Earnings Call Transcript
American Homes 4 Rent (AMH)
Earnings Call Transcript - AMH Q3 2021
Operator, Operator
Greetings. Welcome to the American Homes 4 Rent Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Nick Fromm, Senior Manager, Investor Relations. Thank you. You may begin.
Nick Fromm, Senior Manager, Investor Relations
Good morning. Thank you for joining us for our third quarter 2021 earnings conference call. With me today are David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; Jack Corrigan, Chief Investment Officer; and Chris Lau, Chief Financial Officer. Please be advised that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, November 5, 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 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.
David Singelyn, CEO
Thank you, Nick. Good morning and thank you for joining us today. American Homes 4 Rent delivered a strong third quarter consistent with what we have seen throughout 2021. We continue to set ourselves apart from our peers with a platform that is unmatched in its totality, highlighted by our 2021 core FFO growth expectation exceeding 17%. As we begin to turn our focus to 2022, our diversified portfolio is well-positioned to benefit from the country's migration patterns. America remains in the midst of a housing crisis that will last for many years to come. It is estimated that more than five million households need housing that is not available today. As one of the largest homebuilders in the United States, we continue to address this issue through our innovation of the SFR space by building new Class A home communities. With our superior property management and customer care, we're delivering an exceptional single-family home experience while contributing to the appeal and character of local communities. We continue to invest in our homebuilding operations to expand this significant growth channel in future years. Our 2021 build-to-rent delivery target outlined at the beginning of the year remains unchanged. Through advanced planning and strategic sourcing, we have successfully navigated the well-publicized supply chain headwinds to maintain our new home development and delivery schedule. Jack will elaborate more on this later. Given that all areas of the business are performing extremely well, we are raising guidance for the remainder of 2021. As I close, I remind you of what I said at the beginning of the year. Our top strategic priorities are to deliver strong and consistent operating results and sustained growth. While we are about to close out arguably the best year in company history, I am even more optimistic about our future in 2022, 2023, and beyond. Robust rental demand and our pipeline of more than 16,000 development lots positions us for predictable industry-leading growth. I thank our teams across the 22 states we operate in for their commitment to providing quality housing for our residents and making our growth strategy a reality. Your continued hard work and dedication have earned the trust of our residents while enabling the company to deliver superior results. Now I'll turn it over to Bryan for more details on our operations.
Bryan Smith, COO
Thank you, Dave. Our outstanding momentum continued through the third quarter where we achieved same-home core revenue growth of 7.3% and core NOI growth of 8.2%. These impressive operating results were driven by robust demand and solid execution, which resulted in strong occupancy and rate growth. Same-Home average occupied days for the third quarter was 97.4%, representing a 40 basis point improvement over the same period last year. As expected, we saw a sequential uptick in move-outs in the third quarter but faster cash-to-cash turn times enabled us to maintain occupancy. This year demand showed little sign of slowing as we set records for new lease rate growth at 15.9%, renewal rate growth at 5.7%, and blended rate growth at 9.1% in the third quarter. On the collections front, our practices are returning to normal and we expect our bad debt to return to pre-pandemic levels over the course of 2022. Our team has done a great job supporting our residents when they needed it most, including helping them access nearly $14 million in government rental assistance over the course of the pandemic. Looking forward to the balance of the year, we continue to see strong demand and leasing results in October. Same-Home average occupied days held steady at 97.4%. And on the REIT side, we posted new lease spreads of 12.7% and renewal spreads of 6.6%. This equates to blended rate growth of 8.9%, which represents an improvement of 400 basis points over last October. We expect the strong blended rate growth to continue through the end of the year. For the full year, we now expect Same-Home average occupied days to be around 97.5%. This represents an improvement of 120 basis points over 2020, and 100 basis points over our estimate at the beginning of the year. Quickly touching on expenses, there is little debate that inflationary wage pressures and rising material costs are prevalent. However, the efficiency of our platform coupled with favorable property tax changes has helped to offset these incremental costs. And our full year expectation for Same-Home core operating expense growth remains unchanged. With the strong momentum from our outstanding third quarter operating results, we are raising our 2021 Same-Home core NOI guidance by 200 basis points to 8%. In closing, our team has done a great job producing strong, consistent results in this rapidly changing environment. This is a testament to the hard work and dedication you can expect from American Homes 4 Rent for years to come. I will now turn the call over to Jack.
