Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- American Homes 4 Rent reported a core FFO per share of $0.43, showing a 5.8% year-over-year growth.
- Demand for single-family rentals remains robust, supported by macro drivers such as national housing shortages and demographic trends.
- The company's Development Program continues to expand, aiming to deliver between 2,200 and 2,400 homes this year with high economic yields.
- Operational efficiency is highlighted by strong leasing momentum and occupancy rates, with same-home core revenue growth of 5.3%.
- American Homes 4 Rent is making significant strides in sustainability, with newly constructed homes being 54% more energy-efficient than typical American homes and the corporate headquarters receiving LEED Gold Certification.
Negative Points
- Core operating expense growth was reported at 5.9%, which could pressure net income if it continues to rise.
- The high-for-longer interest rate scenario might constrain new housing supply, potentially affecting future growth opportunities.
- Despite strong demand, the company noted the necessity of discounts to achieve desired yields from national builder acquisitions, indicating pricing pressures.
- The company's reliance on the Development Program for growth could pose risks if there are delays or increased costs in construction.
- While bad debt improved in March, there are ongoing concerns with local municipal and court system processing times, which could affect future collections.
Q & A Highlights
Q: Just wanted to ask about external growth and opportunities for portfolio acquisitions, if there's anything out there that would be of interest? And if so, where do you think yields are? And as a subset of that question, could you give us a sense of where your development yields are on a nominal basis pre-CapEx just so we can comp it apples-to-apples with where some of your peers are quoting cap rates at?
A: (David P. Singelyn - CEO & Trustee) In the first quarter, we analyzed over 35,000 homes from national builders, with about 15,000 in our markets. The economic yields for desirable locations and quality were in the high 4s to low 5s. To make these deals work, we would need about a 15% decline in transaction price at current rent levels. For our development yields, they are in the high 5s on an economic basis, adding 10-20 basis points on a nominal NOI basis.
Q: It looks like the reduced bad debt and higher fees added 50 bps to your same-store revenue this quarter. So I was just curious whether you think that's sustainable going forward and whether you've seen a step down in bad debt recently.
A: (Christopher C. Lau - CFO & Senior EVP) First quarter bad debt was just under 1%, showing improvement in March due to strong execution across markets. However, local municipal and court system processing times have not changed significantly, so it's premature to adjust our full-year outlook on bad debt.
Q: Great. So maybe just shifting over to the expense side. As you -- I know you maintained your guidance. But as you think about some of the moving pieces, anything you think that may be trending higher or lower than your original expectations?
A: (Christopher C. Lau - CFO & Senior EVP) Overall expense growth outlook remains unchanged at 6.25% at the midpoint for the year, with property taxes expected to grow in the low 7% area, insurance growth in the high single digits, and about 5% inflationary growth on controllables.
Q: Maybe first, this seems a little technical, but I saw you reclassified 139 homes from the Seattle market to the Portland market. I guess, just given the cities over 3 hours apart, what drove that?
A: (Bryan Smith - COO) The reclassification was due to some homes being in the Portland MSA but actually in Vancouver, Washington. There's no significant change in management or operations due to this adjustment.
Q: Wanted to ask about your views on new and renewal growth for the full year.
A: (Bryan Smith - COO) Expectations for full-year new and renewal rate growth remain similar to previous guidance, with new lease rate growth strong and renewal rates expected to be around 5%. We are mindful of seasonality and managing expirations accordingly.
Q: Congrats on paying down the securitization. I'm curious, if we look out 12 months from now, could you give us a better picture of what your capital stack would likely look like?
A: (Christopher C. Lau - CFO & Senior EVP) We plan to refinance our remaining securitization into the unsecured bond market by the end of the year. By the end of 2025, we aim to have a 100% unencumbered balance sheet, transitioning away from securitized debt.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
