American Homes 4 Rent (AMH) 2021 Q1 法說會逐字稿

Greetings, and welcome to the American Homes 4 Rent First Quarter 2021 Earnings Conference Call. (Operator Instructions) 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.

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 of 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 to 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.

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 remain central to our success story. The durability of demand tailwinds, especially when considering the undersupply of housing is based on the following 3 factors: first, residents are more aware of 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 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.

Given that institutional landlords currently account for less than 2% of the single-family rental market, our market opportunity is vast and ever-increasing based on rising rental demand. Second, housing is undersupplied by a large margin. More and more families with school-age 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 are 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 tailwinds. Our occupancy remains above 97%, while we recorded record-high rental rate growth and strong collections. Our AMH development team continues to execute on its delivery plans. And land acquisition opportunities have improved since our last earnings call. Bryan and Jack will provide more details on the quarter.

Last quarter, I told you about our commitment to grow, grow, grow. Through our 3 pronged strategy that includes our AMH development program, our national Builder program and our traditional acquisition channels. 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, today, we control 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, upsized 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 sound ESG principles. And yesterday, we provided notice of our intent to call our Series B and Series D 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?

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-wise, 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 has underscored our brand reputation as the preferred landlord.

Turning to the first quarter. Our ability to capture this exceptional demand translated into outstanding results. Same-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%, blending 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, which are characterized by strong job and population growth.

On the collections front, our resident 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. Same-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 these strong results and our momentum heading into May, we have increased the midpoint of our Same-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.

Thank you, Bryan, and good morning, everyone. As growth remains a top strategic priority for American Homes 4 Rent, our experienced teams continue to deliver consistently and efficiently. Most importantly, our AMH development program provides a predictable and growing production fee that anchors our growth programs 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, and grow 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 and project size positions us to sharp shoot land opportunities quickly. As Dave mentioned, as we continue to demonstrate our success in meeting market demand, we are receiving more inbound calls today with land opportunities suitable for our build-to-rent-a-home. With the current pipeline of more than 11,000 lots owned or controlled and with 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 1 step further, using our average 4 to 5-year development time line, this foundation translates into an expected annual delivery cadence of 3,000 to 4,000 homes by the time we get to 2023. From a labor perspective, our predictable production cadence allows us to leverage our long-term relationships with trades for priority pricing and schedule. 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 yields on delivered homes consistent with our underwriting in the 6% range. For our national builder and traditional channels, to date we remain in line with expectations we outlined in our 2021 guidance last quarter. However, we are beginning to see increased opportunities within our buyback.

And finally, regarding our outlook for the year, our investment plan remains on track, our highly skilled teams of development and acquisition professionals continue 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.

Thanks, Jack, and good morning, everyone. I'll cover 3 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, I'll close with 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 $30.2 million or $0.09 per diluted share, $0.32 of core FFO per share in unit, representing 8.5% growth over prior year and $0.29 of adjusted FFO per share unit, representing 8.9% growth over prior year. Underlying this quarter's strength was the continuation of our record-breaking demand trends that Bryan discussed, which drove another strong performance in our same home portfolio, where we generated 5.6% growth in rental revenues, which was further benefited by 30 basis points of contribution from 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 continue 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. And 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. At the end of the quarter, our balance sheet remains in great shape, with a net debt to adjusted EBITDA of 4.5x and net debt including preferred shares to adjusted EBITDA of 6x. And as a further enhancement to our already best-in-class balance sheet, after quarter end, we closed a recast to our existing credit facility, which increases our revolving capacity to $1.25 billion, lowers our credit facility borrowing costs, extends our credit facility maturity date to April 2026 and proudly includes a sustainability-linked feature tied to our ESG score, which can further lower our credit facility borrowing cost and demonstrates our commitment to sound ESG principles.

And on the topic of optimizing our cost of capital yesterday evening, we announced an intent to redeem our series D and E preferred shares to 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%, which when compared to our current cost of capital, provides another great example of the tremendous progress we've made over the past 5 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 $0.01 a benefit to our 2021 core FFO, which has been incorporated into our revised full year guidance ranges.

And 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 is proving to be even stronger. Taking into consideration, our strong first quarter performance and record-breaking trends heading into April, we have increased the midpoint 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 core FFO per share expectations by $0.01 to reflect stronger NOI contribution from both our Same-Home and non-Same-Home portfolios. And combined with the anticipated refinancing benefit from our preferred shares redemption, we now expect full year 2021 core 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 to 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 has become part of the solution to our country's massively undermet housing needs.

