus outsourcing before, and kind of what the split between, like, the resident taking care of things versus you taking care of things? Like, what are some specific things you carry?
Better coverage on occupied maintenance calls. Specifics would be more self-performance on turns because of increased capacity. So our team members are coming in there, and Yeah. They're in a perfect world, running self-performing all of the turn aspects and getting the house back on the market very quickly. When you have the larger, the higher move-out seasons, it's really important for speed because everybody else has high move-outs at that time, too. Reliance on third-party vendors can be expensive and less predictable.
So that's one, the having more of our internal people going to occupied maintenance phone calls is a huge benefit for, from cost protection, the ability-
Funding and-
Yeah, well-
All of that.
T he diagnostic piece is one, but yeah, there's, there are a lot of fixes, replacing garbage disposals, washing, refrigerators, dishwashers. We do all our own replacements there. There have been a number of upgrades in the system that'll add speed and cost efficiencies.
What kind of things like wouldn't be incumbent- roof repairs or air conditioning, like kind of what in scope and what out of scope for this type of program?
Yeah, roof repair isn't one, but roof diagnostics would be in the event that we had a judgment call on repair versus replace. We could send someone out. Most of our in-house technicians are HVAC certified, so they're able to go out and handle most of the fixes. We're not doing full system replacements in-house, but to be able to go out and diagnose it, kind of figure out how to extend the life of that particular system for a few years, is really valuable. So we're trying to handle as much of the HVAC work as we can internally, and that's a high-margin business and very important on the resident experience side, too.
Especially when you get into the more extreme seasons, yeah, of heat in the summer or in a couple of our markets when it starts to cool down in the winter.
As far as the benefits, like hitting the P&L, how, how far along are we to, like, hitting, like, the stabilized, like, levels that you were underwriting to after rolling this out?
Yeah, I think the biggest or one of the biggest ones was the impact that improved resident experience will have on retention. You know, we built this business over the past decade plus, really at the start, providing high-quality assets. And then, since then, we've overlaid this really strong services platform that provides convenience. I mean, anybody who owns a house has a punch list, pages long, that doesn't get done. And if you're busy, there's a lot to being able to call a professional maintenance company that has really quick turnaround times and is interested in preserving the asset as well.
So we expect to see improvements in retention that doesn't happen until you're through a full cycle plus. And then the cost control side, you know, we're hoping that starts to play out next year. You can see the difference in or some of the efficiencies that we gain by doing our own work. If you take a look at the increases over the past couple of years in our repairs and maintenance line item, we've been able to to deliver that program at below inflationary levels.
When you consider the the types of services that we've been performing, there's been a lot of demand on maintenance and repairs and housing, and this year we're gonna comfortably land in the, I think, 6.5% range, which is well below what what you would pay as a consumer in the marketplace.
One of the big inbounds I've had on the residential space has been on the operating expense side. Insurance and real estate taxes have come up a lot. Could you remind us when your insurance, like, renewals up, and just, like, what you're hearing as far as potential renewal rates going forward?
Yeah. So, so our renewal for this year, being 2023, is done. We renewed in the first quarter. We saw an increase in the 20s, which was pretty consistent with, with our expectations, what we had contemplated in guidance, and I would say more broadly, generally, reflective of the insurance market at large. As I think we all know, the insurance market is in a world of trouble right now, after countless years of, of catastrophic losses and unprofitability. Quite frankly, the insurance market is at a point now where it is needing to broad-brush rate increases across the board, to all asset classes, including ours, which has been a, a profitable asset class. I can speak for our program.
Our program has been profitable to our insurers, but still, the insurance industry, more broadly, needs to be passing on rates to get itself back to a point of profitability. You know, crystal ball looking forward, unfortunately, I don't, I don't see things changing in the near term from an insurance market perspective overall. And so, you know, for those of us that have well-performing insurance programs, like SFR in general, ours in particular, I think that there's opportunity, and you'll see more of us, move to a slightly larger captive participation in their programs.
Us, personally, we will do it in a very responsible way so that we're not changing the risk complexion of our balance sheet or portfolio. But I think that that will help us to, to mitigate, some of the, the level of increase over time, and it's just helpful from a broader negotiation standpoint as we're out there renewing kind of the third-party components of our program. But I would remind all of us as well, as we're thinking about insurance, I think it's a very important topic for a top of mind, but at the same time, it's also one of our smallest expense line items as we're thinking about the P&L.
Then maybe flipping over to real estate taxes. When, when do those bills start coming in for 2024? And just, you know, how should we think about kind of the flow-through? There seemed to have been a big increase last year.
