Earnings Call: Q4 2020

Feb 26, 2021

Greetings, and welcome to the American Homes 4 Rent 4th Quarter and Full Year 2020 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ann McGinnis. Please go ahead. Good morning. Thank you for joining us for our Q4 and full year 2020 earnings conference call. I am here today with David Singelin, Chief Executive Officer Brian Smith, Chief Operating Officer Jack Corrigan, Chief Investment Officer and Chris Stiles, 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 Business and future results are described in our press releases and in our filings with the SEC. The current and expected future economic impacts of the COVID-nineteen pandemic, including extraordinary increases in national unemployment, may pose headwinds to our future results. All forward looking statements speak only as of today, February 26, 2021. We assume no obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise, except as required by law. A reconciliation The GAAP or the non GAAP financial measures we are providing on this call is included in our earnings press release. As a note, our operating and financial results, including GAAP and non GAAP measures, are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC And the audio webcast replay of this conference call on our website at americanhomes4rent.com. With that, I will turn the call over to our CEO, David Seaglin. Thank you, Anne, and good morning, everyone. Thank you for joining us today. I hope you are safe and well. We are thinking of those in Texas and other states impacted by the recent winter storm. Our top priority is the safety and well-being of our employees and our residents. We are working with our residents who have been impacted. While there are many homes with minor damage, there are relatively few homes with significant damage. We maintain for such events and do not expect the financial impact to be material to the company. 2020 I am very proud of our company's performance during these unprecedented times, and I'm excited about 2020 as we continue the path of 2020 with record breaking success. Our ability to grow profitably And deliver operational excellence in such a challenging year is a testament to the unique company we have built, our experienced leadership team and the strength of our platforms. While 2020 was a difficult year for many in the real estate sector, our business model truly set us apart. For American Homes 4 Rent, the pandemic shined a spotlight on the resiliency of our industry and the quality of our platform. The demand for single family rental homes is stronger than ever before, and we expect this strong rental demand to continue, if not accelerate in 2021 beyond. Our differentiated investment in growth strategies are paying off and continue to be validated. These strategies combined with our investment grade balance sheet keep us flexible and nimble. This enables us to grow in every market cycle, take advantage of opportunities and adapt and respond to changes. Our development and operational platforms provide our residents with a quality housing experience, but they also embrace environmental Sustainability. The homes built by AMH Development are energy and water efficient. The durability of the products and materials we use provide a well functioning and easy to maintain home. In addition to providing housing for our residents, we are also Focused on our communities and our employees. We continue to give back to the communities where we live and work through corporate and employee volunteering and charitable activities. And as the industry leader, we strive to maintain a diverse workforce And are attracting and developing the best talent in the industry. During 2020, we continued our focus on corporate governance Through our Board of Trustees refreshment process, Ken Wooley was named Independent Chairman of the Board last May. Looking forward 2021, we recognize it will be another unique year of opportunities and challenges. The impact of the COVID pandemic remains. We do not know when life will return to normal. But what we do know is that we are well prepared So what should we expect in a post pandemic world? We do not know for certain. What the housing data and trends do tell us is that migration to suburban single family rental homes was occurring before the pandemic, is accelerating and is here to stay. The pandemic did not change these trends. It simply shined a spotlight on the value proposition that single family rental home Living offers. Now more than ever, people value extra living space, private yards and a sense of neighborhood community. We are starting 2021 with more positive momentum across all disciplines than at any time in our history. From an operations standpoint, we are positioned to have a strong year. While rental demand for our homes is stronger than we've ever seen, This demand continues to grow. Our occupancy is at an all time high. Our rental rate growth is robust, and Our collections remain consistently strong during these pandemic times, resulting from our outreach to and good relationships with And from an investment standpoint, this is where the opportunities truly lie. 2021 will pick up where 2020 left off with a program designed around grow, grow, grow. There has been and remains a national housing shortage. The number of household formations the past decade has created excess demand for our available inventory. This demand creates a need for additional quality rental homes. Our strategic priority is to meet this need through significant growth. As the nation's leading builder of single family rental home communities, we have the unique ability through our development function to add new rental home supply that generates the best economic return of all of our available growth channels. Expansion of our development program in 2020 resulted in us opening a new community nearly every week. 2021 will continue the acceleration Today, we control nearly 10,000 lots and have capacity for more. By the end of 2021, We expect to control between 1,100,013,000 lots. These lots will become future home deliveries over the next 4 to 5 And lastly, from a financial standpoint, we built our strong balance sheet and capital structure for times like these. It provides us the ability and flexibility to make long term investments and enable growth through all economic cycles. Given these positive And our confidence in our platforms, we have initiated guidance for 2021 with the industry leading core FFO growth per share of nearly 8% at the midpoint. This builds on our 4.5% growth in 2020. Furthermore, while we strive to maintain much of our operating cash for reinvestment into our growth programs, Our cash flow and taxable income growth dictates the need to increase our distribution level. Beginning with the March distribution, The quarterly distribution rate on our common stock will double from $0.05 per share