Greetings, and welcome to the American Homes 4 Rent Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Nick Fromm, Senior Manager, Investor Relations for American Homes 4 Rent. Please go ahead, sir.

Good morning. Thank you for joining us for our second quarter 2021 earnings conference call. This is Nick Fromm. I recently joined the Investor Relations team at American Homes 4 Rent and I am excited to be here today with David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment 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 fact 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 August 6, 2021. 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 to GAAP of the non-GAAP financial measures we are providing on this call 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.americanhomes4rent.com. With that, I will turn the call over to our CEO, David Singelyn.

Thank you, Nick, and welcome to the team. Good morning, everyone, and thank you for joining us today. American Homes 4 Rent continues to lead the single-family rental industry with strong operational performance and portfolio growth. Robust rental demand and strong execution led to record-breaking operating results that exceeded our expectations at the start of the year. This, alongside our three-pronged growth strategy, comprised of our internal development program, national builder program, and traditional acquisition channels, has driven outperformance in all areas of the business. As such, our expectations have increased across the board for the second half of the year. As I say every quarter, the single-family rental market is stronger than ever as demand continues to soar; roughly 17 million households in the US are making a conscious decision to rent single-family homes. Today, the national housing shortage sits at more than four million homes. This coupled with our single-family rental value proposition provides the backdrop for continued long-term rental demand growth. While COVID did not create this trend, it highlighted the benefits of single-family rental living and the associated rental demand that has been building over the last decade. As I indicated, this country has a housing shortage. At American Homes 4 Rent, we are doing our part to solve this issue. Through our build-for-rent development program, we are providing beautiful Class A rental homes in vibrant, well-located neighborhoods with proximity to quality school districts. Our properties combined with superior property management services and customer care allow us to deliver a rental experience that is unmatched. Now turning to the second quarter. We achieved record-breaking results and reached new milestones on both the operational and capital raising fronts. Our recent equity and debt offerings have demonstrated both the strength of our balance sheet and our ability to efficiently access capital markets, raising the capital necessary to fund our growth programs. Growth remains our strategic priority. And our performance is another area where we have exceeded initial expectations. Jack will provide additional detail shortly. But here is the punchline: We are not only raising expectations on operations and earnings, but we are also increasing our growth targets even further. Altogether, the revised midpoint of our 2021 core FFO represents sector-leading growth of nearly 14%. Chris will provide you details of our guidance changes shortly. As I close, I thank our employees across the 22 states where we do business who persevered during this global pandemic and enabled us to achieve record-breaking performance. After more than a year of working remotely, we look forward to welcoming everybody back to the office this fall in accordance with state and local health advisories. Now, I'll turn the call over to Bryan for more details on our operations.

Thank you, Dave. Our strong momentum continued through the second quarter where we again set all-time records for occupancy and rate growth. Same-Home average occupied days was 97.9%, new lease rental rate growth was 13.7%, and renewal rate growth was 5.4%, blending to a record growth rate of 8%. The growing strength of demand for our homes is confirmed by our internal data. Showings to rent-ready properties have more than doubled since last year and our customer satisfaction scores remain at an all-time high. Our residents are prioritizing quality of life decisions more than ever, and they appreciate our best-in-class rental experience. Further, the incoming wave of millennials entering prime single-family living years coupled with the current housing shortage signals strong demand for years to come. In July, we continued to capitalize on the outstanding demand which drove seasonal records in both rental spreads and occupancy. Same-Home average occupied days was 97.4%, which represents a year-over-year increase of 90 basis points. On the rate side, we posted new lease spreads of over 16.5% and renewal spreads of around 5.5%, which blends to a new record rate increase of 8.5%. For context, these blended spreads were over 600 basis points higher than those from July of last year. For the full year, we now expect Same-Home average occupied days to be around 97%. This represents an improvement of 50 to 100 basis points over both 2020 and our estimate at the beginning of the year. This increase includes our expectation that both seasonality and our collection practices begin to return to normal during the second half of the year. Turning to REIT. For the second half of the year, we expect renewal increases to be in the 5% to 6% range and new lease growth to continue to set seasonal records in the 8% to 12% range. Lastly, our full year expectation for Same-Home core operating expense growth remains unchanged. While we are seeing inflationary wage pressures and rising material costs, the efficiency of our platform has been able to mitigate some of these increases. Given the strength of our performance in the first half of the year, we are excited to raise our Same-Home core NOI guidance by 200 basis points to 6% at the midpoint. In closing, I would like to thank the entire American Homes 4 Rent team for their dedication and hard work as we provide high-quality housing to families across the country. This was one of the best operational quarters in our company's history and we are well positioned to deliver exceptional operating results through the second half of the year. Now I will turn the call over to Jack.

