Earnings Call Transcript - AMH Q1 2021

Operator, Operator

Greetings, and welcome to the American Homes 4 Rent First 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 Anne McGuinness, Manager of Investor Relations. Please go ahead.

Anne McGuinness, Manager of Investor Relations

Good morning. Thank you for joining us for our first quarter 2021 earnings conference call. I am here today with David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment Officer; and Chris Lau, Chief Financial Officer of American Homes 4 Rent. At the outset, I need to advise you that this call may include forward-looking statements. All statements other than statements of historical facts 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, May 7, 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 or the non-GAAP financial measures we are providing on this call is included in our 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 americanhomes4rent.com. With that, I will turn the call over to our CEO, David Singelyn.

David Singelyn, CEO

Thank you, Anne. Good morning and thank you for joining us today. Not long ago, we reported year-end results and told you that 2021 was off to a strong start. I'm pleased to share that this positive momentum continues. Demand continues to be at record levels and remains central to our success story. The durability of demand tailwind, especially when considering the under supply of housing, is based on the following three factors. First, residents are more aware and appreciate the value proposition of professionally managed single-family rentals. Residents and prospective residents' perception of single-family rentals has changed much over the past 10 years. Our high-quality Class A rental homes are convenient to access with a leasing process that is automated and easy to navigate. Our homes contribute positively to the appeal and character of local communities and bring stability to their neighborhoods. And through our superior property management platform, we are delivering an exceptional resident experience that is creating a newfound appreciation for professionally managed single-family rental homes. Even though institutional landlords currently account for less than 2% of the single-family rental market, our market opportunities are ever-increasing based on rising rental demand. Second, housing is under supplied by a large margin. More and more families with school-aged children are choosing to rent single-family homes even if they can afford to buy. According to a recent study by Freddie Mac, the U.S. housing supply is nearly 4 million homes short of what is needed to meet current demand. Through our development program, American Homes 4 Rent is part of the solution by providing new high-quality homes in vibrant, well-located neighborhoods with quality schools. Third, we are in strong growth markets with strong rental demand. Demand for single-family rental homes has been on the rise for many years. Our homes are well-located where people want to live in markets with employment and population growth that outpaces the national average. As a result, we're experiencing exceptional growth in markets ranging from Phoenix, Las Vegas, and Salt Lake City in the West to Charlotte and Tampa in the East. And we expect these favorable demographics to continue. We are capitalizing on demand tailwind. Our occupancy remains above 97%, while we recorded record high rental rate growth and strong collection. Our AMH development team continues to execute on its delivery plans and land acquisition opportunities have improved since their last earnings call. Bryan and Jack will provide more details on the quarter. Last quarter, I told you about our commitment to grow. There is a three-pronged strategy that includes our AMH development program, our national builder program, and our traditional acquisition channel. Our strategy remains the same. And though it's still early in the year, we're seeing an uptick in inbound inquiries for land acquisition opportunities. As such, to date, we can pull more than 11,000 lots already at the low end of our 2021 goal of ending the year with 11,000 to 13,000 lots. Therefore, we now expect to end the year near the top end of this range. Our flexible balance sheet continues to fuel our growth. We recently announced the recast of our credit facility size from our existing facility to support our focus on external growth. This new facility includes an ESG component that underscores American Homes 4 Rent commitment to sustainability and found ESG principles. And yesterday, we provided notice of our intent to call our series D and series E preferred shares later this quarter. Chris will provide additional details on our redemption plans later on today's call. Our plans for 2021 reflect impressive growth, and I'm proud of our team's execution. I'm bullish on our future and on our growth plans as we enhance our leadership position in the industry by continuing to provide high-quality homes in growing neighborhoods across America. Now, I'll turn the call over to Bryan for more details on operations.