Jack Corrigan, CIO
Thank you, Bryan, and good morning everyone. I am happy to report another solid quarter of external growth. During the third quarter, we added nearly 1,600 homes to our wholly-owned and joint venture portfolios for a total investment of over $550 million. This marks our strongest external growth quarter since 2016 and demonstrates the power of our three-pronged growth strategy, which enables us to nimbly deploy capital across multiple channels within our diversified national portfolio. Taking a step back, I've overseen our growth programs at American Homes 4 Rent since our inception, and I've never seen a more attractive time to invest. The combination of our country's national housing shortage, shifting consumer preferences towards the freedom of rental living, and today's stellar operating landscape have created the optimal environment to lean into our external growth programs. With that in mind, and considering our current attractive cost of capital, coming into the third quarter, we made the strategic decision to reduce going-in yield targets across our growth channels by 25 to 50 basis points. This decision enables us to capture more of today's growth opportunities. And because of our superior outlook for cash flow growth going forward, total returns for these investments are expected to be in line with historical levels. Given our strong year-to-date performance and recent strategic decisions, we now expect to acquire approximately 2,600 properties through our traditional and National Builder Channels for a total investment of $900 million this year. Our AMH Development program delivered 569 homes in the third quarter and remains on track to deliver between 2,000 and 2,100 homes this year. Even with the well-known supply chain and labor issues impacting construction across the country, we are proud of our ability to maintain our delivery guidance from the start of the year. Our differentiated build-to-rent strategy allows us to control costs through effective inventory management, standardized floor plans, and creative solutions. Our diversified footprint allows us to manage the availability of materials across different markets. And our predictable production cadence and lack of change orders has created loyalty from preferred trades. On the land front, we continue to feed our growing development program with the acquisition of high-quality land across our footprint. During the quarter, we added 1,051 lots to our pipeline, which was ahead of our expectations. And now I believe we're on track to own or control approximately 16,000 lots through the end of 2021. As I mentioned at the start, I've never seen a more attractive time for external growth. Although I'm very proud of our accomplishments this year, I'm even more excited for the future as we accelerate our growth programs further. 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 operating results and growth programs. Second, an update on our balance sheet and recent capital markets activity, and third, I'll close with a summary of our updated full year 2021 guidance. Starting off with our results, we reported another strong quarter with net income attributable to common shareholders of $36.9 million or $0.11 per diluted share, $0.35 of core FFO per share in unit, representing 17.8% growth over prior year and $0.30 of adjusted FFO per share in unit representing 20.7% growth over prior year. Driving our results was another quarter of consistent operational execution within our Same-Home portfolio where we generated 6.6% growth in rental revenues, which was further benefited by 60 basis points of contribution from higher ancillary income and 10 basis points from lower bad debt, translating into an overall 7.3% core revenue growth. Coupled with a 5.7% increase in core property operating expenses, this translated into impressive core NOI growth of 8.2%. Now turning to our external growth programs. During the third quarter, we added a total of 1,583 homes to our wholly owned and joint venture portfolios, 569 of which were delivered from our AMH Development program. Specifically for our wholly-owned portfolio, during the quarter we added 1,382 homes for a total investment of approximately $494 million, which was ahead of our expectations and included 368 homes from our AMH Development program and 1,014 homes from our other acquisition channels. On the disposition side, we sold 90 properties during the quarter, generating total net proceeds of approximately $27 million. Next, I'd like to turn to our balance sheet and share a few brief updates. As we discussed on our last earnings call, during the quarter we closed a $750 million dual-tranche unsecured bond offering comprised of both 10- and 30-year bonds. During September, we settled 11.4 million common equity forward shares from our May 2021 offering for net proceeds of $399 million. At the end of the quarter, we had 1.8 million forward shares remaining, representing approximately $65 million of net proceeds that we expect to utilize during the fourth quarter to fund a portion of our growth programs. Additionally, at the end of the quarter, we had $64 million of cash, our $1.25 billion revolving credit facility was fully undrawn, and our net debt including preferred shares to adjusted EBITDA was 5.9 times. Finally, I'd like to share some additional color on our revised 2021 guidance, which continues to reflect the robust demand environment and consistently strong execution from our operating platform. Starting with the Same-Home portfolio, recognizing our year-to-date results and record-breaking seasonal demand heading into the fourth quarter, we've increased the midpoint of our full year core revenues growth expectations by 125 basis points to 6.75%. Additionally, the midpoint of our core property operating expense growth expectations remains unchanged at 4.75% and contemplates a few puts and takes as we now expect full year property tax expense growth of approximately 4% and a 5.5% combined increase on all other expenses. Coupling our updated Same-Home expectations, we have increased the midpoint of our full year core NOI growth guidance by 200 basis points to 8%. Next, with respect to external growth, for full year 2021, we now expect to deploy approximately $1.7 billion of total AMH Capital, which now includes between 3,700 and 4,100 wholly-owned inventory additions. When coupled with our joint venture programs, we now expect to deploy total gross capital of approximately $1.9 billion. Putting all the pieces together, we have increased the midpoint of our full year 2021 core FFO per share expectations by $0.04 to $1.36 per share, which represents 17.2% year-over-year growth and continues to lead the residential REIT sector. In closing, I'd like to quickly reiterate our bullishness looking forward. 2021 has been one of the best years in American Homes 4 Rent history, but the true excitement lies ahead. Our portfolio is already positioned for today's migration patterns. Our operating platform is performing at the highest levels in company history. When coupled with the power of our three-pronged growth strategy, differentiated by AMH Development, American Homes 4 Rent is positioned for an exciting and long runway of outsized shareholder value creation ahead. And with that, we'll open the call to your questions.
