Greetings and welcome to the American Homes 4 Rent Second Quarter 2022 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. Operator instructions were given. 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 2022 earnings conference call. With me today are David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating 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 5th, 2022. 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 of GAAP to non-GAAP financial measures 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. Good morning and thank you for joining us today. This quarter, we continued delivering strong, consistent results with $0.38 core FFO per share, representing 16% year-over-year growth. This once again demonstrates the durable and consistent earnings power of the AMH platform. Before Bryan and Chris dive into the quarter's results, I want to walk through three areas. First, a macro view of the housing market. Second, our growth programs and how they differentiate American Homes 4 Rent from other housing companies. And finally, how we are doing as a socially responsible company. Starting with some thoughts on the macro housing environment. First, it is estimated that our country is anywhere from 3 million to 5 million housing units short, no small number. And this is not likely to get any better as the latest numbers from the U.S. Census Bureau marked the fourth consecutive monthly decline in single-family starts. Second, while single-family rentals were deemed the housing option of last resort 15 years ago, today, they are desired as a premium housing option of choice. American Homes 4 Rent has been at the forefront of changing the narrative by providing high-quality homes and new communities with best-in-class amenities. Additionally, our professionally managed platform and services have elevated the resident experience. In the last year alone, our residents have gone on record in media outlets like CNBC, USA Today and the Orlando Business Journal to voice their support of our rental homes, which gives them access to a simplified single-family lifestyle. Third, not only is single-family rental living more convenient than homeownership today, it is also more affordable. And finally, the American Homes 4 Rent portfolio is located where Americans want to live. Our assets are strategically positioned in high quality of life markets benefiting from migration patterns fueled by long-term demographic shifts and changing lifestyle preferences. All-in, the current housing environment supports sustained single-family rental demand for the foreseeable future and American Homes 4 Rent continues to be well-positioned. Now turning to our growth programs. Our in-house development program is the backbone of our growth strategy. And now more than ever, it is demonstrating the benefit we envisioned when we launched the program over five years ago. We continue to add high-quality assets to our operating platform while at the same time retaining full control of the development process. This results in a consistent and predictable growth channel that we can rely on throughout all economic cycles. Further, our internal development program differentiates us in two ways when compared against other housing business models. First, we are the only public single-family rental owner and operator with a fully integrated development program. This means we do not depend exclusively on the MLS markets or third-party homebuilders to drive external growth. Second, we build homes for our own portfolio. Therefore, we are not subject to for-sale market risk like traditional homebuilders. And as a reminder on the economics, our internal development program delivers premium yields over our open market and national builder acquisition channels and creates shareholder value as we do not incur builder profits, which enables us to add homes at a significant discount to market value. Now, turning to our investment strategy more broadly. Interest rates have risen, while home prices have yet to react in a meaningful way. In addition, these are uncertain times in the capital markets. As such, we have temporarily scaled back one-off MLS transactions to allow the market time to recalibrate and stabilize. This will preserve dry powder for future investment. And when better opportunities become available, we'll be ready to act. This revision reflects our disciplined investment approach and highlights the competitive advantage of our three-pronged growth strategy. Lastly, I would like to touch on a few ways American Homes 4 Rent is focused on social responsibility. Through our differentiated development program and strategic investments, we are doing our part to help solve the critical housing shortage in America. With AMH Development, we are not only adding high-quality homes to the nation's housing stock, we are providing homes in high-demand, safe communities with good schools where families want to live. Additionally, in the face of an ownership affordability crisis, we are providing an attractive rental solution for households across the country. Separately, we are also investing in partnerships with innovators at the intersection of technology and sustainability. Through our recent PropTech collaborations, we are funding initiatives to reduce carbon emissions in the industry and enhance the resident experience by developing new amenities, both of which will unlock the next era of housing. In closing, I am excited about these initiatives and optimistic about our future. The single-family rental demand tailwinds, combined with our differentiated AMH growth strategy, puts us in a great long-term position to remain the leader in residential housing. Now, Bryan will provide an update on our operations. Bryan?