Thank you, Bryan, and good morning, everyone. Growth remains a strategic priority for American Homes 4 Rent, and our differentiated three-pronged strategy continues to prove resilient and dynamic. Before discussing current year results, I would like to recognize one of our development team's strong accomplishments. We debuted at number 45 on Builder Magazine's recently released 2020 National Homebuilder Top 100 List. This is an important milestone for the company that was reached in a relatively short period of time, as this growth channel provides the company with the best rental home assets with the best economics. I congratulate our development team on this achievement. Our development program provides a value-creating growth channel that will deliver a consistent pipeline of new homes, regardless of the economic or competitive environment. Over the last two years, we have faced a pandemic, rising land and commodity prices, as well as supply chain and labor pressures and have demonstrated our ability to meet and exceed expectations on volume as well as investment returns. These results should even get better with our increasing scale. The combination of our seasoned development team and best-in-class operating platform promises outsized returns for the foreseeable future. Our developments are on target for the year and we reiterate the midpoint of our guidance at 2050 deliveries. On the land front, we successfully acquired almost 1400 lots during the quarter, bringing the number of lots we control on June 30 to over 12,000. Our 12,000 lots owned and controlled enables us to raise our guidance to 13,000 to 15,000 lots owned or controlled by the end of the year, putting us in a position to expand our development deliveries in future years. While our development program remains the backbone of our long-term growth plans, our national builder and traditional channels represent nimble dials that can be turned up or down depending on the environment. Ultimately, this adds to our ability to remain flexible on growth and quickly adapt to individual market opportunities. Over the last few months, we have used that dial to increase our traditional channel investment activity by over $300 million for the year. This brings the midpoint of our investment expectations for all three of our channels to $1.7 billion of total capital, including joint ventures. Chris will give a more detailed breakdown shortly. In summary, I am proud of our execution so far in 2021. We continue to execute well on our differentiated AMH Development program, supported by our best-in-class balance sheet and operating platform. And we remain confident in our ability to deliver sustained and accretive growth into the future, especially as we utilize the dynamic nature of our three-pronged growth strategy. Now I will turn the call over to Chris.

