Jesse Lederman

Jesse Lederman asked what factors led to a sequential decline in occupancy from November to January, contrary to earlier expectations of an inflection point in seasonal leasing activity, and why renewal rent growth fell by approximately 70 basis points into January.

Answer

Lincoln Palmer, Chief Operating Officer, explained that Q4 had tough visibility, with moderation seen across the housing landscape, and the expected occupancy build through year-end was not sustained. This led to adjustments in pricing strategy, resulting in slightly negative new lease rate growth in Q4. He noted that the slight moderation in renewals was intended to support retention, with full-year renewals expected around 3%.

Jesse Lederman sought clarification on the recently mentioned inflection point, asking if it pertained exclusively to occupancy improvement through year-end or also to accelerating rent growth, and whether any incentives or concessions were being used to spur this inflection.

Answer

Bryan Smith, Chief Executive Officer, clarified that the inflection point commentary centered on increased leasing activity, from inquiries to leases, with October showing improvement over September. He expects these effects to primarily benefit occupancy, especially with the lease expiration management initiative, positioning the company for returning pricing power in the spring 2026 leasing season. He confirmed that American Homes 4 Rent does not use concessions for its scattered site same-home portfolio, and new development communities are leased without them.

Jesse Lederman sought clarification on the recently mentioned inflection point, asking if it pertains exclusively to occupancy or if it could also translate to accelerating rent growth, which would be counter-seasonal. He also asked about any incentives or concessions used to spur this inflection.

Answer

Bryan Smith, Chief Executive Officer, clarified that the inflection point refers to increased leasing activity observed on internal dashboards, starting with inquiries and leading to applications and leases. He expects these effects to primarily benefit occupancy, especially combined with the lease expiration management initiative. Rent growth is anticipated to return during the spring leasing season next year. He confirmed that concessions are not used for the scattered site same-home portfolio, and new development communities are leased without them.

Jesse Lederman of Zelman & Associates asked about the company's appetite for using land options, a strategy common among homebuilders, which could provide flexibility for renegotiation.

Answer

CEO Bryan Smith affirmed their flexibility in structuring land deals. CFO Christopher Lau added that while they have used options for 1,000-2,000 lots in recent years, the high cost of option capital often makes using their own balance sheet more financially attractive. However, it remains a valuable tool they continue to evaluate.

Jesse Lederman asked about AMH's appetite for using land options, which could provide flexibility to renegotiate terms if the market slows.

Answer

CEO & Trustee Bryan Smith stated they are flexible with all land takedown structures, leveraging their team's homebuilding expertise. SEVP & CFO Christopher Lau added that while AMH has used options before, the high cost of option capital (double-digits) often makes using their own balance sheet more financially attractive, though options remain a valuable tool.

Jesse Lederman asked about AMH's appetite for using land options to control lots, a strategy common among homebuilders, which could provide flexibility to renegotiate terms if the market changes.

Answer

CEO Bryan Smith affirmed that the company is flexible and creative with all land acquisition structures. CFO Christopher Lau added that while AMH has used options for 1,000-2,000 lots in the past, the high cost of option capital (double-digits) often makes purchasing land outright on the balance sheet a more economically favorable approach.

Jesse Lederman from Zelman & Associates asked about the future geographic focus of the development pipeline based on current land acquisitions. He also inquired about the performance of the large portfolio acquired last year relative to initial expectations.

Answer

CEO Bryan Smith indicated that while they are pleased with current markets, future development could see an acceleration into the Carolinas and a slight uptick in the Midwest, balanced by land availability. CFO Christopher Lau reported that the integration of the acquired portfolio is complete and on track to hit performance targets and stabilization by year-end, with opportunities to improve collections, revenue, and cost controls.

Jesse Lederman of Zelman & Associates asked for more detail on the industry-wide and AMH-specific changes that support the company's confidence in a new, higher normalized occupancy level of 96%.

