American Homes 4 Rent

American Homes for Rent saw a tremendous opportunity due to the wide affordability gap between renting and owning

The COO of American Homes 4 Rent told analysts that “affordability gap between renting and owning is that its greatest at least that I’ve seen,” “BRYAN SMITH, American Homes 4 Rent – COO: Thank you, Brian. This is Bryan. The affordability piece, it’s very interesting. If you take a look at our business, I think the affordability gap between renting and owning is that its greatest at least that I’ve seen, it’s about 17% cheaper or less expensive to rent right now in our markets than it is to buy. That being said, migration patterns, and we’re tracking those very carefully, as you know, paying very close attention to our applicants incomes”. (Q2 2022 American Homes 4 Rent Earnings Call, 8/5/2022)

The CEO of American Homes 4 Rent: “I think you’re going to see dislocation in this housing market as well, giving us tremendous opportunity.” “DAVID P. SINGELYN, American Homes 4 Rent – CEO & Trustee: Well, you can have people on the sidelines, but they also have to be able to afford the offering. And when you think about interest rates rising and you go with a home mortgage and you go from 3% to 5.5%, it’s a significant increase in the payment, reducing affordability. And this is not about demand. I mean, I’ll give you a comment on demand in a second. But it’s all about the pricing of the homes based on affordability to me. I — you mentioned 10 years ago the concept of recession, at least a housing recession back. And that’s when we built this company when we had tremendous opportunities. There is dislocation in the housing market. I think you’re going to see dislocation in this housing market as well, giving us tremendous opportunity. It will be driven by different factors.” (Q2 2022 American Homes 4 Rent Earnings Call, 8/5/2022)

CEO of American Homes 4 Rent: “Over 40 years, I do not know of a year in those 40 years where there has been a decline in rental rates on a national basis.” “DAVID P. SINGELYN, American Homes 4 Rent – CEO & Trustee: But when I look at demand, I guess it’s demand on two sides. Demand for rentals. Demand for rentals has always been strong. Over 40 years, I do not know of a year in those 40 years where there has been a decline in rental rates on a national basis, and occupancy has always been strong in the ’90s.” (Q2 2022 American Homes 4 Rent Earnings Call, 8/5/2022)

American Homes 4 Rent said their rents were increasing nearly 8% with no relief coming due to constrained supply 

The COO of American Homes 4 Rent noted that the incomes of their applicants rose 9% YoY while rents rose nearly 8%” “BRYAN SMITH, American Homes 4 Rent – COO: The best metric that I can give you for this year is through the first 6 months, our applicant incomes have risen about 9% year-over-year. And the rents that they’re applying for have risen a little bit less than 8%. So not only are we maintaining that really strong income to rent ratio, it’s actually improved a little bit. And I think part of that is due to the migration patterns, the strong out-migration from California and the Northeast. The other part of it is due to just really high demand for our product and an appreciation of the value proposition.” (Q2 2022 American Homes 4 Rent Earnings Call, 8/5/2022)

COO of American Homes 4 Rent: “the demand backdrop is fantastic. I don’t see any supply relief. I don’t see any new supply coming into the market that’s really going to eat into that. So I anticipate having pricing power through the balance of this year.” “BRYAN SMITH, American Homes 4 Rent – COO: Anthony, this is Bryan. That’s a great question. I can speak to the current demand environment and our expectations going forward. And as I talked about before, the demand backdrop is fantastic. I don’t see any supply relief. I don’t see any new supply coming into the market that’s really going to eat into that. So I anticipate having pricing power through the balance of this year. And my expectations operationally are to be able to enter next year in a position of strength, strong occupancy, good momentum to take advantage of the spring leasing season when it arrives. So everything’s really lined up nicely to have continued growth.” (Q2 2022 American Homes 4 Rent Earnings Call, 8/5/2022)

American Homes 4 Rent suggested rising interests rates and low housing supply were a good sign for his company