to $0.10 per share. And as our cash flow and taxable income continue to grow, it will necessitate further increases in our distribution rate. At $0.10 per quarter or $0.40 per annum, our payout ratio will be approximately 40%, which still prioritizes Our continued objective of retaining cash flow for accretive reinvestment, but also provides a long runway for continued future dividend growth. My hope is that 2021 returns us to a normal that is more akin to pre pandemic times. Regardless of the environment we operate in, American Homes 4 Rent will always provide our residents with quality homes that meet their housing needs. I am excited about the year ahead as we continue to successfully execute on the company's strategy to drive growth, create value Thank you, Dave, and good morning, everyone. Our operational finish to 2020 can best be summarized in 2 words: Record breaking. Demand for single family rentals continues to impress. COVID has highlighted the benefits Suburban living and people are prioritizing quality of life decisions like never before. As an example, virtual meeting tools have Created a fundamental shift for many professionals, allowing them to choose where they live regardless of the location of their office. This, coupled with the incoming wave of millennials who are entering prime single family living years, has created unprecedented demand for our well located homes. Within our portfolio, demand continues to accelerate. In the Q4, our showings per rent ready property were up almost 60% from the Q4 of 2019. Notably, we saw a 30% year over year increase in applicants coming from states outside of our Our people, empowered by our innovative technology platform, continue to turn this demand into all time highs I could not be more proud of the team's accomplishments over the past 12 months, which has created great momentum entering the new year. As mentioned earlier, we continue to set new company records in the Q4. For the same home pool, Average occupied days hit an all time high of 97.3%, which is 210 basis points higher than it was in the Q4 of 20 which is over 600 basis points higher than those of the prior year. Looking ahead, we entered 2021 with a sense of confidence and preparedness. Our team and best in class operating First, we believe that demand dynamics fueled by migration, population trends and changing customer preferences are here to stay. We say this with confidence based on the tremendous amount of information we capture, whether through market and application data, move in surveys or on the ground feedback. 2nd, our team is continuing to innovate on the technology side From platform enhancements to a new website that will be released soon, we're constantly bringing new features into production that efficiently enhance However, we are confident in our ability to continue to capture the wave of demand and quickly adapt to any changes that may come. Lastly, while Chris will provide more details later, I would like to share a few thoughts on our 20 Our outlook is bullish, but it is also balanced with caution given the lingering COVID uncertainty. Demand and occupancy continue at record levels with January same home average occupied days of 97%. However, as we progress through the year, our physical occupancy may be affected when our collection practices return to normal. With that in mind, we expect 2021 same home occupancy to be equal to or slightly ahead of 2020 on a full year basis. For rental rates, January continued to set records with new lease spreads of over 8%, Renewal lease spreads in excess of 5% and blended lease spreads in the mid-six percent range. And we expect our pricing power to continue throughout 2021 with full year blended leasing spreads in the 5% range. Please note that the pull through of our record leasing spreads will be muted until we burn off last year's April to July 0% renewals. As such, we expect our leasing spreads to translate into full year average monthly rental rate growth in the 4% to 4.5% range. For baseline repairs and maintenance and turnover expenditures, we expect increases in the 4% On top of this, we expect continued impact to chargeback collections as well as slightly elevated near term turnover costs when our collection practices return to normal. I'm excited about our future. Our superior operating platform uniquely positions us within our industry to capitalize on the surging demand and the growth opportunities that come with it. Now I will turn the call over to Jack. Thank you, Brian, and good morning, everyone. As Dave mentioned, external growth is Top strategic priority of ours, growth to help address the ongoing national shortage of housing, growth to satisfy the demand for rental housing brought on by changing home preferences and migrational shift and growth that is cash flow accretive and generates long term value for our shareholders. While we focus on growth, we expect the 2021 transactions market to present both opportunities and challenges. From an opportunity perspective, new investment possibilities may arise from changes to MLS market conditions or closure And distressed market outcomes. Strategically, our 3 pronged growth program combined with our balance sheet strength Allows us to be nimble, flexible and opportunistic as attractive deals arise. From a challenge perspective, although pricing on Additional MLS inventory and national builder opportunities was driven higher by surging demand and record low interest rates. We continue to buy opportunistically from these channels. But most importantly, our AMH development program continues The built for rental opportunity has caught fire. Over the past few quarters, many investors source of portfolio growth. It also has several unique advantages that are difficult, if not impossible to replicate. 1st, AMH is the only national homebuilder with the unique combination of both the best in class operating platform and industry leading development 2nd, our vast amounts of data captured from all sides of the business allow us to continuously analyze and strategize to build our product and run our business in the most efficient way. Lastly, to pursue development in a significant way Takes a fortress balance sheet and a clear vision for long term capital that others may not have. We are proud of our development program and its growth to date. More importantly, we are excited about its future and benefits it will bring to our company and shareholders. Our Standing 4th quarter is a great example of our momentum. We added 5 63 homes to our wholly owned portfolio, exceeding our overall expectations for the year. On a full year basis, despite some COVID delays, we added Over 2,100 homes to our wholly owned portfolio, of which over 50% were from our AMH development The AMH development program delivered a total of 1647 homes for the full year of 2020, Seating the midpoint of overall expectations