Thank you, Dave. Our industry has evolved dramatically over the past decade. During that time, American Homes 4 Rent has transformed single-family rentals by offering a premium housing option with an unmatched level of convenience, service and quality. And given all the points Dave mentioned, the demand for our homes continues to be outstanding. In the second quarter, we had over 285,000 inbound leasing inquiries. Nearly 50% of these were digital, highlighting the importance of our strong technology systems. At the house level, showings per rent-ready property are nearly double pre-pandemic levels. These robust metrics drove strong quarterly results that modestly outperformed our expectations. Same-home average occupied days finished at 97.4%, and rental rate growth showed continued strength with new, renewal and blended spreads of 14.2%, 7.4%, and 9.3%, respectively. This led to same-home core revenue growth of 9.4% for the quarter. Core operating expenses were in line with our original projections and our expectation for expense growth rates to moderate for the balance of 2022 remains unchanged. All of this resulted in 10.2% same-home core NOI growth, representing consecutive quarters of double-digit growth. Looking forward to the third quarter, July demand remained robust, driving same-home average occupied days of 97.2%. New and renewal spreads were 13.2% and 8.1%, respectively, resulting in blended rate growth of 9.7% for the month. As a reminder, our original guidance contemplated elevated move-outs around the middle of the year and included the workout of COVID-impacted homes. July's results were directionally as expected, but we are seeing less seasonality than we originally anticipated. Therefore, we are increasing the midpoint of our same-home core revenues guidance by 25 basis points to 8.5%. This translates into an increase in our same-home core NOI guidance by 50 basis points to 10% at the midpoint. As I close, I would like to thank all our team members for their consistent execution. Our second quarter results and the outstanding demand for our homes sets us up for a strong finish to 2022. I will now turn the call over to Chris.

Thanks Bryan and good morning everyone. I'll cover three areas in my comments today. First, a brief review of our quarterly results. Second, an update on our balance sheet and strategically revised capital plan for this year. And third, I'll close with a few comments around our updated 2022 guidance. Starting off with our operating results, once again, the AMH platform delivered another quarter of strong and consistent performance with the net income attributable to common shareholders of $56.6 million or $0.16 per diluted share. On an FFO share and unit basis, we generated $0.38 of core FFO, representing 16% year-over-year growth and $0.34 of adjusted FFO, representing 16.8% year-over-year growth. Driving our results was another quarter of strong operational execution, generating 10.2% same-home core NOI growth as well as another quarter of consistent performance from our three-pronged external growth strategy. During the quarter, we added a total of 928 homes to our wholly-owned portfolio and 214 homes to our joint venture portfolios, some of which included 529 homes delivered from our AMH Development program. And on the disposition side, we sold 197 properties during the quarter, generating total net proceeds of approximately $61 million. Finally, during the quarter, we grew our owned and optioned land pipeline to over 15,000 lots including lots that have been optioned through our various land banking relationships, which strategically enable us to continue growing our pipeline while also prudently managing land risk. Additionally, at the end of the quarter, we had approximately 7,000 additional lots undergoing due diligence in escrow. Next, I'd like to share a few updates around our balance sheet and revised 2022 capital plan. For starters, I'm very happy to share that we were recently upgraded by S&P to BBB with a stable outlook, which is a great testament to our best-in-class balance sheet and continually improving credit profile, which is especially important during these uncertain times in the capital markets. In terms of other balance sheet updates, at the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was 6.2 times, our $1.25 billion revolving credit facility was fully undrawn, and we had approximately $490 million of available forward equity shares that remain outstanding from our January equity offering. Additionally, as we discussed on our last quarterly call, during the quarter, we closed our $900 million dual-tranche unsecured notes offering as well as the redemption of our $155 million, 5.875% Series F perpetual preferred shares. Now, turning to our capital plan. For the remainder of 2022, I'd like to share two updates with you. First, as Dave mentioned in his prepared remarks, we recently began moderating our traditional channel acquisition activity and now expect to acquire between 1,500 and 1,900 total properties during full year 2022. This represents an estimated total AMH capital investment of approximately $700 million at the midpoint. And for context, represents a reduction of about 500 properties or $200 million from our previous full year expectations. And second, given recent market changes to our newly issued cost of capital, we've also made the decision to not redeem our $115 million, 5.875% Series G perpetual preferred shares at this time. As a reminder, our redemption option on this series of preferred shares has no expiration date. In total, these capital plan modifications have reduced our 2022 AMH capital needs to approximately $1.6 billion. Relative to our previous capital plan, which was already externally funded, this now strategically creates between $300 million and $400 million of dry powder capital capacity. As Dave talked about, this will enable us to be highly opportunistic as we evaluate all forms of potentially emerging growth opportunities during this changing economic environment. Finally, I'd like to provide a quick update on our 2022 guidance, which was modestly revised in yesterday's earnings press release. Starting with the same-home portfolio. As Bryan discussed, we continue to experience robust levels of demand and now expect full year leasing performance to be slightly ahead of our prior expectations. With that in mind, we've increased the midpoint of our full year core revenue expectations by 25 basis points to 8.5%. Coupled with our unchanged core property operating expense outlook, we've increased the midpoint of our full year core NOI growth expectations by 50 basis points to 10%. For context, the revisions to our same-home portfolio outlook represent approximately $0.01 of full year core FFO benefit. However, we expect the near-term impact of our strategically reduced 2022 capital plan to have a similar core FFO impact in the opposite direction. With that in mind, our 2022 core FFO expectations have remained unchanged at $1.56 per share, which as a reminder, continues to represent SFR industry-leading growth of 14.7%. And before we open the call to your questions, I wanted to quickly reiterate our bullishness as we head into the second half of 2022. Fundamentally imbalanced single-family supply and demand remains a tailwind at our back. Our internal development program continues to differentiate us with a pipeline of consistent and predictable external growth, and our balance sheet is incredibly well-positioned to take advantage of potentially new emerging growth opportunities moving forward. And with that, we'll open the call to your questions. Operator?

