Greetings, and welcome to the AMH Third Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A 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 you to your host, Nicholas Fromm, Director of Investor Relations. Thank you, Nick. You may begin.

Good morning. Thank you for joining us for our third quarter 2024 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 facts 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, October 30, 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 press 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.

Welcome, everyone, and thank you for joining us today. This is a special day for me. Today is my last earnings call before passing baton to Bryan Smith, the next steward of our great brand. I hired Bryan more than 12 years ago. He has worked alongside me to build this company many of those as our Chief Operating Officer. Reflecting on the last 12 years, we accomplished more than I ever imagined. Together with Wayne Hughes, we seized a once-in-a-lifetime opportunity to pioneer the professionally managed single-family rental landscape. Since then, we've changed perceptions of housing in the U.S. and raise the bar on industry standards for service and quality. To control our own destiny, expand our portfolio through every economic cycle and to do our part in addressing America's housing shortage. We build new homes in desired locations across our markets. We invested in our operations. We leverage technology. We looked around corners. And most importantly, we focused on people. We assembled a talented team, including a strong leadership bench that has worked together for the past decade and is ready to lead this company into the next chapter of its journey. Today, our 60,000 homes provide thousands of households with access to high-quality homes at a meaningful discount to the current cost of homeownership. Our residents appreciate the convenience, flexibility and ease of living we provide. Housing is a fundamental American need, and single-family rental homes have emerged as an important part of the American housing landscape and solution. Building AMH with Wayne and with your support is one of my proudest career accomplishments. I leave AMH with gratitude, pride and fond memories that I will cherish forever. Thank you all for being a part of my journey. AMH is in capable hands, and I'm excited to see the future successes, not only at AMH but for the SFR industry as a whole. And with that, I will now turn the call over to Bryan.

Thank you, Dave. I remember joining our team over 12 years ago when AMH was only an idea. Since then, we've accomplished many great things including pioneering in industry. But what stands out to me is the way that you've led the company by being focused on the people, both our team members and our residents. AMH would not be where it is today without you. Thank you for your outstanding leadership and friendship. I look forward to carrying on the AMH legacy. Looking ahead, the future is bright for AMH, long-term business fundamentals are strong. And in the midst of a national housing shortage, we continue to do our part by contributing new housing stock through our development program, working to meet the growing demand for high-quality single-family rentals. More importantly, we remain focused on creating the best resident experience in the industry. AMH homes are well located to high-growth markets are known for their superior quality, and are supported by the best services platform in the industry. Turning to the near-term environment. This year is quickly coming to a close, and we consider 2024 to be a job well done. Operating results in the first half of the year were better than originally anticipated as the team worked hard to capture additional upside during the busy leasing season. In the back half of the year, managing expenses has been key. Our success in controlling costs during the heavy move-out season is reflected in our results and the guidance revision highlighted in yesterday's earnings release. For the third quarter, the teams delivered right on top of expectations with 4.4% revenue growth over the prior year. And on the expense front, another quarter of better-than-expected results was driven by the team's focus on controlling the controllables. This resulted in total…

Thanks, Bryan, and good morning, everyone. Before I jump in, I want to share an additional congratulations and thank you to Dave. Dave, you truly helped pioneer in industry and positively change housing across America. And under your leadership, we've built AMH into the industry leader that we are today. Thank you, Dave, and I wish you all the best. Now turning back to the quarter, I'll cover three areas in my comments today: First, a review of our quarterly results, including a summary of our estimated financial impact of the recent series of hurricanes; second, an update on our balance sheet and recent capital activity; and third, I'll close with commentary on our further increased 2024 guidance and some additional thoughts around our recently acquired bulk portfolio. Starting off with our operating results, we delivered another strong quarter, demonstrating the strength of the AMH platform and our ability to efficiently control costs during the heaviest move-out season of the year. Simply put, our teams did a great job executing on our objective of controlling the controllables this quarter with net income attributable to common shareholders of $73.8 million, or $0.20 per diluted share, which included a $3.9 million estimated total loss from Hurricanes Beryl, Debby and Helene. And after quarter end, as we all know, Florida was further impacted by Hurricane Milton which we preliminarily expect to result in another $3 million to $4 million of hurricane damages in the fourth quarter. This hurricane season delivered an unprecedented series of consecutive storms, and our teams did a fantastic job standing up to the test, working tirelessly to protect our residents and portfolio through our industry-leading disaster preparedness and response programs. Through their hard work and a little bit of good fortune with some of the storm paths, our portfolio…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Juan Sanabria with BMO. Please proceed with your question.