by nearly 100 homes and demonstrating explosive growth of nearly 80% Between 1921,200 Homes from our AMH Development Program to our wholly owned and joint venture portfolio. This represents approximately 25% growth over 2020 deliveries. To round out our other Growth channels, we continue to be active, but have reasonable expectations. Chris will provide more details in a moment. In closing, I am proud of our execution in 2020. We continue to take advantage of the differentiation from our one of a kind AMH development program, And we are well positioned in 2021 to remain opportunistic and accelerate growth tremendously. Now I will turn the call over to Thanks, Jack, and good morning, everyone. I'll cover 3 areas in my comments today. First, a brief review of our quarterly results second, an update on our balance sheet and third, I'll close with an overview of our 2021 guidance. Starting off with our quarterly results, We closed out 2020 in record breaking fashion, generating net income attributable to common shareholders of 27 point $1,000,000 or $0.09 per diluted share, dollars 0.31 of core FFO per share in unit, representing 7.3% growth over prior year and $0.28 of adjusted FFO per share in unit, representing 7.9% growth over prior year. Underlying this quarter's strength was the record breaking leasing results that Brian discussed, which drove an impressive performance within our same home portfolio, where we generated 4.8% growth in rental revenues, which was further benefited by 30 basis points of contribution from higher fees and partially offset by 160 basis points of drag from COVID related bad debt, translating into an overall 3.5% Core revenue growth. Coupled with a 4.2% increase in core property operating expenses, this translated into core NOI growth of 3.2%. However, normalizing for COVID related bad debts, our same home core NOI growth would have been over 5.5%. And on the topic of bad debt, our collections remained consistently resilient throughout the 4th quarter, resulting in quarterly bad debt of 2 point percent, which was right in line with our expectations. Next, I'd like to turn to our balance sheet, which has never been stronger, ideally positioning us as we step on the gas for growth into 2021. At the end of the quarter, our net debt to adjusted EBITDA was just 4.4 times, which is meaningfully below our internal leverage target of 5.5 times, providing us with nearly $700,000,000 of incremental debt capacity to fuel our growth programs throughout 2021. Additionally, at the end of the year, we had $137,000,000 of cash and our $800,000,000 revolving credit facility was fully undrawn. Also during the quarter, we sold 188 properties generating approximately $45,000,000 of net proceeds. Next, I'd like to share an overview of our initial full year 2021 guidance, which reflects our bullish outlook balanced by conservatism given our expectation for continued COVID uncertainty. With that in mind, for full year 2021, we expect to generate between $1.22 $1.28 of core FFO per share and unit. At the midpoint, we're expecting an industry leading annual increase of nearly 8%, which also represents our strongest full year growth since our operations have stabilized in 2016. Supporting our range are the following assumptions. For our same home pool, which will include between 40,7,048,000 properties, we expect core revenues growth between 3.25 percent and 4.75 percent, which as Brian already covered, is based on our expectation for continued strong occupancy similar to or slightly better than 2020 and average monthly rental rate growth in the 4% to 4.5% range. Included within our core revenues growth which is a full year 2021 bad debt assumption of 2.5% to 3%, which contemplates our expectation for ongoing COVID uncertainty surrounding the macroeconomic and regulatory environment. Additionally, please remember that our revenue growth will likely be lumpy Throughout 2021, based on the timing of prior year bad debt comps, the waiving of late fees between April July of last year, and the muted pull through of leasing spreads to revenues as we burn off last year's April to July 0% renewal period. On the expense side, we expect same home core property operating expense growth of 4% to 5.5%, driven by property growth of 4% to 5%, which is roughly consistent with 2020 and 4.5% to 5.5% combined increase on all other expense line items, which reflects Brian's earlier commentary surrounding our expectation for continued COVID impacts to tenant reimbursement bad debt and turnover costs. And to the bottom line, expect 2021 same home core NOI growth to be between 2.75% and 4.25%. Additionally, as Dave covered in his comments, external growth is one of our top strategic priorities and a key driver of our industry leading 2021 core FFO growth expectations of nearly 8%. Executing on that objective, we expect to invest between 1,200,000,000 and $1,600,000,000 of total capital into our combined growth programs this year, adding approximately 3,500 homes to our wholly owned and joint venture portfolios, including 1900 to 2,200 homes that we expect to deliver through our AMH development program. As some additional color, at the midpoint of our expectations, this represents $800,000,000 or 2,700 Added to our wholly owned portfolio, which we expect to be split roughly fifty-fifty between our AMH development program and our other acquisition $300,000,000 of continued investment into our wholly owned development pipeline and $300,000,000 of joint venture investment activity, of which we hold a 20 percent economic interest that will consist of approximately 7 50 homes delivered through our AMH development program, as well as continued investment into our joint venture development pipeline. To recap, as part of our total 2021 capital deployment plan, we expect to invest between $1,100,000,000 $1,300,000,000 of AMH Capital, consisting of our wholly owned inventory additions and development pipeline investments as well as our pro rata share of our joint venture investment programs. And from a funding perspective, we expect to fund this year's capital program through a combination of balance sheet cash, routine cash flow, approximately $100,000,000 recycled capital from our disposition program and leverage capacity from our balance sheet. And before we open the call to your questions, I'd like to reiterate our excitement heading into 2021. Over the years, we've remained committed to our differentiated focused on cultivating a diversified portfolio in high growth markets, building a best in class operating platform with industry leading fully adjusted EBITDA A multi channel growth program which now leads the industry as the largest builder of single family rental homes and a fortress investment grade balance Our strategy and years of investment continue to pay off as we enter 2021 positioned to deliver another year of industry leading core FFO Growth. And with that, we'll open the call to your questions. Operator? Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up question. One moment please while we poll for your questions. Our first question has come from the line of Nick Joseph with Citi. Please proceed with your questions. Thank you. How do you think about the stickiness of your tenants as the vaccine is rolled out, people start to return to the office and then be a reorganization occurrence. Hi, Nick, it's Brian. We're getting great feedback from our residents, especially those that are moving across state lines. We talked a little bit in my Opening remarks about the migration patterns. The feedback that we're getting is that they're very happy with the extra space. I see a lot of this as a fundamental shift. Comments from we just outgrew apartments, we didn't see that there was such a quality of life difference. So I think the work from home is going to be here to stay in some shape or form, but the people are really excited about kind of this new product that they may not have had There's 2 in California, but they can find in Nevada as an example. Thanks. And then, Chris, Just on the balance sheet or capital plan, you have a couple of preferreds that are able to be redeemed in 20 21. So what's the plan for those Series B and Series B preferred? And then how does Converge play into the capital spec going forward? Sorry, Nick. I think we may have cut out just a bit, but I think you're asking about the preferreds And how those may fit into the capital stack and thoughts there, if that's right. Is that your question? Specific to the ones that are actually coming due in 2021 are probably able to be Got it. Yes, sorry about the technical difficulty. Yes, no, you're exactly right. We have 2 series of preferreds for approximately $500,000,000 to become callable during the Q2 of this year. Both of those series, our Series B and Series E have coupons in the low to mid-sixes, which means that if you step back and think about it, virtually Forms of our cost of capital screen very attractively relative to those coupons. With that said, And I think our decision on that front will be very much market dependent and probably a little bit too early for us to speculate at this point on what the strategy there will But again, I would say that virtually all of our costs of capital screen attractively and we'll keep everyone updated as we get closer to those call dates. Thanks, Nick. Thank you. Our next questions come from the line of Rich Hightower with Evercore ISI. Please proceed with your questions. Hey, good morning, everybody. Thanks for taking the question here. So I Talk about input costs in the development pipeline. I think last quarter given the spike in lumber prices, you mentioned that It adds around $15,000 per home when that sort of a spike happens. Just curious if there's a rule of thumb that we could think about in terms of how to forecast that going forward and the impact on going in yields, how you guys think about it? Thanks. Yes, It's recently spiked again, and we're seeing about the same cost increase. Fortunately, we've Been in a rental rate growing environment and that's that has kept us yield neutral. So the yields have stayed about the same. Okay, great. And just a follow-up on development. As we think down the road, 5 years, 10 years, what have you, is there anything unique about these homes that might Make them, say, less desirable to an end user, a traditional home purchase, anything about the communities of the homes that we should consider? No, I don't think so. If we decided at some point To sell them individually and they're individually platted, so we could. But If we decided to sell them, I think they'd be very desirable. They're desirable to rent. I think they'd be desirable to acquire. If cap rates stay the same, we're seeing those a couple of the communities have traded in the Mid-four percent range on cap rates. So I don't Foresee that occurring where we'd be selling them, but anything's possible. And The other thing is we have an older community in our Winston Salem market, And it's very desirable for both. It was originally a rental community and we own, I think, 165 of the 186 homes. And we try to buy the other 21 from individuals and it's they don't want to sell. So I don't I really don't see It'd be an undesirable to somebody who wants to live there. Rich, it's Dave. Let me just add a couple of Thanks. When we talk about how we build our rental homes, we actually build them to a better standard than an entry level home would be built. We do that because of the long term maintenance and the long term wear and tear on the house. But we are putting in enhanced features. We're putting in better countertops, better plumbing fixtures. And the way we build the house is slightly better. All of those construction, I guess adjustments that we've made to a typical entry level home are going to make these homes as desirable, but more likely more desirable Than the traditional housing stock. Thank you. Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your questions. Hey, good morning, guys. Chris, maybe this is a question for you, and I appreciate your prepared remarks about bad debt And the disclosure last night. But I wanted to maybe just understand a little bit more, because There was a lot of bad debt last year. And so for it to remain elevated this year suggests that maybe it's even building a little bit more. So as we think about the cadence of that bad debt, could you maybe just break down a little bit more how we're supposed to think about it in the first half versus the second half of the year? Because I got to think at some point that that is no longer a headwind. Yes. Good question, Rich. And not only is it Eventually going to not be a headwind, we would expect it to flip and eventually become a tailwind, right? And again, I would just reiterate that the business is performing phenomenally. And I would view our view and guidance On bad debt as being a reflection of the fact that there's still plenty of COVID uncertainty ahead, right, which has the potential to continue to headwind Collections that none of us can predict, right? And so our view there is that we are prudently and conservatively building in that 2.5% to 3% on a full year I would reiterate also that so far collections are continuing to remain resilient and on track With prior pandemic periods through the Q4 and even into the beginning of 2021, in terms of the shape of that bad debt in 2021, Again, I think I reiterate my point that none of us know for certain. We do think that there will be a return to normal at some point and that will It would create less of a headwind and eventually flip to a tailwind. At this point now, as I think about that shape of bad debt on a full year basis, I could envision a scenario where wherever bad debt lands on a full year, we could