Thanks, Jack, and good morning, everyone. I'm excited to share my updates today, as the second quarter was one of the strongest operational performances in the history of American Homes 4 Rent, as well as an important quarter of new balance sheet milestones. Along those lines, I'll cover three areas in my comments this morning. First, a brief review of our outstanding quarterly results; second, an update on our recent balance sheet milestones and capital markets activity; and third, I'll close with a summary of our updated 2021 guidance, which has been increased across the board. Starting off with our results. As I mentioned, we reported one of the strongest quarters in the history of American Homes 4 Rent with the net income attributable to common shareholders of $20.1 million or $0.06 per diluted share; $0.33 of core FFO per share unit, representing 22.9% growth over prior year; and $0.29 of adjusted FFO per share in unit, representing 26.4% growth over prior year. Driving this quarter's strength was our platform's ability to translate record-breaking demand into an outstanding performance within our Same-Home portfolio, where we generated 6.6% growth in rental revenues, which was further benefited by 90 basis points of contribution from higher fees and ancillary income and 80 basis points from lower COVID-related bad debt translating into an overall 8.3% core revenue growth. Coupled with a 2.2% increase in core property operating expenses, this translated into an impressive core NOI growth of 12.2%. Next, in addition to our outstanding operating performance, our external growth programs fired on all cylinders, adding a total of 1,058 homes to our wholly owned and joint venture portfolios, 416 of which were delivered from our AMH Development program. Specifically, for our wholly owned portfolio during the quarter, we added 898 homes for a total investment of nearly $290 million, which was comprised of 256 homes from our AMH Development program and 642 homes from our other acquisition channels. And on the disposition side, we sold 97 properties during the quarter generating total net proceeds of approximately $28 million. Next, I'd like to turn to our balance sheet and share a few updates around our recent milestone capital markets activity. This was a busy quarter for us as we executed on our strategy to accretively refinance our previously announced $499 million Series D and E perpetual preferred shares redemption as well as position ourselves for the expanded external growth outlook that Jack discussed, while maintaining our commitment to a best-in-class investment-grade balance sheet. With those objectives in mind, during the quarter, we raised $661 million of net proceeds in an oversubscribed and upsized common equity offering. Of the total net proceeds, $194 million was received during the quarter with the remaining $467 million or 13.2 million shares being issued on a forward basis to minimize dilution as we match fund against capital deployment throughout the balance of 2021. Additionally, after quarter end, we issued another $750 million in a dual tranche unsecured bond offering, consisting of $450 million of 2%, 3/8% 10-year bonds and $300 million of debut 30-year bonds priced at 3% and 3/8%. Both bond tranches were impressively oversubscribed and proudly makes American Homes 4 Rent the only BBB- residential REIT in history to successfully issue 30-year bonds. At the end of the quarter, we had $40.6 million of cash and $620 million outstanding on our revolving credit facility. It was repaid after quarter end with proceeds from the recent bond offering. At the end of the quarter, our net debt including preferred shares to adjusted EBITDA was 5.9 times. However, as we deploy growth capital throughout the remainder of 2021, using both equity forward proceeds and additional borrowings from our recently recast $1.25 billion revolving credit facility, we expect our leverage to trend into the low six times area. And speaking of the strength of our balance sheet, I'm happy to report that S&P also recently moved our rating outlook to the positive category in recognition of the continued strengthening in our balance sheet and overall credit profile. Finally, I'd like to provide a quick summary of our updated 2021 guidance, which has been increased across the board. Starting with the stay-in-home portfolio, as Bryan already covered, recognizing our strong year-to-date results and continued record-breaking seasonal demand heading into the third quarter, we've increased the midpoint of our full year core revenue growth expectations by 125 basis points to 5.5%. Coupled with our unchanged core property operating expense outlook, we have increased the midpoint of our full year core NOI growth expectations by 200 basis points to 6%. Next, with respect to our external growth, since our update last quarter, we've increased the midpoint of our full year AMH capital deployment expectations by approximately $300 million to $1.5 billion, which now includes between 3,500 and 4,000 wholly owned inventory additions. And when coupled with our joint venture programs, we now expect to deploy total gross capital of $1.7 billion. Putting it all together, we have increased the midpoint of our full year 2021 core FFO per share expectations by $0.05, which reflects stronger NOI contribution from both our stay-in-home and non-stay-in-home portfolios along with incremental partial year contribution from our expanded external growth expectations. At the midpoint of $1.32 per share, this now represents a year-over-year growth expectation of 13.8%. And finally, before we open the call to your questions, I'd like to share one more thank you with our teams and congratulations to our finance and capital markets teams. This quarter's balance sheet accomplishments are a testament to your hard work and dedication. Overall, this was an outstanding quarter of operational performance, growth program execution, and balance sheet management that demonstrates the power of the American Homes 4 Rent platform and our ability to create outsized value for years to come. And with that, we'll open the call to your questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

Thanks. Clearly you're benefiting from the build-to-rent strategy so far. But as you see more and more capital come into the space, how do you think about your move there or kind of the first-mover advantages of what is sustainable going forward, at least on a relative advantage standpoint?

Thanks Nick for that question. Being the first mover gives us several years of advantage. We're buying land now for 2024 and 2025 deliveries. So people just getting in now have to go find the land and then scale up their team. And we also have the benefit of an outstanding operating platform.

Thanks. Then, when you think about the different yields, with the amount of capital coming into the space, how have they changed across development, third party, and then just flow acquisitions?

Yes, if I understand your question correctly, the yields, because the rents have been going up. As I understand it, we're undersupplied in housing by four million to five million units across the country. So, there's going to have to be a lot of development going on to affect the yields dramatically. We've been seeing red-hot demand for our product. It's a great product not only for renters, but it's just high-quality, really nice product that people want to live in and in neighborhoods they want to live in, and we're seeing high demand and rents going up well above pro forma in most cases.

Thanks. So no compression even with more capital coming in?

Not at this point, and I don't see any pathway to that until we start building more houses as new households are being created.

Hey Nick, it's Chris. Can I just mention going back to the maturity of our development program and the quality of what it can produce? We have a great new video that's on our website actually on the For Investors page. It gives some great visuals of the quality of our product and certain aspects of our communities as well as an intro to the team that I think does a great job giving some visuals of the story. I’d encourage everyone to take a look at that again.