Yeah, latest update since the end of the second quarter, we have a bit more information now, not a ton more. We have a few more pieces of information back on the value side. We've heard back on more of our appeal results. I would characterize that information over the last six weeks or so as being pretty consistent with what we were expecting. In terms of remaining information, the largest remaining piece at this point will be actual property tax rates that generally come along with the bills in the fourth quarter. That's still ahead of us, but based on the information we have, kind of year to date, we're not seeing anything out of balance with what's contemplated in our guidance.
Which, as a reminder, at the midpoint, contemplates property tax growth this year of 9%. That's pretty elevated and outsized. You know, largely reflective of the fact that property taxes are backwards looking. If you think about, you know, the years of home price appreciation we're coming out of, that our property taxes continue to reflect backwards looking. We have a little bit of a mismatch in terms of this year, where property taxes are growing and kind of the rest of the world. But, you know, as we're thinking about, to your point, Josh, read-throughs into next year and beyond, I can't put numbers behind it yet.
But we're optimistic that, that this year is, is really kind of the, the high watermark from a property tax perspective. You know, our view is that property taxes over time, directionally trend with home price appreciation. We know that home price appreciation, or at least rate of growth and home price appreciation, really kind of peaked out in 2022 or so. As we move further away from that peak as we head into 2024, we're optimistic that that should translate into moderation on the value side of property taxes.
Okay. No, appreciate that color, Chris. And then, maybe just switching over to the balance sheet. You have a securitization coming due later next year. Just, I guess, what are your early plans for refinancing, and is there any extensions that are an option?
Yeah, sure. You know, maybe just a bit of history for anyone that maybe wasn't following the story ten years ago. Securitizations were really the lifeblood of our acquisition machine back in 2013, 2014, 2015. Super important in terms of the growth and history of the organization. But even back then, we knew that securitizations and secured financing structures in general were suboptimal for our type of asset class, right? The asset encumbrances that come along with secured financing makes it really difficult to freely move assets and decision-make at the individual unit level, not just the building level, that we do all the time, right?
That's one of the great aspects of our, the granular nature of our asset class, is the ability to asset manage discretely at the unit level, which we do all of the time. You know, think about what we've done this year from an asset management and disposition perspective, right? Year to date, through the end of the second quarter, we've sold over 1,000 homes, generated something like $300 billion of recycled capital, an average disposition cap rate somewhere in the 3s, right? Fantastic, and, and really, really powerful if you think about what that means in terms of the opportunity to optimize the portfolio.
But that's difficult when you have thousands of homes tied up in, in securitization pools of collateral. So we're actually looking forward to 2 securitization maturities at the end of next year, end of 2024, so that we can free up that, that collateral, as we look to refinance those into the unsecured bond market. As we think about execution around entering the unsecured market, both of those securitization maturities, again, the maturities are at the end of 2024. They both have 12-month prepayment windows without any penalty that open up at the end of this calendar year.
So we have a nice, wide window to look for kind of best market conditions to get those refinanced into the unsecured market.
Any kind of early indications on what you could issue unsecured debt today?
Today, a new issue, 10-year would probably be high fives to six or so. You know, that's obviously with 10 years being 4.4, a little bit north of 4. I'm looking at Dave's screen, something like that. Yeah. So, yeah, high five to six or so today.
Okay. And then maybe switching gears to the development program, that's a unique aspect of AMH. Just, you know, any updates on that, on that front? How's it going? And then just maybe thinking about the evolution of that program going forward.
Yeah. We're very excited about where we are on the development program. I think it's for us, it really differentiates our ability to grow in all economic cycles. But it's more than just the ability to grow. It's the ability to acquire better assets than we could from national home builders, through the MLS, better located assets. And because there's no development profit or you're not paying retail, much better yields. Now, when you look at going forward, we're gonna deliver 2,200 homes this year. We haven't given guidance for next year.
What we have said is that it'll be more than this year. And we have 12,000 or so lots in our pipeline. We are doing the horizontal work on all of those, so and we are continuing to buy land. The delivery is just a little bit on yields. Remember that development is a long process, so the items that we delivered in the second quarter, we acquired the lumber, and I specifically call out lumber, because it is the commodity that has changed pricing the greatest. So the stuff we delivered in the second quarter, we acquired or contracted for the lumber, last year, in the first and second quarter.
That was the high watermark, $1,600 per 1,000 board feet. Now we're in the $400 a 1,000 board feet. That's $20,000-$25,000 right there per house. Stuff that we will be delivering in the third quarter and fourth quarter, and in going into next year, is moving to and through into the 6s. But the stuff that we're underwriting, keep in mind, that's what we'll be delivering in two to three years, four years, maybe, and that's in the mid- to high 6s today.
