© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
00:06 Greetings, and welcome to the American Homes 4 Rent Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. 00:26 I will now turn the conference over to your host, Nicholas Fromm. Thank you. You may begin.
00:30 Good morning. Thank you for joining us for our fourth quarter 2021 earnings conference call. With me today are David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment Officer; and Chris Lau, Chief Financial Officer. 00:46 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. 01:08 All forward-looking statements speak only as of today February 25, 2022. 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 press release and supplemental information package. 01:29 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.americanhomes4rent.com. 01:45 With that, I will turn the call over to our CEO, David Singelyn.
01:51 Thank you, Nick. Good morning, and thank you for joining us today. During 2021, we again delivered consistent outsized earnings growth, resulting in a record year headlined by sector-leading core FFO growth of 17.4% per share. At the onset of the pandemic, it was hard to imagine how dramatic the world would change. The hybrid work model is likely here to stay and millions of people no longer need to live close to the office and now have the ability to relocate to more desirable locations. 02:28 Our diversified footprint is positioned in high quality of life markets, where long-term demographic shifts and changing preferences have been taking place. Simply put, the AMH portfolio is located where Americans want to live. Considering this and our country's housing shortage, the fundamental backdrop for our portfolio could not been better. 02:53 Before we dive into our 2021 results and outlook for 2022, I want to take a moment to point out that this year marks the 10-year anniversary of the first home purchased by American Homes 4 Rent. During the past 10 years, AMH has demonstrated thought leadership that change the SFR industry. With us at the forefront, renting has become more desirable and a home is no longer centered around ownership. 03:20 Over the last decade, our dedicated team has strategically accumulated a portfolio of more than 57,000 homes in 30 plus markets, building a leading operational platform in pioneering an unrivaled growth engine. When you take a step back. The foundation this company has built is nothing short of remarkable. Upon this foundation, the real work now begins. Our focus is on what the next 10 years will look like as we reinforce our position as the market leader and delivering consistent and outsized earnings growth. 03:59 Strategically, we are focused on three areas that build upon our existing foundation. The first area is technology. As most of you know, we pioneered some of the earliest technology improvements in the single-family rental industry. Solutions such as like yourself been and our proprietary inspection and maintenance apps have allowed us to scale an industry that many thoughts was on scalable. As we look forward, we will continue to optimize our operational infrastructure by investing in next-generation systems. 04:35 Second, we remain committed to growth, specifically our internal development program. Our self-developed homes offer the best risk-adjusted returns across the SFR sector and will transform our portfolio over time by improving the quality of our asset base. Additionally, as the 45 largest homebuilder in the country, our internal development program now plays an important role in addressing the nation's housing shortage by contributing new high quality housing stock. 05:08 Our last focus area is ESG. This year, we were honored to be named one of America's most responsible companies by Newsweek. And the top ESG performer in the real estate sector by Sustainalytics. Our organization is continually focused on improving how we deliver sustained value to our residents, shareholders, and employees. Another example is that we were recently named a 2022 Great Places to Work Company. This meaningful recognition represents our people first culture and is instrumental in recruiting and retaining our valued employees. 05:50 In closing, this is an exciting time at American Homes 4 Rent. As we expect our strong performance to continue in 2022 and beyond, we recently announced an 80% increase in our dividend rate and expect another year of double-digit core FFO growth per share. Through the combined efforts from our technology investments, growth initiatives and ESG focus, this strong momentum should continue and further strengthen our position as the differentiated market leader in delivering consistent and outsized earnings growth. 06:28 Now, I'll turn the call over to Bryan Smith for more details on our operations. Bryan?
06:35 Thank you, Dave. 2021 was an excellent year for American Homes 4 Rent. Occupancy gains and record rate growth drove Same-Home core revenue growth of 7.3% and core NOI growth of 8.7% for the year, which was above the high end of our most recent guidance. Demand remained high and solid execution drove strong leasing results across our entire portfolio. 07:01 For the year, distinct shoppers per rent-ready homes were up over 60%. Cash-to-cash turn-times improved by 10 days and new lease rate growth was 13%, up nearly 800 basis points from 2020. Fundamentally, the American Homes 4 Rent diversified portfolio is well-positioned to continue delivering consistent outsized earnings growth. And our vertically integrated platform provides the foundation to create even more value over the coming years. 07:34 Turning to the fourth quarter. We delivered a strong close to the year. Same-Home core NOI growth was 9.8% driven by solid Same-Home core revenue growth of 8.9%. On the expense side, Same-Home core operating expenses were up 7.4% during the quarter, despite elevated costs from COVID-related move-outs and general inflation. Our full year 2021 Same-Home core operating expense growth came in as expected at 4.7%. Chris will lay out formal guidance shortly. 8:15 But before that, I want to share operational updates for January and provide commentary on several drivers underlying our full year outlook. As expected, average occupancy for the Same-Home portfolio came in at 97.5% during January and new renewal and blended rate growth was 12.4%, 6.9% and 8.3% respectively. On a full year basis, we expect our 2022 Same-Home core revenue growth to accelerate by nearly 100 basis points to 8.25% at the midpoint. 08:55 Underlying expected growth next year is Same-Home average occupancy in the low 97% range and blended rate growth in the high 7% area. For Same-Home core operating expenses, we expect 5.75% growth at the midpoint. Growth drivers include higher property taxes, inflation and modestly elevated COVID-related move-outs. Finally, please note that because of timing with prior year comps, Same-Home expense growth will not be linear and we expect to see a higher percentage increase during the first half of the year. 09:33 Looking forward to 2023, one of our key areas of focus is on modernizing the resident experience through the expanded use of technology. Innovation has always been at the center of our strategy. And our next generation services platform will drive additional efficiencies. This system will improve the logistics, scheduling and communication functions of our maintenance platform. More importantly, it will provide our residents with a 360 degree view of their account and give them access to multi-channel real-time communications. 10:09 As an example, for a resident to connect with our maintenance diagnostics team or any of the 4,000 plus service providers across our internal and external networks, it will be a simple as using your favorite ridesharing app. We look forward to updating you on these innovations as we continue their development throughout 2022 and start to see the related benefits in 2023 and beyond. Overall, I'm proud of what we've been able to accomplish at American Homes 4 Rent. I would like to thank our team for continuing to do a great job, delivering consistent outsized earnings growth. I can't wait to see what the next 10 years will bring. 10:53 Now I will turn the call over to Jack.
