Earnings Call: Q2 2021

Aug 6, 2021

Greetings, and welcome to the American Homes 4 Rent Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Nick Frum, Senior Manager, Investor Relations for American Homes For Rent. Please go ahead, sir. Good morning. Thank you for joining us for our Q2 2021 earnings conference call. This is Nick Fron. I recently joined the Investor Relations team at American Homes 4 Rent and excited to be here today with David Singland, Chief Executive Officer Brian Smith, Chief Operating Officer Jack Corrigan, Chief Investment Officer and Chris Glau, Chief Financial Officer. Please be advised that this call may include forward looking statements. All statements other than statements of historical fact included in Conference call are forward looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward looking statements speak only as of today, August 6, 2021. We assume no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. A reconciliation to GAAP of the non GAAP financial measures we are providing on this call is included in our 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 release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4ant.com. With that, I will turn the call over to our CEO, David Stinklin. Thank you, Nick, And welcome to the team. Good morning, everyone, and thank you for joining us today. American Homes 4 Rent continues to lead the single family rental industry With strong operational performance and portfolio growth, robust rental demand and strong execution led to record breaking operating results That exceeded our expectations at the start of the year. This alongside our 3 pronged growth strategy Comprised of our internal development program, national builder program and traditional acquisition channels has driven outperformance in all areas of the business. As such, our expectations have increased across the board for the second half of the year. As I say every quarter, the single family rental market is stronger than ever as demand continues to soar. Roughly 17,000,000 households in the U. S. Are making a conscious decision to rent single family homes. Today, the national housing shortage sits at more than 4,000,000 homes. This coupled with our single family rental value proposition Provides the backdrop for continued long term rental demand growth. While COVID did not create this trend, It highlighted the benefits of single family rental living and the associated rental demand that has been building over the last decade. As I indicated, this country has a housing shortage. At American Homes 4 Rent, we are doing our part to solve this issue. Through our build for rent development program, we are providing beautiful Class A rental homes in vibrant, well located neighborhoods with Our properties combined with superior property management services and customer care Allow us to deliver a rental experience that is unmatched. Now turning to the 2nd quarter. We achieved record breaking results and reached new milestones on both the operational and capital raising fronts. Our recent equity and debt offerings have demonstrated both the strength of our balance sheet and our ability to efficiently access capital markets, raising the capital necessary to fund our growth programs. Growth remains our strategic priority And our performance is another area where we have exceeded initial expectations. Jack will provide additional color shortly. But here is the punch line. We are not only raising expectations on operations and earnings, We are also increasing our growth targets even further. Altogether, the revised midpoint of our 2021 core FFO represents sector leading growth of nearly 14%. Chris will provide you details of our guidance changes shortly. As I close, I Thank our employees across the 22 states where we do business, who persevered during this global pandemic enabled us to achieve record breaking performance. After more than a year of working remotely, we look forward to welcoming everybody back to the office this fall in accordance with state and local health advisories. Now, I'll turn the call over to Brian for more details on our operations. Brian? Thank you, Dave. Our strong momentum continued through the 2nd quarter, where we again set all time records for occupancy and rate growth. Same home average occupied days was 97.9%. New lease rental rate growth was 13.7 percent and renewal rate growth was 5.4%, blending to a record growth rate of 8 The growing strength of demand for our homes is confirmed by our internal data. Showings per rent ready property have more than doubled since last year and our customer satisfaction scores remain at an all time high. Our residents are prioritizing quality of life decisions more than ever, and they appreciate our best in class rental experience. Further, the incoming wave of millennials entering prime single family living years, Coupled with the current housing shortage, signals strong demand for years to come. In July, We continue to capitalize on the outstanding demand, which drove seasonal records in both rental spreads and occupancy. Same home average occupied days was 97.4%, which represents a year over year increase of 90 basis points. On the rate side, We posted new lease spreads of over 16.5% and renewal spreads of around 5.5%, which blends to a new record rate increase of 8.5%. For context, these blended spreads We're over 600 basis points higher than those from July of last year. For the full year, We now expect same home average occupied days to be around 97%. This represents an improvement of 50 to 100 basis points over both 2020 and our estimate at the beginning of the year. This increase includes our expectation that both seasonality and our collection And practices begin to return to normal during the second half of the year. Turning to rate. For the second half of the year, we expect renewal increases to be in the 5% to 6% range and new lease growth to continue to set seasonal records in the 8% to 