Bryan Smith, CFO

Thank you, Dave. 2021 is off to a great start. On the demand side, we continue to see the same shifts in demographic trends and consumer preferences that we've been highlighting for almost a year. Millennials are aging, getting married, and growing their families, driving the need for single-family homes in our markets during a time where we are experiencing dramatic supply shortages. Additionally, people have more flexibility to make housing decisions that are closely tied to the location of an office. And most importantly, our residents appreciate our high-quality rental homes and the customer service they receive from our professional property management team. Together, these trends combined to drive an 85% increase in showings per rent-ready property in the first quarter of 2021. Portfolio wide, our teams continue to execute at a high level. We are turning homes efficiently in order to meet the seemingly insatiable demand in our markets. Additionally, our best-in-class customer service and relentless focus on the resident experience have underscored our brand reputation as the preferred landlord. Turning to the first quarter, our ability to capture this exceptional demand translated into outstanding results. Our stay-in-home average occupied days remained above 97%, and rental rate growth continued to accelerate with new lease rate growth of 10% and renewal rate growth of 5.1%, leading to an overall growth rate of 6.9% for the quarter. This record rate growth is attributable to excellent execution from our pricing and field teams and the fact that our homes are ideally located in highly desirable markets characterized by strong job and population growth. On the collections front, our revenue base continues to be resilient. Our collection levels remain consistent with past pandemic quarters, which is a testament to our team's efforts and tireless work with residents. Despite these trends, collections continue to carry a level of uncertainty, particularly as a result of the current regulatory environment. Looking to April, our record-breaking momentum continued in occupancy and rate growth. Our stay-in-home average occupied days for the month was 97.7%, and new lease and renewal rate growth were 12% and 5% respectively, which blends to a growth rate of over 7.5%. Because of the strong results and our momentum heading into May, we've increased the midpoint of our stay-in-home core revenue guidance by 25 basis points to 4.25%. This increase primarily reflects our improved view on full-year occupancy. In closing, I would like to thank our team for their continued dedication and hard work. We are well positioned to deliver exceptional operating results as we enter this busy spring leasing season. Now, I will turn the call over to Jack.

Jack Corrigan, Chief Investment Officer

Thank you, Bryan, and good morning everyone. As growth remains a top strategic priority for American Homes 4 Rent, our experienced team continues to deliver consistently and efficiently. Most importantly, our AMH development program provides a predictable and growing production base that anchors our growth program and provides for portfolio expansion for the foreseeable future. This growth positions us uniquely to help address the ongoing national shortage of housing, satisfy the demand for rental housing brought on by changing home preferences, and population migration while growing more predictably and accretively than our other growth channels. Additionally, our AMH development program is unique in its ability to be flexible and adaptive to market conditions. From a land perspective, our diversified footprint and our flexibility in project size position us to seize land opportunities quickly. As Dave mentioned, we continue to demonstrate our success in meeting market demand. We're receiving more inbound calls today with land opportunities suitable for our built-for-rent homes. With the current pipeline of more than 11,000 lots owned or controlled and the goal of controlling 11,000 to 13,000 lots by the end of the year, we are laying the foundation for sustained growth. To take it one step further, using our average four to five-year development timeline, this foundation translates into an expected annual delivery cadence of 3,000 to 4,000 homes by the time we reach 2023. From a labor perspective, our predictable production cadence allows us to leverage our long-term relationships with trades for priority pricing and scheduling. Although the cost of lumber has nearly tripled, it represents a modest increase in our cost to build a home in the 6% to 7% range. With rising rental rates, we have been able to maintain yield on delivered homes consistent with our underwriting in the 6% range. For national builders and traditional channels, we remain in line with expectations we outlined in our 2021 guidance last quarter. However, we're beginning to see increased opportunities within our buy box. Regarding our outlook for the year, our investment plan remains on track. Our highly skilled team of development and acquisition professionals continues to cultivate and deliver attractive, high-quality assets to our portfolio. In summary, I am proud of our execution so far in 2021. We continue to take advantage of the differentiation from our one-of-a-kind AMH development program, supported by our best-in-class balance sheet. And we remain optimistic that we can deliver sustained and accretive growth into the future. Now I will turn the call over to Chris.