Thanks.

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

Yes, thanks. You guys called out in the press release the continued acceleration of new rent growth in July. And I know occupancy slipped a little bit, which may be a bit more of a seasonal factor than anything else. But could you maybe just talk about the interplay between the occupancy and rent growth and how you're sort of thinking about that and managing both aspects of that moving forward?

Steve, this is Bryan. The occupancy change from end of June to July is just really a function of seasonality and move-outs. The demand which is supporting the exceptional re-leasing rate growth is still there. When you have extra move-outs during a busy move-up season like we're in right now, it takes a little while to get those houses back up. So that delta should get recovered soon. The great thing that we're seeing right now is we've been able to turn our homes much quicker. We've picked up on average cash-to-cash for Q2 was 25 days this year, which in comparison to last year is a pickup of about 22 days. So there were extra move-outs in July, but we're going to be recovering those quickly. You can take a look at the leasing velocity. There's just a little bit of time to get those new renters, new residents into the homes. So I don't think there's anything to be concerned about there. Rate growth continues to be fantastic, and that's across all our markets as well.

Steve, it's Dave. Just let me clarify one point that Bryan was making. When you look at occupancy, there are two occupancy numbers. There's average occupancy and end-of-period occupancy. End-of-period occupancy is always the highest number of the month. What you see is on average occupancy the move-outs at the beginning of the month and then the turns occur and then you refill towards the end of the month. So, what you're comparing is a little bit of apples and oranges. The demand is still as strong as we've ever seen it. Rate growth is very strong. And I wouldn't infer anything by looking at end of June's occupancy and where we averaged out in the month of July. Demand continues to be as strong as we saw it last quarter.

Great. Thanks Dave. Maybe second question just talk a little bit about land purchases. I mean we realize that the housing market is underbuilt. Costs are going up everywhere. So maybe just talk about how you're sourcing land, how you're pricing? And how is that, I guess maybe impacting our outward development yields if at all?

It's really not affecting our yields. We're now getting to be known as somebody who can execute, and people are calling us with deals. We have access, especially in the markets that we've been established in for quite some time. As we get started in Columbus, that's going to take a little longer to get to where all the brokers and landholders know us. But in most of our markets, we're known, and we get access and we close our fair share of the deals at the pro forma yields that we like.

So Dave just to quickly follow up. I mean I guess our rent increases are just basically allowing yields on the development to stay firm even with land prices and things like lumber and labor up?

No, that's exactly right. We're achieving rents that exceed our projections, even though our actual costs are somewhat higher than anticipated. However, as we gain more experience and expand, we are securing better discounts and gaining access to top-quality subcontractors and contractors.

So Steve, this is Dave. Just to summarize. As you inferred, there is a little bit of price increases in the supply chain, but the rents have more than compensated for that increase in rent. As Jack indicated, we're actually very bullish on the future that there could be rate expansion or a yield expansion as we become more and more efficient and gain scale resulting in better supply chain economies of scale.

Got it. Makes sense. Thanks guys.

Thanks, Steve.

Our next question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question.

This is Adam Kramer standing in for Richard. I wanted to discuss the trends for the current quarter or July, to the extent you can share. I appreciate the information on the new renewal and blended lease figures. However, I would like to know more about the other income items that may have declined during COVID. Are those expected to rebound at all? Additionally, how has bad debt performed in the third quarter compared to the more than 2.5% from the second and first quarters?

Good morning, Adam. This is Chris. I'll hop in on a couple of those and Bryan can chime in if he wants to add any additional operational color. In terms of the other income area fees, ancillary income, as you can see from the quarter or even really the year-to-date, a number of our fee programs have been really making great progress, as we continue to roll out certain things around pets, pet fee programs, etc. You can see that contributing on a full-year basis. Fees are up about 42%. In this quarter in particular, fees were up about 65% or so. Part of that is absolutely the contribution from our fee and ancillary income programs. And also recall, we had a little bit of a softer comp in terms of late fees on a year-over-year basis as we were not charging late fees during those same months of the pandemic last year. On a full-year basis, we are expecting those same trends to continue. General ballpark for the full year, we see fees adding about 40 basis points or so to Same-Home revenue contribution. And that's pretty consistent with what our expectations were at the start of the year. And then in terms of bad debt, I would say for starters that we continue to be really happy with how strong and resilient our collections have remained throughout the entire pandemic, with bad debt hovering really around that 2.5% area. But as we look forward, collections continue to be an area of uncertainty that we're focused on, case in point that the recent flip-flopping and lifting and then reinstating of the eviction moratorium, I think is a great example. But with that said, heading into the third quarter, our collections are continuing to remain very resilient and pretty steady with what we've been seeing. I think we'll likely see bad debt continue to hover around the 2.5% area for the third quarter. And then we're optimistic that we'll begin to see further collections momentum before the end of the year and we could see fourth quarter bad debt improving a bit maybe into the lower twos or so with real further improvement continuing into 2022.

