Q3 2024 Earnings Summary
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7% | Driven primarily by strong demand for single-family rentals, which increased monthly rental rates and occupancy, as well as incremental growth in other property income. Company investments in additional homes and third-party management services also contributed to higher overall revenues. |
Rental Revenues & Other Property | +4% | Higher average monthly rents, continued robust occupancy, and expanded ancillary revenue programs led to increased rental and property income. Market demand for single-family homes remained elevated, supporting higher rent growth despite slight occupancy pressures in some markets. |
Management Fee Revenues | +459% | Significant expansion of third-party management services drove the sharp increase, with a large rise in the number of homes managed for joint venture partners. This initiative diversified the revenue mix and is expected to continue supporting top-line growth. |
Net Income | -28% | Despite top-line gains, rising property operating costs, higher interest expense, and one-time legal settlements weighed on earnings. Increased depreciation and amortization related to a growing home portfolio also contributed to the softer bottom line, underscoring the need for cost efficiencies. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Core FFO | FY 2024 | $1.87 per share | $1.88 per share | raised |
AFFO | FY 2024 | no prior guidance | $1.59 per share | no prior guidance |
Same-store NOI | FY 2024 | 4.5% | 4.5% | no change |
Property tax growth | FY 2024 | 8%-9.5% | 5%-6.5% | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Occupancy and Turnover | • Q2 2024: Occupancy 97.5%, turnover improved from lease compliance cleanup. <br>• Q1 2024: Occupancy 97.6%, turnover rate 5.2%. <br>• Q4 2023: Occupancy 97.1%, turnover expected similar to prior year. | • Occupancy at 97%; turnover 23% trailing four quarters, with an 80% renewal rate. | Stable and consistently high occupancy; strong retention persists across all periods. |
Renewal Rates and Rent Growth | • Q2 2024: Renewal rent growth 5.6%, blended at 5.0%. <br>• Q1 2024: Renewal rent growth 6.0% for April. <br>• Q4 2023: Renewal lease growth 6.8%. | • Renewal rent growth at 4.2%, blended rent growth 3.6%, described as solid. | Gradual moderation from higher levels, still positive outlook but lower than peak rates. |
Build-to-Rent Supply and Competition | • Q2 2024: Short-term supply shocks in Phoenix, Tampa, Orlando. <br>• Q1 2024: Growing builder relationships for new inventory. <br>• Q4 2023: Recognized increased BTR competition but saw infill advantages. | • Cited supply pressures in Phoenix, Tampa, Orlando, Dallas; expecting a 60-65% drop in new BTR deliveries by 2025. | Consistent theme of short-term competition from new BTR projects, with long-term confidence as deliveries are set to decline. |
Market Softness and Price Sensitivity | • Q2 2024: Price fatigue in Phoenix, Tampa, Orlando. <br>• Q1 2024: Mostly normal seasonality; slight moderation. <br>• Q4 2023: Softer in Phoenix & Vegas, but strong occupancy. | • Market softness in Tampa, Orlando, Phoenix, Dallas, requiring price adjustments to stay competitive. | Ongoing vigilance in key markets; sentiment remains cautiously proactive in adjusting pricing. |
Third-Party Management | • Q2 2024: Contributed $0.02 to AFFO; onboarding Upward America. <br>• Q1 2024: ~$0.02 of earnings from Starwood/Nuveen deals. <br>• Q4 2023: Managing 14k homes for third parties with new fee streams. | • Earned $19M total fee income; about $15M from third-party management this quarter. | Steady expansion of a capital-light fee business, boosting AFFO contribution. |
Partnerships with Homebuilders | • Q2 2024: Pipeline of 2,700 new homes; focusing on direct builder transactions. <br>• Q1 2024: Partnerships with D.R. Horton, Meritage for ~500 new builds. <br>• Q4 2023: Delivered 700+ homes, 760 more scheduled. | • Closed 900 homes for ~$320M at ~6% cap rate; ongoing dialogue with builders for future deals. | Deepening relationships and steady acquisition flow from builders, targeting ~6% yields. |
Potential Acquisitions | • Q2 2024: Continues ~2,700-home pipeline. <br>• Q1 2024: Mostly builder-direct acquisitions at ~6% cap rate. <br>• Q4 2023: Aiming for $600M–$1B in 2024 acquisitions, partly funded by dispositions. | • Targeting multiple markets (Phoenix, Vegas, Denver, Nashville); acquired 4 communities from developers. | Consistent pipeline; remains a growth driver with focus on yield discipline. |
Revenue Growth Guidance | • Q2 2024: Conservative revision citing price fatigue. <br>• Q1 2024: No revision, expected blended rent growth in high 4% to low 5%. <br>• Q4 2023: Anticipated 4.5%-5.5% revenue growth for 2024. | • Guidance lowered due to supply pressures and slower absorption in some markets. | Shifted to a more cautious stance, reflecting near-term market headwinds. |