Hi, good morning. Just hoping you could talk a little bit about the pricing dynamic for new customers. It seems like renewals are pretty steady, but you kind of talked about focusing on maintaining occupancy and setting yourself up for 2025. So just curious, your expectations for new leasing in the balance of the year into 2025. And what the impact of supply is that you're facing any kind of early discounting that you're doing or you're seeing across your various markets? Thanks.

Yes. Thanks, Juan. This is Bryan. We're really pleased with our spread results through the first three quarters of the year, remaining very strong into Q3. Demand is fantastic. There's a shortage of quality housing that everybody talks about. And what we saw was a little bit of some temporarily effective activity towards the end of Q3 as a result of some of the things that I talked about in the prepared remarks, namely a number of named storms. That reduced activity a little bit can be seen in a little bit of a moderation of new lease rate into October, which is typical of the season as well. But our team did a very good job of recalibrating our asking rates, and we're optimistic that we're able to pick up occupancy as we get through the balance of Q4. That will set us up really well for 2025. And for the balance of Q4, you asked what our expectations are from a new lease rate growth. And we're thinking somewhere in the low one, but still a little bit early. But couple that with the fact that renewals represent a much greater proportion of the leases and our expectations for the balance of the year remains strong and in Q4 in the high 4s with low to mid-5s for the full year.

Great. And just as a follow-up, could you give a little color on bad debt, they ticked up as a percentage of revenue sequentially. So just curious on where we stand on cleaning up the remaining kind of post-COVID bad debt issues, et cetera.

Yes. Sure, Juan. Chris here. Look, I would say that collections have been tracking right on top of what we were expecting with third quarter bad debt running in the low ones, very much reflecting the typical correlation that we see with move-out season that we started talking about last quarter. And then as we move into the fourth quarter, I'd expect bad debt to seasonally moderate down a touch, bringing full year into the 1% area, which is right on top of what we have contemplated in the guide.

Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

Great. Thanks for taking the question and congratulations, Dave, on the transition.

Thank you.

So thinking about what you just said about October and into the year-end, I mean thinking about the 1% new lease rate growth, I think you said 2% in October. I mean how much of that would you attribute to the storms clean up from the storms all that versus just seasonality? And then I guess just thinking beyond 4Q, I mean, how do you think that accelerates into the beginning of the year?

Yes. Thank you, Jamie. As we talked about, there are a number of different things that are kind of contributing to the current environment. The reality, though, is that there's just a ton of demand for our product are well located high-quality homes, single-family detached homes. And that's going to play out really nicely as we get into next year. The objective is to finish the year strong as we talked about with the expectation of accelerated activity that we see every January as we get into the spring leasing season. We're going to be prepared to really capture the momentum of that top line opportunity from day one going into next year. As you look into next year, there are a couple of things that we're starting to see. There were some estimates on market rent growth given by John Burns for our markets for 2025 in the 3% to 4% range. So we're expecting to capture some of that going into next year as well.

Okay, that's helpful. And then I guess thinking about the acquisition, you mentioned nominal yield of 6% cash after CapEx high 5s. Can you just talk about the going in yield on the portfolio and where you think the areas are where you can get that number up? Whether it's revenue optimization, economies of scale and R&M on adding it to your blanket insurance is kind of what are the big levers here to hit your numbers?

Yes, sure. Jamie, it's Chris here. I'd be happy to take that one. Look, on the topic in general, I would really start by saying that no question. This portfolio is a great transaction for us. But just for a second, if I could zoom us out to the bigger picture, I think that this transaction is also a really great example of the broader consolidation opportunity at large that we've been talking about for some time now. And in particular, what we really love about these types of transactions is our ability to unlock value in these portfolios by consolidating them onto our platform, right? And to your point, in terms of this one, if we want to use it as the example, look, for starters, we paid approximately $280,000 per unit that represents a very attractive entry point with in-place cash flow yields right around 5% or so, given that the portfolio is currently being managed by a number of different third-party property managers. However, once the portfolio is transferred to our platform and operations are optimized up to our standards, and that's really across the board, right? It's optimization around the top line collections and bad debt and then really overlaying our best-in-class expenditure control, you mentioned insurance. I would also add in our expenditure management programs around controlling of the controllables, leveraging of our property management platform, et cetera, all of which translating into stabilized yields in the high 5% to 6% area once on our platform, which represents 75 basis points plus of yield creation because of the AMH platform. And I know Bryan mentioned this briefly in prepared remarks, but I think it's worth underscoring this transaction really creates a win, win, win all the way around, right? No question, creating value for AMH and our shareholders, but also adding value to the residents of the portfolio through the quality of our AMH service programs and then providing, of course, a seamless exit solution for the seller of the portfolio as well.