10:56 Thank you, Bryan and good morning, everyone. Consistent growth remains a strategic priority for us. And I am happy to report that 2021 with another strong year for American Homes 4 Rent. We added approximately 4,600 homes to our wholly owned and joint venture portfolios during the year, which was made possible by our three pronged growth program and diversified footprint that enables us to cap a wider net and other single-family rental platforms. Including homes under construction and land purchases, we deployed an impressive $2 billion of total capital in 2021. 11:36 As we've discussed many times before, one of the major benefits of our three pronged approach to growth is that we have the ability to nimbly adjust our channels due to changes in the housing market. As an example, we finished the year with robust activity through our traditional acquisition channel. While competition is elevated, our platform gives us the ability to integrate homes onto our platform and capture efficiencies that many cannot, driving incremental value for shareholders, even at today's prices. On the other hand, due to elevated prices and other market dynamics, we have scaled back commitment to the national builder pipeline. 12:17 During 2021, we acquired 2,553 homes between our traditional and national builder channels were approximately $900 million. And we are targeting a similar capital investment through these acquisition channels in 2022. From a timing perspective, we expect our acquisition activity to be generally balanced throughout the year. Also, please keep in mind that average renovation times commonly run 90 days or longer on our platforms acquiring homes at these elevated volumes and may be subject to additional supply chain delays. 12:55 Now turning to our one-of-a-kind internal AMH Development Program. Despite broad market challenges surrounding labor and supply chains, the team did a tremendous job meeting the expectations outlined at the start of the year and delivered 2,054 homes. While our commitment to scale this program remains unchanged, our deliveries in 2022 are likely to be impacted by inspection, supply chain and labor delays. However, despite these broad market challenges, we expect to grow our annual deliveries by approximately 10% at the midpoint in 2022, delivering 2,100 to 2,400 homes. 13:39 More importantly, future growth in our AMH Development Program will be made possible by continued investment in our high-quality land pipeline, consisting of Class A locations within our existing footprint. On that front, I'm happy to report that we successfully increased our land pipeline to approximately 18,000 lots owned or controlled via option or escrow contracts at the end of 2021. 14:06 In summary, we remain a great position to capitalize on growth opportunities. American Homes 4 Rent has the unique ability to create consistent shareholder value in both open market acquisitions and through our one-of-a-kind development program. Our team executed at a high level in 2021 and we will keep our foot on the gas moving forward. 14:28 Now I will turn the call over to Chris.
14:31 Thanks, Jack and good morning, everyone. I'll cover three areas in my comments today. First a quick 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 2022 guidance. 14:47 Starting off with our operating results, we delivered another quarter of consistent an outsized earnings growth with net income attributable to common shareholders of $48.1 million or $0.14 per diluted share. On an FFO share and unit basis, we generated $0.37 of core FFO representing 20.4% year-over-year growth and $0.34 of adjusted FFO representing 20.9% year-over-year growth. And for full year 2021, we generated net income attributable to common shareholders of $135.3 million or $0.41 per diluted share and $1.36 of core FFO per share in unit which was in line with our expectations, representing industry-leading earnings growth of 17.4%. 15:35 Next, I'd like to turn to our balance sheet and share a few updates around our recent capital markets activity as we continue to fuel our robust external growth programs. During the quarter, we settled the remaining 1.8 million common equity forward shares from our May 2021 offering for net proceeds of approximately $65 million. And we also issued approximately 1.7 million shares under our ATM Program raising over $70 million of net proceeds. 16:03 At the end of the year, our net debt including preferred shares to adjusted EBITDA was 6.2 times, which is roughly in line with our targeted leverage level. We had $48 million of cash on the balance sheet and $1.25 billion revolving credit facility had a $350 million drawn balance. Subsequent to year-end and as we prepare to fund another year of outsized external growth, we raised $864 million of net proceeds in an oversubscribed common equity offering. Of the total net proceeds, $376 million was received during the first quarter with the remaining $488 million being issued on a forward basis to minimize dilution as we match fund against capital deployment throughout the remainder of 2022. 16:47 Next, I'd like to share an overview of our initial 2022 guidance, which reflects our expectation for another year of consistent and outsized earnings growth. For full year 2022, we expect core FFO per share and unit of $1.53 to $1.59, which at the midpoint represents year-over-year growth of 14.7%. As some additional color, our expectations contemplate the following assumptions. For Same-Home pool, which will include between 48,000 and 49,000 properties at the midpoint of our ranges, we expect core revenue growth of 8.25%, which reflects the strong occupancy and rate growth environment that Bryan discussed a few minutes ago along with our expectation, the bad debt continues its gradual return to normal over the course of 2022. 17:35 On the expense side, we expect Same-Home core property operating expense growth of 5.75% driven by property tax growth in the 5% area, which reflects our expectation for higher valuation increases compared to 2021 and a 6% to 7% combined increase on all other expense line items, which reflects Bryan's earlier commentary surrounding the current inflationary environment and modestly elevated COVID-related move-outs. Into the bottom line, we expect 2022 Same-Home core NOI growth of 9.5%. It reflects an acceleration of our 2021 growth rate, as well as continued core NOI margin expansion. 18:15 From an investment standpoint, we expect to deploy $1.7 billion to $2.2 billion of total capital into our combined growth programs this year, adding over 4,400 homes for our wholly owned and joint venture portfolios. Specifically for our wholly owned portfolio, at the midpoint of our ranges, we expect to invest approximately $1.8 billion of AMH Capital, consisting of 1.35 billion or 3,600 homes added through our acquisition and development channels, along with $350 million of continued investment activity into our wholly owned development pipeline and $100 million of pro rata investment into our JVs and property enhancing CapEx programs. 18:56 In addition to our external growth programs, we expect to redeem $270 million of preferred shares that become callable during the second and third quarters. This brings our total 2022 AMH Capital means to approximately $2.1 billion, which we expect to fund through a combination of retained cash flow, approximately $100 million of recycled capital from dispositions, $864 million of attractive equity capital already raised earlier this year and leverage capacity from our balance sheet. 19:25 And that brings us to the end of our prepared remarks. But before we open the call to your questions, I'd like to reiterate that 2021 was undoubtedly a record-breaking year. But more importantly, it represented another year of consistent and outsized earnings growth from the AMH platform. And as we look forward to 2022, we expect the consistent AMH outperformance to continue with another year of double-digit core FFO growth, accelerating core NOI growth from our Same-Home portfolio, continued expansion in AMH development deliveries and an 80% increase in our distribution. 20:01 And with that, thank you for your time and we'll open the call to your questions. Operator?