Thank you. At this time, we'll be conducting a question-and-answer session. Operator instructions were given. First question comes from the line of Nicholas Joseph with Citi. Please proceed with your question.

Thanks. I appreciate the comments on the updated capital plan. So, as you think about the $300 million to $400 million, I think you talked about being highly opportunistic and evaluating all forms of potentially emerging growth opportunities. Can you elaborate on that? And is there anything that you're considering outside of acquisitions or land purchases?

Good morning Nick, it's Dave. Yes, the first thing I just want to mention is having three different acquisition channels allows us to be flexible in times like this, these uncertain times. So, we still have a very strong growth channel going today in our development program delivering high-quality assets. And the yields are getting better and better as we see the input costs coming down in our construction. With respect to other opportunities, as you know, the MLS markets and the national homebuilders, the inventories are growing. We're starting to see some price discovery happening. But we're still early in that process. So, I'm pretty confident we will see the opportunity to get back into both of those acquisition channels later this year when the yields that those opportunities offer match up well with our cost of capital. With respect to other acquisition channels, it is a very interesting time. We are receiving many inbound telephone calls that we were not receiving previously, whether it's from owners of small portfolios or even national homebuilders with excess inventory. Where we are, though, in that process is we still have a gap in our bid-to-ask expectations between buyer and seller. So, I see all of that coming together. One of the things that's interesting about this industry, I just want to rewind a little bit on history here. In 2011 and 2012, as we were in difficult economic times and a little bit of uncertainty and maybe even what could be called a housing recession back then, that's when we built our company because we saw tremendous opportunities. I expect the same is going to occur. Going forward, I think we need to be patient. We need to be strategic. We need to be disciplined. And we're going to come out some time next year with tremendous opportunities going forward.

Hey David, it's Michael Bilerman. So, when you're talking about emerging growth opportunities, it sounds like it's much more the sources of buying homes rather than some extension of your business into related residential things or maybe a larger services angle, it really is how to get access to a variety of channels and homes. Is that fair? Or were you trying to put emerging growth opportunities or something else?

No, I think that's—Michael, that's the primary opportunity. I would never foreclose other opportunities. But today, I believe that to be the primary opportunity, and I believe we're going to see some very, very attractive opportunities as we get through the price discovery phase of resetting and stabilizing the marketplace.

Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.

Hey everyone. Thanks. So, can you talk about on the acquisitions, are you entirely out of the market on MLS and the homebuilder program right now? Or can you—if not, can you talk about the criteria for homes that are still meeting the hurdle? Is that just a higher cap rate target or being more selective on markets or something else?

Yes. Thanks Brad. We're not 100% out. We're still acquiring, but it has had a very significant reduction, probably more than an 80% reduction from what we were seeing earlier this year. It is based on what the attractive opportunities are when you're underwriting many homes, and we're starting to see a growing list of opportunities on the MLS. The MLS has many more homes today available, the times that they're sitting there is much greater. We're starting to see opportunities. I would say we're sharp shooting right now. We are seeing some declines on average in the MLS if you look in like markets, mainly on the West. For example, Seattle is down about 6%, Denver and Portland, probably about 2%, Austin maybe 3%. But one-off homes here and there, we are finding opportunities. We are obviously buying at higher yields than we were. But the opportunity set today is still very, very limited compared to what it was in the first quarter of this year. And what we closed in the second quarter, a good majority of that is stuff that we put under contract late in the first quarter.

And Brad, it's Chris here. Just to frame that with a few capital dollars for you in terms of what that means on the year. As Dave mentioned, we're still buying. We're being very precise and selective and sharp shooting opportunities. Year-to-date through our acquisition channels, we've deployed, call it, rounded about $550 million of capital. Assuming we stay at this pace for the balance of the year and if nothing changes, expectations is that we'll deploy about $700 million of total capital through our acquisition channels, which means, call it, remaining about $150 million of capital deployed through acquisition channels in the back half of the year.

Okay. I appreciate that color. And then is the slowdown extending to the land side at all? And can you talk about what you've seen in terms of changes in land pricing?