Answer

CFO Christopher Lau (as per transcript attribution) explained that at the industry level, there is a greater appreciation for the single-family rental value proposition. At AMH specifically, a focus on the resident experience and technology has made the platform faster and more efficient. He cited the frictionless leasing process as a driver of occupancy and the excellent services platform as a driver of retention, with numerous other line-item improvements contributing to the higher occupancy expectation.

Jesse Lederman with Zelman asked about Invitation Homes' observations on the supply side, given negative new move-in rent growth and sequential occupancy decline, and how supply pressures are alleviating with build-to-rent and multifamily starts decreasing.

Answer

Timothy Lobner, Chief Operating Officer, acknowledged higher supply in many markets, particularly the Sun Belt (Florida, Texas, Arizona), from build-to-rent, scattered site SFR, and newly built products. He believes peak build-to-rent deliveries are in the rearview mirror and demand will absorb the existing supply. He emphasized a long-term healthy demand for their product, citing the average resident age of 38-39 and high renewal rates (75%), viewing the current supply backdrop as transitory.

Jesse Lederman asked about Invitation Homes' observations on the supply side, specifically how pressures are alleviating given negative new move-in rent growth and a sequential decline in occupancy, alongside reduced build-to-rent (BTR) and multifamily development starts.

Answer

COO Tim Lobner acknowledged that supply in many markets is higher than historical levels, driven by BTR product (with peak deliveries largely in the rearview mirror), scattered site SFR (institutional and mom-and-pop), and newly built homes. He noted a slight oversupply that is not growing, with demand gradually absorbing it. Lobner emphasized a long-term healthy demand for Invitation Homes' product, citing strong lead volumes and firm renewal rates (75% of the book). He concluded that the supply backdrop is transitory, particularly in Sun Belt markets like Florida, Texas, and Arizona, and demand is expected to continue absorbing it over coming months and quarters.

Jesse Lederman noted that third-party management (3PM) revenue and expenses increased sequentially in Q4 while units under management declined, and asked if the projected $0.02 incremental contribution in 2025 will come from more units or margin expansion.

Answer

Chief Financial Officer Jonathan Olsen explained that the 3PM portfolio will ebb and flow as partners periodically prune assets, which is part of their asset management role. The incremental $0.02 contribution for 2025 reflects a full year of earn-in from existing contracts. He acknowledged that PME expenses rose to scale the business but expects the quarterly run rate for PME and G&A to be slightly lower in 2025 as they extract efficiencies from the now-scaled platform.

Jesse Lederman of Zelman & Associates sought clarity on the composition of the nearly 1,000 homes acquired in Q2, as only 485 were classified as 'deliveries' in the supplemental.

Answer

EVP & CIO Scott Eisen confirmed the 485 were from forward purchase contracts with builders. The remainder consisted of a mix of one-off opportunities from builder tapes at attractive pricing, homes purchased from JV partners seeking liquidity, and one stabilized build-to-rent community acquired at a good cap rate.

Jesse Lederman from Zelman & Associates sought clarification on the composition of the nearly 1,000 homes acquired in Q2, noting that only 485 were classified as 'deliveries' in the supplemental.

Answer

CIO Scott Eisen confirmed the 485 homes were from forward purchase contracts with builders. The remainder consisted of a combination of one-off opportunities from builder inventory tapes at attractive pricing, homes purchased from JV partners seeking liquidity, and one stabilized build-to-rent community. This mix represents both forward deliveries and opportunistic one-off acquisitions.

Jesse Lederman from Zelman & Associates inquired about the drivers behind the recent increase in property management expense, noting an 80 basis point year-over-year rise.

Answer

CFO Jonathan Olsen clarified that the year-over-year comparison is misleading. The third-party management clients were onboarded throughout the prior year, so Q1 2024 did not reflect the full cost structure, including headcount and technology, that is now in place to service these clients. The increase is primarily related to the full-year impact of supporting the third-party platform.

Jesse Lederman of Zelman & Associates asked for the specific incremental factors that led to the lowering of revenue growth guidance for the second consecutive quarter, seeking what was not embedded in the outlook three months prior.