Operator, Operator
Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Nick Joseph, Analyst
Thank you. I was hoping you can give some more information on the supply chain and labor cost pressures that you're seeing across the business, particularly on the development side? Obviously, the rent growth is probably more than offsetting that, but just if you can frame what you're seeing on the ground there?
Jack Corrigan, CIO
Yes, we are definitely observing some inflationary pressures on construction and land costs. However, we are also experiencing similar inflationary pressures on rent, which is helping to balance out the construction costs in terms of yield. Additionally, while some costs are increasing, lumber prices have significantly decreased. Previously, lumber prices peaked at $1,700 in the third quarter. What we delivered during the third quarter and part of the fourth quarter corresponds with that peak. Currently, lumber prices are between $600 and $700, so we can expect some positive effects from lumber offsetting other costs.
Nick Joseph, Analyst
Thanks. And when you blend that all together with the movement in rents, how does that change kind of the current pipeline expected yields?
Jack Corrigan, CIO
The current pipeline expected yields are going-in yields are probably 25 basis points lower for stuff we're underwriting today, but I don't expect to see those projects that we're underwriting today won't come to fruition until 2023, 2024. The ones that are coming into existence today were underwritten three years ago. So, the land prices were lower, the rents are higher, and it's basically offsetting in terms of yield what we expected. So we're basically yield neutral on those houses.
Nick Joseph, Analyst
Thank you very much.
Operator, Operator
Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Steve Sakwa, Analyst
Yeah. Great, thanks. Chris, I was just wondering if you could talk about the guidance and where you have sort of implied 4Q, based on the acceleration that you saw in leasing spreads in the third quarter. I think you've got sort of flat revenue in the fourth quarter against the nine months. And NOI, I guess at the midpoint, I think is down slightly from the nine months. So maybe just talk about sort of what's in there and the pressure points maybe both positively and negatively?
Chris Lau, CFO
Sure. Good morning, Steve. That's a great question. To walk you through the main points in our guidance, the revenue midpoint for the full year is now set at 675. The fourth quarter is expected to align closely with what we saw in the third quarter, maintaining occupancy around 97.4%. We see potential for improved rates in the fourth quarter due to favorable spreads and the positive effects from the strong spread environment observed recently, especially in the third quarter. I anticipate a slight increase in average monthly realized rent from the third to the fourth quarter. Additionally, fees and ancillary income are performing well this year, potentially contributing about 50 basis points for the full year. Regarding bad debt, we will continue to monitor it closely. This quarter, we experienced better-than-expected results, with some improvements in collections as our operational practices return to normal. We also noticed an increase in rental assistance payments, which helped reduce bad debt to 1.7% in the third quarter. Collection trends have remained stable into October, and we expect fourth-quarter bad debt to be similar to the third quarter, with the possibility of a slight improvement. Overall, these are the key factors, and when analyzing the fourth quarter shifts compared to year-to-date results, it suggests a modest acceleration in the top line from the third to the fourth quarter.
Steve Sakwa, Analyst
Great. I have a question about the land and your plans to continue replenishing it. I'm curious about how the footprint is changing or how much more difficult it is to find land parcels in your desired submarkets. Are you having to look further away to find land at the right price to keep replenishing the lots?
Jack Corrigan, CIO
We're definitely not sacrificing location. So we're buying similar land that we've always been buying in our footprint. That has not happened as far as sacrificing location. It is competitive. We're out there competing with all the national builders. But, you can tell from our activity, we're getting our share of the pie. It's competitive and we're competing.
David Singelyn, CEO
Steve, this is Dave. One other thing I would mention, if you go back and you look at our last investor deck that we have posted on the Investor page of our website, you will see a few maps in there as to where the communities that we are building are physically located. You will see that they are in the communities, in the areas that we have existing homes. All of our peers have existing hubs. So, it's not that we are building far out. We are building where the residents and our prospective residents want to be where the better schools are, et cetera. You can actually physically see on the map where we are building today.
