American Homes 4 Rent (AMH) Earnings Call Transcript & Summary

Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Jana Galan, BofA's residential REIT analyst. And we're thrilled to have with us from AMH, CFO, Chris Lau; Chief Operating Officer, Lincoln Palmer; and Investor Relations, Nick Fromm. I'll turn it over to Chris for opening remarks, and then we can jump into Q&A.

Sure. Just to get us going from a high level, I would say that the business is performing really well. I think we would have all seen that in the quarter. Leasing activity has continued to remain solid. The teams are executing super well. You saw that translate into a $0.03 bump to the guide on a full year basis at the midpoint. We're now expecting FFO growth to be north of 4%, 4.3% actually, which continues to be at the very top of the residential pack. Since the end of the quarter, we've just put out a July and August update. It hit the website back half of last week. I'd say the right takeaway there is that things are going according to plan. New leases importantly, continue to remain in positive territory, moderating a touch with seasonality, just like we were expecting from 1.6% in July to 80 basis points in August. Renewals held steady at 3.3% in both months, and occupancy was 96.1% in July, 95.9% in August, again, kind of trending just as we were expecting it, too. On the expense side of things, I think everyone has probably seen that expenses very much have been a bright spot this year. The team has done a fantastic job controlling the controllables. Property taxes for this year, trending below long-term average, latest midpoint of the guide is 2.75% growth this year. That's below long-term average, which is more like 4% to 5%. And real-time update there for anyone that's familiar with how property tax information flows over the course of the year. The end of summer, early fall is the time where we start to hear back on the results of the appeals process. I can't put any numbers to it yet, but we are starting to begin to get back some of those appeals results. Directionally, I will say that we're starting to see some results come back that feel like -- they're a little bit in what I would characterize as good guy territory. We still need to collect more information and importantly, property taxable rates come out later this year, fourth quarter. But by the time we report the third quarter, we should have a pretty good visibility on values. And like I said, so far, so good in terms of what we're seeing. Capital plan-wise, nothing terribly new to report there. We continue to execute on this year's moderated development program. Importantly, that is sized in a way that the balance sheet component is match fundable with recycled capital coming out of the disposition program. That, like we talked about at the beginning of the year, has freed up incremental capital capacity this year for other things like share repurchases as an example. I'm sure everyone saw that we were active, very active on share repurchases in the first 5 to 6 months of this year. Fast forward to the middle of this year, I felt like the stock was moving in the right direction for at least a period of time. Obviously, everything has pulled back over the last week, we can change or so. So it continues to be something very top of mind that we're watching very closely again. And then final high-level update since many of us would have spoken at least live last. Obviously, the road to Housing Act has now passed. Since passing in July, update is Congress has delegated it down to the respective agencies treasury HUD, et cetera, for the actual detailed rule writing process that is targeted to take place over the course of this calendar year. We'll see how much gets done by the end of the calendar year before going into effect at the beginning of 2027. Key takeaway there is that from an industry perspective, we now have pathway to Clarity, which we've all been looking for. And then from an AMH perspective, I would say that the AMH strategy has probably never been more differentiated than it is currently. Considering the fact that our 2 primary growth channels being internal AMH development and portfolio consolidations are both protected and specifically allowed under the new law. I'll probably pause there. Main takeaways, like I said, business is performing well. The third quarter-to-date update is that things are going according to plan, and the team is hyper-focused on executing to the best of their and our ability into the balance of the year.

Thank you so much, Chris. Maybe just starting with kind of the policy since that's been so forefront this year and definitely outcome of road to housing for you and your sector is much better than feared and pretty much business as usual. I would be curious if there's anything in the midterms that you guys are watching concerned, being talked about.

Just like everyone else, we're watching it very closely for the most part for this year, any of the states that we operate in, essentially, those states are out of session for this year. So we're very focused at the state and local level going into '27. But quite frankly, that's kind of business as usual for us, right? Housing ultimately is governed, state and local level. As many of you know, we have invested heavily into our own government affairs team starting years ago at this point. And their day job is really focusing on educating advocating at the state and local level. This was really the first year where we essentially redirected their efforts to the federal level. And now that road to housing is behind us, they can essentially get back to their day job at the state and local level. But the simple answer is, no, nothing to call out right now, recognizing that the states that we operate within are churn for this year.