And then-
Land prices are relatively consistent with where they were before the interest rates moved up in the quality locations that we wanna be in. There is some land that we've seen the pricing come down, but it's not in the locations that we wanna be in. The program here for me is, it's all about discipline in your growth. It's growing when you have the right capital, and the right opportunity. So when you look at our acquisition pipelines, the existing homes, MLS, as well as national builders, the opportunities that are out there are not in well located locations or the quality of the asset that we are looking for.
That could be age or type of asset. So land is kind of has to follow the same program. And so we want land that is where the home builders are building their retail product, not their Build-to-Rent product. And that land is back to the same pricing levels that we saw about two years ago. And the better part of that story is that land is becoming tradable. The sellers were a little bit frozen for a period of time, and not really transacting.
Maybe, maybe on that point, to the. When you're designing, when your new communities are in design phase now, that'll get underway.
Yep.
Are there any changes to either the footprint or, like, the style of house you're building size-wise, or the lot size you're putting them on, versus, you know, what's being delivered now?
Yeah. So a couple of things there. One, the first thing I'm gonna talk about is our systems. We invested in our systems three to four years ago, no different than we're investing in Resident 360 today. And when we invested in the systems, the idea was that it would pay dividends in the future, and we're seeing that. And part of the reason that our cost to build a home is coming down is we're much more efficient on our ordering and the amount of product. So we have less and less waste, and we have value engineering with our in-house architecture committee or product design group that is designing these for the best efficiency possible.
On the communities where we adopted through the COVID period, changed some of the upstairs loft areas into workspace area so people could work from home. Lot sizes, changing the lot sizes, that's very difficult. That's really dictated primarily by the municipalities, what they desire. Municipalities are gonna dictate a number of things, lot sizes, what the exterior of the house needs to look like, as well. And so there's not been a lot of change in that. On the amenity centers, we have made some changes, but it's an interesting question.
Maybe the timing of your question is interesting, 'cause right now, we are just at that point where we've delivered enough amenity centers that we are doing a deeper dive. This is gonna take a couple of years, 'cause we need some turns to occur, to see what the exact value is of... and whether we need to change, enhance, or maybe even reduce the size of the amenity center. So we're not quite at a point in our life cycle that we can make that evaluation.
Given that a number of your known assets have seasoned at this point, what are some of the learnings when you compare your scattered site portfolio from an operational and financial angle?
Yeah. Well, do you wanna take the operational?
Yeah. I mean, I think the earliest that we're seeing is that the turn profile in terms of speed, releasing, and cost is what we expected. They're quicker to turn. They're easier to pre-lease, and the costs are kind of coming in where we thought, much less than a normal kind of scattered site house that might be a little bit older. So that side's been really good. You know, quicker cash to cash turn times, better occupancy. We still need a little bit more time to really quantify the retention benefits that we think we'll see. You got to think, too, a lot of these communities.
They're delivered kind of at a measured pace over a period of time. So even though the community might be live for a couple of years, it hasn't had a chance to completely stabilize. So we're looking forward to seeing that, and really understand the value of some of the other additions that we have in those communities.
Yeah. Couple other things that we have learned. I think Bryan hit one of them, but it's how do you build the flow of a community? Do you build from the front of the community to the back, the back of the community? So you have the least disruption to the existing residents while you continue to build out the community. So that process, in building the access roads, so they're not having to go through construction zones as much, has been a part of the learning curve. The other piece that we are very, again, gets back to the discipline of how you build and deliver assets, is exactly how many do you want to be delivering per month? We could build faster.
There's no doubt we can build these communities that we are delivering homes in faster. We choose not to, because that way, when we deliver the homes, we can deliver them at a cadence that the operations team can absorb them in an efficient manner.
So we're out of time, but we're asking all the management teams on the panels today three rapid-fire questions. They're multiple choice, should be easy.
A, A, and A. Always B.
So the first one is: Do you believe the Fed is done hiking, yes or no?
No.
Do you expect the Fed to cut rates in 2024?
Uh, yes.
Do you believe real estate transactions will meaningfully pick up by, A, the fourth quarter of 2023, by the first half of 2024, or the second half of 2024?
In our space, it's gonna be the latest one that you have available, so-
Second half 2024.
Using Chris's analogy, see. Let's take a strategy.
And then the final question is: Are you using AI today to help you run your business, yes or no?
Not in a significant way, no.
Do you plan to ramp up spending on AI initiatives over the next year?
We are in evaluation as we speak.
Great. Thank you.
Thank you.