American Homes 4 Rent Q3 FY2024 earnings call

• CEO David Singelyn handed over to Bryan Smith, reflecting on 12 years of building the company and pioneering the single-family rental landscape. - Bryan Smith highlighted strong year-to-date operating results, with better-than-expected first half performance and cost control in the second half. The development program is on track to deliver ~2,300 high-quality attached single-family homes with economic yields in the high 5s. - A single-family rental portfolio of nearly 1,700 homes across 13 markets was acquired for ~$480 million, which is highly synergistic with the existing portfolio. - Hurricanes Beryl, Debby, Helene, and Milton impacted the portfolio with estimated losses, but teams managed through industry-leading disaster preparedness and response programs. - Balance sheet shows net debt to adjusted EBITDA at 5.0x, $1.25 billion revolving credit facility fully undrawn, and over $160 million in cash available.

For the third quarter, AMH achieved 4.4% revenue growth compared to the prior year. On the expense side, same-home operating expense growth was 2.6% year-over-year. Core NOI grew by 5.4% for the quarter. In October, preliminary estimates showed a renewal rate growth increase of 5.4%, occupancy at 95.2%, and new lease rate growth at 2%. The AMH Development Program delivered 753 homes in the third quarter, with the wholly-owned portfolio delivering 640 homes. Disposition activity saw 256 homes sold for over $81 million in net proceeds.

• Reduced the midpoint of full year non-property tax-related expense growth expectations by 100 basis points to 4%. - Lowered the midpoint of full year property tax expectations by 100 basis points to 6% due to favorable assessment outcomes. - Lowered the midpoint of full year same-home core operating expense growth expectations by 100 basis points to 5%. - Increased the midpoint of full year same-home core NOI growth expectations to 5% and full year core FFO expectations to $1.77 per share, representing 6.6% year-over-year growth.

• Uncertain environment due to upcoming election and general economic conditions. - Pockets of near-term supply in certain markets. - Temporary disruptions from a series of significant weather events.

Q: Talk about the pricing dynamic for new customers and expectations for new leasing in the balance of the year into 2025.

A: Bryan Smith said demand is fantastic but there was some temporary moderation in new lease rate at the end of Q3 due to storms, but optimistic for Q4 and 2025 with expectation of capturing market rent growth as projected by John Burns (3%-4% in 2025).

Q: Color on bad debt.

A: Chris Lau said bad debt ran in the low ones in Q3, reflecting move-out season, and expected to seasonally moderate in Q4, with full year in the 1% area.

Q: Thoughts on the yield of the acquisition portfolio.

A: Chris Lau said the portfolio was acquired at an attractive entry point with in-place cash flow yields around 5%, and once optimized on the AMH platform, it is expected to reach 6% nominal yield through revenue optimization, economies of scale, and expenditure control.

Q: What to expect for occupancy in the next few months?

A: Bryan Smith said October activity picked up, confident of positive momentum into 2025 with expectation of capturing leasing season momentum in 2025.

Q: Motivation between development and acquisition.

A: Bryan Smith said both development and acquisition are good, development is a predictable and stable growth channel, while acquisition is a good supplement with quality assets that fit the buy box.

Q: Observation on portfolios that were passed on.

A: Bryan Smith said there was a higher proportion of townhomes and attached product in the portfolios that were passed on, and the preference is for single-family detached homes for better long-term returns.

Q: What are the demand metrics and about resident incomes?

A: Bryan Smith mentioned nearly a million new users on the website in Q3, and high stated household incomes of incoming residents as indicators of strong demand.

Q: Path of bad debt.

A: Chris Lau said historic bad debt was typically 70-90 basis points, current bad debt is slightly elevated but expected to move back with resident financial health and collections.

Q: Market rent growth in 2025.

A: Bryan Smith said most markets are expected to have market rent growth in the 3%-4% range, with markets like Savannah having higher growth and San Antonio having lower growth.

Q: Details on the acquired portfolio.

A: Chris Lau provided details such as average year built 2007, average size ~2,100 square feet, in-place rents ~$2,000, and expected to reach 6% nominal yield through optimization.

Q: Expense guidance reacceleration.

A: Chris Lau said there was a timing and comp factor due to the efficient expense comp in the fourth quarter of last year, but overall happy with controllable expense results which are being positively impacted by investments like Resident 360.