Great. Appreciate the color there. Just a quick follow-up. Just on kind of cap rates on acquisitions through the traditional acquisition channels. What are you guys kind of seeing relative to three or six months ago? And then when you're thinking about kind of and I think you guys kind of refer to it as a dial that you can kind of turn on or off. How do you kind of think about when, I guess, right to kind of dial it on or off? Was that kind of a cap rate-driven decision? Is that more kind of on what's coming out of the kind of the AMH Development program at the time and then kind of how much you want to augment with National Builder? Just maybe a little bit more color there and kind of on that turning the dial on or off would be great.

Yes. Thanks for the question, Adam. This is Jack. I would say that prices obviously have gone up on MLS transactions, and rents have gone up. So we're seeing cap rate compression of about 15 to 25 basis points. So we've seen that in terms of when we decide when to dial it up or dial it back, it really has a combination of what the opportunities are for investment and what our cost of capital is. Obviously, with the debt deals that we've been able to do, our cost of capital has gone down. The second part of that is we're total return investors. So even though we might see initial cap rate compression with rent growth, we expect that the total return is actually going to be better than what we were buying in the past.

Adam, let me just add a couple of thoughts to that. The question really is Jack, infers it's a balance between investment opportunity and availability and cost of capital. And having three acquisition channels is huge for us because as time moves on, the availability of new assets through each of those channels varies. Our development channel is by far the best channel, but we supplement with very good acquisitions in the other two. As we see today, there are tremendous opportunities in our traditional channel. There are opportunities, but not as robust as the traditional channel National Builder, but they're more limited. But it all gets down to looking at the cost of capital, the availability of capital, and the investment opportunities. Today, our cost of capital is significantly different than it was a year ago, and the investment opportunities are still very good. So, we've ramped it up.

Thanks for the time, guys.

Thanks, Adam.

Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.

Great, good morning and congratulations on the quarter. My first question is for Dave. I apologize, I missed it. I think Dave you mentioned the total number of single-family rentals today, and I was curious, we get asked a lot about the future of the industry. Are there any recent forecasts on how big the pie may grow over the next few years?

Today, there are approximately 17 million single-family homes being rented, marking a notable increase from 10 years ago when the number stood at 13 million and remained steady for a significant time. It's important to note that most of these rental homes are owned by individuals who possess one to four properties; 96% to 97% of all such homes fall into this category. There remains a considerable opportunity for institutional growth in this sector. Additionally, as we discussed regarding the housing shortage, there is a need to address the deficit of four million homes to ensure people have access to quality living spaces, and we are contributing to that effort in a small way. Furthermore, we've observed demographic shifts over the years; younger individuals aged 30 to 40 show a stronger preference for renting compared to prior generations at the same age. They are experiencing life events later and are opting for rental options. Hence, while I haven't seen specific projections, I anticipate that the trend of increasing from 13 million to 17 million homes will persist, with institutions playing a significant role in delivering quality housing.

Thank you. My second question is about affordability. You've mentioned before that most of your applicants are dual income earners. However, when only one person is applying, that means there's only one income. Can you address the issue of affordability, especially with rents increasing so rapidly?

Well, rents are rising, but home prices are rising at the same rate or in many cases faster than rents are rising. So when you look at affordability, affordability is a relative comparison as to what the various opportunities are for housing and occupancy. Against the ownership equation, affordability remains intact, but both, as you point out, have increased.

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

Thank you very much. When you allocate capital to land spend, do you have an IRR target or a return on equity target, or alternatively, do you use a stabilized cap rate-based analysis? The homebuilders target is typically something around a 20% return on capital or return on inventory. So I was wondering if your return targets are similar to theirs. And if not, whether that provides either a competitive advantage or potentially raises the risk of your overpaying for land.