Steve Sakwa, Analyst
Great. Thanks. That’s it for me.
Operator, Operator
Thank you. Our next question comes from the line of Buck Horne with Raymond James. Please proceed with your question.
Buck Horne, Analyst
Hey, thank you. Good morning, guys. I was wondering we've had some recent news here with Zillow making an announcement about their exit from the iBuying space and starting to sell off their portfolio of homes. Open questions whether or not other iBuyers might be running into trouble as well? I'm just wondering if those types of homes that iBuyers control whether it's Zillow or other players would those be of interest to you? How do you think about going into the market for those, or do you think that those iBuyers are getting into trouble that could create inventory challenges out there?
David Singelyn, CEO
Yes, this is Dave. Good morning. I don't want to comment on other iBuyers at this time. However, regarding Zillow, there are indeed opportunities. We have been in touch with Zillow and are currently assessing the available options. We hope to identify a significant number of homes that meet our criteria. These would complement our typical buying patterns since they have quality properties in their inventory. We will review all these opportunities and submit bids as appropriate. Additionally, I want to highlight that the current tight labor market has led several individuals to reach out to us recently about job opportunities at American Homes 4 Rent. This is advantageous for us and for those seeking new employment.
Buck Horne, Analyst
Very interesting. I appreciate the color. With the strength of rental demand out there and the increases you guys are getting I was wondering if you could add any extra data or color you have on household income trends in terms of whether it's your new applicants or if you can break it out between new lease applicants versus existing tenants? Are the households able to keep up with these rent increases? To the extent, you've got any data on out-of-market renters, anything extra that you could add there?
Bryan Smith, COO
Buck this is Bryan. We're really pleased with the applicant profile and the improvement in their income through this year. So year-to-date our approved applicant incomes documented incomes are up about 10% which is pretty close to our new lease rate growth. So, the incomes are keeping pace with this fantastic growth. A little bit has to do with exactly what you said in the second part of your question and that is the migration trends. We're still seeing strong migration from California into the Western markets like we've talked about before. We haven't seen that slow down at all. If you look at the number of applications from California, they're up about 60% to what they were pre-pandemic levels for the last quarter. Similar trends on the East Coast with New York and New Jersey. The other thing that's interesting too, we took a very close look at move-outs for the year and to figure out whether the people who are moving out whether there are any changes as to where they are going. For the third quarter, move-outs to buy new homes was down slightly in the low 30% range. But we're encouraged that we're not seeing any change in behavior and patterns people returning to these coastal cities. That outward migration is very consistent with what it was pre-COVID levels and is relatively low. So, net-net we're seeing really good migration into our markets and not seeing a corresponding outflow that some people have alluded to.
Buck Horne, Analyst
That’s great. Awesome color. Thank you guys. Good luck.
Operator, Operator
Thank you. Our next question comes from the line of Richard Hill with Morgan Stanley. Please proceed with your question.
Richard Hill, Analyst
Good morning. I wanted to maybe get a little bit more disclosure from you about loss to lease across the various different markets that you're in. I'm really asking the question from a perspective of your turnover is only 25% which is a great thing and it just leads me to believe that you have quite a sustained runway for same-store revenue growth all else being consistent. So, I'm just wondering if there's any differences between loss to lease and maybe if you can comment on your ability to capture that as some of your apartment cousins had mentioned that they could only capture 60% to 70% of lost to lease in a given year?
Bryan Smith, COO
Hi Rich, it's Bryan. Very good question. We're obviously seeing a divergence between renewal rates and re-leasing rates. I would estimate that our loss to lease for the portfolio right now is somewhere in the low double-digit ballpark. It's exactly as you said though it gives us a lot of confidence going into next year that we can continue these really nice rate growth both on the renewal side and on the re-leasing side. Exactly how much of it we're going to be able to capture next year, I don't have a great estimate for you. Our retention is a little bit better than the multifamily peers. So it may not be as quick to catch up. You'll notice too that we've seen some nice improvements in our renewal rates sequentially as well. So in a nutshell, we're really excited and optimistic about our ability to push rents next year. Loss to lease will have some contributing effect to that.
Richard Hill, Analyst
Got it. And maybe if I can just follow-up just a bigger more strategic question. As you think about the dynamics there are obviously a ton of tailwinds right now. But as you think about what could make this an even better environment versus maybe a little bit of a weaker environment what are you looking for? How much does home price appreciation matter? I'm just trying to frame the environment how much more upside there is versus this just the new stable normal versus a potential slowdown?