Great, thanks.

Thank you. Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.

Thanks. It's Nick Joseph here with Eric and congratulations Dave. Given your October occupancy, but when you look at either your lease percentage or forward exposure, what does that tell you about where occupancy should go over the next few months? And how comfortable are you letting occupancy drop further from here, just given the strong demand that you talked about?

Thanks Nick. This is Bryan. We talked about a little bit of the affected activity due to a few different things at the end of Q3. October activity has picked up nicely though. So we're expecting to pick up some occupancy or a little bit of occupancy over the last couple of months of the year. And then the objective is to have really nice momentum, leasing momentum going into 2025, and we seem to be on track with that.

Great. Thanks. And this is Eric. I guess given that there's only two months left in the year, could you just share your early thoughts on earn-in for next year or anything else that you think we should be considering when it comes to your growth potential, I think you mentioned John Burns Consulting is predicting like 3% to 4% rent growth. I don't know if you think that's a reasonable starting point. But just anything you can kind of say about what you think about your growth potential for next year.

Sure. Eric, Chris here. Bryan started to touch on it. But look, the demand is there, the need for housing is there and our expectation is that activity is coming back strong as we come into the new year like it always does. And obviously, we'll have nice updates on that for you as we get into next year. In terms of the building blocks of what we know at this point is we're beginning to think about the top line. At this point, we know that earn in going into next year based on this year's activity, probably low 2s or so. Bryan talked about the fact that latest third-party market estimates for rent growth market rate growth next year is in the 3% to 4% area. And then loss to lease -- it depends a little bit on the next couple of months of activity, low single digits or so. So anyway still early to be talking too quantitatively about 2025, but like we keep saying the demand is there, the need for housing is there, and we feel good about it.

Got it. That's helpful.

Thank you.

Thanks, Chris.

Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.

Hi, guys. Good morning out there and congrats to you, Dave, and also Bryan again. I wanted to follow up on the reduction in the OpEx guide, specifically the tax side of that, you mentioned better-than-expected property tax assessment outcomes from Florida, Georgia, Texas. I guess I'm curious if that outperformance was from millage rates or property assessed values flat lining. And any kind of early read for 2025, curious if this is a tailwind that we can see continue into next year? Thanks.

Good question, Haendel, Chris here. Just talking about our update so far, keep in mind, this time of the year, we now have values back for the majority of the portfolio. But as I mentioned in prepared remarks, we still don't have much information on property tax rates yet. Those are generally available a little bit later into the fourth quarter. But given the assessed value data that we have on hand at this point, like I said, we feel good about our reduced full year midpoint of 6%. To the second part of your question on 2025 I think you probably know what I'm going to say in that it's a little bit early to be talking about specifics, so I'll tread lightly on this one, especially given that our property tax forecasting process really runs over the course of fourth quarter and into the beginning of next year. But look, as we've talked about many times, our general expectation is that we've been expecting our rate of property tax growth to continue cooling, given that home price appreciation growth has continued moderating since it peaked in, call it, 2022 or so. With that said, we know that we've actually already captured a bit more moderation this year than we were originally expecting. And we're also mindful that we have a couple of unknowns on the table for next year. For next year, we know that the 2022 Texas property tax reform that lowered rates a couple of years ago is expiring at the end of this calendar year. And we're watching very closely a couple of multi-year revaluation states that have seen some pretty hot HPA over the last couple of years that we'll be resetting next year. But again, I would take that against the backdrop of a more broadly cooling HPA and property tax value environment. And like I said, we'll have a much better update for you next quarter after we get through our budgeting process.

Appreciate the color, Chris. Thank you. One follow-up just on the portfolio purchase. I don't know if I missed it, but did you guys mention the timeline to which you expect to get to that 6% stabilized yield at that end of next year? And then I guess I'm more curious broadly on the motivation, maybe who the seller is, if you could share, but also their motivation here? Was it just perhaps an opportunity given maybe lower rates and perhaps an ability to get maybe a better price? And just also the tone of conversations that you're having more broadly with other potential sellers, are you sensing that maybe there's a greater chance of likelihood, more similar type of activity, not just for you, but more broadly in the space into the next year? Thanks.