Chris Lau, CFO

Thanks, Jack, 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 capital markets activity. And third, a summary of recent updates to our 2021 guidance. Starting off with our results, we recorded an impressively strong quarter with net income attributable to common shareholders of $13.2 million or $0.09 per diluted share, $0.32, of course, a vote for sharing units representing 8.5% growth over the prior year, and $0.29 of adjusted FFO per sharing unit representing 8.9% growth over the prior year. Underlying this quarter's strength was the continuation of our record-breaking demand trends, as Bryan discussed, which drove another strong performance in our single-home portfolio, where we generated 5.6% growth in rental revenues, which was further benefited by 30 basis points of contribution in higher fees and partially offset by 190 basis points of drag from COVID-related bad debt, translating into an overall 4% core revenue growth. Coupled with a 4% increase in core property operating expenses, this translated into core NOI growth of 4%. However, normalizing for COVID-related bad debts, which continued to run consistent with pandemic norms, our same home core NOI growth would have been over 7%. Turning to our portfolio activity for the quarter, our external growth programs executed right on track, adding a total of 683 homes to our wholly-owned and joint venture portfolios, 402 of which were delivered from our AMH development program. Specifically, for our wholly-owned portfolio during the quarter, we added 580 homes for a total investment of $162 million, which was comprised of 299 homes from our AMH development program and 281 homes from our acquisition channels. On the disposition side, we sold 180 properties during the quarter, generating total net proceeds of approximately $46 million. Next, I'd like to turn to an update on our balance sheet and recent capital markets activity. To the end of the quarter, our balance sheet remains in great shape with a net debt to adjusted EBITDA of 4.5 times and net debt including preferred shares to adjusted EBITDA of 6 times. As a further enhancement to our already best-in-class balance sheet, after quarter end, we closed a recast of our existing credit facility, which increases our revolving capacity to $1.25 billion, lowers our credit facility borrowing cost, extends our credit facility maturity date to April 2026, and includes a sustainability-linked feature tied to our ESG score, which can further lower our credit facility borrowing costs and demonstrates our commitment to sound ESG principles. On the topic of optimizing our cost of capital, yesterday evening, we announced an intent to reduce our Series D and E preferred shares that become callable throughout the remainder of the second quarter. Our Series D and E preferred shares have a combined value of nearly $500 million and an average coupon of approximately 6.4%. When compared to our current cost of capital, it provides another great example of the tremendous progress we've made over the past five years. The mix of capital used to fund the redemption of the Series D and E preferred shares will ultimately depend on market conditions. But given current pricing for all forms of capital, including preferred shares, common equity, and unsecured bonds, we anticipate that the preferred share refinancing will have at least one penny of benefit to our 2021 core FFO, which has been incorporated into our revised full year guidance ranges. On the topic of guidance, I'd like to highlight a few of the positive revisions that were outlined in yesterday's release. As Bryan covered, demand for single-family rentals and our leasing activity has never been stronger. And although our original guidance already contemplated a robust environment, our actual leasing activity has proven to be even stronger. Taking into consideration our strong first quarter performance and record-breaking trends heading into April, we've increased the midpoints of our same home core revenue growth expectation by 25 basis points to 4.25% for the full year, and core NOI growth expectations by 50 basis points to 4% for the full year. Additionally, taking into consideration the robust leasing environment across our entire portfolio, we have also increased the midpoint of our full year 2021 FFO per share expectations by one penny to reflect stronger NOI contribution from both our same home and non-same home portfolios. When combined with the anticipated refinancing benefit from that preferred shares redemption, we now expect full year 2021 FFO per share between $1.24 and $1.30, at the midpoint of $1.27 per share. This represents an impressive year-over-year growth expectation of 9.5%. And finally, before we open the call for your questions, I'd like to reiterate our excitement looking forward and share another big thank you to our teams. 2021 is off to a great start not only do we continue to produce industry-leading earnings growth, but because of your hard work and dedication, American Homes 4 Rent will become part of the solution to our country's massive underhousing needs. And with that, we'll open the call to your questions.