Bryan Smith, COO
Yes, the upside is really a function of being able to sustain these really record levels of demand. HPA is a factor of that. There are supply constraints in our market. There's a shortage of housing as we've talked about. We don't see any quick fix to that in the short run. The expectations are that if demand holds we're going to have fantastic runway. The upside would be a continued depreciation for our value proposition. We've talked about that at length. The pandemic accelerated some trends that we saw going into the pandemic that really talked to the benefit of our platform: the convenience of the leasing lifestyle, the changing demographics. I think the upside would be to have demand maintain or even accelerate from where it is today.
Richard Hill, Analyst
Great. Thank you, guys. That’s really helpful. I will jump back in the queue.
Operator, Operator
Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Haendel St. Juste, Analyst
Hi, there. Thanks for taking my question. Bryan you mentioned just now the widening spread between new and renewals good for the loss to lease. But I'm curious about some of the deceleration we're seeing here the blended rate in October little bit below the third quarter as a contrast to your resi peers cousins seeing acceleration. So maybe can you talk about pricing power and renewal pricing strategy? Obviously renewals are a key piece of the story with retention being so high. And maybe share some color on what you're sending out for November-December and if you're capping renewals anywhere?
Bryan Smith, COO
Sure. Thanks, Haendel. Yes, the deceleration that you're talking about is, I think, 9.1% to 8.9%, it's still extremely strong. The October numbers that we posted show a 400 basis point improvement over last year. So we're still seeing really good pricing power especially in the time of year where traditionally we've seen some seasonality. We've been able to buck that trend with the robust demand. You're exactly right. The position that we're in with strong occupancy and good execution on turns and excellent demand has given us confidence to continue to push renewal rates. In terms of absolute caps, I don't think there's any specific data points to provide there. But we've been thoughtful on our renewal process. We're managing to optimize revenue. That's one component of it. Re-leasing rate growth is another component. But putting all those together we're really happy with the progress that we showed in the third quarter and still the strong results that we posted for October.
Haendel St. Juste, Analyst
Great. That's helpful. Can you actually share what the renewals that you're asking for November-December are?
Bryan Smith, COO
Yes, I apologize for that. The renewals for the remainder of the year will align with October, and the renewal offers we are sending out for early next year will see a modest increase, but nothing significant.
Haendel St. Juste, Analyst
Thank you. I’d like to ask about the cost outlook in light of the inflationary pressures you've mentioned. How do you feel about managing costs that you can control, like repairs and maintenance, wages, and materials? Additionally, regarding real estate, with the increasing values, particularly in the Sunbelt, are you anticipating that real estate taxes will rise? I recall you mentioning some recent successes in this area, but it seems there's an expectation for real estate taxes to increase next year, correct?
Bryan Smith, COO
Yes, Haendel I'll start with that and maybe pass it to Chris for the tax commentary. We're really happy and proud of the execution that we've had in this current environment. Our scale and our platform efficiencies have allowed us to continue to turn homes quickly despite supply pressures. The focus that we have on soft performance has allowed us to mitigate some of the really inflationary increases on third-party vendor work. We're going to continue to focus on it. We're doing this in an environment to where we're still working out some of the COVID-related distressed residents. So overall, I think we've done an excellent job being efficient in a challenging environment. I would expect that to continue for us, but we're paying close attention to it. It's really a testament to the strength of our platform that we've been able to mitigate a lot of these increases.
Chris Lau, CFO
Yep. Hey, Haendel and this is Chris. I'll jump in on the property taxes, and I'll talk a little bit about what we're seeing this year and then tie it into next year as well. As we discussed, the third quarter is typically a really active period for us for receipt of property tax information. In particular, on the assessed value front we now have information on pretty much the majority of our portfolio. I'm pretty happy to report some good updates, almost all the way around. Assessed values have come back modestly better than what our expectations were at the start of the year. We've actually seen a couple of municipalities end up reducing rates that we actually weren't expecting. The deals program is going really well. All of that combines into the new full year expectation that we've been talking about around 4% or so, which as a reminder is about 50 basis points better than our expectations at the start of the year. On 2022, look it's definitely the right question. I will tread a little bit carefully here as we're still in the middle of our 2022 property tax budgeting and forecasting process. In general, we recognize that we're in a strong HPA environment, and that's great for asset values, but it's obviously also a factor for property taxes. I can't comment with specific numbers just yet. But given the strength we've been seeing in HPA this calendar year, and the fact that property tax is commonly run in arrears, we could see 2022 taxes being a touch higher than our 2021 estimate of 4%. I wouldn't expect them to be in a materially different ballpark. We will leverage our robust appeals machine to make sure we aren't leaving any dollars on the table. Your question was around expenses. But I would just remind us all to think about expenses coupled against what we expect to be another really strong year from a top line perspective for all the reasons that Bryan was talking about, setting up nicely for another year of occupancy and rate performance coupled with all the good stuff to come from our growth programs, the AMH machine is just set up nicely for another strong year in 2022.