Sure. Chris here again. I'll start and then Bryan can chime in as well. Just from a timeline perspective, in prepared remarks, I characterized it as over the course of 2025. The way that we're expecting it to play out is it will take the next several months to get the third party management relationships transitioned over to our platform. That will take us probably into the beginning of 2025 or so. And then at that point, we can start overlaying our AMH practices and begin to bring things up to our standards. Again, that does not happen overnight. But I think by the middle of 2025 or so, we should be in a pretty good spot. But we'll continue to keep you all updated over the next quarter or two as we really start to get into it.

Haendel, this is Bryan. To the second part of your question, regarding some seller specifics, I really respect for the transaction, I don't want to get into too many specifics on their motivation, but I can tell you what we offered in the transaction. We talked at length about our diversified footprint that makes us very flexible and looking at various parts of the United States and portfolios that come online. I think that was an advantage. The strength of our asset management platform was clearly valuable in the transaction. Our ability to effectively solve some of the sellers' issues, provide a seamless transaction, we have a lot of expertise in the space. We were able to quickly get in and get comfortable with the assets and get comfortable with the value lift that we would see on our platform. So it was just a really good transaction for us. Specifically to bulk opportunities that we're seeing in the marketplace, we have seen an uptick in activity of late. We reviewed a number of other portfolios over the past three or four months. And I think as expected, we're going to start seeing more of those come through. Keep in mind, though, that we're very specific and intentional on asset type, quality and location. Some of the ones that we've seen of late checked some of the boxes that at all. We're just really, really pleased with the one that we did close because it's one of the best we've seen in many, many years, the best we've seen in many, many years. So we're optimistic that we'll see other opportunities like that in the future and it seems like that channel is beginning to open up.

Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Yes, great, thanks. I guess just going back to some of the comments, Bryan, you made about the occupancy in the October trends. The 95.2% puts you about 100 basis points below kind of the fourth quarter last year. I guess with 1% pricing on new and let's call it, low 5s on renewals, how confident are you that 95.2% comes up materially? And I guess, would you expect the year-over-year decline in occupancy, say, 4Q to 4Q to kind of match the decline you saw in 3Q to 3Q?

Yes, thanks, Steve. If we're looking at the occupancy trends for Q4, we are confident that we've seen a nice change in activity in October. It's translating into really at a strong close to that month. It's not over yet completely, but we are very pleased with that uptick coming out of kind of a post Labor Day, September that had a lot of other things going on. We are confident that we'll be able to pick up some occupancy, most importantly, really good momentum as we exit the year. So I wouldn't expect to have a huge increase as we get into November and December, but I would expect it to move positively and then have that momentum continue into 2025.

Okay, thanks. And then just going back on the transaction, I sort of recall comments, Dave saying, hey, we're pushing into the development program because we can build the homes that we really want, customize them the way we want them, whether it's bigger doorways, better stairs, materials, and you could get stabilized yields on new projects around 6, and you're buying this portfolio in the low 5s with ultimately the stabilization going to a 6. So just trying to understand the rationale of why not put that money just into more development assets versus the buying older assets that will get you the same yield as new development.

Yes. Thanks, Steve. I appreciate the way you're looking at it. And I think the answer is that they're both good. The development program is fantastic for a number of reasons that we've talked about for a while. What it really does is it gives us a nice stable base that's predictable. We're able to use that as a foundation of our growth programs. And then we're set up to take advantage of other opportunities as they arise. In the case of this portfolio transaction, the asset quality is fantastic. It fits our buy box from just about every angle. We're very pleased with the quality of locations, quality of finishes. And it's going to be a really nice supplement to our growth program. So I would look forward to being able to execute well on both development and on any fantastic opportunities like this if they arise.

Hi, Steve, It's Dave. Let me just add one comment. And that is the investment philosophy has been consistently, the development is a consistent and predictable channel to grow. But acquisitions, whether from any of the channels, whether it's one-offs from new homebuilders or in bulk are the supplemental way to grow and you don't have the ability to throttle your development from time to time in any meaningful way but incremental opportunities, especially as a portfolio like this, which are really good, well-located assets that are under managed in the hands of third-party property managers is going to be a very, very good supplemental investment for us. So there is no change in investment philosophy. It's just that we have started to see, as Bryan indicated, some of the investment opportunities on the bulk side.

Thank you. Our next question comes from the line of Josh Dennerlein with Bank of America. Please proceed with your question.

Sure. Hi, guys. Bryan, you mentioned there were some other portfolios that you looked at in the past few months, but passed on. Were there any kind of common boxes that didn't get checked across the portfolios you passed on or…

Yes. Thanks, Josh. I think the general observation that we have is there was probably a higher proportion of town homes and attached product than what we're comfortable with. Like I said we're unique in that we have this diversified footprint and a robust asset management program. But we're pretty firm in our belief that the single-family detached homes going to provide better long-term returns. And in a couple of cases, they just had a higher -- too high of a proportion of attached product. And not to mention, in a couple of cases, the location was a little bit outside of our investment box.