Could you verify your comment about an internal development portfolio consolidation in the context of road to housing for you meet?

Sure. So you'd probably recall, we've talked for years about the fact that there are a large number of assembled kind of medium -- small- to medium-sized portfolios out there. Think of it thousands to a couple thousand unit portfolios are the sweet spot for the last probably year or 2, we've been talking about the fact that many of those portfolios are going to need liquidity at some point and very likely could be great consolidation opportunities for us. You can use the portfolio that we consolidated in 2024 is kind of the perfect example of what those portfolios look like couple of thousand units. That portfolio, in particular, was managed by a couple of different regional property managers that operated that portfolio to the best of their ability, but below the AMH level of operational performance, just to give you an example, when we acquired that portfolio. Operating margins were, call it, in the mid-50s. We brought it on to our platform, brought it up to our standards within about 12 months or so. Operating margins moved up into the mid-60s. That means that the initial in-place cap rate that we bought that portfolio at which was a 5 to very low 5s, expanded up into the high 5s, close to 6 once brought up to our operating standards, again, creating value coming on to our platform. That's the type of opportunity that we've been talking about for the last year or 2. My point on the impact of the new Road Housing Act is for many of those portfolios that had ambitions to get larger and have the ability to continue to grow. It's going to be much more difficult for them to do so in today's environment without access to the MLS and to be determined access to being able to buy from builders that we think will translate into over time increased seller motivation as they're looking to liquidate and monetize those portfolios. It's not going to happen overnight. Our best guess is over the next probably 12 to 18 months. We'll start to see some of this play out. which is perfectly fine for us. Obviously, the cost of capital off of the balance sheet today isn't exactly where we would want it to be for these types of portfolio consolidation opportunities. And so we're going to watch it closely as we get into '27. And on the right cost of capital environment, there is a lot of value to be unlocked and created in these types of consolidation opportunities.

And [indiscernible] and they can't [indiscernible] refresh on that.

Yes. The details are the definition of a large institutional investor ended up being 350 units or larger. Why 350? No one really knows, but that is where it landed. And so if you are 350 units or larger, as a practical matter, you really can't buy off of the MLS anymore. That's the key distinction here. Theoretically, you can subject to certain exceptions if we can get into the details of, but the punchline of it is there are economic costs that would come with acquiring off of the MLS that as a practical matter, if you are a defined large institutional investor it's not really going to be a viable growth channel anymore. But to your point on portfolio transactions under the law, transactions between portfolio owners of 350 units or larger are allowed from one owner to another meaning consolidation.

Just to confirm you, does this tie to your sentence, you said or statement, we now have clarity. I just want to make sure have you fleshed that out completely? Or is there anything else to elaborate on because talking to a lot of folks post-neREIT, there was some excitement and then a lot of generals are still -- they're not seeing the clarity. So is there anything else to mention to folks?

The key clarity, some of the early concepts that were being discussed, like forced divestiture requirements totally removed. Pure clarity on that. Clarity on development being specifically carved out and protected, which essentially is a direct acknowledgment of the fact that all forms of new supply both for sale and for rental are very important in terms of solving housing and across the country. Key clarity on the ability to consolidate portfolios is very important. So that is really what we mean by clarity, right? Taking some of the early-stage things like forced divestiture completely off of the table, really reinforcing the AMH strategy. And then, of course, yes, there are still pieces that need to be defined throughout the remainder of the specific rule writing process that will be a little bit more relevant to others, and in particular, some of the small- and medium-sized portfolio owners and operators, but good clarity for strategies, specifically like AMH.

And this is what you're saying, [ Claude ] is now going to go through over the coming months, early '27 will know for sure, I guess...

Let me asterisk the word choice "For sure". So that is -- that's the objective. Our political experts would tell us that for a lot of this size, it is not uncommon for this type of rule writing process to take upwards of 12 to 18 months on average. Congress is endeavoring to accomplish this and more like months. The experts would say that's a pretty ambitious time line. So we'll have to see exactly how much of this is ultimately defined by the start of the new year, but that's the objective. And like I said, we're going to have to keep everyone updated. But again, the important piece is, bigger picture, nothing like forced divestiture, reinforcement of development portfolio consolidation. Those are not subject to interpretation in the rule writing process. It's more of the finer details in terms of how some of the other things are going to go effectively into law.

