American Homes 4 Rent

NYSE:AMH

Earnings Call Transcript 2023-Q2

[Operator]

Greetings, and welcome to AMH Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Nicholas Fromm, Director of Investor Relations. Thank you. You may begin.

[Nick Fromm, Director, IR]

Good morning. Thank you for joining us for our second quarter 2023 earnings conference call. With me today are David Singelyn, Chief Executive Officer; Bryan Smith, Chief Operating Officer; and Chris Lau, Chief Financial Officer.

Please be advised that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements.

These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, July 28th, 2023.

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.amh.com.

With that, I will turn the call over to our CEO, David Singelyn.

[David Singelyn, CEO]

Welcome everyone and thank you for joining us today. We delivered another quarter of excellent results, supported by strong operating fundamentals and leasing momentum. This resulted in $0.41 of core FFO per share for the second quarter or 7.6% growth over the same quarter last year.

Importantly, we generated better-than-anticipated leasing spreads during peak leasing season, thanks to continued demand drivers and superior execution from our teams. As a result, we have increased full year core FFO per share guidance by $0.03 at the midpoint, which represents 6.5% growth on a full year basis over 2022 and the high end of our previous guidance range.

The single-family rental sector remains on solid footing with durable and consistent fundamentals driven by the growing demand for single-family rentals ongoing national housing shortage and challenging home affordability dynamics.

AMH continues to be well positioned by offering a high-quality housing option with a superior and convenient resident experience. in the desirable family-friendly neighborhoods of choice. Further, as few signs point to any near-term changes, we expect the operating environment to remain durable, providing consistent results for the foreseeable future.

Now turning to the investment front. Responsible growth continues to be the name of the game. Our traditional and national builder channels are still largely on pause. Recently, we have seen a few SFR portfolio opportunities come to market, but they did not meet our criteria for factors such as investment return location and asset quality.

Our teams continue to be in frequent communications with our contacts across the industry, and we will be ready when opportunities arise that meet our criteria and are accretive to the AMH platform.

Our focus remains on investing in a prudent manner through our internal development program, which continues to represent nearly all of our external growth. Year-to-date, we have delivered 1,100 homes and have started construction on the remaining scheduled deliveries in 2023.

Looking to 2024, we anticipate another year of incremental growth based on current visibility we have into the pipeline.

Finally, I am happy to announce that we have entered into a second development joint venture with institutional investors advised by JPMorgan Asset Management. This is a testament to the quality of our development and operational platforms and provides a great avenue to further expand our development program.

Chris will walk you through additional details later in the call. As I wrap up, I am happy to mention that next week will mark our 10-year anniversary as being a publicly traded company. We have built something truly remarkable here at AMH. And I want to thank everyone who contributed to our success over the years.

Now, I'll turn over to Bryan for an update on our operations. Bryan?

[Bryan Smith, COO]

Thank you, Dave. Solid June leasing results capped off a strong quarter that was highlighted by robust pricing momentum throughout the spring leasing season. For our same-home portfolio, we generated better-than-expected spreads, posting new renewal and blended rate growth of 9.4%, 7%, and 7.7%, respectively, for the quarter.

Although we saw a 70 basis point increase in turnover compared to the same period last year, average occupied days remained strong at 97%, thanks to the efforts of our leasing and field teams. This resulted in same-home core revenue growth of 6.5% over the same period last year.

Same-home core operating expense growth of 9.9% was as expected and continues to be impacted by the timing of property tax expenses in the prior year. Combined, this led to second quarter same-home core NOI growth of 4.8%.

Due to the strength of our results in the first half of the year and our improved outlook for the second half, we have increased our 2023 same-home core revenue growth guidance by 50 basis points to 6.5% at the midpoint. Underlying the new revenue guide is a full year blended spread expectation in the high 6% area, which is a significant increase from our previous guide in the mid-5s.