Yes, it has extended to the land side. Again, I think it will follow a very similar suit, maybe even to a greater extent — we'll see better opportunities. Land owners that are looking to sell are still going through their price discovery, no different than the MLS side. But one thing that's different on the land side is land is a commodity used primarily by people that are building homes. And we are seeing the national homebuilders significantly reduce their land acquisition as they are slowing down and seeing their sales orders slow down. So, we've already seen some price reductions. We have been opportunistic in being able to get some very attractive deals so far. The volume of what we have done over the last couple of months is a little bit less than what we saw at the beginning of the year, but no different than the MLS, and what we are seeing is more opportunities coming our way. One thing I would add to you on this is we have a number of relationships with land banking firms. And that's really good to have a lot of options within your land banking. But the more important piece, what we will see is the opportunities coming from them. They control a lot of land, and we are getting a lot of inbound calls from them about our interest in various parcels that are in very attractive locations that are coming back to them from other parties. And so we're going to see some really good land opportunities going forward. I think it's going to follow the same suit as MLS, and it's, again, a story of needing to be patient and disciplined as you go through this time period.

Thank you. Our next question comes from the line of Brian Spahn with Evercore ISI. Please proceed with your question.

Hey thank you. I was wondering if you could talk about affordability and in particular, the impact that in-migration has had on your tenant's affordability screenings. Presumably, the average income is up quite a bit, but are you seeing a wider range of incomes? Or are there any concerning signs you're seeing just from an affordability standpoint, maybe for the previously in-place renters?

Hey, thank you, Brian. The affordability piece is very interesting. If you take a look at our business, I think the affordability gap between renting and owning is at its greatest that I've seen; it's about 17% cheaper or less expensive to rent right now in our markets than it is to buy. That being said, migration patterns — and we're tracking those very carefully — affect our applicants' incomes. The best metric I can give you for this year is through the first six months, our applicant incomes have risen about 9% year-over-year. And the rents that they're applying for have risen a little bit less than 8%. So not only are we maintaining that really strong income-to-rent ratio, it's actually improved a little bit. And I think part of that is due to the migration patterns, the strong out-migration from California and the Northeast. The other part of it is due to just really high demand for our product and an appreciation of the value proposition.

Got it. Thanks Bryan. And I guess just as it relates to bad debt in the quarter, it ticked down nicely, but maybe could you just touch on expectations for that in the back half of the year. And any — what impact, if any, you expect from the reduction of the rental assistance payments?

Yes. Sure. Good morning Brian, Chris here. Taking a step back, generally speaking, I would say, consistent with our expectations that we talked about last quarter and at the start of the year, collection trends overall are holding nice and strong. In fact, we actually saw a couple of markets that received a few catch-up payments this quarter resulting in second quarter same-home bad debt that landed at that 90 basis points. In reference to rental assistance, as expected compared to the second half of 2021, we've continued to see a reduction in rental assistance payments. But that's really been paralleled by just a broader improving collections landscape. So, as we head into the back half of this year, I'm not sure we'll see some of those catch-up payments we saw like this quarter, but we definitely expect collections to remain strong and likely expect bad debt to run in the, call it, 1% to maybe low 1% area, which is what is contemplated in guidance.

Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.

Yes, hey guys. Appreciate some of the comments on the land bank and how you're starting to see some opportunities there. I think last time we spoke, you mentioned that there were potentially more partnerships on that side. Just what's the latest on those conversations?

We're in discussions with between five and six interested parties that have done deals with a few of them, not all six. Those discussions have opportunities. They each have a little bit different criteria. But all of them are in discussions with us now on some of their land opportunities. So, it's going to be a good partnership both ways. We'll be able to get some high-quality land that'll help them out, and that's going to help us out indirectly by having better terms and better relationships with our land banking partners.

Got it. And then one quick one. What percent of your residents signed leases longer than one year, thinking to your leases in particular?

Hi Josh, it's Bryan. The lease term on initial lease is in almost all cases one year. The extended lease term, which I think is about 10% of our portfolio, are two-year lease renewal offers to establish residents who have been asking for it. So I would think about it more in terms of a renewal extension rather than an initial lease term.

Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.

Hey guys. Good morning to you. I was hoping you could speak to the yield on the development products breaking ground today and what the rent growth and construction cost embedded within those assumptions are? Thanks.