12% range. Lastly, Our full year expectation for same home core operating expense growth remains unchanged. While we are seeing inflationary wage pressures and rising material costs, the efficiency of our platform has been able to mitigate some of these increases. Given the strength of our performance in the first half of the year, we are excited to raise our same home core NOI guidance by 200 basis points to 6% at the midpoint. In closing, I would like to thank the entire American Homes 2 Rent team for in our company's history, and we are well positioned to deliver exceptional operating results through the second half of the year. Now, I will turn the call over to Jack. Thank you, Brian, and good morning, everyone. Growth remains a strategic priority for American Homes 4 Rent and our differentiated 3 pronged strategy one of our development team's strong accomplishments. We debuted at number 45 on Builder Magazine's recently released 2020 National Home Builder Top 100 List. This is an important milestone for company that was reached in a relatively short period of time as this growth channel provides the company with the best rental home assets with the best economics. I congratulate our development team on this achievement. Our development program provides a value creating growth channel that will deliver pipeline of new homes regardless of the economic or competitive environment. Over the last 2 years, we have faced a pandemic, Rising land and commodity prices as well as supply chain and labor pressures and have demonstrated our ability to meet and exceed Expectations on volume as well as investment returns. These results should even get better with our increasing scale. The combination of our seasoned development team and best in class operating platform promises outsized returns for the foreseeable future. Our developments are on target for the year and we reiterate the midpoint of our guidance at 2,050 deliveries. On the land front, we successfully acquired almost 1400 lots during the quarter, bringing the number of lots we control on June 30 to over 12,000. Our 12,000 lots owned and controlled enables us to raise our guidance The 13,000 to 15,000 lots owned or controlled by the end of the year, putting us in a position to expand our development deliveries in future years. While our development program remains the backbone of our long term growth plans, our national builder and traditional channels represent nimble dials It can be turned up or down depending on the environment. Ultimately, this adds to our ability to remain flexible on growth and quickly adapt to individual market opportunities. Over the last few months, we have used that dial to increase our traditional channel investment activity by over $300,000,000 for the year. This brings the midpoint of our investment expectations for all three of our channels to $1,700,000,000 of total capital, including joint ventures. Tristan will give a more detailed breakdown shortly. In summary, I am proud of our execution so far in 2021. We continue to execute well on our differentiated one of a And we remain confident in our ability to deliver sustained and accretive growth into the future, especially as we utilize the dynamic nature of our 3 pronged growth strategy. Now, I will turn the call over to Chris. Thanks, Jack, and good morning, everyone. I'm excited to share my updates today as the second quarter was one of the strongest operational performances In the history of American Homes 4 Rent as well as an important quarter of new balance sheet milestones. Along those lines, I'll cover 3 areas in my comments this morning. First, a brief review of our outstanding quarterly results. 2nd, an update on our recent balance sheet milestones and capital markets activity. And 3rd, I'll close with a summary of our updated 2021 guidance, which has been increased across the board. Starting off with our results. As I mentioned, we reported one of the strongest quarters in the history of American Homes For Rent With a net income attributable to common shareholders of $20,100,000 or $0.06 per diluted share, dollars 0.33 of core FFO per share unit, representing 22.9 percent growth over prior year and $0.29 of adjusted FFO per share and unit, representing 26.4 percent growth over prior year. Driving this quarter's strength was our platform's ability to translate Record breaking demand into an outstanding performance within our same home portfolio, where we generated 6.6% growth in rental revenues, which was Further benefited by 90 basis points of contribution from higher fees and ancillary income and 80 basis points from lower COVID related bad debt, Translating into an overall 8.3 percent core revenue growth, coupled with a 2.2% increase in core property operating expenses, This translated into an impressive core NOI growth of 12.2%. Next, in addition to our Outstanding operating performance, our external growth programs fired on all cylinders, adding a total of 10.58 homes to our wholly owned and joint venture 4 16 of which were delivered from our AMH Development Program. Specifically for our wholly owned portfolio, during the quarter, we added 898 Homes for a total investment of nearly $290,000,000 which was comprised of 256 Homes From our AMH Development Program and 642 Homes from our other acquisition channels. And on the disposition side, we sold 97 properties The quarter generating total net proceeds of approximately $28,000,000 Next, I'd like to turn to our balance sheet and share a few updates around our recent milestone capital markets activity. This was a busy quarter for us as we executed on our strategy to accretively refinance Our previously announced $499,000,000 Series D and E perpetual preferred shares redemption as well as position ourselves for the expanded external growth outlook that Jack discussed, while maintaining our commitment to a best in class investment grade balance sheet. With those objectives in mind, during the quarter, we raised $661,000,000 of net proceeds in an oversubscribed and upsized common equity offering. The total net proceeds, $194,000,000 was received during the quarter with the remaining $467,000,000 or 13,200,000 shares being issued on a forward basis to minimize dilution as we match fund against capital deployment throughout the balance of 2021. Additionally, after quarter end, we issued another $750,000,000 in a dual tranche unsecured bond offering, consisting of $450,000,000 of 2.3 8 percent 10 year bonds and $300,000,000 of debut 30 year bonds priced at 3.3 8 percent. Both bond tranches were impressively oversubscribed and proudly makes American Homes 4 Rent the only b minus residential REIT and history to successfully issue 30 year bonds. At the end of the quarter, we had $40,600,000 of cash and $620,000,000 outstanding on our revolving credit facility that was repaid after quarter end with proceeds from the recent bond offering. At the end of the quarter, our net debt including preferred shares to adjusted EBITDA was 5.9 times. However, as we deployed growth capital Throughout the remainder of 2021, using both equity forward proceeds and additional borrowings from our recently recasted $1,250,000,000 revolving credit facility, We expect our leverage to trend into the low 6 times area. And speaking of the strength of our balance sheet, I'm happy to report that S and P also recently moved our rating outlook to the positive category in recognition of the continued strengthening in our balance sheet and overall credit profile. Finally, I'd like to provide a quick summary of our updated 2021 guidance, which has been increased across the board. Starting with the same home portfolio, as Brian already covered, recognizing our strong year to date results and continued record breaking seasonal demand heading into the 3rd quarter, We've increased the midpoint of our full year core revenues growth expectations by 125 basis points to 5.5%. Coupled with our unchanged core property operating expense outlook, we have increased the midpoint of our full year core NOI growth expectations by 200 basis points to 6%. Next, with respect to our external growth, since our update last quarter, we've increased the midpoint of our full year AMH Capital deployment expectations by approximately $300,000,000 to $1,500,000,000 which now includes between 3,500 And 4,000 wholly owned inventory additions. And when coupled with our joint venture programs, we now expect to deploy Total gross capital of $1,700,000,000 Putting it all together, we have increased the midpoint of our full year 2021 core FFO per share expectations by $0.05 which reflects stronger NOI contribution from both our same home And non same home portfolios, along with incremental partial year contribution from our expanded external growth expectations. At the midpoint of $1.32 per share, this now represents a year over year growth expectation of 13.8%. And finally, before we open the call to your questions, I'd like to share one more thank you with our teams and a congratulations to our Finance and Capital Markets teams. This quarter's balance sheet accomplishments are a testament to your hard work and dedication. Overall, this was an outstanding quarter of operational performance, Growth program execution and balance sheet management that demonstrates the power of the American Homes to Rent platform and our ability to create outsized value for years to come. And with that, we'll open the call to your questions. Operator? Thank you. To one question and one follow-up. Thank you. Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question. Thanks. Clearly, you're benefiting from the build to rent strategy so But as you see more and more capital come into the space, how do you think about your moat there or kind of the first mover advantages Of what is sustainable going forward, at least on a relative advantage standpoint? Thanks, Nick, for that question. Being the 1st mover gives us several years' advantage. We are buying land now for 2024 and 2025 deliveries. So people just getting in now, they have to go find the land and then and scale up their team. And we also have the benefit And the National Builders can do that, but they don't have the benefit we do of an outstanding operating platform. Thanks. Then when you think about the different yields, with the amount of capital coming into the space, how have they changed Across, I guess, development, 3rd party and then just flow acquisitions. Yes. If I understand your question correctly, the yields, because the rents have been going up, if As I understand it, there's we're undersupplied in housing by 4000000 to 5000000 units Across the country, so there's going to have to be a lot of development going on to affect the yields dramatically. We've been seeing red hot demand on our product. It's a great Product not only for renters, but it's just high quality, really nice product The people want to live in and in neighborhoods they want to live in, and we're seeing high demand and rents going up well above pro form a in most cases. Thanks. So no compression even with more capital coming in? Not at this point, and I don't see any Pathway to that until we start building more houses than households are being created. Thank you. Hey, Nick. It's Chris. Can I also just mention going back to the maturity of our development program and the quality of what it can produce, Just for you and the benefit of everyone else on the call, we have a great new video that's on our website, actually on the For Investors page? We give some great visuals of the quality of our product, parts of what differentiated in certain aspects of our communities as well as an intro to the team That I think does a great job giving some visuals of the story. So I'd encourage everyone to take a look at that. Again, it's on the For Investors page of our website. Thanks. Thanks, Nick. Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. You guys called out in the, I guess, press release the continued acceleration of new rent growth July and I know occupancy slipped a little bit, which may be a bit more of a seasonal factor than anything else. But Could you maybe just talk about the interplay between the occupancy and rent growth and how you're sort of thinking about that and managing both aspects of that moving forward? Steve, this is Brian. The occupancy change from end of June to July is just really a function of seasonality and move outs. The demand which is supporting the exceptional re leasing rate growth is still there. When you have Extra move outs during kind of a busy move out season like we're in right now, it takes a little while to get those houses back up. So That delta should get recovered soon. The great thing that we're seeing right now is we've been able to turn our homes much quicker. We've picked up on average cash to cash for Q2 was 25 days this year, which in comparison to last year There's a pickup of about 22 days. So there were extra move outs in July, but we're going to be recovering those quickly. And if you can take a look at the leasing velocity, there's just a little bit of time to get those new renters, new residents into the homes. So I don't think there's anything to be concerned about there. Rate growth continues to be fantastic and that's across all of our markets as well. Hey, Steve, it's Dave. Just let me clarify one point that Brian was making. When you look at occupancy, there's 2 occupancy numbers. There's average occupancy. There's end of period occupancy. End of period occupancy is always The highest number of the month, what you see is on average occupancy, the move outs beginning at the beginning of the month and then Yes, the turns occur and then you refill towards the end of the month. So what you're comparing is a little bit of apples and oranges. The demand is still as strong as we've ever seen it. Rate growth is very strong and I wouldn't infer anything by looking at End of June's occupancy and where we averaged out in the month of July. Demand continues to be as strong as we saw it last Great. Thanks, Dave. Maybe second question. Just maybe talk a little bit about land purchases. I mean, we realized that The housing market is under built, costs are going up everywhere. So maybe just talk about how you're sourcing land, how you're And how is that, I guess maybe impacting your outward development yields, if at all? It's really not affecting our yields. We're now getting to be known as Somebody who can execute and people are calling us with deals. And so we have access, especially in the markets We've been established in for quite some time. As we get started in Columbus, That's going to take a little longer to get to where all the brokers and landholders know us. But in most of our markets, we're known and we get access and we close our fair share of the deals at the The pro form a yields that we like. So Dave, just to quickly follow-up. I mean, I guess Our rent increase is just basically allowing yields on the development to stay firm even with land Prices and things like lumber and labor up? No, that's exactly right. We're getting well above pro form a Even though the pro form a costs or the actual costs are a little higher than pro form a, but we're also As we get more experienced and scale this up, we're getting more discounts and access to the quality, High quality subcontractors and contractors. Great. Thanks. So Steve, this is Dave. Just to basically summarize, as you There is a little bit of price increases in the supply chain, but the rents have More than taking care of that, the increase in rent. And as Jack indicated, we're actually Real bullish on the future that there could be rate expansion or yield expansion there as we become More and more efficient and get more and more scale resulting in better supply chain economies of scale. Thank you. Our next question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question. Hi. This is Adam Kramer on for Richard. Thanks for the time. Just wanted to touch a little bit more on the quarter to date or July trends to the best that you guys can I appreciate kind of the new renewal and blended lease figures? But wanted to ask a little bit more about kind of the some of the other income items that may have gone away during COVID. Do you see those coming back at all? And maybe also kind of how has bad debt trended In Q3 relative to Q2 and Q1. Yes. Good morning, Adam. This is Chris. I'll hop in on a couple of those and Brian can chime in if he wants to add any additional operational color. In terms of the other income Yes, fees, ancillary income, as you can see from the quarter, or even really the year to date, A number of our fee programs have been really making great progress as we continue to roll out certain things around pets, fee programs, etcetera. You can see that contributing on a full year basis. Fees are up about 42%. And then in this quarter, in particular, fees were up About 65% or so, part of that is absolutely the contribution from our fee and ancillary income programs and also recall We had a little bit of a softer comp in terms of late fees on a year over year basis as we were not charging late fees during those same months of the pandemic last year. On a full year basis, we are expecting those same trends to continue. General ballpark for the full year, we see fees adding about 40 basis points or so to same home revenue contribution. That's pretty consistent with what our expectations were at the start of the year. And then in terms of bad debt, I would say For starters, that we continue to be really happy with how strong and resilient our collections have remained throughout the entire pandemic, With as we know bad debt hovering really around that 2.5% area. But as we look forward, collections continue to be an area of uncertainty that we're Focused on case in point that the recent flip flopping and lifting and then reinstating of the eviction moratorium, I