Operator, Operator

Thank you. At this time, we'll be conducting a question and answer session. In the interest of time, we ask that you each keep to one question and one follow up. Thank you. Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

Nick Joseph, Analyst

Thanks. Maybe just starting with operations? How are you expecting occupancy to trend during the peak leasing season? And maybe you can touch on base to released homes that you turn?

Bryan Smith, CFO

Hi, Nick, thanks for the question. This is Bryan. We're seeing fantastic occupancy. As we talked about last quarter, we entered this year in kind of an unprecedented position. And we've continued to kind of execute and push those occupancy rates into the high 97s. In the near term, I see that continuing. We've had a huge uptick in demand even off the record demand levels that we saw last year. Some of the metrics that we talked about in the past, some of the interstate migration are still holding. The calls per ready, the foot traffic through our homes is steady if not increasing. So in the near term, we expect to keep those occupancy levels kind of in the range that we're reporting now. Towards the back half of the year when things return more to normal, there is going to be, presumably, a little bit of a workout period as normal collection practices return. So I don't have full visibility into the full year, but in the near term occupancy looks really good. Demand is fantastic. It's just a matter of executing on the turns.

Nick Joseph, Analyst

Thanks that's helpful. And then maybe just on kind of HPA more broadly, and I know you include some charts in the supplemental. But, if you look at the asset sales, if you're reporting HPA kind of coming through on those asset sales relative to kind of your own internal NAV. And how do you think that's changed kind of over the last year?

Jack Corrigan, Chief Investment Officer

Yes, this is Jack, thanks for the question, Nick. We've definitely seen HPA come through in our disposition prices that we're getting for the houses that we're selling, probably in the same range that you're seeing nationally, in the double-digit range, and so it's coming through. It's not a factor in our decision of what to sell and when to sell it. We're also seeing pretty strong rent growth. So I think that we're going to keep with our program on how we determine what to sell, and when to sell it and let the HPA take care of itself.

Jeff Spector, Analyst

Good morning, and congratulations on the quarter. David, probably I’ve asked you every quarter about the possibility to accelerate growth opportunities. It's just amazing, from listening to your comments and thinking about how the business has evolved over the years. The opportunities ahead for your company, is there a way to accelerate, I guess, the development? You talked about a goal of 16,000 lots by end of year? I think you said delivery pace 3,000 to 4,000 homes by ‘23. Is there a way to accelerate that and if not, what's the limit? Is it human resources? What limits that from growing faster?

David Singelyn, CEO

Yes, so good morning, Jeff. First of all, I appreciate the comments on our accelerated growth. And just to clarify, our goals right now are between 11,000 and 13,000 homes that we control by the end of the year, not 16,000. We’re at 11,000 today. There are a couple of things; it's a competitive market for land out there. And while we've been very successful so far, we expect to continue to be successful. It is finding the right lots in the right neighborhoods that are contiguous to our existing homes, contiguous to our competitors' homes as well. And it's just finding the right lots at the right price. Today, we're in 16 markets, which gives us a lot more opportunity. We're finding acceleration in our ability to acquire land. And we expect to be at the upper end of that estimate. 2021 is a very strong year for land acquisition compared to our history. And we look for that trend line to continue.

Jeff Spector, Analyst

Thank you. And then my second question again, its big picture. Just listening to your comments about demand and acceptance of single-family rentals. And even you're saying a preference to rent versus own. And I think you just commented, you're in 16 markets again. It feels like this can really be broadened out to those markets in the U.S. I mean, do you agree or are you looking into more markets to grow? Or again, you're really focused on these higher population growth markets, let's say?