20:06 Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Nicholas Joseph of Citi. Please proceed with your question.
20:41 Thank you. I think you mentioned high 7% blended rent growth embedded in guidance. How does that break down between your assumptions around new and renewal lease rate growth, and then maybe in the first half of the year versus the second half of the year?
20:57 Hi, Nick. Good morning. It's Bryan. Yeah. Good question. We saw that the increases that we got in January were consistent with Q4. We're feeling really good about the demand backdrop, the metrics that I spoke about in the prepared remarks continued to hold very strong. So, we're seeing excellent demand that gives us confidence that we're going to continue to be able to push new lease rate growth. The breakout for the year, think about it in the high 9% for re-leasing growth. And then on the renewal side, somewhere in the sevens. If you look back at the history, we had continued improvement and renewal rates over the past six quarters. Couple of that's really good turnover rates, reduction there of nearly 10 percentage points over the past four years. So everything is lending up very nicely to continue this really nice momentum that we have on the rate side.
21:53 Thank you. And then just, I guess a follow-up, maybe just on the regulatory environment overall. It seems like there is increased scrutiny on single-family rentals broadly. So is there anything you're doing differently or that we should be mindful of, just given the overall environment?
22:12 Yeah. Nick, this is Dave. Let me start by saying that we -- our mission is to provide safe quality housing in good school districts and we're providing that housing where America wants to live. And as we have mentioned before, we operate in an industry that's because it's providing housing with a significant level of growth. As you just mentioned, we are garnering more regulatory attention in this industry. But also as we previously discussed, during various federal hearings. So, both in the Senate as well as in the house, we've been called out a number of times as an example of how to be a single-family rental company that does the right thing. And so, I can't specifically talk about other companies, but this point we don't have any regulatory matters that we're not in the same place as others.
23:20 Our next question is from Joshua Dennerlein of Bank of America. Please proceed with your question.
23:25 Yeah. Hey, everyone. Hope everyone is doing well. Kind of wanted to touch based on that modernizing of the user experience. What kind of benefits should we expect to kind of see over the long term? Would it be better expense control from you guys or maybe higher revenue growth or just a combination of both?
23:47 Yeah. Thanks, Josh. It's a very good question. The modernizing of the resident experience has benefits really across our entire business. We're very focused on that experience contributing to extend today's improvements on retention. Our ability to continue to push renewal rates because of a very strong value proposition that people are realizing. So from the residents perspective, it's going to change the way that they communicate with us. By modernizing I'm talking about, putting a premium on mobile having all the information really available at their fingertips. What's the status of my maintenance request, what's the status of the technician, when are they going to arrive? So more things that you'd see with a lot of the other minor companies. 24:33 And then the other thing that we're doing too from the resident perspective is we're working backwards from all the data and information that we have on the customer service side. What are they calling in and asking about and how can we provide that information to them, kind of ready, real-time, so they don't have to make a phone call or they need to do is open up their app to see exactly where that particular issue stands? From our perspective, the efficiencies that we'll gain outside of better retention and better customer service to the resident. There'll be improvements in our inventory management system, our scheduling system, the way that we communicate with our vendors, the way that we communicate with our residents. We're adding some pretty robust video diagnostics tools to the maintenance request side, which allows our internal teams to properly diagnose maintenance issues as an example, hence a single track with the right equipment out to remediate that particular issue. So there are a lot of benefits. What we're really excited about is this platform will be able to build on it in perpetuity. It gives us great flexibility. But again benefits to both the revenue side and to the cost control side as well.
25:45 Thanks for that color. Kind of on a related topic, I guess how should we think about potential margin improvements in the years ahead? We've had some impressive margin growth in the past.
26:03 Sure. Good morning, Josh. It's Chris here. I think our view on margin potential, quite frankly remains exactly the same. We see nice potential with an extended runway on it. We've been capturing a portion of that in '21. And as I mentioned in my prepared remarks, we're expecting to see more of that captured in '22 as well, as we're really thinking about the drivers of it. Candidly, a lot of it is coming from the top line, we see a lot of opportunity from an outsized rate growth perspective for an extended runway, think of everything that's Bryan is talking about from a strength of demand standpoint. That will contribute nicely. We see nice potential from ongoing fee and ancillary income programs for 2022 that would be contributing called about 20 basis points or so to same-store revenues. For this year in particular, as I mentioned in my prepared remarks. We're expecting to see a gradual return to normal on bad debt that will contribute back into margins as well. And then longer term, the investments that we're making now from a technology standpoint. Everything, Bryan, just walk-through will help us to become more and more efficient on the expense side especially as the portfolio continues to grow and leverage those costs over a larger asset base also contributing to margins.
27:20 Thank you.
27:21 Thanks, Josh.
27:25 Our next question is from Richard Hill of Morgan Stanley. Please proceed with your question.
27:30 Hey, guys. Good morning. And you have Adam Kramer on for Rich. Well, congrats on a good quarter and really strong guide here relative to kind of Morgan Stanley estimates. Wanted to ask for a little bit more color if you could kind of the 12.2% new lease rate growth in the quarter, kind of versus that 59% in 3Q and then we kind of in line with our -- in light of kind of what you disclosed for January? Maybe just talk a bit about kind of how much better you can push new lease rate growth. I mean given where occupancy is, I think is a little more color there would be really helpful?