envision a scenario where there is more weightedness, if you will, to that bad debt in the first half of the year, then the second half of the year. But again, at this point, it's just impossible to speculate on that exact timing. I appreciate that. Welcome to our world, Chris. We have to model it out. But no, thank you. Hey, Dave, I want to come back to you real quickly. One of the things that I think the equity market is trying to understand a little More is the demand side of the equation and frankly, how many homes is realistic. We live in a really weird equity market where it wants acceleration and therefore Yes, really great but stable growth isn't good enough anymore. So I'm really asking a question about your FFO growth, which looks really in 2021 versus 2020, how sustainable is that and how much is that going to be driven by you just increasing the pie and how much do think you can increase the pie on a year over year basis over the next several years? Yes. Thanks, Rich. There's a number of Factors that go into growth. And what we have been focused on for many, many years as we We've had previous discussions is looking far out into the future. And so growth is basically dependent on access to capital And then access to product. And we have been putting ourselves in position for significant growth down the In future years. When we went through the prepared remarks, we talked about the fact that we are significantly building Our inventory in land. We went through a period of time that we tested the build for rent concept, got comfortable with the build for rent concept, And now we are starting to acquire land. Today we control 10,000 lots. We're going to control many more lots by the end of the year. That's Our future deliveries. We can't do a lot about 2021 deliveries from development. We can from the other acquisition channels. And we have the balance sheet to take advantage if those channels open up more than they are today. Today, There is a supply limitation in that area. We do underwrite many, many homes. But as COVID unwinds and people start showing their houses in more normalized numbers. And if the retail side of the homebuilders softens a little bit and more become available. We are there to be able to take advantage of those opportunities. But we have the balance sheet that we can expand. We have very good currency. We have $700,000,000 or more Of capacity on our debt facilities today before we are concerned about hitting our internal target of 5.5 times EBITDA, we have significant amounts of retained cash flow. So we have the capital. We have we are building The land inventory for accelerated growth in future years. So you're going to see more development in 2021 than 2020. But the real excitement to me is what we are seeing in the 2023, 2024 areas. That's where we We're going to have very, very significant inventory that is going to come to market. But we will be very active between now and then as well. Thank you. Our next question has come from the line of Jeff Spector with Bank of America. Please proceed with your questions. Great. Thank you. And first, congratulations on a great year. I wanted to focus Development, the growth, and it feels like each week we continue to hear about a new entrant into the sector, And again, specifically on the development side. And Dave, I very much appreciate the disciplined approach your company has had on the limit Of how much you want to develop as a percent of the balance sheet. I think you mentioned 5%. But I guess can you share with us your thoughts on potentially expanding that? I mean internally or with your Board, like Have you talked about increasing that at this point or bottom line, you just you really feel strong about staying disciplined? Yes. Let me clarify the 5% to start with. The 5% was not a what we are targeting for our growth. That's what we are targeting To hold on our balance sheet in the form of land, that is basically in inventory as land. That is it's just kind of an asset allocation from that's a non productive asset that we're holding. As fast as we can build them, we're going to turn them through. And there's a number of different ways that we can actually control more land than what we actually hold on our balance sheet, Although we're not there yet. The growth side is really a couple of phased Process, we had proof of concept, proof of ability to do it. And now we are in what we talked about is the grow, grow, grow phase. And It starts with acquiring land and we have targets for our land acquisition, but if our Teams can find additional land than what the targets are. We will be taking all good land that we can find for future deliveries, for future growth. So we're not putting a limitation on that. We will find the means to acquire that. The second part of your question, I think, was about many other entrants coming into this market. There is. I guess it's a little bit of a validation of what we have done to date that it's working and people want to copy it. But it's a very difficult thing to copy. We're the only company right now that has both an operating platform That's tied to its development platform. And we have that is a feedback circle that's very, very important to The development process, because that feedback circle allows us to build a better house for rental. And without that, some of the things that we have done, you may miss. But it also gives us the ability It's just synergistic benefits. It helps our maintenance side from our development side, etcetera. So we're the only company that combines the 2. We have a many year head start On others, in building the land inventories and the infrastructure necessary to build homes. And I just like our position where we are today. And as you indicate, we are looking to not be at $1600 or $2,000 We're looking to really build this, but it's really exciting about the years ahead. 