And I guess when you think about like the other opportunities set out there, are there -- most portfolios that you're going to -- like that are coming to market do they have more townhomes, attached homes that were like developed? Or are there a lot of portfolios out there that have been kind of just aggregated one-off?

Yes. That's a very good observation, Josh.

…yes.

Yes. That's a very good observation, Josh. The portfolios that I'm referencing right now, we're pretty heavily weighted towards more recent build-to-rent and that seems to be the trend in that space. The scattered site portfolio like the one that we closed there's a higher proportion of single-family detach there, and we see a lot of opportunity in some of those assembled portfolios.

Thank you. Our next question comes from the line of Julien Blouin with Goldman Sachs. Please proceed with your question.

Yes, thank you for the question and all the best, Dave. Bryan, you talked about demand continuing to be strong, which sort of sets you up well going into next year. I guess what specific sort of metrics or data points are you looking at that give you that confidence? And relatedly, one of the data points I think you've given in the past is sort of the stated incomes of incoming residents continuing to improve. How much of an indicator of demand is that? Is that showing you that sort of higher income households are coming into the portfolio and seeing better value in renting versus owning?

Yes. Thanks, Julien. There's a couple of good questions in there. Let me start with some of the demand metrics that we're seeing. If you look at Q3, we had nearly a million new users come on to our website, come on to our platform, and we track very carefully with their behaviors when they're on that platform. We're seeing a lot of people using -- utilizing our unique search functions where they're setting up accounts and monitoring activity in available homes. We saw a huge uptick in that activity. So people are coming into the ecosystem. We're really pleased with that. Again, it's a testament to the quality of our assets and locations within the markets. When you start to talk about the profile of the incoming applicants, we're very pleased that incomes remained very strong into Q3 in excess of $150,000 of stated household income. It's, again, a testament to the quality of our assets. These are homes that single-family detached with the yard well located, and we're starting to see the benefits of that focus on that level of quality.

Great, thank you. And maybe as a follow-up, it looked like turnover continued to trend lower year-over-year and that obviously had some benefit on the controllable expense side. Do you expect that to sort of continue for the coming quarters, given mortgage rates sort of continuing to be stubbornly high here?

Yes, we're really pleased with retention in the quarter. It's a testament to a number of different things, market conditions. Also, our team has done a fantastic job of executing, very focused on the resident experience and a lot of the investments that we've made into the platform I think have improved that experience. So there's a nice benefit there on our retention levels as well.

Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.

Thanks. Chris, with respect to the financing of the portfolio acquisition, I'm curious how you weighed issuing equity versus just selling more assets into what is still an extremely aggressive bid that owner occupants are willing to pay for your homes?

Sure. Good morning, John. Good question. And as we're talking about financing of the transaction, I think it's important to keep in mind that the transaction was closed and financed directly from the balance sheet using cash and capacity off of the revolver. And I think it's important to point out that, in part this portfolio was made possible because of the strength and opportunistic flexibility of the balance sheet, right? That's what enabled us to be able to act quickly and provide that seamless exit solution that we keep talking about for the seller because we were able to close directly from the balance sheet, while importantly, maintaining leverage at targeted levels with net debt-to-EBITDA still in the 5s, right? And so what that does is that now keeps us in a position to be able to take advantage of incremental debt in equity capital for further consolidation opportunities and more growth. And more broadly, as we think about the capital plan, you're exactly right in terms of the attractiveness of the disposition program. And we are fully leaning into that. For this year, we continue to be on track to sell plus or minus 1,500 properties or so. And we think that there's good, robust opportunity there heading into 2025 and beyond as well, especially as we continue freeing up the remaining previously encumbered homes by the securitizations that are being refinanced off of the balance sheet.

Okay. And then last one for me is a two-part question. Just so I understand the build-to-rent impact on same-store numbers. And so could you help quantify the NOI growth lift that the rolling in of build-to-rent properties has had on 2024 same-store NOI growth this year? And then I have a follow-up.

Yes. Thanks, John. The new - build-to-rent the newbuilds, the AMH Development homes still represent a relatively small proportion of the Same-Home pool, less than 10%. So the lift is -- will be realized in the future as more and more of those homes roll in. The profile of that small subset screens very nicely, though, with slightly elevated occupancy quicker turn times, cash-to-cash turn time. So they're performing well, but there's such a small portion of the Same-Home pool that the effect isn't really moving seen yet.