28:08 Yeah. Thanks, Adam. This is Bryan. We're looking just going to step back for a second. And just remind you that of our revenue optimization strategy. We're looking at all the different components. New lease rate growth is one of them. Occupancy obviously is another. And when we go into the fourth quarter, we saw a little bit of seasonality that we have traditionally. The difference now is all of the seasons are good, but there is a difference that we saw coming in the fourth quarter, a little bit of a slowdown of 15.9%. The other thing to consider too is, look at the fantastic rate growth that we had in 2021, 13% new lease growth for the year. And then think forward to this, so this year and we're in a position now where because of the fantastic growth last year, we're not assuming that we're going to have 15% over 15%. What we're talking about now is still really strong growth that's made possible by this fantastic demand backdrop that we spoke off. But I don't see 12% as being anything other than positive.
29:16 And Adam, this is Chris. If I could just punctuate one point that Bryan made, which is a really good one in terms of the holistic approach that we take to revenue optimization. But the discussion around rate growth is a good one and very important, but that's only one variable. And we manage all the variables to what translates into the best outcome overall for the revenue line. And I would just remind you and everyone of what I and all those mentioned in our prepared remarks. When you look at holistically, the decisions we're making to the top line, we are expecting to accelerate revenue growth by nearly 100 basis points off of what was already a really, really strong year in 2021.
29:56 That's really helpful. Thank you, guys for the color. And maybe just kind of similar question, we're kind of shifting to renewals. Are you able to give any further disclosure on whether it's February renewals or kind of the renewals we're sending out for March or April?
30:14 Yeah. In our prepared remarks, I talked about the January results. February is not done yet. But again, what I was talking about before you’ve seen six quarters of consecutive renewal rate growth of renewal rate growth acceleration. And we expect that to continue with -- through the first quarter and even in the second quarter of '22.
30:37 Got it. Congrats again on the great results, guys. Thank you.
30:45 Thanks, Adam.
30:46 Our next question is from Brian Spahn at Evercore ISI. Please proceed with your question.
30:52 Hey. Thank you. Chris, you talked about capital allocation a bit and recent equity raise as well as the forward component. But could you talk a bit about the debt market and any appetite there to issue debt near term to keep that leverage ratio where it is now around that 60 that you've talked about?
31:11 Yeah. Good morning. Great question. Appreciate that. The simple answer is, yes. There is definitely debt needs as we think about capital plan for full year 2022. And just to walk through the components, just so everyone has all of them, you're exactly right for capital plan of a total of $2.1 billion for this year. The equity component has been raised that was at $864 million from the first quarter, a little over half of which was placed on a forward. So we can be very efficient with those proceeds and draw them down over the course of the year, matching that funding against the deployment into our investment programs. And then the balance of this year will come from a combination of retained cash flow, somewhere in the $250 million to $300 million range and that's even after our 80% increase to the distribution this year. You can find this on the balance sheet. We're coming into the year with about $50 million of cash on the balance sheet for this year will probably recycle about another $100 million of proceeds from our disposition program that will be reinvested. And then the balance of this year will come from leverage capacity off of the balance sheet, which would be in the $800 million area or so. No different than in the past couple of years. We'll look to fund into the unsecured bond market over the course of the year.
32:31 Got it. And you've got a couple of preferred that are callable this year. Could you maybe talk about your plans there and this guidance currently assume any redemption of those?
32:42 Yes, it does. Great question. And I mentioned that in my prepared remarks as well. But the components of that $2.1 billion of total capital uses on the year is $1.8 billion of growth. And then just about $300 million, actual dollar amounts to $270 million of preferred redemptions where we've got a great opportunity there to refinance those, which become due are callable in April and July. And just as a reminder, coupons on those are five and seven-eights which create a nice and attractive refinancing opportunity relative to the current cost of capital and that's included in our guidance and capital plan.
33:24 Great. Okay. Thanks for the clarity there.
33:28 Thanks, Brian.
33:30 Our next question is from Haendel St. Juste of Mizuho. Please proceed with your question.
33:37 Hey, good morning out there. Chris, appreciate the detail on sources and uses. And how you're thinking about capital this year? I guess I'm curious what's the capacity or equity left in your existing JVs and what's your view on using JV's versus on balance sheet here as you grow the development platform and pursue acquisitions?
33:58 Yeah. The right way -- good question, Haendel. Good morning by the way. The way to think about it is the JV still have a decent amount of runway to them between. As a reminder, we have two of them both focused on internally image-developed properties. Between the two, there are about just a little bit under 50% deployed or developed on their individual pipelines combined. So there is still some runway there. Development will likely take another year or two before those are fully deployed. In terms of broader joint venture considerations, from an overall capital perspective. Look no different than some of my comments from past quarters. We've got two great joint venture partners that we're really proud to partner with, that have brought in great capital for us, enabling us to leverage the program even further. Longer-term, we will be providing some really interesting economic upside, especially as we get into promoted interest-earning periods and whatnot. 34:57 But the other great value of them is, as we know, there is a lot of volatility due to the public markets at large. We're seeing it right now, obviously from a geopolitical standpoint and having access to really high-quality, long-term forms of capital in the form of our JVs. I think it's very comforting and valuable from a longer-term perspective. As it stands right now, no different than we share the last couple of quarters as we're thinking about incremental capital dollars, our objective in plan is to use the balance sheet and deploy image capital from the balance sheet on a wholly owned basis.
35:34 Great. Thank you for that. Quick follow-up I guess on the development side, maybe for, Jack. Can you talk more about the cost inflation you're seeing in the development pipeline. I think you mentioned in the last quarter that there is some degradation in development yields down the road. I think is in '23. But curious, if the timing review there has changed at all. Are you still expecting rents to outpace cost near term and any incremental pressure on this yield, and then maybe how much of this year's development costs are locked in at this point? Thanks.
36:06 Thanks for that question, Haendel. In terms of inflation, we've seen things spike and then come down and lumber is a good example. Lumber was got up to $1,200 per 1,000 linear board feet. In the third quarter, it came down to $650, in the fourth and now is back up at $1,200, I think, mostly related to the Canadian trucker event. So, and we expect at least the expectations of the experts are that it will come back down in the $600 range. So we're going to see fluctuations throughout the year. We haven't seen a degradation in yields due primarily to the demand out there for the new product and accelerated rent that we have over -- over what we performed it.