David Singelyn, CEO

Jeff, if you look at 2021, a number of things have been very positive for us. And we have added a market this year. I believe it was the Columbus market. We continue to evaluate more opportunities for growth, and you may hear in the future about more opportunities, but as you've come to know with us, we don't announce what we may do until we really started that process. So there's a lot of evaluation. We recognize that we have a much more favorable cost of capital today, and I think that will facilitate some opportunities for us.

Ronald Kamdem, Analyst

Congrats on a great quarter. Just first question is just on the guidance. I think it felt a little bit conservative to what maybe you can you just dig in a little bit here? You had about 190 basis points drag from bad debt in 1Q. What sort of baked in for the rest of the year? And how are you guys thinking about that bad debt? Thanks.

Chris Lau, CFO

Yes, good morning Ron, it's Chris here. I appreciate the comments. I would say from a bad debt perspective, taking a step back, I think we're really pleased with our collections, which have continued to track through the first quarter and into April. But we're also continuing to pay very close attention to what’s going on from a regulatory perspective, as well as recent news from the federal standpoint. Ultimately, I think we're unclear on how that's going to play out. And so with that said, most of the uncertainty that influenced our guidance at the start of the year is still out there. For the balance of this year, we've left our original bad debt guidance intact at 2.5% to 3% for the remainder of the year. We blended that with what we saw in the first quarter, and that was a full year, probably a touch below the midpoint of that. But for the most part, as of right now, we've left our view for the balance of this year untouched from the guidance perspective.

Ronald Kamdem, Analyst

That does feel pretty conservative, but that's helpful. The other sort of moving on, I think you the demand is just off the charts. When you look at sort of your new leasing, and your renewals, can you just help us understand what sort of operating leverage comes with that demand in terms of either your turn times in terms of leasing up the development assets? Maybe provide a little bit more color on the upside that comes with that level of occupancy.

Bryan Smith, CFO

Hi, Ronald this is Bryan. Yes, it’s interesting. There's a number of different factors that come into play being in this really good position. We set up our turn times a year ago, and we're in the mid-50 range—mid-50 days cash-to-cash. Now they're in the mid-30s. That plays out in the rest of elevated occupancy as well. But in addition to rate, we've also tightened some of our underwriting standards, increased security deposits in some areas. So we're pulling a couple of other levers that will have good future benefit. Again, the demand has just been fantastic, and we're in a position where we can make really good long-term decisions.

Jade Rahmani, Analyst

Thank you very much. With the surge in home prices that we are seeing, are you exploring at all adding a rent-to-own strategy, perhaps as a disposition tool for some of the portfolio that you plan to sell?

Jack Corrigan, Chief Investment Officer

Hi, Jade, this is Jack Corrigan. Thanks for the question. We have not ventured into the lease-to-own realm; it fixes your sale price. With 4 million underserved families for homes, we expect home prices to continue to go up, and we're not really interested in fixing our proceeds on stuff that we're going to ultimately sell.

Jade Rahmani, Analyst

In addition to that with the shortage of housing that you noted, as well as emphasis on growing ancillary revenues, are you interested at all in adding a for-sale housing business, and also potentially providing property management services to folks who acquire built-for-rent communities?

David Singelyn, CEO

Yes, so Jade it’s Dave. As I mentioned with Jeff, we look at a number of things, whether it's adding additional markets or adding additional business lines, and many of those areas we do discuss with our board frequently. When we enter one of those, we'll talk about it, but we tend not to talk about what we may do in the future before we do it. I'll just reiterate that we are in a very, very positive place today, compared to prior years, with a very favorable cost of capital. Our operating systems are very flexible and robust, and we can scale them significantly. This creates the ability for a lot of opportunities in our system.

Sam Choe, Analyst

Hi, guys. Congrats on a great quarter. I guess the intro comments, Jack mentioned seeing increased buy box opportunities. I think it was in the context of the build-for-rent platform. So I was wondering if you could elaborate on that and then maybe touch on what you're seeing in the market for traditional way acquisitions.