American Homes 4 Rent’s CEO said rising interest rates were leading to housing disruption, while “the resiliency of the single-family rental asset class is on full display.”  “David Singelyn – Chief Executive Officer: But first, I will discuss the macro environment. This country is in an uncertain economic period. Elevated inflation has been persistent and has forced the Fed to significantly raise interest rates. Today, the housing market is showing signs of disruption like it did in the 1980s and the global financial crisis. In this environment, the resiliency of the single-family rental asset class is on full display. Our national platform and strong balance sheet position us to capitalize on any opportunities that may arise. Cyclical durability has been at the core of the American Homes 4 Rent thesis from day one. Housing is a bedrock need and single-family rental fundamentals are supported by favorable long-term supply and demand dynamics.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent’s CEO said the housing shortage was “supplemented by the fact that renting today is significantly more affordable than homeownership.” “David Singelyn – Chief Executive Officer: On the supply side, our country has a housing shortage. This is only getting worse as projections for single-family housing permits continue to decline. On the demand side, our business continues to benefit as the value proposition of high-quality housing without the headaches of homeownership becomes more appreciated. Recently, this demand trend has been supplemented by the fact that renting today is significantly more affordable than homeownership. Using recent John Burns data, it is about 15% cheaper to rent versus own across our top 20 markets.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent CFO: “remember that our business is built on the fundamental need of housing, which continues to be in short supply with growing demand across our diversified footprint.” “Christopher Lau – Chief Financial Officer: And before we open the call to your questions, I would like to leave you with three key takeaways from our comments this morning. First, Dave is right. These are uncertain economic times. But remember that our business is built on the fundamental need of housing, which continues to be in short supply with growing demand across our diversified footprint.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent predicted “significant opportunities” thanks to “challenging times” and “housing disruption”

American Homes 4 Rent’s CEO: “With borrowing rates remaining elevated, challenging times may be ahead for private portfolios, homebuilders and landowners. This will likely result in significant opportunities for American Homes 4 Rent.”  “David Singelyn – Chief Executive Officer: With borrowing rates remaining elevated, challenging times may be ahead for private portfolios, homebuilders and landowners. This will likely result in significant opportunities for American Homes 4 Rent. Today, there is inventory of tens of thousands of builder homes and a growing backlog of homes on the MLS as days on market continue to elongate. While the majority of these homes are in secondary and tertiary markets or do not meet our quality standards, we are beginning to see price reductions on those homes that do. Today, these homes do not fit our yield requirements. But overtime, I believe we will see opportunities to acquire high-quality, well-located homes. While we are excited about these opportunities, our development program remains the best avenue for consistent growth.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent called it an “encouraging sign” that vacant developed lots were becoming available for acquisition.  “David Singelyn – Chief Executive Officer: Today, we see two encouraging signs. First, high-quality and well-located lands becoming available, including vacant developed lots that are ready for vertical building. We continue to see price adjustments and remain patient and disciplined in our land acquisition program. Second, with homebuilders slowing their development programs, we are seeing favorable price movements in construction materials and labor.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent’s CEO: “ I remind you that our asset class was born out of an opportunity created by a housing disruption… the big picture here is that long-term opportunities will present themselves. “David Singelyn – Chief Executive Officer: In closing, we all need to acknowledge that we are in uncertain times. I remind you that our asset class was born out of an opportunity created by a housing disruption. While these uncertain times may lead to some short-term issues and noise, the big picture here is that long-term opportunities will present themselves and separate the players in our industry. Today, we are prepared for those opportunities, with a diversified portfolio and scalable platform supported by a strong balance sheet.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent predicted that it would be able to acquire home builder inventories as builders are forced to lower prices: “we will be prepared to take advantage of those opportunities when they do come about.”  “David Singelyn – Chief Executive Officer: Turning to your direct question about builder inventories and are they available to acquire. There is significant builder inventories in the marketplace. They are in the tens of thousands of homes that we have seen. To-date, the majority of them don’t meet our location or quality requirements. But many of them do. But those today are not priced at a point that we believe are attractive prices for us to be acquiring those homes. Today, the builders are continuing to protect their backlog. And when that backlog is resolved, then they will be lowering prices. That could be later this year; it could be early next year. And we will be prepared to take advantage of those opportunities when they do come about.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent told analysts it was looking at 20,000 to 30,000 homes in backlog that could potentially be turned into rentals. “David Singelyn – Chief Executive Officer: Yes. Sorry, if I misunderstood. But on that point, you are correct. A number of the homes that builders have, they are looking at alternative ways of resolving their backlog and they are turning some of them into rentals. I remind you that the majority of these homes are in secondary and tertiary markets, not located where our homes are located. So they are not direct competitors to us. I would also remind you that over the last 10-years, we have seen single-family rental inventory increase by four million homes from 13 million to 17 million homes. That is 400,000 homes on average per year. And the backlog we are looking at is 20,000 to 30, 000 homes. Those homes that 400,000 per year were absorbed well. Occupancies remain very, very strong. Demand for single-family rentals is higher today than we have ever seen. So while they may have a very short-term impact on absorption they will be absorbed and they will not have an impact to the long-term viability of single-family rentals.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent boasted over raising rental rates while admitting it was seeing more move outs in response