Yes. So, instead of talking about exactly what the yields are today, I will tell you that our yield expectations continue to move as we evaluate our cost of capital on a monthly basis. So there's a relationship there. The second part of your question, about the cost of construction, is very important. Today, we have seen the early components of the construction life cycle — the foundation work, the concrete that goes into foundations, the framing, the lumber — all of those costs are coming down. The costs from drywall on are still pretty steady. But the reason for that is the homebuilders are still completing homes that they had started prior to March. So the earlier trades are through that part of the life cycle, and we are seeing the favorability of lower demand on those vendors resulting in favorable pricing. To date, we are seeing about 5% favorable pricing in those components with maybe the exception of lumber, which is much more significant. As you may recall, we were in the mid thousands of dollars per 1,000 board feet, $1,500–$1,600 for 1,000 board feet. We are back now down to about $500 per 1,000 board feet. The other costs are down about 5%. And I would expect they may fall a little bit more. Put all of this into context, a 5% reduction in the vertical construction cost results in a 20 basis point improvement in our yields, and that is over and above any improvement in yields that you would get from rising rental rates. So, we are seeing some very favorable economics right now in our development program.

Okay. I understand the context you're providing; I was hoping to get a bit more quantification of that. The other question I wanted to ask was on expenses. Bryan, you expected some relief in the back half of the year. Maybe can you talk to some of the bigger pieces of what you've seen this quarter, where do you expect to see the release? And then more broadly, real estate taxes. Are we in early innings, mid-innings, when do we get to peak headwinds on the real estate taxes? Thanks.

Thanks Haendel. I'll start, and I think Chris can finish with commentary on the tax side. Expenses are largely playing out as we expected this year. The first half, we expect them to be maybe more front-weighted, at least in terms of the increases due to the comp set and our work through some of the COVID-related households. But it's playing out as we expected. There's an inflationary component in there, specifically with the property management line item. You can see the timing effect through the first six months, it's about 6.6% over the comparable period last year, and that's right in line with our expectations.

And then Haendel, Chris here, just to hop in on property taxes. I can start with just a general update on where we're at for this year. Today, we're about halfway through the assessment calendar. We've received assessed values on a little over 50% of the portfolio at this point. And so far, we've seen a couple of offsetting puts and takes. A couple of data points: for example, Georgia came in a little bit higher than what our original expectations were but then that was largely offset by some slightly better-than-expected news in a couple of other states. So, with that said, we still have about 50% of our assessments left to go for this year. And then as you probably recall, we don't receive news on updated tax rates until towards the end of the year. But at this point, we're really not seeing anything that materially changes our full year view of 5% property tax growth. And then to your question around the broader property tax cycle, it's really too early to speculate, but I think our view in general is that there are certain parts of the portfolio in the country where we're likely to see some slowdown in home price appreciation that will eventually trickle its way through property taxes as well. Exactly the timing and the lag effect of that is hard to predict. But our expectation is that will be on the horizon.

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

Morning everyone. Thanks for taking the question. David, I just wanted to touch on the emerging growth opportunities and particularly the portfolio inbound calls that you've had. Can you share a range of cap rate expectations for where you think those portfolios would trade and how those cap rates have trended over the last year?

Yes, in many situations, the inbound calls today still have expectations of pricing that you would have seen in March. People are realizing the market is changing and they are seeing if they can still get a deal done based on the old pricing. So they're still on assembled portfolios in many cases, and it will take some time to get those repriced into the current pricing arena with current interest rates, etc. The good part of that is that people are starting to call, so there is some desire to sell. But the pricing that we are seeing today is still March pricing and that needs to be adjusted. So, I would say that the bid-ask is still too wide to really talk about market expectations. The numbers are not that relevant until we actually start having transactions trade, and we haven't seen that yet. I'm sorry, Alan, what was the second part of your question?

Just where cap rates have trended, but your commentary on March was fair enough. I appreciate that.

Okay.

Second question for me. Chris or Bryan, CapEx is starting to trend towards 20% year-to-date. Just wondering if you could provide some additional commentary on what's driving that CapEx increase this year that we're seeing for your portfolio?

Thanks Alan. You're seeing a couple of different impacts on the increase that we saw in the quarter. First, there is the impact of those COVID-related move-outs. Those turns are more costly, especially on the CapEx side as we work through that cohort. And then there's general inflation too with that line item. So, it is slightly elevated. But again, we're hoping to get some relief as we work through those COVID move-outs.

And then, Alan, it's Chris here. I would just also add that part of what you're seeing has a little bit to do with the timing of our 2021 comps. If you go back and look at last year by quarter, there's a different picture first half versus second half of 2021, really with the defining line being our collection practices beginning to return back to normal. As we head into the back half of 2022 and we're comping against the second half of 2021 comps, our expectation is that CapEx growth rate will moderate a touch into the back half of this year.

Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Hey guys. Good morning out there and thanks for taking the questions. Just wanted to ask about kind of expectations built into the guide for lease growth, second half of the year and then kind of where we might finish 2022 and into 2023? Whether it's new or blend, it would be helpful to understand how you guys are thinking about lease growth over the next little while?