Jack Corrigan, Chief Investment Officer

Yes, this is Jack. Thanks for the question. In terms of land, what we're seeing is just being out there in the market for five years and executing on a number of land acquisitions, the land brokers and sellers know us in the markets that we've been established in for years. So we're getting inbound calls when there's land opportunities that we would have had to pursue in the past. So, in terms of MLS transactions, we've always been in the market; the landscape is pretty competitive, but we're seeing our share of the opportunities, and we're optimistic. We're seeing early signs that we may be able to increase our production in that arena.

Bryan Smith, CFO

Sure. So the difference between Q4 and Q1 was minimal. But at the end of the month, occupancy is before some of the explorations move out. So we need to turn those homes quickly. But the momentum that we've had this year, we've seen increasing average occupied days rates from the beginning of the year. I mentioned in my prepared remarks that we were in the high 97s or 97.7% for April. So it's been ticking up sequentially January, February, March, and now into April. The issue is when residents move out how quickly can we prepare these homes for release? Many of which are actually pre-leased. Our pre-leasing programs have become much more significant. So there's a certain element of frictional vacancy, which you're seeing, and that's kind of the change. Overall, the momentum has been fantastic. Now we're entering the busier spring leasing season, just full speed ahead. So things look really good on the occupancy side.

John Pawlowski, Analyst

Thanks for taking the question. Chris, even with bad debt remaining elevated at 2.5% - 3%, from our land, it's still a five handle on revenue this year seems a lot more likely than ever before. So can you just give us a sense for where you're presuming occupancy falls off to once, regular collection processes return?

Chris Lau, CFO

Yes, sure. Thanks, John. I think Bryan actually started to touch on this a bit in his response to probably the first question. But tying back to that, look, things are starting off very strong this year. We're really happy with what we're seeing on the demand and leasing side. Much of the uncertainty that we talked about on our last call a couple of months ago is still there. Our updated guidance ranges do include the strong start to the year in the first quarter and the trend lines we're seeing into April. We've not touched the conservative aspects yet that are built into our guidance for the remainder of the year. Bryan mentioned them. We're still focused on whether there could be a temporary occupancy speed bump, if you will, later in the year, as collection tools potentially return to normal. And the other question is whether traditional seasonality may return to our business during the second half of this year, which, by the way, would be a good sign in terms of further indication of return to normal but is still unclear how that's going to play through in the back half of the year. So, more specifically, our guidance assumes occupancy is in the higher 96s full year, with rate growth in the lower 4s, unchanged from what we saw before, which is still being muted by that pull-through from last year's flat renewal policy that blends to rental rate growth north of a 4.5 or so. And then we see that being benefited by another 30 basis points or so of contribution from these and then offset by the 70 basis points of headwind from the bad debt assumption. All of that blends out to our midpoint on stay-in-home revenues of 4.25%.

John Pawlowski, Analyst

Okay, thank you. And then maybe Chris or Bryan, hoping you could stare out and think through the collections on previously written-off rents. So when folks begin to care about their credit score, if you wrote off $100 in 2021, do you recover back $25, $75? Like what's the propensity or ability to recover that?

Bryan Smith, CFO

Hi, John, this is Bryan. I think it's a difficult number to predict, but we have an expectation that there will be some people who will pay when it returns to normal, but it's very hard to say. There are even some regulations around what you can do to credit scores for pandemic-related delinquencies in certain states. So there's a lot of uncertainty in that; I have a hard time predicting exactly what's going to ultimately pull through. But I think there will be a small amount at some point.

Dennis McGill, Analyst

All right. Thanks for taking the time. Could you elaborate a bit on the competitive land comment? I know there's a lot of opportunities, you guys have to drive efficiencies in your process and utilize your scale as you move forward versus in the past. But what would you say is the kind of range of land cost being up at this point today versus a year ago if you had comparable size or comparable quality locations?