Right. So for those who are looking for 100% clarity, while the fine details will be worked out, none of that should impact AMH and how you're operating and developing and potentially doing portfolio acquisitions.

Correct on operating, developing, managing of the balance sheet, et cetera. The portfolio consolidations, part of that, I think, will be contingent on how some of the rule writing process plays out. The body language, if you will, that we're getting from other portfolio owners out there is they're waiting to see what the rule writing process looks like they're waiting to see how others react. They're waiting to see how homebuilders respond and their willingness to continue to sell to institutional buyers before they recalibrate kind of their strategy and plan. So I would say, yes, with respect to everything other than the portfolio consolidation piece, where, as we know, right now, there is a pretty wide bid-ask spread in the market for portfolio consolidations. The portfolio owners need to see a little bit more of that clarity before we think we start to see more motivation from a pricing perspective.

You can buy MLS, if you put in capital CAPEX. You sort of referred to it as not economically viable. Why?

There's the two main exceptions that would allow you to -- as a large institutional investor to 350 units or larger, you can continue to buy off of the MLS if you meet one of a couple of exceptions. The two main ones are, you're acquiring a home that is not currently up to code that typically would not be the type of property, someone like an AMH would be targeting, it's not up the code and it requires substantial investment to bring it up to code, meaning obviously economic investment. That's number one. The second main exception is you could acquire that property if you include it in some type of home ownership support program. That is currently being defined in terms of what actually that means. But it is something along the lines of the institutional investor that purchased it at home has to include that home or the resident in that home and some type of program that they are funding the purchaser of that home that they are funding that will ultimately support that residence journey towards homeownership, whatever that may mean, again, economic cost to it. So I think my comment is as a practical matter, pretty much everyone is viewing the MLS exceptions as likely meaning not economically viable in terms of MLS being a true growth channel the way that it used to be.

How frequently were you buying from the MLS before?

From an AMH perspective, we've not been an active purchaser off of the MLS for years at this point. So that goes back to my point about the fact that the AMH strategy is essentially unchanged in that we've not been a meaningful purchaser off of the MLS for years and the primary growth from an AM strategic perspective has been internal development, supplemented or to be supplemented by the opportunity to create value as we hopefully consolidate portfolios down the road in the right cost of capital environment.

The development is the clear path. How do you lean even further into the development? And maybe talk about some of the expertise or things you've learned over the years versus, let's say, the homebuilders and what they're doing.

Oh, sure. Let me start and then maybe you talk about some of the things that differentiate one of our development homes on the ground relative to what they're seeing from others or even scattered sites. So yes, we have invested heavily into our development program for years at this point. We have been the largest integrated developer and operator of single-family build-to-rent homes for a number of years at this point, actively developing in, call it, 15 markets or so across the portfolio. In today's environment, it's a little bit about just to your point in terms of how do you grow it from here. Look, the reality is for anyone in our industry, if you want to have sight line to predictable growth over time, it needs to be through newly constructive product. Obviously, the MLS is not realistically going to be a viable channel. Again, we'll need to see how the builders kind of respond after the final language is written. And then portfolio consolidations, as much as we love them, from a value unlocking perspective, they're episodic. And so if you want true sightline to predictable growth. It needs to be coming through development, which, again, really differentiates the AMH development program. In terms of the sizing of it, look, we would love to ramp the sizing of it. Many markets across the country needs more housing, especially the type of housing that we're building in the location that we're building at the quality that is being constructed. The challenge becomes, obviously, the cost of capital environment that we're operating in right now. And so the balanced approach that we've taken this year is ensuring that we keep the development and development machine running into all of our markets. That's very important strategically for the longer term. but sizing it appropriately in this type of environment, like I was talking about a couple of minutes ago. What that means is we've moderated the sizing and volume of the program overall this year. We can do that because we control the entire program end to end. We have allocated a larger proportion of this year's pipeline to our joint venture partners. As we're thinking about 2027, that discussion with our joint venture partners is very active right now in terms of proportion of pipeline to be matched with JV capital. That could be one way to expand the development program further going forward as we think about this type of cost of capital environment. But Jeff, it's ultimately of balance, right, continuing to invest in to keep the development program operating and running in our markets but doing it appropriately in this type of cost of capital environment and thinking about the best matching of balance sheet, match-funded capital from dispositions from the balance sheet and then the mix of right JV capital complement from a sizing perspective. In terms of some of the things that we're doing, Lincoln has got great perspective...