Answer

CFO Jon Olsen explained that while some softness emerged in late June, the company subsequently gained better visibility into the severity of supply pressures and the degree to which they would need to compete on price. This, combined with a slower rate of absorption in key markets, led to a more fulsome picture that necessitated the guidance revision, which was only just emerging at the time of the July call.

Jesse Lederman inquired about Champion Homes' potential involvement in the "Trump Homes" program or similar administration initiatives for affordable housing, the actual tariff impacts on material costs in Q3 versus expectations and the Q4 outlook, and key retail leading indicators like dealer traffic and quote activity since quarter-end.

Answer

Dave McKinstry (EVP and CFO) stated that the "Trump Homes" program aligns with Champion's strategy, as policymakers increasingly recognize off-site built homes as a core solution for affordable housing. He noted Q3 tariff impact was significantly below 1% and similar dynamics are assumed for Q4. Tim Larson (CEO) clarified that consumer caution refers to broader market trends, but demand for affordable housing remains strong, evidenced by leads and digital engagement, with plans for a robust spring selling season.

Jesse Lederman from Zelman & Associates asked about Champion Homes' involvement, or that of industry advocacy groups, in the "Trump Homes" program and broader administration discussions on affordable housing. He also inquired about the actual tariff impacts on material costs in Q3 relative to expectations and the incremental assumption for Q4. Finally, Mr. Lederman sought insights into key retail leading indicators for the spring selling season, such as dealer traffic and quote activity, given the company's cautious consumer sentiment.

Answer

CEO Tim Larson confirmed that the "Trump Homes" program aligns with Champion's strategic execution, emphasizing the company's capabilities in providing affordable housing solutions (e.g., $150k-$300k homes) through its off-site model, which policymakers recognize as a core solution. He expressed encouragement from policy and messaging, positioning Champion to capitalize on opportunities. EVP and CFO Dave McKinstry noted that Q3 tariff impacts came in significantly below the previously discussed 1% of material costs, and Q4 assumptions reflect similar dynamics, while acknowledging the evolving nature of tariffs. Mr. Larson clarified that consumer caution refers to general market ebbs and flows, but demand for affordable housing remains strong, evidenced by leads and digital engagement. He stated that the company is planning for a strong spring selling season, with Q4 growth based on current indicators, while maintaining a balanced approach.

Jesse Lederman sought clarification on whether the impact from tariffs was included in the gross margin guidance and asked if the company was tracking buyer demographics, such as household income or a mix-shift from site-built housing.

Answer

EVP, CFO & Treasurer Lori Hough confirmed the estimated 1% tariff impact on material costs is already contemplated in the 25% to 26% gross margin guidance. President & CEO Tim Larson added that internal surveys show the company is successfully attracting first-time homebuyers and buyers from site-built homes, but declined to share specific income data, citing its proprietary nature.

Jesse Lederman sought to confirm if the guided tariff impact was included in the gross margin forecast, its relative impact in Q1 versus Q2, and whether the company is tracking changes in buyer household income, particularly from consumers trading down from site-built homes.

Answer

EVP & CFO Laurie Hough confirmed the estimated tariff impact is included in the 25% to 26% gross margin guidance and was immaterial in Q1 due to inventory flow. President & CEO Tim Larson added that internal surveys show the company is attracting new buyers, including some from site-built homes, but noted these consumers are still affected by the overall economy. The company is not disclosing specific income data publicly.

Jesse Lederman from Zelman & Associates sought clarification on whether the gross margin guidance includes any conservatism for potential tariffs. He also asked about the consumer mix shift toward smaller homes and whether the company could quantify any influx of buyers from the existing home market. Finally, he requested details on the new dealer portal's functionality and effectiveness.

Answer

EVP, CFO & Treasurer Laurie Hough confirmed the gross margin guidance does not include potential tariff impacts. President & CEO Tim Larson noted the shift to smaller homes is driven by affordability and that attracting new buyers is a key focus. He described the dealer portal as an integrated tool for lead management, order tracking, and marketing support, which has received positive early feedback from retailers.

Jesse Lederman of Zelman & Associates inquired about potential tailwinds for the manufactured housing sector from the new administration's initiatives. He also asked what factors would drive capacity utilization higher and if there were plans to reactivate idled plants.