2021 is a great year And then my one follow-up question is on rental rates. You've kind of uncovered the sector for many years. Initially, You and your peers were somewhat sensitive to how far you could push rate and I think The past year you've exceeded expectations. I mean, are you still is there still a level where You need to be somewhat sensitive to how far you're pushing rate or at this point that's no longer a concern? Hi, Jeff, it's Brian. I think there's a couple of parts to that question. The fantastic rate growth that we've seen It's a function of the demand that we've been talking about. It's extremely pronounced. Normally, we were very seasonal and saw great demand during certain months Around the summertime, that's extended throughout the entire year. Our retention has improved, so the market has gotten even tighter. And we've really capitalized on that on our re leasing rates. So there's no internal kind of cap on how we're going to do that, how we're going to handle re leasing rates. It's really The market, pre marketing efforts and the quality of the turns that we're putting up. The re leasing rates are fantastic. They're continuing to accelerate into 2021 and we're seeing really, really good growth there. On the renewal side, there is a slight difference and there's a little bit more sensitivity In terms of what you're offering on the renewal rates to the existing residents, we've seen fantastic growth there. We're looking Really high rates compared to historical, but they're not being pushed quite to the same limit for a number of different reasons. So I hope that answers your question. We're very excited about the growth that we're seeing in the re leasing rates and also pretty happy with The renewal rates and the retention rates that accompany them. Thank you. Our next questions come from the line of Haendel St. Oost with Mizuho. Please proceed with your question. Hi there. So I guess first going back to the development guidance in the 2,000 homes you're planning to deliver this year. You mentioned that yields I should say the same, but it looks like you've been getting well north of your 6% yield target on this latest Back to delivery. So can you speak to the yields, more specifically what was achieved here in Q4 of 2021 overall and if 6% is still the right bogey and then a bit of color, a bit more specificity into what level of Cost inflation is built into the underwriting for labor and material costs for the 2021 deliveries. Thanks. Thanks, Sandell. Good question. Yes, we are seeing Rate growth, as Brian has mentioned. So we're leasing above our pro form a rental rate. So we're Likely getting higher yields. Right now, I can really only talk to the gross yields because The expense part of it hasn't totally played out. Generally, in the 1st year or 2, you get a little benefit because we underwrite property taxes As if they've already gone up to the value of the house, and sometimes it takes a year or 2 or even sometimes 3 For the municipalities to catch up. So I'd be overstating the yields if I said, But they were, plus you're not going to have turns, so you don't have turn costs. And so you really have probably 3 or 4 years before you have actually really good data on the cost side or on the expense side. On the cost side, we're seeing, Like I said, lumber going up. In terms of labor and other costs, they're going up pretty much with But we're actually seeing a slight decrease because we've got more efficient the larger that we've gotten. And so we're actually seeing a little bit of benefit on the cost side other than lumber. And obviously, land is going up, but none of the land the land has accelerated recently, And we haven't really produced any houses with that land on it, but we underwrite at the land cost because that's what we're paying. Got it. Thanks, Jack. I appreciate that. And what's the average concession in the lease up of these The new house. I understand that could vary by market, but just curious overall what's a good rule of thumb here? The average Concession is 0? Easy math. No, this is Brian. We've had fantastic results on the new communities. We haven't had to resort to concessions or any Excess commissions or incentives to lease these up there. In fact, it's been the opposite. A lot of these communities are pre leasing at a pretty rapid pace. Haendel, we have in the past, When we weren't quite as educated on how to build these things, we were building some front or back to front and People were having to drive through construction zones to get to their homes. And so we did offer some Pioneer pricing At that point, but we've learned our lesson and everything since probably 2017 has been front to back And not creating those problems for our residents. Got it. And a follow-up on Turn times and dates for lease homes, can you talk about where those sit and where do you think that opportunity to get those to by the end of 2021? Thank you. Yes, Haendel, this is Brian. We've seen really nice improvement on our turn times. We call it cash to cash from payment on move out to payment on move in. We're in the high 30s now, Down from the 50s and comparable periods in the past. A big gain there is on the compressed marketing period because of Heightened level of demand, but we have become more efficient in preparing these homes for re lease as well. So we're sitting In a time, like I said, in the high 30s that has some room for improvement, but not a ton. There's a function too that we are pushing rates pretty hard on re leasing at the start. So that's why they're not even in the low 30s. To summarize, there is opportunity for improvement, but we've made fantastic gains over the past year or so. Got it. Thank you. Thank you. Our next question comes from the line of Rick Skidmore with Goldman Sachs, please proceed with your questions. Good morning. Thank you. Hey, Chris, just appreciate all the color on the guidance, but Just trying to figure out how much conservative is built in to the expectation because if you build off that $0.31 4th quarter number, You're essentially the midpoint of guidance and you're talking about 2,000 new homes in the development pipeline, all of the rent rate. Can you Talk a little bit about what would be incorrect in sort of annualizing that 4th quarter number or what doesn't repeat in the 4th quarter that What's that core FFO guidance in that 122 to 128 range? Thanks. Yes. Good question, Rick. No, I think you used the right word. Our guidance is intentionally conservative given the uncertainty ahead, Largely in the bad debt area and the fact that we are assuming 2.5% to 3% on a full year basis. And look, I'm hopeful and optimistic that we will be able to beat that, but we just don't know at this point. And given the uncertainty, we think that that's the prudent position to take. And so really that is the primary area of conservatism built into our guidance And the fact that we're holding that on a full year basis. Hey, Rick, it's Dave. And the other thing to keep in mind when you're doing modeling and Trying to annualize the Q4, business is still seasonal, maybe not as seasonal as we saw in their early days, but still seasonal. And expenses do not flow equally through the year because they are tied to more of the leasing and turn activity, which is heavier In the second and third quarters. So Q4 and Q1 historically have always been much stronger than 2nd and third just because of the normal seasonality. Keep that in mind. Annualizing the 4th quarter doesn't necessarily give you the right results for the entire year. Got it. Thank you. And then just on the development, just a follow-up there. Just in terms of the pacing of deliveries, how should we think about the pacing of that delivery Those 2,000 homes through 2021? Thanks. Yes. It's going to be more ratable over Each quarter, there will be a little more delivered in the second and third quarters. So we meet The