Expense Growth | • Q2 2024: Core expenses up 7.1%; property tax ~8%-9.5%. <br>• Q1 2024: Core expenses up 7.4%, high property taxes. <br>• Q4 2023: Expect 8-10% property tax growth, R&M stable. | • Same-store core expenses up 3.1%; property tax guidance at 5%-6.5%. | Gradual moderation in controllable costs, but property taxes remain the key driver of expense growth. |
Regulatory Risks | • Q2 2024: No mention.<br>• Q1 2024: Generally pro-housing stance in Texas, minimal traction for extreme legislation. <br>• Q4 2023: No mention. | • No mention in Q3 2024. | Sporadic topic, highlighted in Q1 2024 but otherwise not discussed recently. |
Interest Rate and Debt | • Q2 2024: No final maturities until 2026, mostly fixed or swapped. <br>• Q1 2024: 99.5% debt fixed, credit rating upgrade. <br>• Q4 2023: Recasting $2.5B term loan, 99.4% fixed. | • Refinanced a $3.5B facility, extended swaps; no maturities until 2027 after payoff of 2018 securitization. | Consistently proactive approach; focuses on long maturities and stable interest costs. |
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Lowered Revenue Guidance
Q: What led to lowering revenue growth guidance this quarter?
A: We observed softness emerging in several markets since late June, requiring us to adjust our outlook. Increased supply pressures and the need to compete on price became more apparent, leading to a revision that reflects a fuller picture of market conditions. -
Supply Impact on Occupancy
Q: How is new supply affecting occupancy and pricing power?
A: Supply pressure in markets like Tampa, Orlando, Phoenix, and Dallas is causing us to compete on price, affecting new lease spreads. However, turnover remains at historically low levels with a high renewal rate of 80%, keeping overall occupancy near normal levels. We expect to work through these markets over the next few quarters. -
Renewal Growth Rates
Q: Why are renewal growth rates lower than expected?
A: Since August, we've been increasing our renewal asks and are now seeing acceleration from November, with realized renewal growth rates north of 4%. While it varies month to month, we anticipate continued improvement as demand remains strong and residents choose to stay in our homes. -
Capital Deployment and Cap Rates
Q: What cap rates are you seeing on new acquisitions?
A: We're acquiring homes at around a 6% cap rate through builder transactions. Fully stabilized communities are coming to market at cap rates around 5.5%. We're pleased with the opportunities and continue to target these yields while managing risk appropriately. -
Market Diversification
Q: Are you considering diversifying into other markets due to supply pressures?
A: We're actively engaging with builders across all our growth markets, including Phoenix, Vegas, Denver, and Nashville. While we acknowledge temporary supply pressures in certain areas, we remain confident in the long-term prospects of our current markets and are seeing strong demand overall. -
Storm Costs and Insurance
Q: Can you explain the impact of recent storm costs and insurance coverage?
A: We faced four named windstorms affecting our markets, but we have a $200 million per occurrence limit for named windstorms. Deductibles vary, with 5% of total insured value in Texas and Florida and 2% in other markets. We're well insured and proactively manage risks to minimize impact. -
Other Income Trends
Q: Why was other income growth lighter this quarter?
A: While we continue to see strong growth in areas like internet and media services, occupancy dips have impacted other income lines. Fee income from third-party management was about $15 million, which we expect to be a stable run rate going forward. -
Election Impact on Strategy
Q: How might the upcoming election affect your strategy?
A: While we monitor federal developments, most risks are at the state and local levels. We're engaged in certain state initiatives, such as rent control measures in California, but we don't foresee significant changes to our strategy post-election and remain focused on long-term growth opportunities. -
Traffic and Demand Trends
Q: How are current traffic and demand trends?
A: Traffic is healthy, with website visits up quarter over quarter and showings strong. Occupancy remains robust at around 96%, and we continue to see solid demand across our markets, indicating a positive outlook as we absorb new supply. -
NOI Margin Outlook
Q: Any potential headwinds to NOI margins going forward?
A: We don't expect the FTC settlement to impact our business or other income lines. Margin expansion has been driven by higher occupancy and rental rate growth. While there might be some normalization, we're optimistic that moderation in property tax expenses will benefit NOI margins moving forward.