Haendel St. Juste, Analyst
That's really helpful. Great. Thank you.
Chris Lau, CFO
Thanks, Haendel.
Operator, Operator
Our next question comes from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.
Dennis McGill, Analyst
Hello, guys. Thanks for taking the questions. I think the first one is on – there are a couple of comments about preferences for single-family rentals. I just wanted you to maybe elaborate a little bit on what you guys look at to assess that because obviously from the outside looking at the homeownership rate data that's been going up for several years, particularly among young adults. How do you guys think about that when you talk about the preferences?
David Singelyn, CEO
Yeah, Dennis, it's Dave. And what – we have seen – we have mentioned as you will recall each and every quarter, we've talked about how the demand for single-family rentals has continued to get stronger and stronger. If you go back 10 years ago, when we had 13 million single-family homes, what we had seen at that time is demand that was in the 1990s, but much lower than it is today. Today we have many more homes that are single-family rentals. It's 17 million by most accounts and the demand is far, far stronger. I attribute that to the education, the value proposition of residents and prospective residents, understanding what single-family rental living is today versus what it was more than a decade ago. A decade ago, it was in the hands of mom-and-pops; American Homes and some of our peers have elevated the quality of the single-family rental experience both the quality of the housing, as well as the quality of the customer service. We see that driving demand. That's the tailwinds that we continue to talk about. We do not see that getting any softer at any time in the future. Another piece that really drives the strong demand is the fact that there is a shortage of quality housing in the United States. We talked about in the prepared remarks there's – depending on which survey you want to look at they're all in the same area, but there's somewhere between four million and six million households looking for quality housing. We are building quality housing and solving part of that problem. The demand for it is extremely strong today and I expect it to be extremely strong for many years into the future.
Dennis McGill, Analyst
We could probably debate the shortage another day. But I think what you're seeing from a demand side, I'm not sure we would disagree with, but there's also incredible demand for for-sale single-family too. So I guess what I'm trying to get at is, is there a mix shift between owned single-family and rented single-family and the macro data would suggest that owned is gaining share because the ownership rates going up. So that's what I was trying to understand, recognizing that there's strong demand for all housing. How you would maybe articulate that there's a preference for rental over owned?
David Singelyn, CEO
Well there's two groups of individuals: those that are looking to buy and those that are looking to rent. We are in markets where people are moving to where they're migrating to. We hear about some of our multifamily peers, repositioning to where the migration patterns are. We're already there. When you think about 17 million single-family rentals and you think about us owning between 50,000 and 60,000, and our peers institutional peers also owning thousands but not millions, and we have a better product we are going to continue to see very strong demand. We are in the markets where the demand is extremely strong. All of our markets, I think other than one are the employment growth and the population growth exceed the national average. That's going to provide strong demand for us for a long time going forward.
Dennis McGill, Analyst
I appreciate it. Perhaps we can shift our focus to the development program. What were the average rents for the units completed this year? Additionally, what do you project the average rent will be for next year's deliveries?
David Singelyn, CEO
The average rent for the third quarter was $2,120, which is actually slightly higher. Since we hadn't rented some units yet, we used the pro forma rents, and we're exceeding those by about 5% to 10% on average. For the year, I would estimate it to be in the $2,000 to $2,100 range, but I don't have that exact statistic in front of me.
Dennis McGill, Analyst
And then for next year just based on how you've underwritten what's coming to market?
David Singelyn, CEO
Based on underwriting, pro forma rents probably in the same range: $2,000 to $2,200 but again we're achieving higher than pro forma rates in almost every development.
Dennis McGill, Analyst
Thanks. Good luck, guys.
David Singelyn, CEO
Thanks, Dennis.
Operator, Operator
Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.
Jade Rahmani, Analyst
Operator, Operator
There is no response from Jade. So we will move to the next question. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.
Sam Choe, Analyst
Hi, everyone. Most of my questions have already been addressed, but I wanted to revisit the topic of collections. I appreciate the guidance you provided for normalizing next year. I'm trying to understand how the remaining tenants who are working to catch up differ from your typical base, which consists of the 100,000 income-earning dual-income households. What sets apart these tenants who need to return to normal?
David Singelyn, CEO
I believe what you're asking is whether there's a different profile between the cohort that is current and the cohort that is experiencing some distress. The COVID-related distress significantly impacted some of our markets. I don't think there's a significant difference in income levels. However, those in distress are the ones who have faced employment challenges. For instance, the hospitality industry in Las Vegas is a good example. It's not necessarily true that people in distress have lower incomes than those who are not. It seems to be more related to whether their industry was impacted by COVID and whether it has been able to recover.