37:17 Our next question is from Jade Rahmani of KBW. Please proceed with your question.
37:25 Yeah. Thank you very much. Could you provide an update on 4Q collections?
37:32 Sure. Good morning, Jade. Chris here. Yeah, I would say in general, I mentioned this a bit in my prepared remarks. We continue to see improvements overall from a collections perspective. But you can see reflected in our bad debt, just as a refresher for folks, high watermark for us at the peak of the pandemic was bad debt, kind of into the mid-twos area. And we started seeing improvement in that -- into the third quarter. Third quarter improved into the 1.6% area or so. Fourth quarter came down to 1.3% and we see that trend line continuing into 2022 with a gradual return back to normal levels over the course of the year. As a reminder for us, regular way pre-pandemic bad debt is 1%, sometimes a little bit less of revenues.
38:23 Okay. Thanks very much. Just secondly on land, have you looked at how your land underwriting compares with that of homebuilders. Specifically, are you underwriting land with a developers cost of capital in mind, are you underwriting to a single-family rental stabilized cap rate? Because that potentially implies significant differences and the value of land to new versus to a developer, which could cause differences in the way real estate assets are valued. So curious if you could provide some color on that land underwriting?
39:08 Thanks, Jade for that question. We actually look at it both ways. We -- our primary way that we look at it is, is yield of a property. And then secondarily, we look at just to validate where we are, what the implied developer profit would be, if we were building for -- building for sale. So I think we're right in line with where the national builders are in terms of what their underwriting for their profit.
39:45 Hey. Jade, this is Dave. Let me add just a couple of things. You bring up that there is differences between us and national homebuilders. And I totally agree with that. And it's in a number of different areas. Our risk profile is very different than a national homebuilder. We don't have the market risk that national homebuilder will have at the time the project is complete. We also have the ability to develop in a different way, we deliver to a cadence that we want to absorb homes. And lastly, the fact that we are building homes for ourselves, and we're not building homes for sale where there is an owner that is going to make selections late in the development timeline or lifecycle allows us a very, very different ability to manage the supply chain. Jack mentioned this. I just want to reiterate, I mean, we started 2022 or 2021 with an expectation of delivering 2,050 homes. We ended up delivering 2,054 homes in a very difficult supply chain environment and that's just a testament to one the team, but also the fact that we do have a different product that we built.
41:10 Thank you. And just a last clarification would be in your underwriting since you're paying today's prices for land. Are you underwriting these deals based on in-place rents or are you underwriting some inflation in the rents?
41:27 Yeah. We start with today's rents and then we inflate the rents through the first delivery and then we don't inflate after that and we inflate the operating costs as well. So far, we've been doing better on the rate than what we projected even with inflating it and the costs are coming in about where we expected.
41:59 Thank you very much.
42:03 Thanks, Jade.
42:06 Our next question is from John Pawlowski of Green Street. Please proceed with your question.
42:13 Thanks very much for your time. About 10 years from acquired homes. Just curious, Bryan, for homes or you have a very long vintage curve on CapEx. How much higher is the CapEx burden as a percentage of rents or percentage of NOI? You pick a metric, but how much higher is the CapEx burden versus that kind of portfolio average on those long-held homes?
42:41 Thanks, John. I don't have exact details on that. What I can tell you, rather than the age. What's really important is what level of renovation went into these homes and at what time. So the older homes that were -- that were completely renovated might have a different profile than ones that we bought. More recently, they didn't have such a high level of renovation because they were in good shape. I don't have a breakdown obviously age in terms of roofs some other mechanicals plays in effect on the CapEx expense. But we've been continually investing in our homes throughout the entire ownership cycle and have made replacements were necessary. So the average age of those homes even though we've owned for 10 years might be very different.
43:30 Okay. Last one from me. Just curious, if you could give us some type of quantification for the knock-on benefits of the build to rent communities on the margins of the stabilized basic stabilized portfolio. So you're in a lot of markets and you're dumping a lot of homes into each market, it's a meaningful expansion of the footprint within like Vegas and Phoenix. So just curious, we're going to knock on benefit you have on margins for your standard homes would be helpful?
44:02 Yeah. Thanks for that question. We have a couple of benefits. One is that obviously, the maintenance costs on a brand new home is going to be lower. Our underwriting in general will range based on where we're building because property taxes is a big factor in determining the margin. But in general, we're running in the mid-'70s for margin on the new build.
44:35 And John, just to basically tie the two questions that you had together. When we build homes, we have the ability to build them with long-term maintenance in mind. And so you're going to hear that we put in higher quality plumbing fixtures. We build the house slightly different. We put in hard surface flooring. All of that with maintenance, long-term maintenance in mind. And so the benefit of getting us from the '60s into the '70s in the margin on these new homes is -- in potentially deep through the design of the homes. And so there is a lot of benefits. When you can build the home yourself and you manage the home, you have that feedback loop. But I think we're the only ones that really can say that we have that feedback loop.
45:28 Sorry, I should have been more clear in my question. So take a Las Vegas or Phoenix. I mean the -- you'd have 1,000 lots to deliver in Vegas or last year and once you deliver those lots. You're going to basically double your Vegas portfolio. So what I was asking is, what's the knock-on benefit to the prior scattered-site, legacy Las Vegas portfolio in terms of the margins?
45:58 Yeah. As we add to these portfolios, we have excellent operational infrastructure in place. We're going to be adding for field maintenance staff. Proportionately, there's not a lot of benefits to scale there. But there are benefits to scale at the centralized operations, leasing whether we're making our maintenance intake and all the things that we're doing operationally at the headquarters in Las Vegas, not to mention the benefits overall to scale for corporate expenses too.
46:27 Yeah. The benefits of scale are really system-wide. So it's not necessarily market-by-market. It's just adding to the overall portfolio. But you still have to have X number of maintenance personnel for a given how. So in a particular market, there is a little bit of benefit, but it's really to the system.
46:55 Our next question is from Chandni Luthra of Goldman Sachs. Please proceed with your question.