I can frame it a touch and then Bryan can share some more details. As we mentioned in our prepared remarks, we're actually beginning to see a touch less seasonality in the back half of this year than was originally contemplated in our prior guidance. And so with that, that's giving us the opportunity to lean in a little bit more into rate growth as we're coming into the back half of the year. So, to help with the components: generally speaking, on a full year basis, renewals we see being in the high 7s, which implies about 8% area in the back half of the year. New leases we see in the double-digit area on a full year basis, so low double-digits to high single-digits in the back half of the year. But overall blending to a blended spread on a full year basis in the mid-8s. That's up about 0.25 points from our prior expectation, which was in the low-8s. And then you can see that pull-through into the revenue guide, and coupled with our unchanged expense outlook on a full year basis, that translates into the revised 10% NOI growth outlook on a full year basis.

That's really helpful guys. Thanks. And just I guess along similar lines, are you able to remind us what your loss-to-lease is currently?

Yes, Adam, our loss-to-lease is still in the low double-digits that we talked about last quarter. We're seeing some really nice sequential improvement on the renewal side, which we find very encouraging and see the results in July were quite positive, but think of it in the low double-digits.

Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Thank you. Can you elaborate on what you mean when you say you're seeing less seasonality in July than you expected? Is that on a turnaround basis or demand? And why do you think that's occurring?

There are a couple of components to seasonality. One is the distribution of move-outs. We have more move-outs during the peak summer season, which adds a little to vacancy pressure because it takes time to turn and re-lease those properties. That's been relatively consistent and as expected. The other piece of seasonality has to do with the demand backdrop. Traditionally, we've seen a bit of a slower drop-off as you get towards the back half of summer. We're not seeing that right now. The demand has remained extremely strong. We look at a bunch of different demand indicators and they're all pointing towards continued strength. I mentioned 285,000 inbound leasing inquiries last quarter — fantastic volume. Website users are up 28% year-over-year. Web sessions were up 30%. Our API leads from the aggregators into our system and through our website are way up as well. That's coupled with migration patterns, which continue to hold. So we're seeing outstanding demand, which is muting the seasonality.

That's great color. Thank you. And following up on recurring CapEx, which has been increasing. Is there a way to quantify the difference between CapEx on your developed versus purchased homes?

If you look at the early stages of getting CapEx and expense results on newly developed homes, remember these are new homes. So the CapEx burden in the initial years is very light. The limited number of turns we've processed are right in line with our expectations. Those are brand-new homes built to be durable, and that's how it's playing out in the limited experience we've had.

Thank you. Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.

Hi, thank you for taking my questions. First one, I was hoping you could give maybe, Bryan, a bigger picture of how you go about training and maintaining best practices with regional managers because those are the renter-facing parts of the business and crucial in maintaining high brand standards, particularly in sister markets. If you could just share how you guys go about doing that? With Yelp and other reviews being important, I'd love to get your thoughts on that.

Sure. The center of our business is the high-quality resident experience. One key component is how we communicate with our residents and the level of personal customer service we provide. That's what our training is based on. We have specific training modules, incentive programs, and we're seeking out people who can provide excellent customer service. Our technology allows us to manage this at scale. In sister markets, even if we don't have a property manager living in that city, there is a hub-and-spoke system so there's personalized care whether you're close to an office or not. Our training focuses on communication frequency and setting expectations. We cover initial contact on the leasing side through move-in and all customer contact points. We monitor the company with an extensive internal survey system that surveys residents at each contact point and we use that feedback to update training programs. We also watch Google scores and take that feedback into training. It's a robust loop with clear objectives for team members.

Neil, let me add that training is not a one-time thing. Below the regional managers we have districts; each district has a monthly training module that is sent to the district and they go through it, focused on improving and maintaining high-quality resident experiences. The feedback loop is very important with all the surveys. We are working to develop a Net Promoter Score for ourselves similar to other industries. This industry is newer, but we are working on Net Promoter Scores for us and across peers.

I really appreciate all that insight. Thank you. The other one for me is just on development. You talked a lot about that today, particularly with potential upside where you could be seeing land parcel opportunities. Can you talk about what you expect your level of deliveries might be by 2024? I think before you talked about trying to reach a multi-year objective to complete 20,000 or so parcels, including escrow. It would be helpful for modeling and accretion to understand how you see that program ramping over the next 12 to 24 months.

Neil, on the long-term, you're absolutely right. It continues to ramp up each year based on land availability we acquired three to five years prior. The last three years, after the test phase of the building program, we've focused significantly on land acquisitions. Today, we own or control more than 20,000 lots — closer to 22,000 lots — and that's the fuel for future years. We're in 50 markets today that we are building in. The infrastructure is in place that we can do 4,000 to 5,000 homes with little additions other than some construction superintendents. The land is coming through the pipeline as expected on horizontal and infrastructure improvements. While 2023 will still be a ramping year, by 2024 we should start seeing numbers more akin to where our purchasing levels are. So 4,000 to 5,000 homes should be the expectation in those outer years.

Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.

Hi. Maybe just following up on that last question. Can you remind us the time it takes after you have new lots added to the time it takes to be delivered? So, to the extent that you're purchasing more lots from land banking firms now when those get delivered?

Linda, that answer is conditional on a couple of things. Generally, if you're buying raw land, you need to improve that land, put in infrastructure — roads, sewers, utilities — and go through planning and permits. That can take two to three years depending on the market. If you're buying land that's already horizontally developed, you skip that phase. When you get to building homes, you can build anywhere from 120 to 150 days on average. We build communities over an extended period — maybe six to 12 homes per month — guided by property management to absorb without impacting rental rates or occupancy. So it's a two-to-three-year process to get land ready and a four-to-five-year process before you finish delivering all homes in a large community, depending on size and cadence.

Thanks for that detailed response. And then just on the regulatory environment, are you seeing any notable changes in any specific markets?

No, the regulatory environment is largely where it was last quarter. It hasn't materially changed. There's still a lot of inquiry and attention being paid to single-family rentals. When we got into this business 10 years ago, we knew the regulatory piece would be significant. It's an industry providing necessity to many Americans, so it will be high visibility. For us, it's noise around the edges — we're not in the middle of any significant investigations and it's something we deal with from time to time.

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

Hi, thank you all. Dave, I just want to go back to a couple of comments you made earlier. On one hand, you've got what you believe to be a three to five million unit shortfall in housing. Rent growth still very strong. Your cost of capital is likely lower than many peers. Yet you're pulling back on acquisitions because you think there's going to be an opportunity and you draw a parallel to last cycle, which implies you think home prices are going to go down a lot. I'm trying to understand how those two things can coexist.

Dennis, I think the two comments are consistent. We did not say we're slowing down our development program or long-term acquisitions. We're saying we are pausing one-off MLS transactions temporarily to allow price discovery and market reset. Price discovery on the downside takes time: rates rose, prices need to adjust and that doesn't happen overnight. We're seeing inventories expand, time on market increase, and national homebuilder inventories rise. We've seen some price declines in certain markets over the past few weeks — mostly West Coast: Seattle, Denver, Portland, Austin — in the 2% to 5% range, and in some pockets 10% to 15% in Seattle and Denver. Slowing acquisitions is not a statement that we don't believe in acquisitions — it's prudence: be patient and disciplined while the market recalibrates. The change in cost of capital affects affordability for homebuyers, which is different from rental demand. Demand for rentals remains strong. Over the last 40 years, I can't recall a year with a national decline in rental rates; occupancy has remained strong. Affordability is tilted toward single-family rentals today. Our portfolio is diversified and positioned in markets with migration and employment growth. We're in a temporary reset period; the long-term story remains very strong.

Yes, I think I would agree with that. One quick follow-up: if there were three to five million households waiting for product on the sidelines, that price discovery wouldn't have to happen, right?

You can have demand on the sidelines, but buyers must be able to afford the offering. When interest rates rise from 3% to 5.5%, mortgage payments increase significantly, reducing affordability. This is about pricing and affordability more than demand. There is dislocation in the housing market and we expect opportunities as a result. Demand for rentals remains strong and the single-family rental value proposition remains favorable. We're diversified in markets where population and employment are growing. It's a short-term recalibration, not a long-term change.

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

Hi guys. I wanted to go back to renewal spreads. You disclosed earlier that renewals were 7.5% in May quarter-to-date and then 7.4% reported, which suggests some deceleration in June before going back up to 8.1% in July. Just trying to understand your comment about seasonality and the adjustment to expectations around renewal spreads to the high 7s?

Sam, renewal pricing is set well in advance, typically more than three months out. The small quarter-to-quarter adjustment is likely market mix. I'd point you to July's results and continued momentum: we've had six consecutive quarters of improvement prior to Q2 and acceleration into July. Seasonality affects re-leasing spreads more, but we're excited about momentum on renewals and expect it to continue through year-end.

Got it. Have you noticed any changes in the characteristics of tenants moving out of properties, or has it stayed pretty much the same?

It's consistent with what we discussed last quarter. We track reasons for move-out. The largest reason is to buy a home; we're seeing a slight decrease in that reason and expect that to continue declining as affordability gap changes. So the percentage moving out to buy a home should decrease throughout the back half of the year.

Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Great. Thank you. Just want to go back to prioritizing capital commitments. With capital markets volatile, could that impact the pace of development deliveries ramping, or are you pacing that ramp with your ability to self-fund development?