Sam Choe, Analyst
Got it. Okay. So is it more specific to certain markets at this point in terms of what you need to achieve regarding collections or...
David Singelyn, CEO
Yes, there is variability across the markets. Our main objective, as previously mentioned, is to return everything to normal. Part of this involves working with some of the distressed tenants and navigating them through the system, getting those houses turned around and back to normal bad debt delinquencies and so on. The good news is we’re seeing significant progress on that. We’ve discussed this before. We now have the full suite of collection tools at our disposal, and that process is underway. We’re pleased with the progress we’ve made. We anticipate it will extend into next year, as stated earlier. Our aim is to resolve issues with those tenants, re-tenant these homes, and leverage the favorable rate growth we’ve experienced to restore normal operations, which will take place through the first half of next year into 2022.
Sam Choe, Analyst
Got it. Appreciate the color. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
John Pawlowski, Analyst
Thanks. My first question is on the trajectory of development deliveries. In past investor presentations you've got some bars going from 2,000 homes delivered roughly this year up to 3,000 plus beginning in 2023. The question is, have you sourced enough supplies, given the supply chain bottlenecks to step that trajectory, or is there anything in the supply chain right now that's going to make you temper the increase from here?
Jack Corrigan, CIO
Thank you for your question, John. It's an important one. Regarding 2023, I can't say for certain if we'll face the same supply chain challenges. I'm optimistic that we won't. We've implemented some innovative strategies, such as not providing options to our renters when constructing our homes, and we've standardized our floor plans. This gives us an edge over other national builders. While I can't give specifics on supply chain issues for 2023, we are taking proactive steps by placing orders well in advance. I'm still assessing the supply chain concerns for 2022, but we are keeping a close watch on them. We have encountered challenges, particularly in three key areas: appliances, windows, and trusses. Other issues are more localized, but because we operate in many markets, we've managed to redistribute supplies from one market to another when needed. We've shown resourcefulness, and I hope to continue that as we work towards our goals for 2022. However, I can't provide precise targets until I complete my review of the unit delivery plans for each market, which I am still in the process of doing.
John Pawlowski, Analyst
Okay. Well, I may not be understanding the lag of when you got to collect your inventory on inventory of materials to deliver homes next year. But have you sourced enough supplies to make you confident you can deliver more homes next year than you did this year?
Jack Corrigan, CIO
I'm fairly certain that we'll deliver more. How much more? I'm not prepared to tell.
David Singelyn, CEO
Hey, John it's Dave. Supply chain issues have been an issue of all of 2021. As you can see, we have delivered exactly what we expected. I think what Jack is saying is, yes, there is a supply chain issue out there. But with the ability to order much earlier in the life cycle of building homes than our homebuilding friends have because of owner options and the ability to source in many markets because we have very standardized plans, we can move those materials around. We have successfully delivered exactly what we thought we would deliver this year. Going into the early part of next year, we don't see that changing. Our deliveries in the early part of 2021 on land that we acquired two years ago, three years ago, we are on target for. We have very, very good loyalty with our trades as well. We are not seeing issues with trades holding up deliveries at this time. I don't expect it will hold it up next year either. So yes, we are confident in our ability to deliver the homes that we have the land for that we have done the horizontal work on next year and work through the supply chain issues.
John Pawlowski, Analyst
Okay. Great. Last question for me either for Bryan or Chris. Obviously, R&M and turnover costs from a dollar amount have benefited from lower turnover rate this year. Wondering if you could give us a sense for how the cost per individual turn has increased and just so we can understand the magnitude of acceleration that's going to come once the turnover rate starts normalizing?
Chris Lau, CFO
Sure. John, it's Chris here. On average, I take turn costs bounce around a little bit. But on a trailing 12-month basis through the end of the third quarter, I think the average turn for a unit that actually turned was about $1,000 or so. That typically runs in that area. It's probably up a touch. But I would say on the turn side, as Bryan spoke to in his prepared remarks and then also in a question earlier in the queue, what we're seeing there is a little bit more volume-driven than cost per turn driven, just given two factors: where our lease expirations fall in the year and the fact that we have a larger proportion of leases expiring in the third quarter. We're now making progress working through some of the COVID affected households in the portfolio. I would think about it in context of average cost to turn a home the turns being about $1,000 or so.
John Pawlowski, Analyst
Okay. Thank you.
Chris Lau, CFO
Thanks, John.
Operator, Operator
Our next question comes from the line of Chandni Luthra with Goldman Sachs. Please proceed with your question.
