American Homes 4 Rent (NYSE:AMH) Q4 2023 Earnings Call Transcript February 23, 2024

American Homes 4 Rent isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the AMH Fourth Quarter 2023 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Fromm, Director of Investor Relations. Thank you, you may begin.

Nick Fromm: Good morning, thank you for joining us for our Fourth Quarter 2023 Earnings Conference Call. With me today are David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; and Chris Lau, Chief Financial Officer. Please be advised that this call may include forward-looking statements. All 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 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, February 23, 2024. 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 of GAAP to non-GAAP financial measures is included in our earnings 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.amh.com. With that, I will turn the call over to our CEO, David Singelyn.

David Singelyn: Thank you, Nick. Good morning, everyone, and thank you for joining us today. As you may have seen in last night's press release, I announced my intent to retire at the end of the year. It has been an honor to lead this company over the past 12 years, and I cannot be more proud of the leadership team we have in place, who are ready to take the rein. I want to congratulate Bryan Smith, our Chief Operating Officer, who is named to be our next Chief Executive Officer upon my retirement. Bryan is a talented and experienced executive who has driven our business strategy and operations since the beginning. Additionally, we have elevated Chris Lau, to the role of Senior Executive Vice President and Chief Financial Officer.

I know with this highly talented management team, AMH stands ready to seize the opportunities ahead. Now I will provide some brief comments before I turn the call over to Bryan and Chris. 2023 marked another year of resilient and durable growth at AMH. For the full year, core FFO per share grew nearly 8% driven by sustained long-term rental demand, superior operational execution supported by our strategic initiatives and consistent production out of our development program. The single-family rental sector and the AMH platform continued to benefit from supply-demand imbalances. The national housing shortage, driven by limited homes for purchase in the open market has created challenging home affordability dynamics for home-buyers. AMH is doing its part to solve this housing shortage.

We are adding new supply to the market and operating high-quality assets in desirable family-friendly locations at a significant discount to the cost of ownership. We are well-positioned to deliver consistent results for years to come. On the growth front, our primary growth channel is an internally developed homes that are well-located, high-quality, and have superior maintenance CapEx profiles as compared to our legacy portfolio. Having full control of the growth program allows us to dial up or dial down our delivery phase in certain markets to appropriately manage our capital plan. Our Traditional and National Builder acquisition channels continue to be largely on pause, given our current cost of capital. When these acquisition opportunities become more attractive, we will be ready to quickly capitalize and supplement our in-house development deliveries.

While the acquisition and capital market environments are not conducive to accretive growth from the MLS or National Builder channels, it does continue to be a great time to lean into dispositions. The single-family rental asset class has the unique ability to be managed on an asset-by-asset level, which provides the ability to recycle capital at attractive economics. On a personal note, it is bittersweet leaving AMH where I co-founded the company and had a hand in building the SFR industry and team from top-to-bottom. I am proud that AMH is well-positioned to continue our success in delivering high-quality housing to our residents and superior returns to our investors. I will see many of you over the next 10 months, but I know after I retire, I will miss the people I've worked with, within and outside the AMH community.

I'm internally grateful for those relationships that have been created. And now, I will turn the call over to Bryan for an update on our operations.

Bryan Smith: Thank you, Dave. I'm excited to have the opportunity to be the next CEO of AMH. Over the next 10 months, Dave, Chris, and I will work together to ensure a smooth and seamless transition. Our strategy remains the same, with stability, consistency, and predictability at the center. On a personal note, I want to congratulate Dave on his planned retirement. Dave, thank you for your leadership, your mentorship, and your friendship. I'm honored to follow in your footsteps. 2023 was another great year at AMH characterized by strong execution from our teams and the full return to seasonality. Demand remains strong as we approach the spring leasing season. And although some metrics have normalized, we continue to see improvements in key areas such as website traffic, which was up 11% year-over-year in the fourth quarter.