Answer

CEO Tim Larson expressed optimism for supportive government actions on affordable housing, using the company's builder-developer projects as proof points to encourage favorable policy. Regarding production, he explained that leading indicators like quoting activity guide capacity decisions. He clarified that the 63% utilization rate includes idled plants, making the active rate higher. Larson stated there are no immediate plans to reactivate idled facilities, as the company has sufficient capacity in key markets but retains the flexibility to do so if needed.

Jesse Lederman inquired about the internal cadence of business activity from November to December and into January, and Cavco's outlook for the spring selling season. He also asked about the stability of backlogs, current capacity utilization, and any early indicators driving optimism for increased backlog or utilization. Additionally, he questioned whether there was any evidence of overstocking at captive retail operations and sought insights on recent Texas legislation impacting manufactured home zoning.

Answer

Bill Boor, President and CEO, indicated that December's activity, on a seasonally adjusted basis, did not feel like a drop-off from November, and backlogs were stable. He noted that while January weather impacted operating days, plants were working to recapture lost time, maintaining daily production rates. Optimism for spring was driven by healthy traffic and quote activity, as observed at the Louisville Show. Bill Boor stated there was no evidence of overstocking among dealers due to current backlog levels. He acknowledged the positive development of Texas and Kentucky legislation regarding manufactured home zoning, highlighting its long-term potential.

Jesse Lederman of Zelman & Associates inquired about high-level legislation in Texas and Kentucky aimed at leveling the playing field for manufactured home zoning, expressing surprise at the lack of public discussion and asking for Cavco's thoughts and optimism surrounding these reforms.

Answer

President and CEO Bill Boor acknowledged reading Jesse's note on the legislation, particularly noting Kentucky's more sweeping changes. He expressed excitement about these developments as examples of slow but definite progress in zoning reform, where states are encouraging or pushing local municipalities to be more open to manufactured housing solutions. He couldn't quantify the exact impact but emphasized its importance.

Jesse Lederman of Zelman & Associates asked for quantification of the potential future impact from tariffs, insights into buyer household income trends, opportunities in the lending business, the potential for financial services gross margins to recover, and the drivers behind strong SG&A leverage.

Answer

EVP and CFO Allison Aden estimated a potential future quarterly tariff impact between $2 million and $5.5 million. President and CEO William Boor stated they don't track buyer household income at a macro level but confirmed the lending strategy is to originate and sell loans, not hold them long-term. Boor also saw no structural reason financial services margins couldn't return to historical levels over time. Aden explained that SG&A leverage is a core part of their model, driven by a high variable cost structure and disciplined control of fixed costs.

Jesse Lederman from Zelman & Associates sought clarification on whether April's order strength was a continuation of momentum or just flat with March. He also asked about pricing seasonality, the expected timing of tariff impacts on margins, and key takeaways from CEO Bill Boor's recent testimony at a House subcommittee hearing.

Answer

CEO William Boor clarified that April continued the positive momentum from March, consistent with normal seasonality. He stated that pricing is not typically seasonal but is driven by supply and demand. CFO Allison Aden projected that tariff impacts would likely begin to appear in late Q1 and more heavily in Q2, given the 60-90 day lag for costs to flow through. Regarding the hearing, Boor highlighted positive legislative momentum to clarify HUD as the sole industry regulator and to remove the 'chassis' from the manufactured home definition, which would open up significant opportunities for product innovation.

Jesse Lederman asked for clarification on demand strength by buyer segment, specifically if move-up demand was stronger than entry-level. He also inquired about any potential business impacts from immigration enforcement on labor supply or housing demand.

Answer

EVP and CMO Linda Mamet confirmed a shift in demand, with the premium entry-level segment shrinking to 40% of orders from a previous high near 50%. CFO Glenn Keeler added that absorption paces for entry-level and move-up are now roughly consistent. CEO Douglas Bauer stated there have been no impacts from immigration enforcement, as their trade partners have maintained compliance and they do not anticipate any labor issues.