Chandni Luthra, Analyst
Hi. This is Chandni Luthra from Goldman Sachs. Thank you for taking my questions. I'd like to talk about increasing interest in the SFR space. As we think about institutional capital, as we think about home builders. Could you all talk about what sets you apart? And how are your communities different as we think about sort of more institutional investors looking to get a bite at the apple? And what doesn't worry you as you think about this increasing competition?
David Singelyn, CEO
Yes, it's Dave. Those are great questions. There is definitely more capital flowing into the build-to-rent sector than in previous years, which validates our approach. American Homes has a distinct opportunity as we are both building and managing the same properties. Our focus is on being long-term owners, which allows us to create homes that are designed for lower maintenance and higher quality. This translates into a better value proposition for residents. Our operations team collaborates closely with our development team, enabling quick adjustments to our offerings. For instance, during the early stages of the COVID pandemic, we modified some floor plans to include designated work-from-home spaces. Our approach to building communities combines the best aspects of single-family and multifamily living, featuring high-quality amenity centers. We have detailed information and videos on our website showcasing these amenity centers. The demand for our communities is very high, as evidenced by our pre-leasing rates, where over 50% of the homes are leased before completion. This reflects the strong interest in our homes.
Chandni Luthra, Analyst
Got it. That's helpful color. As we think about the expense outlook for the year and sort of if you don't look at the implied fourth quarter guide, it appears that your expense outlook has a wide range in there for the fourth quarter, about 400-plus bps or so. Could you talk about what the contours are there as we sort of are left with just two months into the year? What are the drivers? Thank you.
Chris Lau, CFO
Good morning Chandni, it's Chris here. I want to remind you that the pattern of expenses this year has aligned closely with our initial expectations. This is mainly influenced by the timing of repairs and maintenance, as well as turnover, where we anticipated heavier costs in the latter half of the year due to the schedule of move-outs and lease expirations. Additionally, our collection practices have returned to normal, and we are now processing households that were impacted by COVID-19. This timing is reflected in our projected repairs and maintenance and turnover costs. I want to emphasize that this is consistent with what we forecasted at the beginning of the year, and our midpoint expense guidance remains unchanged at 4.75%.
Chandni Luthra, Analyst
Got it. Thank you for all the detail.
Chris Lau, CFO
Sure. Thanks, Chandni.
Operator, Operator
Our next question comes from the line of Keegan Carl with Berenberg. Please proceed with your question.
Keegan Carl, Analyst
Hey guys. Thanks for taking the question. Just one for me given we're at time-wise. Can you just give us some more color on your ancillary revenue streams and how you plan to grow them going forward?
Bryan Smith, COO
Hi Keegan, this is Bryan. We're really pleased to see significant increases in contribution from other income this year. We have implemented a pet program as one example, and we are continuing to expand that through the program. Looking at it from a long-term perspective, we are very excited about the opportunities for ancillary revenue in the communities, particularly how we will connect those communities with smart home technology. Residents are eager for these appealing features. We believe there is great potential in this as we continue to integrate it into new community developments. Chris can provide details on any other contributions we are seeing today.
Chris Lau, CFO
Yeah Bryan, I think that's great. Keegan, the only thing that I would add is look ancillary income be the fee line is contributing nicely. I mentioned this earlier in the Q&A. For this year alone, we're expecting at the midpoint about 50 basis points of Same-Home revenue contribution from that fee line. Now part of that is keep in mind the fact that we had late fees turned off for a couple of months last year, but a big contributor is that ancillary income that Bryan is referring to and we see a long runway for that ahead.
Keegan Carl, Analyst
Great. Thanks guys.
Operator, Operator
Thank you. Our final question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
Brad Heffern, Analyst
Hi, everyone. Just a question on land. So looking so far in 2021, the number of lots acquired has been about three times the number of deliveries. I’m curious at what point we’ll see those numbers look more equal? Is that really going to be just the deliveries going up, or is there a chance that at some point the land purchases will start moving lower?
Jack Corrigan, CIO
Hi, this is Jack. Thanks for that question Brad. When we stop growing the program, you'll see it equal out. Today we're buying land for maybe the end of 2023, 2024, and 2025 deliveries. We still expect to be growing at that point. If we feel like 3,000, 4,000, 5,000 deliveries is the right number to flatten out at then you'll see though that's how many we'll be buying a year.
Brad Heffern, Analyst
Okay. That’s it for me. Thanks.
Operator, Operator
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to David Singelyn, CEO for closing remarks.
David Singelyn, CEO
Thank you, Alex. Thank you for your time today. We are pleased with our operational and growth execution this year and we remain excited and well-positioned for what lies ahead in 2022 and future years. Talking again next quarter. Have a good day.
Operator, Operator
Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.