Jason Sabshon

Jason Sabshon, on behalf of Jade Rahmani, asked about home builders' recent aggressiveness with rate buydowns and incentives, its impact on the supply-demand balance in key Sun Belt markets, and whether it's driving an increase in move-outs to buy from AMH's portfolio.

Answer

Lincoln Palmer, Chief Operating Officer, stated that move-outs to buy have remained steady in the high 20s to 30% range, indicating no major shift despite anecdotal builder incentives, such as some Florida builders buying out resident leases. He noted that AMH is closely monitoring these fringe activities and the number of for-sale homes returning to inventory, but the overall impact has been small.

Jason Sabshon inquired about the impact of home builders' recent aggressiveness with rate buydowns and incentives on American Homes 4 Rent's key Sun Belt markets, specifically asking if this is driving an increase in move-outs to buy.

Answer

COO Lincoln Palmer noted that move-outs to buy have remained steady in the high 20s-30% range, indicating no major shift. He mentioned anecdotes of builders in Florida offering aggressive incentives, including buying out leases, but stressed that this is happening on the fringe and not affecting the overall trend. He also stated the company is monitoring how many for-sale homes are re-entering the overall inventory.

Jason Sabshon, on behalf of Jade Rahmani, inquired about the reasons for lower-than-expected CapEx, specifically asking if it was driven by construction activity levels, reduced builder activity, or better pricing from trade partners, and if this trend is expected to continue.

Answer

Lincoln Palmer, Chief Operating Officer, attributed the CapEx improvement primarily to timing (fewer move-outs in Q3) and continued vigilance in cost controls within the stabilized portfolio. He cited impacts from the resident 360 program, intentional focus on maintenance, inter-company cooperation, and the lower cost profiles of purpose-built single-family homes from the new development program as contributing factors, emphasizing "intentionality" as the driver.

Jason Sabshon of KBW asked about the company's interest in the active adult/seniors housing segment and whether the long-term target for land under development as a percentage of assets would remain consistent.

Answer

CEO Bryan Smith indicated that while senior housing is a potential long-term interest, the company's immediate focus is on its core single-family rental strategy. CFO Christopher Lau confirmed that the company is committed to maintaining its investment in land and construction in progress at a single-digit percentage of the balance sheet for the long term.

Jason Sabshon, on for Jade Rahmani, asked about AMH's interest in the active adult/seniors housing segment and whether the company plans to maintain its current level of land under development as a percentage of total assets.

Answer

CEO & Trustee Bryan Smith stated that while they have considered seniors housing, the company's near-term focus remains on its core strategy due to the significant internal opportunities. SEVP & CFO Christopher Lau confirmed that the current land pipeline is at an appropriate level and that the company remains committed to keeping total development exposure at a single-digit percentage of the balance sheet.

Jason Sabshon inquired about the company's interest in the seniors housing or active adult segment for acquisition or development, and also asked if the long-term target for land under development as a percentage of assets would remain consistent.

Answer

CEO Bryan Smith responded that while senior housing is a potential long-term consideration, the company's immediate focus is on the significant opportunities within its core single-family rental strategy. CFO Christopher Lau confirmed that the company is committed to maintaining its investment in land and in-process construction at a single-digit percentage of the balance sheet.

Jason Sabshon, on for Jade Rahmani, asked for an update on the Florida property insurance market and whether there were any spillover effects into adjacent markets.

Answer

CFO Chris Lau explained that AMH's insurance program is placed at a national portfolio level, not market by market. He noted the 2024 renewal was successful, with a premium increase in the high single-digits. Despite an active hurricane season, he expressed confidence heading into the 2025 renewal, citing a well-capitalized insurance market and AMH's strong reputation for its disaster preparedness programs.

Jason Sabshon, on behalf of Jade Rahmani with KBW, asked about the impact of homebuilders offering rates below 4% in markets like Phoenix on the supply-demand balance in key Sun Belt markets, and if Invitation Homes is observing an increase in move-outs for home purchases.

Answer

Dallas Tanner, President and Chief Executive Officer, reported that only 16-17% of move-outs are attributed to homeownership. He discussed the high cost of homeownership, including mortgage, property taxes, and insurance, and noted that total transactions are low (under 4 million annually compared to a normal 5-5.5 million). He acknowledged builders' advantage in buying down rates but suggested that 30-year mortgage rates around 6% might need to drop further to significantly stimulate buyer interest.

Jason Sabshon, on behalf of Jade Rahmani, asked about the supply-demand balance in key Sun Belt markets, particularly with homebuilders offering low rates in areas like Phoenix, and whether Invitation Homes is observing an increase in move-outs for home purchases.

Answer

President and CEO Dallas Tanner reported that 16-17% of move-outs are due to homeownership opportunities. He acknowledged that builder rate buy-downs have helped stabilize home prices. Tanner highlighted that seasonally adjusted transactions are low (<4 million, typically 5-5.5 million), and MLS inventory is nearly double last year's levels. He emphasized the 'egregious' cost of ownership, including mortgages, property taxes, and insurance, which have seen significant increases over the past 4-5 years. Tanner noted that while builders have an advantage with rate buy-downs, the 30-year mortgage rate (around 6% or low 6s) likely needs to decrease further to significantly boost buyer curiosity.

Jason Sabshon, on for Jade Rahmani, asked if Invitation Homes is seeing increased interest from third parties looking to partner or take an interest in its portfolio, given the high institutional demand for the SFR sector.