Okay. Is there any effect given certain quarters have smaller sample size or lease signings? Has there been any basically lift to new lease or renewal growth rates this year from the rolling in of build-to-rent communities?

Again, they're small. The re-leasing rate growth for Q3 for new development homes was higher than the scattered site portfolio. Scattered site portfolio had slightly higher renewals due to kind of a more baked and loss to lease, but again, still a small portion. I don't think it had any noticeable effect.

Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Hi, thanks for the time and congrats to everyone. I just want to ask, I guess it's a little bit of a similar question around kind of the infill properties versus build-to-rent. So maybe if you could quantify the difference in kind of how each property type is behaving relative to some of the new supply. I think we've heard a lot about kind of new supply. I think a lot of it is maybe more build-to-rent, more periphery of markets. So maybe just walk us through kind of how your BTR is performing relative to infill kind of with regards to the new supply impacts.

Yes, thanks, Adam. I think the easiest way to get insight into that question is to take a look at what's happening in Phoenix. We've talked about it in the past. But Phoenix is really the center of build-to-rent. And if you follow some of the John Burns statistics, they've had the largest ads there. But the proportion of those build-to-rent that's actually single-family detached like our product is in the 20% range. So there's about 80% of the supply coming into the market is attached townhomes, rail homes or horizontal apartments. If you look at the performance of our build-to-rent product, which is, like I said, single-family detached in Arizona, we have fantastic occupancy. It's in the 96-plus percent range, which exceeds that of the scattered site in that particular market. So our product that we're bringing to market through our development program is performing extremely well relative to the other build-to-rent product that's coming out. And in the case of Phoenix relative to the scattered site portfolio as well.

Great. That's really helpful. And then just on bad debt. I was wondering if you could just remind us the kind of pre-COVID bad debt kind of level or a rule of thumb for what bad debt was pre-COVID and then obviously, I would imagine still elevated today relative to that number. So maybe just on kind of the path to getting back there. Is that something that can happen next year? Is it a multiple year? Is that something where, hey, maybe we stay elevated relative to history over the long run even? Just maybe kind of the levels of bad debt.

Sure. Adam, it's Chris here. To the first part of your question on the reminder, as a reminder, historic bad debt for us, typically ran 70 to 90 basis points or so. And the reason why I give a range is naturally, bad debt has always had some level of seasonality to it, no different than what I was just talking about in terms of what we've been seeing this year with slightly higher levels of bad debt in the second and really third quarters very closely correlated with move-out season. As we think about this year, keep in mind that the first half of this year was back to sub-1%, again, and what was encouraging about that is that, that was even with the fact that we still have a number of municipalities in local court systems like we've been talking about that are still continuing to process at a slower speed, which I think speaks to the health and financial resiliency of our resident base. And then as we've gotten into the back half of this year, just like we were expecting, we saw a tick-up in bad debt correlated with the move-out season. And as we move into 2025, it's still a little bit early to say exactly where we think 2025 is likely going to be at this point right now. Nothing has really changed just yet in terms of processing time at the local municipal and court system levels. So we do think that that's probably going to be a factor into 2025. But otherwise, resident financial health collections in general, feel good. And we feel good about the levels that we're at, and I would remind you also that we're talking about realistically tens of basis points away from where we were historically pre-COVID.

Thank you. Our next question comes from the line of Daniel Tricarico with Scotiabank. Please proceed with your question.

Thank you. For your markets that haven't seen as much HPA since COVID, some of your Midwest markets, they're now seeing stronger new lease rate growth, outperforming the broader portfolio. Is this a dynamic that you'd expect to continue next year?

Daniel, this is Bryan. We're really pleased with the performance of our Midwestern markets. And you're right. They may not have seen the same level of home price appreciation in some of our other markets over the past few years. But our portfolio within those markets is really, really high quality, well located, very clear value proposition for people looking to move from -- into the market into really nice homes without having the burdens of ownership in many cases. So I think it's more of a testament to the quality of our assets and really the lack of supply of similar quality assets in those marketplaces. So we do expect a continuation of a really good performance in those markets in 2025.

And Daniel, Chris here. A helpful point to make to Bryan's point, Midwestern markets have been performing great, but they've been difficult to grow in, right? And that's another unique aspect of this fourth quarter portfolio in that it's giving us access to growth in a number of Midwestern markets, notably Indianapolis that we've had difficulty growing in recently.