David Singelyn, CEO

That's a good question. And obviously, it varies market by market. Overall, I would say that it's comparable to what you're seeing on the MLS; somewhere in the high single-digits to low double-digits.

Dennis McGill, Analyst

Right, okay. And which markets are you finding to be most competitive today?

David Singelyn, CEO

Well, Phoenix is pretty competitive. They're all fairly competitive. I wouldn't say once. Boise is definitely competitive. I would say, in general, the Western markets are a little more competitive than the East, but they're all fairly competitive.

Dennis McGill, Analyst

Okay. And then, just thinking about Phoenix as an example, since you mentioned that, when you start looking at rent increases, they can be 10%, 12%, 20% in the case of Phoenix, realizing that home prices are up a lot, and so maybe the consumer doesn't have a lot of alternatives if they're in need of single-family shelter. But clearly, incomes aren't up as much over the last year, even couple of years. So what do you think is the balancing factor to make the economics work for tenants that are moving in?

David Singelyn, CEO

Yes, I think a lot of the tenants that are moving in are moving in. First of all, Phoenix has always been one of our lower rent markets. So a high percentage increase on that isn't the same as a high percentage increase on say Denver or some of the other markets. But a lot of the people that are moving into Phoenix are coming from higher rent places, so they don’t really feel the hit as much—or at all, so that's kind of what we're seeing. The migration dynamic. Correct. Dennis, it's Dave, let me just add a little color to a couple of those questions. When you look at land and the competitive landscape of land, which is absolutely true, it is competitive. One of the advantages we have—no different than our advantages in the MLS market—is we have many, many markets that we are in, and we're evaluating all the markets at all times. Not all markets will have the same inflationary impacts at the same time. So, there are opportunities created by being in multiple markets, and that is part of the ability to grow the way we are growing. With respect to demand, part of the demand in my mind is really being created by the fact that people today recognize that single-family rentals are a high-quality housing option. It's changed and I said this in the prepared remarks. It's changed a lot over the last 10 years. The institutional professional management is now becoming very widely known and appreciated. We have seen significant increases in demand. I'm not taking away from the housing industry because we have 4 million to 8 million depending on how you want to look at it and the undersupply of housing. You probably know these numbers better than I do, Dennis, but there's just a lot of demand out there for housing, and we're trying to satisfy and be part of that solution by building homes. Yes, and I think that's good perspective. David, I guess, to your point, are you implying that when you look at some of the rent increases, that you're actually getting above market rent increases because of some of the amenities and services that you're bringing as an institutional landlord? Or are you just referring to generally the broader market demand for single-family rental driving these numbers? No, I think it's market driven. But I think the market is going up because people are looking at single-family homes as an option that they didn't evaluate or put into their options 10 years ago. So the entire markets are moving up as a result of the institutional professional management that's out there. We've also raised the quality of housing. Local operators have had to increase their service levels, and the quality of their homes to remain competitive.

Keegan Carl, Analyst

Hi, guys, thanks for taking the time. I think first you give us some color on what the sustainability metrics are that are placed on the revolving credit facility?

David Singelyn, CEO

Sure, good morning Keegan. Good question. It's tied to actually our ESG score and is tied to year-over-year improvement. So long as we meet the continuing improvement hurdles in our ESG score, that would provide for slight benefit to our borrowing spread.

Keegan Carl, Analyst

Got it. And then I know it was a topic of discussion earlier on the development side of things, but have you given any thought to pausing developments temporarily, just given the rising cost of lumber and labor shortages?