Just one follow-up on that because I think years ago, you were contemplating something similar to what, let's say, I think what Prologis has with the open-end fund developing maybe assets that you -- your cost of capital is there, but open-end fund creates that cost of capital, to develop or fees maybe maintain some ownership, put it into the fund and really take advantage of what some of the -- and now today, the banks are looking to offer to develop. Is that still a possibility or you're strictly focused on the JVs?

Rewinding a little bit, we maybe have discussed it just kind of like an idea start or something open ended wise, those discussions never really went that far. I would say the style of JV relationships we've had to date has been a great kind of strategic and stylistic match for what we're trying to accomplish via the development program. And with the balance sheet, what we've been able to accomplish, in particular, with one of our largest joint venture relationships because it's structured as an evergreen vehicle. We've talked a lot about this, but it truly is an evergreen joint venture were 20%. Our partner is 80%. It does not have an end-state, and after that pipeline of homes is developed and stabilized, we go through, and we synthetically crystallize the promote, if not familiar with a traditional JV Think of it you would go through and value the portfolio, just like if you're going to hypothetically sell it. you calculate what the promote payment would be through the promote waterfall and rather than paying it to us in cash like you would in a typical finite-life's JV we go through and reset our capital account. So our 20% goes up by whatever that promote payment would be our partner's 80% would go down by whatever that promote payment would be. And we live on into perpetuity. And the great thing about that is it fits our investment time frame, right? These are communities that we are building with a very long time frame and mindset. It enables us to create and realize the value from the development program without the need to monetize anything. And very interestingly, it takes that promote payment and locks it into ongoing cash flow stream from that venture as opposed to a one and done cash promote payment, which just rate it's a validation of the vehicle, but how do you really ascribe value to that when it's a single cash payment event.

At the project level, before JVs is about development costs and returns and does it vary by region?

Apologies, maybe even more broadly in terms of capital allocation, stocks may be low implied 6% cap rate, so that's one option with buybacks. And then if you can talk a little bit about the investment yields on development? And then what -- I know there's a bit of spread right now, but what do the smaller portfolios? What do they hope to achieve?

In no particular order, no question. The stock is attractive. You saw us active earlier in the year that the way -- the reason why we developed this year's capital plan the way that we did is to create incremental capacity for things like buybacks. From this point forward, there's some leverage capacity on the balance sheet. Dispositions are going well this year. We continue to have remaining board authorization as we continue to watch the stock closely. Tying that to the development program and construction costs, it's a huge focus of ours. We talk a lot about, and I'm sure everyone has heard our objective to continue to influence and migrate development yield higher over time. The program right now is delivering second quarter was -- second quarter deliveries, I think were 5.4%. We absolutely want to see that higher. And the way that we're thinking about it is it's a funny way to characterize it, but we're really attacking it from all angles to migrate those yields higher. And part of it is attacking the existing pipeline. The way that we do that is through the absolute most disciplined construction cost controls, we can deliver, and the team has done a fantastic job on that. And if you look at the cost to vertically construct a home this time of year compared to a year ago, those vertical construction costs are basically flat year-over-year. That is a function of the team doing a really good job managing the supply chain, our trade, labor base, et cetera, along with the fact that we continue to just mature and get better as a builder. But the objective is to tightly control those development costs as possible. Hopefully, at some point, we see a reacceleration in market rents as construction costs are controlled. We hopefully see some level of reacceleration in market rents mathematically that translates into yield expansion with respect to the existing pipeline. And then the other way that we are attacking it is right now, as you all probably know, we've not been a large acquirer of land recently. In fact, over the last 12 to 18 months, we've actually been a net seller of land. But for the small amount of land that we are underwriting, today's land environment, along with everything else I just talked about from a cost control perspective, new deals are penciling at the 6% plus area. Even though we haven't needed to add a ton of land to the pipeline, there are some markets where we're going to need to be sprinkling in backfilling of land positions, and that is our opportunity to be sprinkling in higher-yielding new vintage projects, if you want to think of it that way, mixing into the development program as we are attacking the existing pipeline, again, towards the objective of migrating yields higher.