Additionally, we now expect full year occupancy to be in the high 96s, which reflects a slightly higher volume of seasonal move-outs than originally contemplated. And although not yet finalized, preliminary July results support these trends with occupancy in the mid-96 range and blended spreads of approximately 8%. Altogether, this guidance revision reflects the strength of the operating environment and our team's solid execution as we continue to holistically manage the topline.

An unchanged operating expense guide brings our new same-home core NOI growth guidance to 4.75% at the midpoint, which represents a 75 basis point increase from our previous expectation.

Before I wrap-up, I would like to highlight some of the factors driving long-term durability in the demand for single-family rentals and more specifically for AMH Homes.

While the macro external factors that Dave referenced benefit everyone in our sector, AMH is especially well-positioned because of our high-quality assets and their desirable locations.

Additionally, we are committed to providing the best resident experience in the industry. We continue to innovate through investments into our technology platform and through operational initiatives such as Resident 360. These strategic efforts have made AMH a premier home provider and allow us to efficiently deliver an unmatched level of service and care.

In closing, we just finished a great first half of the year and our increased guidance reflects our confidence in the leasing and demand environment.

With that, I'll turn the call over to Chris for the financial update.

[Chris Lau, CFO]

Thanks, Bryan and good morning everyone. I'll cover three areas in my comments today. First, a review of our solid quarterly results; second, an update on our balance sheet and capital plan, including our recently announced new joint venture with institutional investors advised by JPMorgan Asset Management, and third, I'll close with an update around our increased 2023 guidance.

Starting off with our operating results. We delivered another quarter of strong earnings growth with net income attributable to common shareholders of $98 million or $0.27 per diluted share.

On an FFO share and unit basis, we generated $0.41 of core FFO, representing 7.6% year-over-year growth and $0.36 of adjusted FFO, representing 5.3% year-over-year growth.

Driving this quarter was 4.8% year-over-year core NOI growth from our same-home portfolio as well as consistent execution from our development program, which delivered a total of 634 homes to our wholly-owned and joint venture portfolios.

Outside of development, our traditional and national builder acquisition programs remained on hold. However, on the disposition side, we saw another quarter of robust activity, selling over 400 properties at an average cap rate in the low to mid-3% area generating approximately $127 million of net proceeds.

Next, I'd like to share a couple of quick updates on property taxes. First, outside of Texas, our quarterly update is business as usual. We have now received initial assessed values for over 50% of the portfolio. And as part of normal course, we are underway challenging many of these values through the appeals process, which will be finalized over the balance of this year.

Second, with respect to Texas, State lawmakers recently agreed to a large property tax relief program, which among other things, is expected to benefit property tax rates later this calendar year.

However, keep in mind that property tax rates are only one part of the equation and that overall property taxes are heavily driven by annual valuation increases. Along those lines, we have now received an initial subset of early valuation appeal results and it appears that Texas assessor offices might be taking a tougher stance on valuation reductions this year. And although it's too early to conclude, this has the potential to offset this year's anticipated rate reduction.

At this point, our 2023 property taxes still have a lot of moving pieces. And given the amount of information that still needs to be received, our full year property tax expectations remain unchanged from the start of the year.

Next, I'd like to turn to our balance sheet and capital plan. For starters, I'm very happy to share that subsequent to our last quarterly earnings call, we were upgraded by Moody's Investor Services to BAA2 with a stable outlook. This is another great testament to our best-in-class balance sheet and continually improving credit profile.

In terms of other balance sheet updates at the end of the quarter, our net debt, including preferred shares to adjusted EBITDA, was 5.3 times. We had $200 million of cash on the balance sheet and our $1.25 billion revolving credit facility was fully undrawn.

As a quick update on our overall capital plan, we remain on track to invest approximately $900 million of AMH capital this year. And as we look beyond 2023, we remain proud of our existing development pipeline of over 13,000 lots that will be delivered into a finished inventory over the coming years.