David Singelyn, CEO

This is Dave. The development program is a long-view program. What we are doing today in land acquisition is really fueling four to five years from now. When you look at the yields that we get on our developed homes, the quality of the developed homes is far superior to other growth channels, and it has 20% higher yields, since it is accounted for and part of that is to provide for the fluctuation in commodity prices. Sometimes it's going to be stronger, and sometimes it's going to be a little bit less. Even with the accelerated prices or the higher prices that we see today, we believe them to be temporary in some areas. We're still having product that is superior to other products that we can acquire and is still far superior in economic returns to what we can acquire in other channels even at these prices. I should just reiterate for you; I think Jack said this. But today, yes, we've seen some increases in the cost of new homes that we put into our inventory. But rental rates on the other side of the equation are accelerating at an equal pace or a greater pace, and that means our yields are being maintained. So we're not seeing any degradation in our underwriting yields, even though we are seeing some increased costs, because we're also drawing increased revenue compared to our underwriting. So, right now, we are not looking to slow down our development pace.

Jack Corrigan, Chief Investment Officer

I would also add to that, Keegan, that operationally to stop and start; you're going to lose credibility with your trades and a lot of things that you're trying to do as well as make your employees pretty nervous. I would not be a fan of trying to do that.

Tyler Batory, Analyst

Hi good morning. Thank you. Question for Chris here. Just in terms of core OpEx, 4% for the quarter on the low end of that guidance range for the year, running one-time going on in the first quarter? Can you talk a little bit more about how you see expenses progressing the rest of the year? And then is there anything compensated in the guide for labor or wages not sure how that situation books for your maintenance staff or your leasing agents?

Chris Lau, CFO

Sure, Tyler. Thanks for the question. Chris here. I would say nothing notable or unusual from a first quarter standpoint; part of it is really just due to quarterly timing. You can see the fact that much of that just being driven by timing of property taxes. But on a full-year basis, we still see property taxes in the 4% to 5% area. For other expenses, excluding property taxes, view those unchanged as well. We see those being kind of in that 5% area combined and specifically around inflationary pressures on materials and labor. Something that is very much contemplated, our expectations when we started the year. Then you start to break down that 5%, in particular, you can carve out the inventory components, and we see that probably being in the fives specifically for that area. That’s really contemplating a couple of things, including the good demand out there and inflationary environment, pressures on materials and labor.

Tyler Batory, Analyst

Excellent. And just to follow up on the rent growth topic, a little bit more, correlation certainly between rent growth and home prices, but what's going on in the housing market in terms of where home prices are right now playing a bigger role in your revenue management decisions in terms of how you're thinking about pricing your homes right now?

Bryan Smith, CFO

Hi, Tyler, this is Bryan. It does factor in HPA and rents are related. There used to be traditionally a longer lag than there is now. But if you take a look at some of the markets with high growth HPA, and the Phoenix area is similar to the rent growth that we're seeing. There's a supply shortage, there's a supply shortage for sale product, and there's a supply shortage for single-family rentals. That's really giving us pricing power that you're seeing now. One of the key points that's important to note too is that we're seeing an increase in incomes from our active pool year-over-year—a pretty dramatic increase. It ties into some of the comments that Jack made earlier about the migration we're seeing out of California and Phoenix, and the expectations for what they're paying on a per square foot basis. So there are a lot of different contributing factors. Supply is clearly one of them. The value propositions of our platform and the single-family rental industry, improvements there are playing a role as well. There are a number of good things that are giving us pricing power.

Brad Heffern, Analyst

Good morning, everyone. Going back to some of the development questions earlier. We've obviously heard about the cost pressures. We've also heard about things being delayed: lumber not showing up on time, appliances not showing up on time, etc. Has there been any pressure on the delivery schedule from things like that?

David Singelyn, CEO

Not to date. One of the advantages we have is that we have a limited number of floor plans. Windows were in short supply for a while, and it took a while to get them. So we just started ordering nine months out instead of three months out. We're getting the same windows. So we take advantage of our production style management.

Chris Lau, CFO

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

David Singelyn, CEO

Thank you, operator, and then thank you to all of you for your time today. We are pleased with our results this quarter. I'm excited about our growth potential for the balance of 2021 and for future years. Again, thank you. Have a good day. Goodbye.

Operator, Operator

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