think is a great example. But with that said, heading into the Q3, our collections are continuing to remain very resilient and pretty steady with what we've been seeing. So I think we'll likely see The bad debt continue to hover around the 2.5% area for the Q3. And then we're optimistic that we'll begin to see further collections momentum before the end of the year and we could see 4th quarter bad debt improving a bit, maybe into the lower 2s or so with real further improvement continuing into 2022. Great. Appreciate the color there. Thank you. Just a quick follow-up. Just on kind of cap rates on acquisitions through the just kind of the traditional acquisition channels. What are you guys kind of seeing relative to 3 or Months ago, and then when you're thinking about kind of and I think you guys kind of referred to it as a dial that you can kind of turn on or off. How How do you kind of think about when I guess, right, to kind of dial it on or off? Is that kind of a cap rate driven Decision, is that more kind of on what's coming out of the kind of AMH development program at the time and then how much you want to augment with National Builder? Just maybe a little bit more color there and then kind of on that turning the dial on or off would be great. Yes. Thanks for Good question, Adam. This is Jack. I would say that prices obviously have gone up On the MLS transactions, rents have gone up. So we're seeing cap rate compression of about 15 to 25 basis points. So we've seen that. In terms of when we decide When to dial it up or dial it back, it really has it's a combination of what the opportunities are for investment and what our Cost of capital is and obviously with the debt deals and That we've been able to do, our cost of capital has gone. And then the second part has gone down. The second part of that is we're a total return investor. So even though we might see initial cap rate compression with rent growth, we The total return is actually going to be better than what we were buying in the past. Hey, Adam. It's Pat. Hey, Pat. Hey, Pat. Let me just add one couple of thoughts to that. The question really is, Jack and first, it's a balance between investment opportunity and availability and cost of capital. And having Three acquisition channels is huge for us, because as time moves on, those channels become The availability of new assets through each of those channels varies. And our development channel is by far the best Channel, but we supplement with very, very good acquisitions in the other 2. And as we see today, there is There's tremendous opportunities in our traditional channel. There is opportunities, but not as robust as The traditional channel national builder, but they're more limited. But it all gets down to looking at the cost of capital, The availability of capital and the investment opportunities. And today, our cost of capital is Significantly different than it was a year ago. And the investment opportunities are still very, very, very good. So we've ramped it up. Thanks for the time, guys. Thanks, Adam. Thank you. Our next question comes from the line of Jeff Spector with Bank of America. My first question is for Dave. I apologize, I missed. I think, Dave, you mentioned the total number of single family rentals today. And I was curious, we get asked a lot about The future of the industry, are there any recent forecasts on how Big the Pie may grow over the next few years? Today, the number of single family homes that are rentals It is essentially $17,000,000 That's a significant increase over the last 10 years from when it was $13,000,000 And $13,000,000 was the number for a significant period of time. Keep in mind that The majority of those single family homes that are rentals continue to be in the hands of individuals That own 1% to 4%, 96% to 97% of all the homes are in that category. The opportunity for growth is still significant. Couple that with what we talked about on the housing shortage. And the housing shortage of 4,000,000 homes needs to be resolved. So Individuals have a quality place to live and we are building to help that in a small way. But the other thing that we have seen and we've talked about this for many years is the demographic changes is to A little more preference of not having the current ownership Renter Group of 30 to 40 year old, they prefer in a much bigger way today than their predecessors and prior generations did at that Same age to rent. Life expect their life events are happening later for them and they're choosing to rent. So I expect there is no I haven't seen any projections, but I would expect the trend that we've seen over the 10 years going from 13,000,000 to 17,000,000 homes to continue. And I would expect to see that the institutions continue to be a big player In providing that quality housing. Okay. Thank you. And then my second question is Tackling affordability questions. I believe you typically you've said in the past Your applicants, it's dual income earners in most cases. And anytime just one person It's really applying, so it's one income, I guess. Can you tackle that question for us, affordability questions with rents rising so fast? Well, rents are rising, but home prices are rising at the same rate or in many cases Faster than rents are rising. And so when you look at affordability, affordability Is a relative comparison as to what the various opportunities are for housing and occupancy. And against the ownership equation, the affordability remains intact, but both As you point out, have increased. Thank you. Thank you. Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question. Thank you very much. When you allocate capital to land spend, do you have an IRR target or a return on equity target? Or alternatively, you use a stabilized cap rate based analysis. The homebuilders target typically Something around a 20% return on capital or return on inventory. So I was wondering if your return targets are similar to theirs And if not, whether that provides either a competitive advantage or potentially raises the risk of your overpaying for land. Yes. I wouldn't say we would risk overpaying for land. But we have a going in what the 1st year yield is, what the 5 year anticipated yield is and what the 10 year anticipated yield is, Similar to what you'd run if you were buying an office building and what the IRR is On that and if it meets our hurdle and is in the market and submarket we want that where we expect that kind of growth, Then we make an offer. We come up with what our MAX offer would be and we try to negotiate something Better than that. Hey, Jay, let me just add a couple of Jay, this is Dave. I'll add 1 or 2 other points. When we look at all of our acquisition channels, as Jack indicated earlier, it is a total return proposition. The development channel is a channel that we get higher current income, current cash returns. But there's one thing that people forget. Our investment in that house compared to all of our other channels that We would buy the equivalent house. We're investing approximately 20% to 25% less. So as soon as that home is completed, There is an embedded 20% to 30% development profit that is reflected as immediate HPA. And that in itself is value creation on the balance sheet. And that Sometimes it's forgotten piece of it. We look at the cash yields and what it does to FFO, but we're building and Creating value on the balance sheet every time we build our only home through our development pipeline. Which is because you're not choosing to sell the home on an owned or occupied basis, in which case you would Expect to earn that 20% to 25% margin, so perhaps you're realizing it through rent growth over time rather than an outright sale. Do you happen to know how the prices you're paying for land compared to homebuilders? Would you believe that they're similar to what homebuilders Are paying on a per lot basis for for sale housing? Or do you think that you're maybe paying a little bit more in exchange for The recurring earnings that rental housing provides. Jay, we're about to I would say Okay. Yes. I would say that we're competing with National Home Builders for parcels of land And sometimes we bid more and sometimes we bid less. It's really a question of The value that we perceive versus what they perceive and it's a competitive situation. So I don't think we're paying more all the time and then we're not paying less all the time. Yes. I mean, we do not win every bids that We attempt to acquire land. We it is a very competitive market. We are successful A very large percentage of the time, but we're also losing some Lots that we wish we had, but it is a competitive marketplace out there. Thanks for taking the questions. Thank you. Our next question comes from the line of Alan Peterson with Green Street Advisors. Please proceed with your question. Hey, everyone. Thanks for the time. I was hoping to follow-up a little bit on the land cost side there. In regards to, Jack, what you're seeing on the ground today, how much do you think land cost Have increased over the last year on the parcels that you guys are underwriting? Somewhere in the 20% range. Last year, we were paying on average $50,000 per raw lot And now it's closer to 60,000. We've gotten more efficient on the horizontal development, so we've brought that down a little bit To make up for it, so the total all in fully developed lot is relatively close to the same, right around 120,000. Perfect. That's helpful. And then, transitioning over to operations. Brian, I was hoping you can touch a little bit on the divergence between New lease rate growth and renewal rate growth. Is the current portfolio management strategy that limit turnover expenses instead of marking existing tenants up to market? Just trying to understand if there's a large embedded lease in any given market that you guys are operating in? Yes, Alan. There's always a balance on the renewal side with rate and occupancy. The preserving churn cost is a factor. But The best way to think about it, we're there's a timing difference. We're sending out the renewal notices 90 days in advance, Whereas with the releasing activities and pricing, we're pushing rates as far as we can On a real time basis, so we're able to capitalize on big surges in demand that we might not have anticipated. In addition, there are there's a lot of value in retaining Strong long tenured residents, so that plays a little bit of a factor as well. And then finally, there's the social responsibility aspect of it We're wary of the press and pressures that exist today in our industry. And we feel that Strong renewal growth that we're seeing right now is good, pushing it well into double digits to try to mark to market Might not be the best strategy today. Perfect. That's helpful. Thanks for the time, guys. Thanks, Alan. Thank you. Our next question comes from the line of Dennis McGill with Zelman and Associates. Please proceed with your question. Hello, everybody. Thanks for taking the question. I just want to clarify the comments about occupancy shifting from June to July. You went through this earlier. But Through April May, the same store occupancy was 97.9 percent the quarter or 97.8 percent the quarter was 97.9 percent. So I would say June was Hi, Mark. That's what we should be comparing to the 97.4%, correct? Yes. I think the seasonality of occupancy, you're going to see a peak in the June timeframe. The 97.4% is Slight reduction off of the average obviously and then the month end. But it's just a function of a larger gross number of move outs In July and they tend to move out at the end of the month too. So you can maintain excellent occupancy and have move outs that will affect The following month when the gross number of move outs is rising monthly. And I guess, Brian, just to continue on that, Where I was going with it, is it to imply that those were unexpected move outs because I know you've had a lot of success being able