Moving on to fourth quarter operating results, Same-Home average occupied days was 96.2% representing normal seasonal effects and slightly elevated turnover. This modest decline in occupancy was balanced by strong fourth quarter new renewal and blended rate growth of 4.5%. 6.2% and 5.7%, respectively. All of this drove 5.5% Same-Home core revenue growth for the quarter, meeting the midpoint of our full year revenue guide of 6.5%. Turning to expenses, fourth quarter core operating expense growth was 4.5%, primarily driven by negative property tax growth due to a true-up in the same period of last year. For the full-year, core operating expense growth was 9.1% which was slightly below the midpoint of our expectations due to better-than-expected controllable expenses.

All of this resulted in 6% and 5.1% Same-Home core NOI growth for the fourth quarter and full year respectively. Turning to our 2024 outlook, the year is off to a steady start as we head into spring leasing season. For the month of January, Same-Home average occupied days was 96%. And new and renewal spreads were 4.3% and 5.7%, respectively. This resulted in blended rate growth of 5.3% for the month. On a full-year basis, our Same-Home core revenue growth outlook is 4.75% at the midpoint. This was primarily driven by forecasted growth in average monthly realized rent of 5% to 5.5% which breaks down to an earn-in of approximately 3% from last year's leasing activity and the partial year contribution from expected 2024 spread in the high 4% area.

On the occupancy front, we expect sector demand drivers to continue to fuel sustained occupancy levels in a low 96% area, which continues to be above our long-term average. Looking ahead to core property operating expenses, our 2024 Same-Home expense growth outlook of 6.25% at the midpoint reflects another year of elevated property taxes and inflationary impacts specific to our business. Chris will provide more details on the expense components in a moment. But I want to emphasize that overall expenses continue to moderate and our teams have done a great job keeping controllable expenses in check. Taking the midpoint of our Same-Home revenue and core operating expense guidance, Same-Home core NOI growth is expected to be 4% in 2024. In closing, I'm very pleased with our position as we start the year.

We will continue to focus on operational execution from the core, continued commitment to providing the best possible resident experience, and responsible growth from our investment programs. With that, I will turn the call over to Chris.

Chris Lau: Thanks, Bryan, and good morning, everyone. Before I get into my regular updates, I wanted to say thank you to Dave. Dave, I genuinely appreciate your many years of vision and mentorship and I look forward to helping carry on the AMH legacy. Additionally, I also wanted to say congratulations to Bryan and I look forward to our next chapter. Now turning back to my regular updates, I'll cover three areas this morning. First, a brief review of our year end results. Second, an update on our balance sheet and recent capital markets activity. And third, I'll close with an overview of our 2024 guidance. Beginning with our operating results, we closed out 2023 with another quarter of consistent execution, with net income attributable to common shareholders of $76.6 million or $0.21 per diluted share, and $0.43 of core FFO per share and unit, representing 8.8% year-over-year growth.

And for full-year 2023, we generated net income attributable to common shareholders of $366.2 million or $1.01 per diluted share, and $1.66 of core FFO per share and unit, which represents the high-end of our most recent 2023 guidance range. From an investment standpoint, during the quarter, we delivered 503 total homes from our AMH development program. This was comprised of 456 homes and 47 homes delivered to our wholly-owned and joint-venture portfolios respectively. On a full-year basis, we delivered a total of 2,317 AMH development properties, which was modestly better than the midpoint of our expectations. Outside of development, our Traditional and National Builder acquisition programs continued to remain largely on pause as we acquired just 25 homes during the quarter.

On the disposition front, we saw another quarter of solid activity, selling 241 homes at an average disposition cap rate in the mid-3% area, generating $72.5 million of net proceeds. Next, I'd like to turn to our balance sheet and recent capital activity. At the end of the year, our net debt including preferred shares to adjusted EBITDA was 5.4 times. We had $59 million of cash available on the balance sheet and our $1.25 billion revolving credit facility, adding $90 million drawn balance. Additionally, throughout the fourth quarter and beginning of January, we sold approximately $3.7 million Class A common shares under our ATM program, at an average sales price of $36.36. These sales generated total net proceeds of approximately $133 million and will be used to fund a portion of our 2024 capital plan that I will talk more about in a couple of minutes.