47:02 Hi. Good morning, guys. Good afternoon, everyone wherever you are. Thank you for taking my question. So on the 3Q call, you guys talked about looking into the Zillow portfolio, evaluating it. Could you perhaps give us more color in terms of what you found out and where you are? With that, what are your thoughts, not just from a portfolio standpoint, but also from an employee base standpoint?
47:32 Yeah. With respect to Zillow, as we indicated on our prior earnings call, we were in discussions with them and we remain in discussions with them today. The number of homes that we've actually or will actually acquire is far less than the number of homes that we had an interest in. And while that process is still going on, we will not get a material number of homes out. Where the real benefit has been is, we've been able to acquire or hire some of their personnel, their field personnel. And that's a big benefit in a tight labor market when we are trying to grow our operations. So we talked about labor a little bit earlier and the need to focus on labor in a tight market and we've been able to hire people, and that's going to allow us to continue to grow both in the renovation process when we acquire through the MLS, as well as in our everyday ongoing maintenance program.
48:40 And just to follow up on that. So what sort of changed, I mean was it in terms of valuation or was it in terms of portfolio overlap and kind of the geographic placement of this homes or strategically, they were not fit say from a CapEx standpoint, what changed?
49:04 Nothing really changed. So what it is, it's a competitive environment, and we made bids at prices that we found. We believe we're very, very aggressive in light of our opportunities else place in other places. And a number of those homes went to other parties that are bidding at cap rates that are far below where we would be buying homes. And so it was -- it's more, it's not a change of strategy. We would love to have a lot of those homes. It's not a change of view on markets. It's -- it comes down to the competitive market that we operate in pricing and the desire to take yields that are below our desired deal levels.
49:57 Got you. And speaking of the competitive market. So obviously, the level of capital that is flowing into build to rent has been massively elevated levels, right. So what are you seeing has anything tangible come on the ground yet, obviously supply chain affects everybody? How do you think about that dynamic developing, are there portfolios coming around in your markets? Anything that you're seeing on the ground, it would be helpful for us to get some color on that?
50:33 Yeah. I think, there's a number of things to unpack in that question. First of all, there is talk about a lot of capital chasing single-family rentals. Specifically, build to rent. And that's I think that's just the validation of the concept that we started many years ago and how successful it's been. But keep in mind, the amount of capital that is chasing it. If you break that down into the number of homes and you look at what that is as a percentage of existing single-family rentals or another way to look at is as a percentage of the shortfall in housing in the United States that a number of different parties if anywhere from 40 million is the surveys that we see. So very, very small percentage. We're talking less than 1% of single-family rental less than maybe 2%, maybe 2.5% of the other side of the shortage. But this is where our program of having three different ways that we can acquire homes. Whether it is from the traditional acquisitions, whether it's from national homebuilders, which is kind of a build to rent strategy but with retail pricing attached to it or it's our own building program. We have the ability to grow in every economic cycle as a result of having multiple channels to grow in. 52:09 And the most consistent, the most predictable growth, which gives us the ability to have the stable growth in FFO that we have seen over the last three years is to have your own development program. Especially a development program that is got a foundation of the amount of land that we have in inventory today. So we've spent a lot of effort over the last couple of years, ensuring that foundation and we are in a great place for the next three, four years or even past that. And I would add one other advantage that we have is our diversified footprint. It allows us to -- if one market is priced too high, we can still grow in the other 29 markets.
52:59 Our next question is from Sam Choe of Credit Suisse. Please proceed with your question.
53:06 Hi, guys. Congrats on the great quarter. Just wanted to start with your non-stabilized properties. I'm just looking at average occupied days of 80% as a year ago and you had 90% not saying it is low. But I guess I just wanted to make sure that I'm reading this correctly. Is it because you've been active with the acquisition volumes as less to that decline as opposed to there being any changes in the current time and is there leading up your new property adds?
53:41 Sam, it's Chris. Great question. No, you hit it right on the head. It's a function of the ramp in the acquisition pace that we've seen. And keep in mind that we've been growing and ramping that acquisition volume over the course of 2021, adding four more properties in the back part of the year than the first part of the year. And so with that, you're going to see that flow through. I would think of it from a total portfolio occupancy standpoint, really. And as those properties come online, work their way through the renovation process and then get leased the flow through obviously, the other category stabilized and ultimately Same-Home. And then from a turn time perspective, I guess, Bryan didn't comment on this yet. But generally speaking on a year-over-year basis, we saw continued, really strong and quick turn times in the fourth quarter, pretty similar with a year ago as well.
54:33 Got it. And with regards to the turnover rate, what have you guys assumed for the low and high end of guidance?
54:42 Generally speaking, we're expecting turnover to continue in the similar area that it's in right now. We've seen great improvements there for many, many quarters actually years at this point. I'm sure you noticed that for full year 2021, we're now sub-30% on full year turnover rate which implies a greater than three-year length of stay. So our general view is that we'll be in that area, recognize as we mentioned in our prepared remarks and as contemplated in guidance. We are expecting to see some continued level of remaining COVID move-outs that we're contemplating in occupancy and on the expense side as we progress throughout the year. But underlying turnover trends in the portfolio continue to remain really, really strong.
55:26 Got it. Thanks so much, Chris, for the color.
55:31 Thanks, Sam.
55:36 Our next question is from Brad Heffern of RBC Capital Markets. Please proceed with your question.
55:42 Hey, everyone. Thanks. As a follow-up to the Zillow question earlier. What yields are you currently underwriting and then what are the implied yields that you're seeing from the more aggressive buyers?
55:56 Yeah. This is Jack. Thanks for that question. I'll tell you what we acquired at. In the fourth quarter, we were on average 4.75% to 4.8% range. It's hard to tell what I don't know exactly what they're accepting on the other side, but they're acquiring it probably below 4.5% and sometimes in the very low 4%.
56:27 Yeah. This is Dave. With respect to the Zillow, we were more aggressive than normal. And again we -- as we talked about earlier, we found that the competitive bidding was even more aggressive than where we were. So we were more aggressive than our typical bid. So we were down in that mid to lower 4% range. Because of the sebled nature of that portfolio and still, it was a very competitive bid.