high demand for that period of time and probably a little less in the 1st and 4th. So but not There's not going to be the spikes that we've seen in the past or valleys. Thank you. Our next questions come from the line of Jade Rahmani with KBW. Please proceed with your question. Thank you very much. With all the time, effort, knowledge, expertise, experience It's been put into not only the operational platform, but also the build to rent business. Are you interested in adding a new dimension to the revenue stream, which could include a for sale Homebuilder operation where you develop and sell these communities and then last quarter, Deere Horton sold a built direct community for something like a 44 Gross margin, very high return on capital. And secondly, along with that, could you attach Property management and create a long duration stream of revenues at FAFSA Life because I know that the homebuilders have explored this business and one thing they do not have It is the in place workforce that AMAs has, with I believe probably about 65 Operation and accelerate growth, is that something that you're looking at? I would say, yes, we are considering a number of different avenues The ancillary business. And until that until we're ready to launch it, I don't think we're prepared to talk about what they are. But I think you did a very good summary of what the opportunities are out there, and it's kind of the same way we would see it as well. Thank you very much. Certainly seems like an attractive opportunity. Second question would be, You know, the discrepancy between bad debt expense and high rent growth, do you just consider that to be a latency effect, which would mean in essence that you're upgrading your tenants. The newer tenants have more resiliency in terms of their ability to pay because they're coming in post COVID with a higher Demand level for these homes and it's just a matter of turning over this portfolio, which has about a 30% So over a 3 year period or maybe more based on the economy, bad debt would normalize. Is that really what explains The distinction between the bad debt and the high rent growth or what else would you attribute it to? No, I think directionally that's The right way to think about it. I don't know that I would use necessarily the word upgrade, but you can absolutely keep in mind that for each new resident household that's coming into the portfolio, So they are being freshly underwritten and coming into the portfolio new. So absolutely consideration there. I think we're optimistic that it's not going to be 3 years of churn, if you will, to work through this level of bad debt headwind. And keep in mind, we are very, very intentional about working with each one of our residents And finding the right outcome for them if they've experienced any type of COVID impacts. And so we're doing everything they can. Brian and team are doing a great job working through each one of our residents to get through that churn. Again, I don't see it being A 3 year timeline and I think that that's the right way to think about it as we continue to work through this year or so ahead, We will work through those residents comprising above average, above normal levels of bad debt and should see that come down over time with You got new freshly underwritten tenants coming into the portfolio. And Jade, it's Dave. I would add that the elevated Bad debts are not a this is a temporary and a unique situation tied to the pandemic. And this is not in the long term Ongoing event will reverse and it will revert back to the levels that we saw pre pandemic In the 1% or sub-one percent. And the tenants that are affected by the pandemic aren't all necessarily Lower grade tenants, many of them just had some unfortunate situations, and we are working with them, and I would expect A number of them will remain tenants and be very, very strong tenants. But there has been a huge benefit That the pandemic has also given us. And that is what you have seen in this enhanced demand. It's not that anything's changed. It's just the spotlight has been on the value proposition that you get from single family rental living. And now more people understand that benefit. So I expect the demand to remain very, very strong. I do expect the bad debts To remain in levels that they are today until we have the pandemic kind of starts unwinding and that bad debt We'll naturally unwind as well. So I see it as more of a speed bump and an opportunity for us in the future. As that unwinds, it will benefit the bottom line. Thank you very much. Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question. Hi, guys. Congrats on the quarter and the year. Just following up on the rental rate growth, I think Brian mentioned on one of the questions that there are factors on the renewal side that caps the amount you can raise on rent. So despite Strong leasing activity. I'm just curious to know if there are potential limitations such as HOA rental restrictions or Some other factors we need to be mindful of? Hi, Sam, it's Brian. The only restriction on renewals that is legislative is in the state of Washington, which is capped at 0%. What I was referring more to was really the way that we're interacting with our residents, our long term relationships that we have with them And the reasonableness of these annual increases, there is a big benefit to our improved retention And we're not marking our renewals to market. That would dramatically increase our move outs. We've tested certain things on the renewal side, but there is a little bit of a gap right now between renewal and re leasing rate growth. Got it. Okay. That's really helpful color. Just on the property additions that you did in 2020, I'm seeing that you had 120 homes in your all other category, which makes up around 50 markets, I think. What are your plans going forward on thinking about building density in those areas? Because from what I'm seeing, Your portfolio additions have been mostly making the strong scale markets even better. Yes. This is Jack. Thanks for that question. We are growing some of the Other markets that we didn't gain as much scale in early on, Boise is a perfect example. They're seeing a lot of in migration And good rate growth and property value growth. And I think we didn't add that many last year To Boise through the development program, it was about 25, but we have 503 lots There for future development. So I expect that to come out of the other category eventually. And there's a couple other markets Where I would expect them to come out of the other category eventually. Thank you. Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question. Thanks. Jack or Dave, on some of your competitors' build to rent communities, do you Back to the next few years to be a consolidator of the early vintages of these Build Direct communities or is pricing too aggressive? Yes. John, it's Dave. I will say that's a wait and see as sense for our portfolio, both from a location standpoint and a quality of asset standpoint, but also a pricing standpoint. And I do know that there are a number of people looking at build to rent And that they are building homes and they're finding it difficult to manage. So those opportunities may become plentiful In the future, and if they are priced at a reasonable price, yes, we'll be looking at acquiring those. Okay. And then Brian, a question for you on releasing spreads. I'll take a look at markets like Phoenix up 17%. Is revenue enhancing CapEx Do you see in any of these markets or could we interpret this as organic growth? Yes, John, that's a good question. Most of it is organic growth. The revenue enhancing CapEx component It's still small, probably contributing in the neighborhood of 20 to 30 basis points to that rate growth. But we are very Very happy with the results of that program. The fantastic outsized rate growth in Phoenix is still continuing into this year. We have other markets that are equally hot, so to speak. The organic growth though is the major contributor to that. Okay. Thanks. Thank you. Our next questions come from the line of Dennis Mikhail with Geltman and Associates, please proceed with your question. Hello. Thank you, guys. First question, just on the land side. You had mentioned, And I think controlling about 10,000 lots today and then that was going to go to I think 11,000 to 13,000 by the end of the year. Can you just provide a little detail on the structure of the control and how much of that is owned versus optioned and what you're finding with respect to Also in developed versus raw, etcetera, just what you're finding with respect to bidding on incremental or signing those incremental contracts today from a land inflation standpoint? Yes. So if I'll take it oh, you want to take it, Jeff? Go ahead. Sure. Yes. So in terms of the additional 3,000, we show 7,000 that we own on the balance There's an additional 3,000 homes in escrow. We have not used options Yes. We probably will at some point. So we expect to out of those 10,000 lots Controlled, we expect to deliver about $2,000 bring it down to $8,000 and buy another $4,000 during the year. I expect that we'll get more sophisticated on our lot acquisitions or controlling lots as necessary. What's been the hesitation with using option contracts thus far? Yes, Dave. To date, we haven't needed to. We've had capacity on our balance sheet. But now that we and we were in more of a Early phase of doing proof of concept and getting the infrastructure in place. Now that it's being ramped up, Option contracts are being we are in a number of discussions today about option contracts. So I think it's not a hesitation. It's just where we are in the lifecycle. Okay, understood. And then a separate question. I think the number you had mentioned on applicants from out of state was I think you said up 30%, but I wanted to clarify that. And then if you have also the share of application from out of state both this year and the year ago period? Hi, Dennis, this is Brian. Yes, I mentioned so I kind of added A new metric on my prepared remarks, the growth in 30% were from people coming from non AMH portfolio states To kind of eliminate the noise of someone moving from South Carolina to North Carolina. And that's up 30% year over year. So it's over 10% of our applicants are coming From non AMH states. And Brian, was that a percent how would that have compared to a year ago this year? A year ago, in the 7%. Thank you, guys. Over 10%. Thank you. Our next questions come from the line of Ryan Gilbert with BTIG. Please proceed with your question. Hi, thanks everyone. Just one question for me regarding turnover. And Brian, I The commentary you made around stickiness of your tenants, I think in the prepared remarks, you mentioned that Turnover expenses might pick up a bit in 2021, and it looks like the January average occupied days did tick down a bit Q4 2020. So I'm just wondering year to date what you're seeing regarding turnover and move outs in your portfolio and how you think that trends as we Sure. Yes, the first the start of 2021, it's really a continuation of 4th quarter. Any movement would be very slight in terms of occupancy. Our retention remains strong. I think specifically in the prepared remarks, I was referring to the additional turnover cost when collection practices return to normal. So you're going to be trading A little bit of occupancy and some heightened costs for improvements in bad debt in the long term. We're not exactly sure when that's going to happen, We wanted to make sure that we were being cautious in including that in our expectations. Okay, great. Thanks very much. Thank you. Our next question has come from the line of Keaton Carlin with Berenberg. Please proceed with your question. Hey, guys. So just a quick one for I'm kind of curious on your thoughts on eviction moratoriums long term. There's the news flow last night about the CDC The moratorium being unconstitutional and that state should have the final say. If this kind of happens, Do you see any specific states in your portfolio that would have a material impact as a result of this? Yes, Keegan, it's Dave. You're very up to date on what's occurring. Yesterday, the Eastern District of Texas The district judge did declare the CDC event or the CDC moratorium unconstitutional. It only impacts the Eastern District, which actually we have very, very few properties in. It's really in Northern Dallas in the Market, that's the only place we have properties. Doesn't impact Dallas, doesn't impact Fort Worth, Austin or San Antonio at this time. But regardless, I think if you the overall eviction discussion is evictions for our entire Time that we've been a company have been a means of last resort. And we talked about in prepared remarks and Brian's talked about here in some of the Comment about having good relationships with your tenant and being able to work out the issues. And hopefully, we can do that With anybody who has got a valid COVID impacted tenancy. And so I think There will be a time where the COVID period starts to unwind in many ways in this Economy and we'll get back to normal. And how the evictions play into it, we'll see at that point. But I don't really foresee any major changes in the short term and maybe not even in the long term. We'll use eviction very, very sparingly in collection process. Thank you. There are no further questions at this time. I would like to turn the call back over to David Sanger for any closing comments. Thank you, operator, and thank you to all of you for your time today. I'm excited about the opportunities we To drive growth for our shareholders this year and more importantly for the years to come. And we'll talk to you Next quarter on this call. Thanks again. Bye bye. Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.