Thanks for that guys. Bryan, I think I'll stick with you. Backing into the development yields for the new deliveries in Q3, it seems to reflect a decrease versus the first half of the year deliveries. I think you had mentioned nearing 6% NOI yields on those, but any thoughts on what's driving this decrease if that is, in fact, true? And is the 6% figure a fair number for target yields on deliveries next year?

Yes, thanks, Daniel. I think what you're seeing squeezing into the third quarter is really just a little bit of timing and potentially market mix and even down to the unit mix level. We're still pleased that for the year, we're expecting yields in the high 5s. And I would expect to have similar performance into 2025 on development deliveries, at least that's the visibility we have into the next few months or so, but the team is actively looking at ways to optimize that going forward.

Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.

Thank you. Regarding the portfolio of 1,700 properties you purchased, what's the average age and how does that compare to AMH's overall portfolio? And then are there any homes that are located in new markets?

Hi, Linda. Chris here. Sure. In fact, I can actually just run through a number of fast facts on the portfolio for everyone's understanding. You're exactly right, 1,700 properties, all existing rentals, average year built was 2007, average size is about 2,100 square feet, three to four beds and in-place rents approximately in the $2,000 area or so. So, the physical nature of the portfolio overlays really nicely with our existing footprint with -- as we keep talking about great opportunity for upside as we optimize the portfolio up to our standards. And just for some additional context, occupancy in the portfolio right now net of bad debt is low -- running probably in the low 90s or so. And margins are high 50s to 60 area and once optimized and brought up to our standards, given the natural overlay and fit with our existing footprint. Our expectation is that these properties will perform just like and alongside any of our other existing legacy AMH properties.

Thanks. And then just in terms of the John Burns comment of 3% to 4% rent growth next year, are there certain markets you'd highlight as exceeding this and conversely being below?

Yes. I think the band -- this is Bryan. The band of 3 to 4 most of our markets are pretty concentrated there. The leader in rent growth according to Burns across our markets would be in Savannah and Hilton Head, which would be obviously the top end of the range. And on the other side, expectations of rent growth in San Antonio would be kind of on the lower end.

Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.

Yes, thanks. Chris, a stat that you didn't give. Can you say what you underwrote for the loss to lease on the acquired portfolio?

Sure. Thanks, Brad. I'm a little hesitant to get into that level of specificity on the portfolio. But I will say that's just one piece of the optimization opportunity, implementing our pricing standards across the portfolio. As I mentioned, economic occupancy net of bad debt is in the low 90s, we've got nice opportunity to bring that up to AMH standards. And then big opportunity overlaying our level of expenditure controls, bringing in our efficiency from an insurance management perspective, all of the good stuff we're seeing right now in terms of controlling the controllables to R&M turn and CapEx of the homes and then, of course, leveraging the scalability of our existing property management platform.

Okay, got it. And then on the revised expense guidance, expenses were obviously low in the third quarter. The guidance implies a reacceleration to the highest figure of the year plus or minus. Is there like a comps or timing issue driving that? Or is there something else?

No. Look, we're super happy with what we're seeing on expenses. Keep in mind, we had a very efficient expense comp in the fourth quarter of last year. So, a little bit of timing and comp there. But generally speaking, look, I said it in prepared remarks, we could not be happier with our controllable expense results this year. And a really good takeaway to think about here is that many of our investments that we've been talking about, like Resident 360 are really paying off, and they're not just helping us control expenses. But importantly, they're also helping us maintain outstanding customer service scores, right, which is something that we haven't talked about yet. And we can see that measured by both our internal surveys. And then importantly, some of our third-party scores like Google Reviews that are in excess of 4.5 out of 5 stars.

Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Great, thank you. You've referenced the 3% to 4% market rent growth projected for next year. I guess, given your operating platform, quality of portfolio and just kind of the fragmentation of the business, I guess how has your portfolio grown relative to market rent growth forecast over the years and just curious if there's any outperformance that's worth flagging?

Thanks, Austin. The market rent growth estimates that the Burns put out are specific to our markets. I think over the past few years, accepting the period of COVID where it was very unpredictable. We've tracked at the probably the top end of that rent growth. But I would expect the current expectations probably reflect some of our performance in their estimates. So I think it's a good starting point. I think couple that with loss to lease, couple that with our expectations and really the value that single-family rentals have relative to ownership today puts us in a really good position into 2025.

Helpful. And then just second one for me. You've just discussed about how more portfolio opportunities you'd expect to come to market. But can you just give us a sense how competitive the process has been and kind of what you expect in terms of number of bidders and really then what gave you the upper hand to get this deal across the finish line?