And with that, we'll open the call to your questions. Operator?

(Operator Instructions) Our first question comes from the line of Nick Joseph with Citigroup.

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

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 in pushing those occupancy rates into the high 97s. In the near term, I see that continuing. We've had huge uptick in demand even off of 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 rent ready, the foot traffic to 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 the 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.

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, is the reported 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?

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 were 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.

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

And congratulations on the quarter. Dave, I'd probably ask you every quarter about the possibility to accelerate growth opportunities. It's just amazing when from our seat, 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 pays 3,000 to 4,000 homes by '23. Is there a way to accelerate that? And if not, what's the limiter? Is it human resources? What limits that from growing faster?

Yes. No, 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 -- or lots that we control by the end of the year, not 16,000, and we're at 11,000 today. There's a couple of things. It's a competitive market for land out there. And while we have been very successful so far during the year, and 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. And today, we're in 16 markets, 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. So we are definitely ramping up. 2021 is a very strong year for land acquisition compared to our history, and we look for that trend line to continue that as we move on, the acquisition of land will continue to be stronger and stronger.

Thank you. And then my second question, again, is 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 most markets in the U.S. I mean, do you agree or are there -- are you looking into more markets to grow? Or again, you're really focused on these higher population growth markets, let's say?

Yes. The -- 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, and we continue to evaluate more opportunities for growth. And you may hear in the future, more opportunities. But as you've come to know with us, we don't announce what we are looking to do until we have 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.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

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

Yes. Ron, it's Chris here. And I appreciate the question and the comment. I would say from a bad debt perspective, taking a step back, I think we're really pleased with how collections 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, what's going on out from a regulatory perspective, recent news from a federal standpoint, ultimately, I think we're unclear on how that's going to play out. And so with that said, much of the uncertainty that influenced our guidance at the start of the year. It's still out there. And so for the balance of this year, we've left our original bad debt guidance intact of 2.5% to 3% for the remainder of the year. You blended that with what we saw in the first quarter. And that would put 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 untapped -- or intact from a guidance perspective.

Got it. Yes. That does feel pretty conservative. But -- okay. 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 sort of demand, right, in terms of either your turn times in terms of leasing up the development assets. Maybe can you just maybe provide a little bit more color, what's the upside that comes with that level of occupancy?

Ronald, this is Bryan. Yes. It's interesting. There's a number of different factors that come into play by being in this really good position. we've sped up our turn times. Our turn times a year ago, we're in the mid-50 range, mid-50 days, cash to cash. Now they're in the mid-30s, and that plays out into that 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.

Our next question comes from the line of Jade Rahmani with KBW.

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 cull?

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

In addition to that, with the shortage in housing that you noted as well as the 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 build-to-rent communities?

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. And 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.

So I'll just reiterate that we are in a very, very positive place today compared to prior years a very favorable cost of capital. We do have our operating systems are very flexible and robust, and we can scale them significantly. So it does create the ability for a lot of opportunity in our system.

And just one quick clarification. You said the cost to build a home is up 6% to 7%. Was that solely the lumber impact? Or are you also including the appreciation in land prices?

Yes. Thanks, Jade. It's -- that's strictly the lumber costs. The other costs, the other input costs that we have due to our growth and additional experience over the last 5 years, we're able to get some efficiencies and volume discounts that we weren't able to earlier. So those are basically offsetting each other, but the actual hit to our budgeted construction cost is really the lumber.

Our next question comes from the line of Sam Choe with Crédit Suisse.

Congrats on a great quarter. I think in the -- 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 position away acquisitions?

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 5 years and executing on a number of land acquisitions, the land brokers and the land sellers now know us in the markets that we've been established in for years. And so we're getting inbound calls when there's land opportunities that we would have 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 just seem early signs that we may be able to increase our production in that arena.

I appreciate the color there. And then maybe a question for Bryan. So I'm seeing that period end occupancy that ended at 98.1%, which is great. And I'm just looking at average occupied days ending at 97.3% versus 97.4% in the previous quarter. So I'm just trying to kind of wrap my head around the monthly momentum you've been seeing. So how did January or February play out? And then kind of explain how that ramp-up kind of happen?