Yeah, I wouldn't say we would risk overpaying for land. But we have a going in what the first year yield is, what the five-year anticipated yield is, and what the 10-year anticipated yield is; similar to what you'd run if you were buying an office building and what the IRR is on that. If it meets our hurdle and is in the market and submarket we want where we expect that kind of growth, then we make an offer. We come up with what our max offer would be, and we try to negotiate something better than that.

Jade, let me just add a couple of thoughts. When we look at all of our acquisition channels, as Jack indicated earlier, it is a total return proposition. The development channel is a channel that we get higher current income and current cash returns. But there's one thing that people forget: Our investment in that house compared to all of our other channels that we would buy the equivalent house, we're investing approximately 20% to 25% less. So as soon as that home is completed, there is an embedded 20% to 30% development profit that is reflected as immediate home price appreciation. And that in itself is value creation on the balance sheet. And that sometimes is forgotten a piece of it. We look at the cash yields and what it does to FFO, but we're building and creating value on the balance sheet every time we build our own homes through our development pipeline.

Just because you're not choosing to sell the home on an owner-occupied basis, and in which case you would expect to earn that 20% to 25% margin. So perhaps you're realizing it through rent growth over time rather than an outright sale. But do you happen to know how the prices you're paying for land compare to homebuilders? Would you believe that they're similar to what homebuilders are paying on a per lot basis for for-sale housing, or do you think that you're maybe paying a little bit more in exchange for the recurring earnings that rental housing provides?

Jade, please continue.

I would say that we're competing with national homebuilders for parcels of land. Sometimes we bid more, and sometimes we bid less. It's really a question of the value that we perceive versus what they perceive. It's a competitive situation. I don't think we're paying more all the time, and we're not paying less all the time.

Yeah. I mean we do not win every bid that we attempt to acquire land. It is a very competitive market. We are successful a very large percentage of the time, but we're also losing some of the lots that we wish we had. But it is a competitive marketplace out there.

Thanks for taking the question.

Thank you. Our next question comes from the line of Alan Peterson with Green Street Advisors. Please proceed with your question.

Hey, everyone. Thanks for the time. I was hoping to follow up a little bit on the land cost side there. In regards to Jack, what you're seeing on the ground today, how much do you think land costs have increased over the last year on the parcels that you guys are underwriting?

Somewhere in the 20% range. Last year, we were paying on average $50,000 per raw lot. Now it's closer to $60,000. We've gotten more efficient on the horizontal development. So we've brought that down a little bit to make up for it. So the total all-in fully developed lot is relatively close to the same, right around $120,000.

Perfect. That's helpful. And then transiting over to operations, Bryan, I was hoping you can touch a little bit on the divergence between new lease rate growth and renewal rate growth. Is the current portfolio management strategy that limits turnover expenses instead of marking existing tenants up to market? Just trying to understand if there's a large embedded lease in any given market that you guys are operating in.

Yeah. There's always a balance on the renewal side with rate and occupancy. Preserving turn cost is a factor. The best way to think about it, we're sending out the renewal notices 90 days in advance. Whereas with the re-leasing activities and pricing, we're pushing rates as far as we can on a real-time basis. We're able to capitalize on big surges in demand that we might not have anticipated. In addition, there's a lot of value in retaining strong, long-tenured residents. So that plays a little bit of a factor as well. And then finally, there's the social responsibility aspect of it too. We're wary of the pressing pressures that exist today in our industry. We feel that strong renewal growth that we're seeing right now is pushing it well into double digits, and to try to mark-to-market might not be the best strategy today.

Perfect. That's helpful. Thanks for the time guys.

Thanks, Alan.

Thank you. Our next question comes from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.

Hello, everyone. Thanks for taking the question. I just want to clarify the comments about occupancy shifting from June to July. You went through this earlier. But through April and May, the same-store occupancy was 97.9%, the quarter or 97.8%, the quarter was 97.9%. So obviously, June was the high mark. That's what we should be comparing to the 97.4%, correct?

Yes. I think the seasonality of occupancy you're going to see a peak in the June time frame. The 97.4 is a slight reduction off of the average obviously in the month-end. But it's just a function of a larger gross number of move-outs in July, and they tend to move out at the end of the month too. So you can maintain excellent occupancy and have move-outs that will affect the following month when the gross number of move-outs is rising monthly.