With that said, as we've shared many times before, we believe that the AMH development opportunity is far greater than our existing pipeline of length, which is why we are very excited to announce our new second joint venture with institutional investors advised by JPMorgan Asset Management.

During the time of continued public capital market uncertainty, our new joint venture will provide $625 million of high-quality, long-term capital to capture incremental development opportunities. Like our previous venture, we will hold a 20% interest in the new JV with economic upside from fees and opportunity for promoted interest.

The new JV has also been structured with an evergreen term and will focus on cultivating its own development pipeline that will likely begin delivering homes in 2024 and beyond.

This new JV is a great testament to the quality of our platform and now brings our total relationship with institutional investors advised by JPMorgan Asset Management to approximately $1.5 billion, which provides us with the capital confidence to continue growing our AMH Development program without built-in reliance on common equity capital while also enabling our ability to prudently maintain wholly owned development pipeline assets below 10% of total gross assets.

Thank you to the team for your hard work and dedication on this important transaction that will further enable our ability to continue delivering consistent and predictable growth over time.

Before we open the call to your questions, I'll cover our increased 2023 guidance, which was revised in yesterday evening's earnings press release. Starting with the same home portfolio, as Bryan covered, recognizing the strong spring leasing results and continued demand trends into the third quarter, we've increased the midpoint of our full year core revenue growth expectations by 50 basis points to 6.5%.

Coupled with our unchanged core property operating expense outlook, we have increased the midpoint of our full year core NOI growth expectations by 75 basis points to 4.75%, contemplating our increased core NOI expectations across the entire portfolio, along with modestly higher interest income on cash generated from better-than-expected disposition activity, we've increased the midpoint of our full year 2023 core FFO per share expectations by $0.03. Our new midpoint of $1.64 per share reflects the high end of our previous range and represents a year-over-year growth expectation of 6.5%.

Finally, as we open the call to your questions, I'd like to reiterate Dave's enthusiasm as we approach our 10-year IPO anniversary. AMH is truly one of a kind as the country's only large-scale integrated owner, operator, and developer of single-family rental homes, which uniquely positions us to continue creating outsized shareholder value into our second decade as a publicly traded company.

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

[Operator]

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions]

Our first question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

[Juan Sanabria, BMO Capital Markets]

Hi good morning. Just hoping you could talk a little bit about churn and what drove that increase sequentially in year-over-year this past quarter. And I'm assuming some of that COVID era bad debt or tenancy issues are part of that and kind of where we stand at present in that cleansing process?

[Bryan Smith, COO]

Hi Juan, this is Bryan. Thank you for the question. the extra churn, there's a couple of factors involved there. One of them is we're seeing an increase, more of a return to seasonality than we saw in prior years. So part of it is a seasonal effect.

And then you're exactly right, the delinquency resolution process went well in the second quarter. So, there were incremental move-outs there as part of the workouts that we referenced in prior earnings calls.

[Juan Sanabria, BMO Capital Markets]

And where are we in that cleansing, are we -- how much is left to get rid of or being out of the portfolio?

[Bryan Smith, COO]

Yes. We made very good progress. It's difficult to quantify exactly how much is left. A little bit of it depends on the core backlogs and there's been some temporary procedural changes in a couple of the jurisdictions.

The good news is that it's isolated to a few counties and not system-wide. But the best part about it is we're able to get these homes back. Our teams are turning them quickly and we're releasing them back into the market at really good new leasing rate growth.

[Chris Lau, CFO]

Hey Juan, Chris here. I can give you a little bit more of a broader update as well on just general collections and bad debt. I'd say generally speaking, Second quarter, good progress, but landed pretty consistent with what our expectations were in, call it, the low 1% area for the same-home pool.

Again, we're working through the subset of residents that are still taking a little bit longer to work through that delinquency resolution process like Bryan was talking about.