57:02 Okay. Got it. Thanks for that. And then, Chris, I know you don't normally guide to this. But can you give any perspective on what the G&A number is that's included for '22?
57:12 Sure. And you can get to it a little bit through the FFO bridge in the back of the supplemental. But generally speaking, we're expecting to likely see a full year G&A increase and call the 10% area or so, really reflecting two components. And inflationary piece that plus or minus, called the 7% area. And then this year, very importantly, we are planning to make some continued investments into a number of strategic areas, our technology platform supporting a lot of the great stuff that Bryan is talking about and really preparing ourselves for more and more growth over time. Investing into areas like our ESG efforts government affairs, et cetera, just to name a few.
58:00 Okay. Thank you.
58:03 Thanks, Brad.
58:06 Our next question is from Austin Wurschmidt of KeyBanc. Please proceed with your question.
58:14 Should we read -- Dave, should we read through from your Zillow comments there that it sounds like you'd be willing to pursue kind of the larger scale opportunities in that low 4% range versus just sticking with what you're achieving for yields on development and one-off acquisition opportunities?
58:34 Yeah. I think we have to be careful on how we interpret that. Simple portfolios and ability that are the intangibles that come with an assembled portfolio are very different in acquiring homes one by one. And so at the end of the day, first and foremost, our primary way to grow is going to be development. And there is going to be a very limited number of assembled portfolios is that you're going to have an opportunity to acquire. So there are a little bit different -- in addition to a simple portfolio, you also would be acquiring personnel and other things. We have been successful in acquiring personnel, but the character of an assemble portfolio is different than just acquiring homes one-off. And so, where Jack indicated, we are in acquiring through our traditional acquisition systems is where we are comfortable and where we'd like to keep that. But and the fact that we have three prongs, we want to lean on our in-house developments, the best economics. So all these channels bulk acquisitions are a little bit different than the other acquisitions and they're all unique.
59:53 And that's helpful, thanks. And then in the prepared remarks, I think it was Jack, that referenced several impacts to the timing and development deliveries. So first, I'm just curious, how much cautiousness is embedded in your expected delivery pace this year versus maybe six to 12 months ago. And certainly recognize that it's up year-over-year, but just relative to what you may have thought it would be at this point in 2022 and any impact of the plan to achieve that 3,000 plus home delivery target in 2023?
60:28 Thanks for that question. And before I get into that, I'd give a shout-out to our development team for hitting the midpoint of our guidance this year in a very, very difficult supply chain market. But when it comes to predicting the next year's deliveries, obviously becomes easier, the closer you get to the next year. And one of the main drivers of that is opening up communities. Because when we open up the community, we know the cadence that we want to deliver at for a good absorption and then we can predict that out. What happened late in 2021? We started noticing. It became more and more difficult to get inspectors from the various governmental entities to come out and clear, even though we were done with our horizontal development to come out and clear us to start building houses. So we're kind of predicting a little more of that in 2022. If it doesn't happen that will pave the way for 2023, an increase in -- a significant increase in 2023 deliveries. But, we're not there yet. So, not right now prepared to give what we're going to deliver in 2023.
62:07 Austin, it's Dave. The supply chain has been challenging, no doubt. But it was challenging in 2021 and our -- I mean we've got individuals that manage our purchasing and supply chain that have done this for years and years. And as I indicated earlier, we have a kind of a unique program that we can order very early in the development process because we don't have to wait for owner decisions. But as Jack indicated, we're -- really the difference was is not in the supply chain. But in getting inspectors out on the land improvements. And if you look, if you go back one year ago today and asked is where we think we would be in 2022, it probably be about 10% higher. And it's not because we're not going to be able to build at the right cadence in '22. It's the fact that we -- it's the land getting it inspected and signed off, so we can start that process has been delayed. And that I would say is truly a COVID impact. The city halls have been slowed down as a result of COVID. And so I see it being temporary and once that rights itself, I think we're still on track for all of the guidance that we've previously given.
63:27 Our next question is from Keegan Carl of Berenberg. Please proceed with your question.
63:34 Hey, guys. Thanks for taking the questions. And tell me the harp on deliveries. But just one more point you're kind of on the development side of things. I mean how should we think about the cadence this year? I know in years past, you've said that you kind of wants to time of peak leasing season. But can you kind of felt any impact at all on the supply chain side of things? So it may be kind of push this for the second half of the year?
63:57 Thanks for the question. It's a fairly even cadence, particularly for the delivery of the homes into the wholly owned REIT, maybe slightly towards the end of the year, but not significantly. So I would say a fairly even cadence.
64:20 Got it. Just for my follow-up [Technical Difficulty]
64:26 Yeah. This is Dave. That is a strategic investment for us, a strategic alliance or partnership. It's not a very large investment. But what it does is, it gives us access to a number of prop-tech companies, ESG related companies that impact the single-family rental industry. Things such as pet screening, pet insurance, pet solar programs that are unique to things that we want to co-develop with different partners. So it's basically a strategic alliance more than an economic investment. The investment is very small, $5 million to $10 million. It's more putting us into a kind of -- it's well a true strategic partnership is what it really is.
65:30 Our next question is from Anthony Powell of Barclays. Please proceed with your question.
65:39 Hi, good morning. So, one of your peers that did an investment in a lease to own, I guess platform. Is that something that you would consider and expanding in that segment?
65:49 That investment is kind of an investment also into third-party. It's a program into providing additional housing into the marketplace for working families. And we are already in that program through our development program and we are building communities. We've opened over 100 communities to date. And the housing is designed for working families. So, you probably noticed, we are the 45 largest homebuilder. I think that will grow and it's all designed to provide the type of product that others are looking for. On the -- basically the option to acquire homes, we have that program and when we look to dispose of homes, but it's going to be our option. If we were looking to dispose of homes in our portfolio, then we look at who the occupants are. We also look at the marketplace if the occupants not interested in acquiring it. But it's going to be at our option. Just because somebody wants to own the -- home they're renting though, we don't option that today. And that's a program that some of our peers are doing as well. And we just haven't branded it or really talked about it.