Sure. So the difference between Q4 and Q1 was minimal. But the end-of-month occupancy is before some of the expirations 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. And I mentioned in my prepared remarks that we were in the high 97% or 97.7% for April. So it's been ticking up sequentially January, February, March and now into April. That the issue is when residents move out, how quickly can we prepare these homes for re-lease, many of which are actually pre-leased or pre-leasing programs have become much more significant.

So there's a certain element of fictional vacancy, which you're seeing, and that's kind of the change. But overall, the momentum has been fantastic. And now we're entering the busier spring leasing season. Just full speed ahead. So things look really good on the occupancy side.

Our next question comes from the line of John Pawlowski with Green Street Advisors.

Chris, even with bad debt remaining elevated 2.5%, 3%, from our land, it's still a 5 handle on revenue this year seems a lot more likely than 4. So can you just give us a sense for where you're presuming occupancy falls off to once regular collection processes begin?

Yes. Sure. Thanks, John. And 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, very strong this year. And I think we're really happy with what we're seeing on the demand and the leasing side. But just as Bryan mentioned, much of the uncertainty that we talked about on our last call, which was just a couple of months ago, is still there. And so yes, we've updated our guidance ranges to include the strong start to the year in the first quarter and the trend lines we're seeing into April. But intentionally, we've not touched the conservative aspects yet that are built into our guidance for the remainder of the year. Bryan mentioned them, but we're still focused on whether or not there could be a temporary occupancy speed bump, if you will, later in the year as collection tools potentially return to normal.

And then the other question, too, is, is whether or not any 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 a little unclear how that's going to play through in the back half of the year. So John, more specifically, in terms of the building blocks, if you will, of our same home revenue guidance. On a full year basis, our guidance assumes occupancy is kind of in the higher 96s, full year. Rate growth in the lower 4s, unchanged from what we saw before, which as a reminder, is still being muted by that pull through from last year's flat renewal policy that blends to rental rate growth, probably a little bit north of a 4.5 or so.

And then we see that being benefited by another 30 basis points or so of contribution from fees. And then offset by the 70 basis points of headwind from the bad debt assumption. And then all of that blends out to our midpoint on same home revenues of 4.25%.

Okay. And then maybe, Chris or Bryan, hoping you could kind of stare out and think through the collections on previously written-off rent. So when folks do get into care about their credit score, what's if you wrote off $100 into 2021, you claw back $25, $75? Like what's the propensity of our ability to claw back folks that have -- you've written off the rent?

John, this is Bryan. I think it's a difficult number to predict. 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. The -- in fact 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 along that. I have a hard time predicting exactly what's going to ultimately pull-through. But I think there will be a little bit at some point.

(Operator Instructions) Our next question comes from the line of Dennis McGill with Zelman Associates.

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 kind of the range of land cost being up at this point today versus a year ago if you had comparable quality locations?

That's a good question. And obviously, it varies market by market. The -- 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.

Meaning what you're seeing on home pricing comparable?

No. Well, it's comparable to what you're seeing on home pricing.

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

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.

Okay. And then just thinking about Phoenix as an example, since you mentioned that there. When you start looking at rent increases that 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?

Yes. Well, 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 to begin with. 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 in from higher rent places. So they don't really feel the hit as much so -- or at all. So that's kind of what we're seeing.

And you reported 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 time. So 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.

And 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.

And the institutional professional management now becoming very widely known and appreciated. And we have seen significant increases in demand. And I'm not taking away from the housing industry because we have 4 million to 8 million depending on which survey you want to look at of undersupply of housing. And 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 part of that -- or be part of that solution by building homes.

Yes. No, I think that's a 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?

I think the -- I think it's market-driven. It's -- but I think the market is going up because people are looking at single-family homes is an option that they didn't evaluate or put into their options 10 years ago. And so the entire market is moving up as a result of the institutional and professional management that's out there. And I believe we've also raised the quality of housing with the local operators. They've had to increase their service levels and the quality of their homes to remain competitive.

Our next question comes from the line of Keegan Carl with Berenberg.

Can you give us some color on what the sustainability metrics are that are placed on their revolving credit facility?

Sure. Keegan. Good question. It's tied to actually our Gresb ESG score. And it's tied to actually year-over-year improvement. And so long as we meet continuing improvement hurdles in our Gresb ESG score that would provide for a slight benefit to our borrowing spread.