Austin, we self-fund development from day one. Earlier this year we raised just short of $1.8 billion between equity and debt offerings. Much of that remains available via forward equity. In addition, we have a $1.25 billion undrawn credit facility, so we have liquidity to manage through short-term market volatility. Our development program deliveries remain as discussed at the beginning of the year: approximately 2,200 to 2,250 homes between our balance sheet and those designated for joint ventures. We have the capacity and options — including joint ventures — to fund future growth. The key is doing it accretively for shareholders, and we expect that option to be available for many years.

That's helpful. You mentioned an above-average increase in property management expense this quarter; what drove that year-over-year and as a percentage of revenue?

It's more of a timing issue. Year-to-date property management expense increased about 6.6%, although second quarter was 15.2%. There's some timing and wage inflation. The good news is property management teams are fully staffed for the peak season, and we're in a good position to execute into the back half of the year.

To add, the timing skew comes from last year when salary adjustments were implemented mid-year. We increased salaries in August of last year, so those are now rolling through and being comped against first and second quarter 2021 where they were not in place. We'll have better comps in Q3 and Q4 as a result.

Thank you. Our next question comes from the line of Chandni Luthra with Goldman Sachs. Please proceed with your question.

Hi, thank you. Looking out to the next 12 to 24 months, how should we think about margins as you begin to deliver homes on land that was purchased a year ago versus land acquired three to five years ago with potentially higher cost, coupled with potential moderation in rents in a tougher macro setup? How should we think about margins going ahead?

Chandni, you're right that margins on our development homes are more favorable than similar properties in the same markets. We design these homes to reduce maintenance cost: higher quality plumbing, durable flooring, durable patios — all of which reduce repairs and speed turns, benefiting operations. As more of these homes season and move into our same-home portfolio (they need about a year to season), we'll see margin benefits. Today we deliver about 2,000 homes per year into a portfolio of roughly 60,000 homes, so it's still a small percentage, but over time that will benefit margins.

Got it. And on the land banking JV opportunities, as you evaluate partners, is anything different in geography or micro-locations, or price points you'd target with newer partners down the line?

Land banking is a means to de-risk land on our balance sheet. Ultimately these homes will come into our operating portfolio, so we underwrite them the same as any homes for our balance sheet. Land banking is primarily a funding and risk-management technique, not a strategy to go into different markets. We would do straight joint ventures with partners when appropriate.

Thank you. Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Hi, good morning. On longer-term rent growth, it sounds like you'll exit the year with renewal growth in the 7% to 8% range. Curious about next year: you're not seeing the step down that some multifamily companies are seeing. Is it reasonable to expect that renewal growth to persist into next year, or should we moderate expectations given the macro environment?

Hey Anthony. The demand backdrop remains fantastic; I don't see supply relief that will eat into it. I anticipate having pricing power through the balance of this year. Operationally, I expect to enter next year in a position of strength with strong occupancy and momentum to take advantage of spring leasing. Everything is lined up to have continued growth.

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

Thank you very much. In the last couple of weeks, with the mortgage rate dipping below 5%, have you seen any change in market cadence of closings or pricing/home prices?

No, Jade, we haven't. Inventories remain extended on MLS. Time on market remains extended from March. We're starting to see some statistics normalize from the March frenzy, but affordability is still much worse than in March of this year even with a slight pullback. There's still considerable price discovery and time for markets to stabilize. They're volatile, and while some numbers move, we're still significantly above March's longer-term affordability levels.

A follow-up to Dennis' question about the outlook: in terms of the clearing event or price discovery, are you just waiting for prices to stabilize? Or are you solving for a cap rate that's higher than you've underwritten in the past or targeted previously?

It's a bit of both. With our cost of capital a bit higher, to achieve the same accretive benefits we had last year, we need to see higher yields. You can get there either through rent growth or through price declines — likely a combination of the two. Being disciplined and patient is prudent for shareholders; it takes time for the market to realign, but the opportunities will be there in the good markets we operate in.

Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.

Hey guys. Just a couple of quick follow-ups. Bryan, do you expect your low double-digit loss-to-lease to increase, decrease, or stay the same over the remainder of the year? And did you provide an estimate of your 2023 earn-in?

Lost-to-lease remains estimated in the low double-digits. Through the remainder of the year, I would expect it to remain the same or potentially tick down slightly as we strengthen renewal rates. Regarding earn-in heading into 2023, think about it in the 4% to 5% range as we get into next year.

Thank you. This concludes today's Q&A session. I would like to turn the floor back to Mr. Singelyn for any final comments.

Thank you, operator, and thank you to all of you for your time today. As you heard, I'm excited and optimistic about our future and with the single-family rental demand tailwinds, combined with our growth programs, it's going to put us in a great position for long-term strong future results. With that, we will talk to you again next quarter, and have a good day. Bye-bye.

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