to pre lease on move outs that you know No, it's not. Keep in mind that's occupancy, not the lease rates. The lease rates are sky high. So that's actually contemplating the timing difference, the cash to cash timing difference of 25 days. So those move outs have been processed. Many of them have been pre leased, but it takes a little bit of time to get those subsequent move ins. We're seeing no drop off in demand. There's just some functional or some frictional vacancy that we're processing through right now. Okay. All right. That's And then back to the MLS underwriting, I think you mentioned that the compression in cap rates was 15 to 25 basis points. Can you just Talk about what the absolutes are today, maybe any variability that you're seeing by market. And then it'd also be helpful just to understand when you How do you think about both rent growth? Is there anything that you'd be assuming as far as inflation from where the market is today? And then also on the expense side, recognizing you're benefiting from lower than average expenses from some of the pandemic effect, how you think about the underwriting costs on those Yes. We underwrite to a standard Thanks. So the expenses aren't really going to change due to the pandemic. In some cases, those have gone up. In some Those have gone down, but overall, I think it hasn't really changed our margins Significantly, on the rental income, we typically underwrite to whatever rents are Currently at market for MLS transactions because so we get a 1st year NOI yield and we anticipate some growth generally in the 3% to 3.5% range. After that, in terms of rent, we've been getting a lot better than that. But that's how we look at it In terms of annual growth, and then certain markets might be a little higher growth And we'll pay a little more in terms of lower initial yield. Okay. And where are those yields, Ajak, maybe by on average and then on the extremes for market? I would say on average, slightly below 5%. And in terms of our MLS transactions, they're closer to 6% in terms of our Internal Development Program. Okay. Thank you, guys. Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question. Hi, guys. Congrats on a great quarter. Just going back to the 642 homes between that national builder program and the traditional way, just wondering about the exact Right now between the 2, I just want to compare, I guess, how much of that you capture on the traditional way this quarter Sure. Sam, it's Chris. The breakdown is using rough numbers About 570 through the traditional channel and about 70 through the National Builder. National Builder, pretty in line with what our expectations were, recognizing how tight that environment is. Our expectations were relatively modest coming into the year and the quarter. And then that 570 on Traditional channel side is definitely above what our prior expectations were. And I think it can give you a good idea of that ramp up That we're seeing as our team executes really well out in the field, sharpshooting transactions as we're really leaning into that channel With our expanded capital into it throughout the balance of the year. Got it. That's helpful color. I guess one big picture thing from me. I mean, you guys have made it clear in the past that having that local market scale for the density is really important for efficiency. Now Just thinking about those smaller markets of interest to you guys like Seattle where the scale is not there. I guess those markets, Simon, you guys have a vision for those through that build for rent channel. So I'm just curious how you're strategically mapping out The efficiency picture there, because it seems like you might have some control, but just having more color on that as opposed to, I guess, your bigger Core markets where the build out story was different would be interesting to hear from you guys. Yes. Sam, it's Dave. And going back, we have talked about the benefits of having 30 markets. We've also talked about the fact that we are efficient in these 30 markets, because our operations are highly centralized. And in each of the markets, we have people on the field for maintenance. But as we continue to grow even in our large Markets, we continue to add more maintenance personnel. So we today, Out of all 30 markets, we're efficient in the vast majority of these markets. And I would say the ones that we're not, we're It's 1 or 2 of those of the markets we're in. And we're growing in those markets. And then we the growth in those markets We'll improve the efficiency in those markets. So we've always talked about the efficiencies of our Platform begin with the fact that it's highly centralized. And if you look at the total cost for us to manage Our operations taking all of the cost of operations, whether it's property management and G and A and Looking at it as a percent of revenue, where is efficient or more efficient than everybody else in the residential sector. And so it's and I think there's some information and Chris can walk you through later, but it's in the supplement, I believe. Got it. Helpful color. Thank you, guys. Thanks, Sam. Thank you. Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed with your question. Hi, thanks guys. I appreciate all the detail you provided so far. First question for me is, What's the or do you have a sense of the underlying labor and materials inflation in your business? I think in the past, we've talked About maybe around 5%. And also when you're getting units back that are that Where the previous time is vacated, are you seeing any changes in the need for current CapEx or expense relative to prior years? Hi, Ryan. This is Brian. I'll start with the labor and materials. We are seeing some Inflationary pressures on both. I think the most obvious areas would be materials such as appliances and so forth. We're seeing inflation in the 10% range. Our procurement teams, our purchasing teams have done a fantastic job It's helping to protect us from those increases with national contracts, really exceptional processes. And The most important factor really is that we are trying to do more and more in house. A lot of that those inflationary pressures are in relations to 3rd party maintenance and turn vendors. So we've been able to handle more work in house and protect ourselves from some of those cost increases. They're in the marketplace, but we've done a great job of really mitigating those big changes. And then in reference to Any change in the turn profile on the homes that we're receiving back now? I haven't seen any marked difference. We're benefiting a little bit from few returns, but the cost The condition on those houses that are being returned to us is consistent with prior quarters. And Brian, it's Chris. Just to add a thing or 2 from a numbers perspective, just to frame what Brian was saying around the inflationary piece. Keep in mind, a lot of that was also contemplated in our expectations coming into the start of the year. So between contemplating a portion of that And then just how well our teams have been executing. I think you can see that reflected in the fact that our expense view on the year remains unchanged. And then on the turnover piece, keep in mind the other thing that is also included in our guidance is as we progress throughout the back part of this year and as Our collections continue to optimistically gain momentum. As we've talked about the last couple of quarters, we would likely expect that Translate into a temporary period of elevated move outs as we're working through some of those collections, which may come With an incremental turn cost as a result of that volume, but all of that contemplated in our guidance at The start of the year, which remains unchanged coming into this quarter as well. Okay, got it. Appreciate that. Second question On the just in the national builder channel, when you're evaluating opportunities, are you noticing a difference in yields between Like full purpose built, built to rent communities versus buying a series of 1 ops or maybe just a portion of a community that would otherwise be sold to the owner occupant? No, but we haven't had a lot of opportunities to buy National Home Builder Full Communities, we've done a couple with those and none this year. And those were Basically, at some modest discount to what they could sell them for at retail. So and the yields were pretty close to what we were seeing on the MLS. Hey, Ryan, it's Dave. Just to supplement a little bit, the homebuilders have had a very, very Strong retail season in 2021 and the pricing of those opportunities from the National Home Builders Have been less than what we have seen in prior years. We continue to have dialogue with many homebuilders. We have Acquired homes in the past from many homebuilders. It's not just 1 or 2. So we have relations there. But as Jack indicated, this year the pricing has gotten a little tighter and it really is driven against their The homebuilders' opportunities and they have an opportunity right now to sell retail at very attractive prices. Okay, great. Thanks very much. I appreciate it. Thanks, Ryan. Thank you. Our final question today comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question. Hey, everyone. On land, you mentioned In the prepared comments that you're buying for the 2025 deliveries right now, can you talk about if that duration is about right at this point, like next year you'll be buying for 2026 or what would make that longer or shorter? Yes. The typical time period for 1 of our, Let's say average size developments of 80 to 120 homes is 18 to 24 months To go vertical and then when we're going to go vertical, we meet with Our property management team and talk about what the ideal level of absorption would be and then we Structure the cadence of those deliveries accordingly. So we might do typically 6 to 10 Per month and maybe cut it back in the winter and bump it up going into spring. So that's kind of The cadence, so you got 2 years, let's say 2 years land development and then the vertical costs over The vertical goes over whatever the cadence is. So let's say it's 100 houses and you're doing 10 a month, it's going to take 10 months To finalize the community. Okay, okay. Got it. And then I was curious if you have any demographic data in terms of where new residents are moving in from? And have you seen any changes in terms of Maybe people like selling their homes and moving into a rental or people moving from multifamily either in a greater or lower proportion than they used to. Hi, Brad. This is Brian. Yes, we're seeing some interesting trends continued. On prior calls, we've talked about The migration out of some of the coastal markets, specifically California and New York and New Jersey, that's continued to accelerate. The applicants from non AMH states, so people coming from states outside of our footprint, was up 50% year over year. And with the largest most notable increase, 70% increase from people from coming from California. The demand has just been fantastic, especially when you look at the Western states, people moving from California to Nevada, Idaho, Arizona, it's just it's really been strong and doesn't seem to be letting up at all. With regards to applicants and residents coming from multifamily, It's been consistent. We've seen a slight uptick of late, but at the beginning of the pandemic, we saw a big boost. And it's moderated a little bit then in terms of growth, but it's still a significant feeder for our demand pipeline. Okay. Thank you. Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Singleton for any final comments. Thank you, Melissa, and thank you everyone for your time today. We are pleased Our operational and growth execution this quarter and are positioned for continued strong performance and growth in the quarters ahead. We'll talk with you again on next quarter's call. Have a good day. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.