Got it. And then I know it's a topic 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?

This is Dave. The development program is a long viewed program. And what we are doing today in land acquisition is really fueling 4 and 5 years from now. And when you look at the yields that we get on our developed homes, the quality of the developed homes, they're far superior to other growth channels and it's 20% higher yields. So instead of being a 5% to 6%. 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. But even with the accelerated prices or the higher prices that we see today, and we believe them to be temporary in some areas. We're still having a product that is superior to other product that we can acquire. And it is still far superior in economic returns to what we can acquire in other channels, even at these prices.

And I should just reiterate for -- 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 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 cost because we're also enjoying an increased revenue compared to our underwriting. So right now, no, we are not looking to slow down our development pace.

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 other things that you're trying to do as well as make your employees pretty nervous. So I would not be a fan of trying to do that.

Our next question comes from the line of Tyler Batory with Janney Capital Markets.

Question for Chris here. Just in terms of core OpEx, 4% for the quarter on the low end of that guide range for the year. Was there anything onetime 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 contemplated in the guide for labor or wages, not sure how that situation looks for your maintenance staff or your leasing agents?

Sure, Tyler. Thanks for the question, Chris here. No. I would say nothing notable or unusual from a first quarter standpoint. I think part of it is really just to do with quarterly timing. And you can see the fact that much of that is just being driven because of the timing of property taxes. But on a full year basis, we still see property taxes in the 4% to 5% area. And then on other expenses, everything excluding property taxes, view there is unchanged as well. You see those being kind of in the 5% area combined and specifically around inflationary pressures, on materials, labor, something that was very much contemplated in our expectations when we started the year.

So when you start to break down that 5%, in particular, you could carve out the R&M and turn component, and we see that probably being in the 5s, specifically for that area. And that's really contemplating a couple of things. It's contemplating the fact that, yes, there's good demand out there in inflationary environment pressures on materials and labor, we've contemplated that as well as recall, we included an earmark, if you will, for turn costs potentially later in the year as certain of our collection tools may return to normal.

So a long-winded way of saying, yes, we're very mindful of that and contemplated that in our guidance at the start of the year.

Excellent. And just a follow-up on the rent growth topic a little bit more. You obviously a correlation certainly between rent growth and home prices. But is 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?

Tyler, this is Bryan. It does factor in HPA and rents are related. They used to be -- traditionally, there was a longer lag than there is now. But if you take a look at some of the markets with the high growth, the 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 of for sale product, there's a supply shortage for single-family rentals and that's really giving us the 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 applicant 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 into Phoenix, as an example. 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 proposition of our platform and single-family end of the single-family rental industry improvements there are playing in as well. So there are a number of good things that are giving us that pricing power.

Our final question this morning comes from the line of Brad Heffern with RBC Capital Markets.

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, appliance is not showing up on time, et cetera. Has there been any pressure on the delivery schedule from things like that?

Not to date. One of the advantages we have is we have a limited number of floor plans and so like windows, we're in short supply for a while, and it took a while to get them. So we just started ordering 9 months out instead of 3 months out. So it's -- we're getting the same windows. So we take advantage of our production style management.

Okay. Got it. And then, Chris, maybe I was hoping you talked a little bit more about the perhaps and how you see leverage targets moving over time? You've had this -- you've been hanging out this kind of 4.5x range on corporate debt, and then it's been around 6x with the prefs. As you sort of take these out over time, should the overall leverage multiple for the company look more like that 6x? And how do the rating agencies think about that as well?

Good question, Brad. Thanks for asking it. And you're right on, on the numbers, and I would start by saying, yes, we've always -- traditionally, we've spoken much more about a straight net debt-to-EBITDA metric. But internally, we look at leverage a number of different ways, and we've always also looked at it on a debt including preferred basis, which is a little bit more holistic. That's also how the rating agencies generally look at it as well. And so if you take the 5.5x net debt-to-EBITDA that we traditionally targeted, and then you add on top of that our traditional level of preferreds that brings us into the 6x. And I would say that's right in the area that we like to see the balance sheet. And so as we're thinking about mix of capital to refinance our D and E preferreds.

Again, I mentioned all this in my prepared comments, but we're very mindful of all forms and cost of capital right now and ultimately, the mix that comes in. On a holistic basis, I would expect that to be very much in the same areas where we are now on a leverage basis in the 6s.

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.

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

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