American Homes 4 Rent reported that thanks to high demand “new renewal and blended rental rate growth was 12.5%, 8.3% and 9.5%, respectively.”  “Bryan Smith – Chief Operating Officer: Moving on to operations. Demand for single-family rentals remained strong. In the third quarter, we received nearly 250,000 inbound leasing inquiries. Website traffic was up 21% year-over-year and most importantly, our distinct showings per rent ready property remains 60% higher than pre-pandemic averages. Same-home average occupied days was 97.1% and new renewal and blended rental rate growth was 12.5%, 8.3% and 9.5%, respectively, which drove 8.1% same-home core revenue growth for the quarter. Core operating expenses came in at 6.1% resulting in 9.3% same-home core NOI growth. We have another outstanding quarter.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent said it was seeing more move outs due to rising rent. “Bryan Smith – Chief Operating Officer: The reasons are consistent with what they have been in the past, maybe the proportions have changed slightly. Move out to buy is still the number one reason. The rest of them are smaller in nature life changes and so forth. We are increasing renewal rates a little bit. So that reason has gone up, too.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent was critical of rent control and rental aid assistance

American Homes 4 Rent’s CEO criticized rent control measures and said it was having “discussions with the appropriate people” about them.  “David Singelyn – Chief Executive Officer: One thing I will tell you is we have seen in other forms where there is either rent control measures or other ways that impact housing, in the long-term, those provisions get reviewed in many cases, adjusted or repealed. The most recent one we can look at is November of 2021, very recent St. Paul, Minnesota, passed a rent control measure limiting rents to 3%, 8% on re-leasing. And today, they are seeing their housing stock and their ability to grow their economy being impacted. That provision is being reviewed today. And so these type of actions do have a negative impact in the long-term. We are working through our channels to have discussions with the appropriate people. But I would tell you, it is too early to have a firm answer.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent’s CFO: “ we have continued to see a reduction in rental assistance payments and that has been paralleled by improving collections more broadly.” “Christopher Lau – Chief Financial Officer: Great question, Steve. Look, on collections, more broadly, I would say collection trends have continued to hold strong with third quarter bad debt, as you saw, landing in the low 1% area, which was pretty consistent with our expectations. And just unpacking that a bit, as expected, we have continued to see a reduction in rental assistance payments and that has been paralleled by improving collections more broadly.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)

American Homes 4 Rent’s CFO: “Look, at this point, rental assistance has done its job.”  “Christopher Lau – Chief Financial Officer: Look, at this point, rental assistance has done its job. Rental assistance has been very successful in helping to bridge households in need. But it is been winding down for some time now, just to give you some context. In the third quarter of this year, rental assistance was down in the $3 million area. And if you recall, that compares to $7 million to $9 million per quarter towards the second half of 2021. So we have already seen that winding down. We have already seen that, again, paralleled by improving collections more broadly. It is too early for me to comment specifically on the shape of all of that into 2023. But so far, we have felt and seen – we have seen positive information, felt good about the improving collections situation alongside rental assistance tapering off.” (American Homes 4 Rent Q3 2022 Earnings Call, 11/4/2022)