And I guess, Bryan just to continue on that which is where I was going with it. Is it to imply that those were unexpected move-outs, because I know you've had a lot of success being able to pre-lease on move-outs that you know are coming?

No, it's not. Keep in mind that's occupancy and not the lease rates. The lease rates are sky high. So that's actually contemplating the timing difference. The cash-to-cash timing difference at 25 days. So those move-outs have been processed. Many of them have been pre-leased, but it takes a little bit of time to get those subsequent move-ins. We're seeing no drop-off in demand. There's just some functional or some frictional vacancy that we're processing through right now.

Okay. All right. That's helpful. And then back to the MLS underwriting. I think you mentioned that the compression in cap rates was 15 to 25 basis points. Can you just talk about what the absolutes are today? Maybe there are any variability that you're seeing by market? And then it'd also be helpful just to understand when you approach the underwriting on these homes how do you think about both rent growth? Is there anything that you'd be assuming as far as inflation from where the market is today? And then also on the expense side, recognizing you're benefiting from lower-than-average expenses from some of the pandemic effects how you think about the underwriting costs on those ones?

Yeah. We underwrite to a standard expense. So the expenses aren't really going to change due to the pandemic. In some cases, those have gone up. In some cases, those have gone down. But overall, I think it hasn't really changed our margins significantly. On the rental income, we typically underwrite to whatever rents are currently at market for MLS transactions. So we get a first-year NOI yield and we anticipate some growth generally in the 3% to 3.5% range after that in terms of rent. We've been getting a lot better than that. But that's how we look at it in terms of annual growth. Certain markets might be a little higher growth, and we'll pay a little more in terms of lower initial yield.

Okay. And where are those yields you check maybe by on average and on the extremes per market?

I would say on average slightly below 5%. In terms of our MLS transactions, they're closer to 6% in terms of our internal development program.

Okay. Thank you, guys.

Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.

Hey, guys. Congrats on a great quarter. Just going back to the 642 homes between that National Builder Program in the traditional way, just wondering about the exact breakout between the two. I just want to compare I guess how much of that you capture on the traditional way this quarter versus your guidance.

Sure, Sam. It's Chris. The breakdown is using rough numbers about 570 through the traditional channel and about 70 through the national builder. National Builder is pretty in line with what our expectations were recognizing how tight that environment is. Our expectations were relatively modest coming into the year and the quarter. And then that 570 on the traditional channel side is definitely above what our prior expectations were. I think it's a good idea of that ramp-up that we're seeing as our team executes really well out in the field, sharp-shooting transactions as we're really leaning into that channel with our expanded capital into it throughout the balance of the year.

Got it. That's helpful color. I guess one big-picture thing from me. I mean you guys have made it clear in the past that having that local market scale for the density is really important for efficiency. Now, just thinking about those smaller markets of interest to you guys like Seattle where the scale is not there. I guess those markets, I mean you guys have a vision for those through that build-for-rent channel. So, I'm just curious how you're strategically mapping out the efficiency picture there. Because it seems like you might have some control but just having more color on that as opposed to I guess your bigger core markets where the build-out story was different would be interesting to hear from you guys.

Sam, it's Dave. We've discussed the advantages of operating in 30 markets, highlighting our efficiency due to centralized operations. While we have maintenance personnel in each market, we are also expanding our maintenance teams as we grow, particularly in our larger markets. Currently, we are efficient in most of our markets, with only one or two lagging behind. We anticipate that growth in those markets will enhance their efficiencies. Our platform's centralization contributes significantly to our operational efficiency. When we analyze the total cost to manage our operations, encompassing property management and general administration as a percentage of revenue, we find that we are as efficient, or even more so, than others in the residential sector. Chris can provide additional details in the supplemental information.

Got it. Helpful color. Thank you guys.

Thanks, Sam.

Thank you. Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed with your question.

Hi, thanks guys. I appreciate all the detail you've provided so far. First question for me is just what's the or do you have a sense of the underlying labor and materials inflation in your business? I think in the past we've talked about maybe around 5%. And also when you're getting units back that are where the previous tenant vacated, are you seeing any changes in the need for turn CapEx or expense relative to prior years?