Yes. I think it's really deal specific and the -- discussing the one that we closed, it was competitive. We've seen a number of other portfolios that have been listed and marketed and widely marketed. And then from time to time, we're a direct access to some of the owners to discuss. So it's really a mixed bag. But as we said, we're a very logical solution to a lot of kind of the sellers' objectives and goals, and we expect to see them from all channels to brokers, marketed and direct through some of the relationships that we have.

Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good afternoon. Thanks a lot for taking my question. You talked about uncertainties in the market. Has there been any signs of increased price sensitivity for customers? Or does that uncertainty that you talked about, like help keep your tenant base in place and renew?

Yes. Thank you, Michael. I think the -- what I was really referring to was the effect that the number of different things we've had over the past couple of months on activity and the movement. You can see it in other areas of housing as well. If you look at MLS sale activity in September, it was a 14-year low, so there were things going on in the U.S. There's still a lot of things going on with the election and so forth that have caused that activity to temporarily slowed in the back part of Q3. In terms of price sensitivity, we were very pleased with the results that we posted through the first three quarters, including the Q3 in the context of all the other residential companies, I think those numbers will really shine. And then as we get into Q4, you're seeing seasonal return seeing the effect of some of these kind of temporary disruptions and it's led to a moderation of our new lease rate growth.

Got it. And you brought up the temporary disruptions. Do you tend to see stronger demand following the larger weather events like what we've kind of experienced recently?

Yes. In the past, you do see -- obviously, you're kind of catching up for the period of limited activity. Most recently in Florida, you had storms back to back. You're talking about weeks of people focusing on things more important than moving around. And then when things calm down when things get back to normal, you do see a little bit of a pickup. We're seeing a little bit of that in Florida. But again, the storms are still pretty recent. It's maybe not as dramatic as you might expect, but we do see a little bit of a pickup as everything calms down.

Thank you. Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your question.

Hi, yes. Good afternoon everyone. Dave, congrats from us as well. In terms of -- just in terms of the stock performance out of the call has been going on has just been deteriorating. Again, it's clear that investors feel somewhat disappointed about some of the fourth quarter operating trends that are being discussed. So I'm just trying to understand a little bit again as it pertains to the new leasing trends and even some of the October occupancy if one was to really kind of think about supply versus weather versus kind of classic seasonality, really how much can one really kind of attribute each of these three factors to some of those forecasts? And then also specifically, are there any kind of regional biases where it's impacting some markets a little bit more than others?

Yes. Let me start. I don't agree with your comment about disappointment. We've had a fantastic year. Our year has exceeded expectations. Our goal at the outset to the first half of the year was to capture the top line upside, which we did. And then the second half, as we talked about last quarter and this quarter as well, was really focused on controlling the controllables, cost controls, while maintaining outstanding customer service, really leading to a superior resident experience. All the things that we've talked about, we executed on this year. And that was the impetus for the raises that we've had through the first three -- through the first 10 months of the year. So we're in an excellent position. We talked about our goals for the balance of this year. We talked about how fantastic demand is for our well-located high-quality products. And we're going to finish this year strong and be ready for another outstanding year in 2025.

Thank you. Our last question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Hi. This is Jason Sabshon on for Jade. It would be helpful to hear what you're seeing in the Florida property insurance markets and whether there are any spillover effects into adjacent markets?

Hi, Jason, Chris here. Look, I can talk about it a little bit more broadly. Keep in mind that we ensure our portfolio and place our program at the national and portfolio level, of course, market mix is important, but it's placed at the portfolio level. Recall that for this year, our renewal was already completed very successfully at the start of this year. Our annual premium increase for this year has moderated down to the high single-digit area. And so at this point, we're really preparing for our 2025 renewal. And we fully recognize that this has been an active hurricane season. But at the same time, the insurance market is pretty well capitalized today and in a much healthier position than it was several years ago. And when you then take that and couple it with the AMH reputation in the insurance market because of the quality of our disaster and preparedness programs, even though it was an active hurricane season, we still feel good heading into our 2025 renewal, and we'll have more updates for that on -- on that for you next quarter.

Thank you. There are no further questions at this time. I'd like to pass the call back over to management for closing remarks.

Thank you, operator. This is Dave. And I'll close this call a little differently. I'll close where I started today's call, and that is to thank all of you for your support and being part of my journey over the past decade plus. With Bryan and Chris at the helm, I know AMH is in capable hands as it enters into 2025 and beyond. So I thank you, and all have a good day. Bye-bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.