Additionally, last month we opportunistically took advantage of an attractive market window and proudly became the first single-family rental REIT to issue unsecured green bonds. In addition to being an important capital raise, our green bond issuance further highlights our commitment to responsible business practices and sustainable building standards. From an execution standpoint, the transaction was meaningfully oversubscribed with investor demand which allowed us to drive attractive pricing, with an all-in interest rate of 5.5% and upsize the transaction to $600 billion, which will be used to fund a portion of our 2024 capital plan. Thank you to the team for making this transaction possible and helping us set another industry milestone.

Next, I'd like to share an overview of our initial 2024 guidance. For full year 2024, we expect core FFO per share and unit of $1.70 to $1.76, which at the midpoint represents year-over-year growth of 4.2%. And for the Same-Home portfolio at the midpoint, our expectations contemplate core revenue growth of 4.75% which Bryan discussed a few minutes ago, along with core property operating expense growth of 6.25% driven by property tax growth in the low 7% area, which as expected is beginning to reflect moderation from the past few years, and 5.25% growth on all other expenses reflecting the general inflationary environment and insurance expense growth in the high single digits based on a successful renewal campaign that becomes effective at the end of this month.

In putting together our Same-Home portfolio revenue and expense growth expectations, we expect 2024 Same-Home core NOI growth of 4% at the midpoint. From an investment standpoint, as we shared last quarter, given the nature of the ongoing capital markets environment, responsible and controlled growth remains a top priority in 2024. With that in mind, we have strategically sized our 2024 investment programs to remain consistent with last year and expect to deploy between $1.1 billion and $1.3 billion of total capital in 2024, adding between 2,200 and 2,400 newly constructed AMH development homes through our wholly-owned and joint-venture portfolios. Specifically for our wholly-owned portfolio, at the midpoint of our ranges, we expect to invest approximately $1 billion of AMH capital, consisting of $750 million or 1,900 homes added from our development program along with $250 million combined investments into our wholly-owned development pipeline, pro rata share of JV investments, and property enhancing CapEx programs.

Additionally, as we talked about last year, we have two legacy securitization loans that matured during the fourth quarter of this year. As a reminder, the two securitizations have a combined principal balance of approximately $940 million with an average interest rate of 4.4% and are now freely pre-payable without penalty. After the success of our January green bond offering, we recently gave notice to pay off one of our upcoming maturities by the end of the first quarter. In addition to responsibly addressing a portion of this year's maturity schedule, the payoff will unencumber approximately 4,500 properties that can now be fully reviewed by our asset management and disposition teams. With respect to our remaining 2024 maturity, we expect to opportunistically monitor the market for refinancing windows and have contemplated a midyear payoff in guidance.

With that said, we have the ability to be patient and if necessary, can comfortably backstop our remaining 2024 maturity using our $1.25 billion revolving credit facility. From an overall capital plan perspective, taking into consideration our investment programs and securitization maturities, we expect total 2024 AMH capital needs to approximate $1.9 billion that we plan to fund through a combination of retained cash-flow, approximately $400 million to $500 million of recycled capital from dispositions, equity capital including approximately $130 million of the ATM equity net proceeds I talked about earlier, $600 million from last month's green bond issuance and approximately $500 million of additional capital that we plan to raise for the unsecured bond market over the course of 2024 or warehouse on our revolving credit facility if needed.

Finally, as we also announced this week, given the ongoing growth in our business and taxable income, our Board of Trustees recently approved an 18% increase in our quarterly distribution to $0.26 per share. Needless to say, this is yet another testament to the strength and consistency of our platform as we continue to create value for our shareholders into this next chapter for AMH. And with that, thank you again for your time. We'll open the call to your questions. Operator?

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