Hi Ryan, this is Bryan. I'll start with the labor and materials. We are seeing some inflationary pressures on both. I think the most obvious areas would be materials such as appliances and so forth where we're seeing inflation in the 10% range. Our procurement teams, our purchasing teams have done a fantastic job of helping to protect us from those increases with national contracts and really exceptional processes. Most importantly, we are trying to do more and more in-house. A lot of that in those inflationary pressures are in relation to third-party maintenance and turn vendors. So, we've been able to handle more work in-house and protect ourselves from some of those cost increases. They're in the marketplace, but we've done a great job of mitigating those big changes. In reference to any change in the turn profile on the homes that we're receiving back now, I haven't seen any marked difference. We're benefiting a little bit from a few returns, but the cost and the condition on those houses that are being returned to us is consistent with prior quarters.

And Ryan, it's Chris. Just to add a thing or two from a numbers perspective just to frame what Bryan was saying around the inflationary piece. Keep in mind that a lot of that was also contemplated in our expectations coming into the start of the year. So, between contemplating a portion of that and then just how well our teams have been executing, I think you can see that reflected in the fact that our expense view on the year remains unchanged. And then on the turnover piece, keep in mind the other thing that is also included in our guidance is as we progress throughout the back part of this year, and as our collections continue to optimistically gain momentum, we've talked about the last couple of quarters. We would likely expect that to translate into a temporary period of elevated move-outs as we're working through some of those collections, which may come with some incremental turn costs as a result of that volume. But all of that was contemplated in our guidance at the start of the year, which remained unchanged coming into this quarter as well.

I understand, thank you. For my second question regarding the National Builder channel, when assessing opportunities, are you noticing a difference in yields between fully purpose-built communities and acquiring a series of individual properties or just part of a community that would traditionally be sold to owner-occupants?

No, but we haven't had a lot of opportunities to buy National Homebuilder full communities. We've done a couple at most and none this year, and those were basically at some modest discount to what they could sell them for at retail. The yields were pretty close to what we were seeing on the MLS.

Hey Ryan, it's Dave. Just to supplement a little bit. The homebuilders have had a very strong retail season in 2021, and the pricing of those opportunities from the national homebuilders have been less than what we have seen in prior years. We continue to have dialogue with many homebuilders. We have acquired homes in the past from many homebuilders, and it's not just one or two. We have relationships there, but as Jack indicated, this year the pricing has gotten a little tighter. It really is driven against their opportunities, the homebuilders' opportunities, and they have an opportunity right now to sell retail at very attractive prices.

Okay. Great. Thanks very much. I appreciate it.

Thanks, Ryan.

Our final question today comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.

Hi everyone. On land, you mentioned in the prepared comments that you're buying for the 2025 deliveries right now. Can you talk about if that duration is about right at this point? Like next year, you'll be buying for 2026, or what would make that longer or shorter?

The typical time frame for our average development of 80 to 120 homes is between 18 to 24 months before construction begins. Prior to starting, we collaborate with our property management team to determine the optimal absorption rate and adjust our delivery schedule accordingly. We usually aim for six to ten deliveries per month, potentially reducing that during the winter and increasing it as we move into spring. So, that means roughly two years for land development, followed by the vertical construction depending on the planned delivery rate. For instance, if we have 100 houses and are delivering ten per month, it will take about 10 months to complete the community.

Okay. Okay. Got it. And then, I was curious if you have any demographic data in terms of where new residents are moving in from. Have you seen any changes in terms of maybe people like selling their homes and moving into a rental or people moving from multifamily either in a greater or lower proportion than they used to?

Hi Brad, this is Bryan. Yes, we're seeing some interesting trends continue. On previous calls, we've discussed the movement away from some coastal markets, particularly California, New York, and New Jersey, and that trend has been accelerating. Applicants from states outside our footprint increased by 50% year-over-year, with a notable 70% surge from California. The demand has been remarkable, especially from Western states, with people relocating from California to Nevada, Idaho, and Arizona. It's been really strong and shows no signs of slowing down. Regarding applicants and residents coming from multifamily housing, the trend has been consistent. We've noticed a slight increase recently, but during the early pandemic period, we experienced a significant boost, which has since moderated, although it remains a key source for our demand pipeline.

Okay. Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Singelyn for any final comments.

Thank you, Melissa, and thank you everyone for your time today. We are pleased with our operational and growth execution this quarter and are positioned for continued strong performance and growth in the quarters ahead. We'll talk with you again on next quarter's call. Have a good day.

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