Answer

Chief Executive Officer Dallas Tanner and Chief Investment Officer Scott Eisen confirmed they receive frequent inbounds. They emphasized that they are selective, seeking sophisticated, like-minded institutional partners with scale and market overlap. Eisen added that these partnerships are viewed as opportunities for future growth, as they provide a first look to acquire assets if a partner decides to sell parts of their portfolio.

Jason Sabshon, on for Jade Rahmani at KBW, asked if the company has observed an increase in move-outs from residents leaving to purchase homes, given builder incentives.

Answer

President Charles Young stated they have not seen such a trend. He reported that the percentage of residents moving out to purchase a home is at a historical low, in the mid-teens. Despite awareness of homebuilder rate buy-downs, it has not translated into a noticeable increase in move-outs for homeownership from their portfolio.

Jason Sabshon, on for Jade Rahmani of KBW, inquired about the current cap rates on new acquisitions, whether the bid-ask spread has narrowed, and the impact of the recent move in the 10-year Treasury yield.

Answer

Chief Investment Officer Scott Eisen broke down the market into channels. For forward purchases from builders, he stated they are still seeing deals around a 6% cap rate. For stabilized, fully leased communities that have come to market, he sees pricing in the 5.5% cap rate range. He noted there has not been meaningful activity in the MLS market to form an opinion on those cap rates.

Jason Sabshon inquired about the drivers behind the higher "other income" reported during the quarter, as a decrease was anticipated due to lower interest rates.

Answer

EVP and CFO Hilla Sferruzza attributed the higher other income to a combination of a higher-than-expected cash balance earning interest for longer, and some pickups from legal settlements.

Jason Sabshon asked whether builders have maintained or reduced mortgage buy-down levels when mortgage rates dipped in recent months, and if they would pass savings to customers or aim for better margins. He also inquired about what drove higher 'other income' during the quarter, as a dip was expected due to lower rates.

Answer

Executive Chairman Steve Hilton explained that as rates ticked down, the cost of rate buy-downs moderately shrunk. He noted that some builders bought rates down further, others maintained existing levels, and some reallocated incentive dollars. He believes if consumer confidence returns, builders would either improve margins or offer additional customer savings. EVP and CFO Hilla Sferruzza added that most peers have guided to lower Q1 margins despite moderating rates, suggesting a continued status quo until demand stabilizes. Hilla Sferruzza attributed the higher 'other income' to a combination of a higher-than-expected cash balance earning interest for longer, and some pickups in legal settlements.

Jason Sabshon asked for color on origination targets for 2025 and 2026, the performance of existing Florida condo loans, and the target timeline for scaling leverage, including any potential unsecured debt issuance.

Answer

Executive Chairman Leonard Tannenbaum explained that the company avoids forecasting originations due to unpredictable closing timelines but noted five loans are actively in documentation. CEO Brian Sedrish confirmed the Florida condo projects are performing as expected. Regarding leverage, Mr. Tannenbaum indicated they would tap the unsecured market as needed to fund deals, likely in Q4 2025, to move toward their target.

Jason Sabshon of Keefe, Bruyette & Woods asked if there has been a shift in limited partner (LP) interest towards private credit strategies and away from the flagship equity funds given the current macro environment.

Answer

CEO Marc Ganzi confirmed a significant uptick in interest for their private credit strategies, with the LP pipeline for the credit fund growing over 50% in 90 days. He highlighted that credit attracts different types of investors, such as insurance companies, which complements the flagship fund's investor base. Ganzi also emphasized the growth of Separately Managed Accounts (SMAs) in credit, which brings in new investors who may later look at the main fund, creating a 'virtuous cycle' and diversifying the company's fundraising efforts.

Jason Sabshon of Keefe, Bruyette & Woods asked for details on the Raleigh multifamily loan downgrade to a '5' rating and questioned the outlook for the Life Science portfolio, specifically regarding capital patience for a leasing recovery.

Answer

CEO Matt Salem explained the Raleigh downgrade was prompted by a near-term maturity and weaker-than-expected rent growth in its specific submarket. For the Life Science portfolio, he expressed confidence, noting most exposure is in new, high-quality assets in prime locations targeting large tenants. While lease-up risk exists, he stated it is not their current expectation that these loans will be downgraded from a '3' to a '4' rating.

Jason Sabshon requested an update on KREF's life science deals, including the outlook for leasing and value, and asked if this sector is where potential future credit migration could occur. He also asked about the specific issues driving the multifamily assets on the watch list.

Answer

CEO Matt Salem stated that progress has been made on life science assets through foreclosure and modification, and the remaining exposure is largely in high-quality, well-located construction loans. He noted 'green shoots' as tenants re-enter the market seeking the best assets, which aligns with KREF's portfolio. For the multifamily watch list, Salem explained the issues are mixed: some are in markets with new supply impacting rents, while the West Hollywood asset is more of a valuation issue from a peak-market financing, which is why a condo sellout strategy is being pursued.

Jason Sabshon requested an update on KREF's life science deals, including the outlook for leasing and value, and asked if this sector was a source of potential credit migration. He also inquired about the specific issues driving the multifamily assets on the watchlist.

Answer

CEO Matthew Salem reported progress on life science exposure through a foreclosure and a significant loan modification. He noted remaining exposure is in high-quality new construction, where he sees 'green shoots' as tenants re-enter the market seeking best-in-class assets. For the multifamily watchlist, Mr. Salem explained the issues are mixed: some assets are in markets with heavy new supply impacting rents, while the West Hollywood property is a 'peak of the market' value issue, prompting a condo sellout strategy.