67:24 Got it. Thanks. And then maybe one more on cap rates, and it sounds like it's still a pretty competitive environment. Have you seen any I guess expansion of cap rates given the overall interest rate environment? Are they still kind of compressed here?
67:39 Yeah. What I've seen is, there is still pretty compressed. If you look at HPA last year was close to 20% nationally and probably a little higher in our markets, which are generally higher growth markets. So you're seeing high HPA, good rental growth. But the cap rates are pretty compressed. And I don't see any, I mean, I'm not expecting 20% in 2022. But I could see close to double digits coming up in 2022.
68:15 Where we want to be and is where all the people are moving to, where the employment is better and where there is not enough housing. And that makes a very, very competitive marketplace. It's very good for the long-term health of our rental portfolio. But it leads -- it continues to be a very competitive marketplace.
68:40 All right. Thank you.
68:45 Our next question is from Rich Hightower of Evercore ISI. Please proceed with your question.
68:51 Hey. Good morning, guys. Thanks for squeezing me in here. So this topic came up on a competitor's call last week and I certainly don't expect you to comment on that situation specifically. But it is a question about permitting for renovation work and I just want to know it's kind of a basic question but walk us through AMH's process for how that works, average time to retain permits, how do you ensure that everything is done properly, whether it's with your own vendors or outsourced or what have you? Walk us through that process and explain how it works if you don't mind?
69:28 Yeah. Hi, Rich. It's Dave. And I'll start with as you indicated, I really can't talk about other companies. I really don't know other than what I've read and probably you've read. With respect to us, what I could do is I'll walk you through how our internal process works when we rehab homes. And first of all, that process is overseeing from end-to-end by our own personnel. But it starts that -- process starts not when we start renovating the home. It starts in the vendor selection and onboarding process. During that process, we verify that all of our general contractors are property licensed and have insurance et cetera. And why that's important is because most of all the renovation work that we do is done with third-party general contractors. And our standard contractual terms and conditions, and keep in mind, that the GC also in their licensing requirements has obligations that require them to obtain permits and on all the work that requires permits. 70:39 And I also would be mindful of the fact that, permitting requirements are very, very different from one jurisdiction to another. And when you -- but the other general comment. When you think of the work that we primarily do in renovation, it's going to be cosmetics, it's going be painting, it's going to be flooring and those don't generally require permits. I will also add, I guess one other thing, not necessarily on the process, but we consider the regulatory environment in many ways. And we've talked about trying to be a company that does the right thing. We talked about the fact that we've actually been called out in hearings about doing the right thing. But when we consider the regulatory environments, it starts when we look at what markets we want to go into. And in our market selection, not all markets are equal. And when we're talking markets, sometimes it states, sometimes it's very local jurisdictions. And we've avoided certain markets with significant regulatory headwinds. 71:50 In fact, as we have discussed many times, the regulatory environment was one consideration that we had in our decision to exit, California. And so to date, that's -- well that's the process of how we do it. And we don't have any knowledge of any place that we have an issue. To date, it's a very manual process, but that's the process, Rich.
72:26 And maybe -- thanks, Dave. And one quick follow-up if you'll indulge me here. As far as the process generally being outsourced to non-AMH general contractors. Is there an internal AMH team or group of employees who does make sure that all the I's are dotted, the T's are crossed, and so forth as far as what the GCs are supposed to be doing, per the documentation between your company and there, but is there someone internally that checks that process every step of the way to make sure that everything is as it should be in the way you're describing?
73:03 Well, there's just, there is two pieces to that, Rich. One is in the field, we have a dedicated team that are the individuals that oversee all the renovations and they are market-by-market. And we -- on a prior question, we talked about Zillow and we talked about the one of the benefits of Zillow's being able to supplement that team. They are the ones that have the day-to-day touch points with the general contract, but behind them, sits another group. And that's a group in our centralized office of a group of paralegals. And they are involved in many aspects of the real estate lifecycle from reviewing contracts of acquisitions to reviewing contracts with general contractors. They are involved not only in the real estate contracting, but all contracting, whether it's IT et cetera. And so there is multiple touch points in that process.
74:09 Okay. And would you say AMH is sort of best-in-class in this regard or would you say that the process you've just described is sort of generally what you see your competitors doing in the marketplace? Can you comment on that at all, and I'll stop at there?
74:21 Rich, I don't know. I don't even know how to comment on that because I don't really know how the others do it. I'm not inside their shop. I know what we do, but it would be very. I mean, I don't know how to comment on that.
74:36 Okay. Appreciate the answer. Thank you very much.
74:41 Our next question is from Nicholas Joseph of Citi. Please proceed with your question.
74:48 Thanks for keeping it going. Just one quick question on traffic obviously occupancy is high, but internal was low. But as you look at leads or traffic currently, how does it compare 2021 and then historical levels?
75:04 Yeah. Thanks, Nick. This is Bryan. As I said in my prepared remarks, measuring traffic by distinct shoppers checking indirect ready homes, I was up 60% year-over-year. The demand has just been fantastic, continues to accelerate. There's a couple of notable points. We've talked in the past about interstate migration and the effect that people moving out of California and out of the East Coast into our markets had on demand. And there's been discussions about the consistency and trajectory of that, that's continued to be strong in fact even accelerating Q4 over Q4. 75:41 If you look at the applications that we're getting out of people moving from California on our Q4 '21 over Q4 '20 basis, it's up almost 40%. Taking a look at the other side, applications from New York and New Jersey are up over 33%. And then I think, a really key factor if you look at the portfolio overall. And this -- in these migratory patterns is that our applications, people coming from non-AMH states into the portfolio, was up over 12% in Q4 over Q4.
76:17 Thank you.
76:20 Thanks, Nick.
76:23 We have reached the end of the question-and-answer session. I will now turn the call back over to management for closing remarks.
76:30 Thank you, operator and thank you to all of you for your time today. As I indicated previously, we're really excited about our strong performance in 2021. But we are even more excited about the foundation we have built, and the prospects for strong operational and growth performance in 2022, as well as our future years. Talk again with all of you next quarter. Have a great day.
76:59 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.