But at this point, just kind of zooming out a little bit, guidance still contemplates our current bad debt level in the low 1% area continues over the course of 2023. And the same as we shared last quarter, we're optimistic that we may have opportunity to work through that a touch quicker this year, but it's still a little bit too early to count on it until we can begin to see it pull through into our numbers.

[Operator]

Our next question comes from Steve Sakwa with Evercore. Please proceed with your question.

[Steve Sakwa, Evercore]

Thanks. Good morning. Bryan, I was wondering if you could just provide a little bit more color on the blended renewal expectations that you have and maybe just talk a little bit about market trends that you're seeing, like, where are you seeing some better strength and maybe some markets where things are a bit softer than you expected?

[Bryan Smith, COO]

Sure. Thanks Steve. We had a really strong spring leasing season, and that continued into July with renewals accelerating to nearly 8%. Looking forward, I would see the July period as kind of the peak of the leasing season. Can I see a slight moderation as we finish Q3, thinking about August and from a renewal perspective, closer to seven and high 6s for September? We've seen a little bit of a moderation there.

Regarding relative strength within the portfolio, the Florida portfolio is performing extremely well from both a rate and an occupancy perspective, a little bit of softerness, I guess, you could say, in San Antonio and Las Vegas. But if you look at it from a historical perspective, it's still extremely strong, and we're really happy with the demand levels that we're seeing.

[Steve Sakwa, Evercore]

Okay. And just a quick follow-up on the development. Dave, could you just remind us where the development yields are sitting for, I guess, the second half 2023 deliveries? And then what are your expectations maybe for deliveries in 2024?

[David Singelyn, CEO]

Yes. Thank you. Let me just start with where we are in the second quarter is where we expected to be. And as we go throughout the balance of the year. I'm not sure that we, at this point, get all the way to a six by the end of the year, but we are making great progress.

What I do know is that the product that we are delivering is well-located, high-quality, durable asset. It's in locations next to where homebuilders are building for sale. And so it's the assets that are in the infill positions that you just can't buy on the MLS or national builder. But today, we see a lot of progress between now and the end of the year.

[Operator]

Next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

[Haendel St. Juste, Mizuho]

Hey, good morning.

[David Singelyn, CEO]

Hey morning Haendel.

[Haendel St. Juste, Mizuho]

First question is on the expense guide. You guys highlighted turnover was up quite a bit in the second quarter, but you guys didn't raise the OpEx side. So, can you talk a bit about what's keeping that OpEx guide intact. It doesn't sound like there's any anticipated benefit from the recent change with Texas tax loss. So, curious kind of what are some of the offsets there? And what are your expectations for turnover in the back half of the year?

[Chris Lau, CFO]

Yes. Sure, Haendel. It's Chris here. Look, I think it'd probably be helpful just to unpack the pieces of the expense guide, which again remain unchanged from the start of the year.

Let's take up property taxes, which obviously, I talked a lot about in the prepared remarks. Recall that our expected range on a full year basis, there is, call it, 8% to 10%. And then the remainder of the expense guide is about 10% to 11% on everything else with the various pieces being insurance increasing in the 20s. We talked about that in past quarters. That's what we're seeing play through.

On a full year basis, we're expecting property management and call it, the 10% to 12% area. As a reminder, that reflects the general inflationary environment comparison against some of the modest understaffing we saw at the beginning of last year and then the investments that we've been making into our Resident 360 program this year. And then it's really inflationary-like increases on R&M and turn and HOAs in, call it, the 7% to 8% area on a full year basis.

And as we think about kind of the glide path for the year, we'd expect R&M and turn to probably tick up a touch in the third quarter as we're experiencing a slightly higher level of seasonal move-outs and then trend into our full year range in that, call it, 7% to 8% area, blend all of that together and it gets you to our midpoint of 9.75%.

[Haendel St. Juste, Mizuho]

That's great color, Chris. Appreciate that. Maybe just a bit more on one specific line item, insurance cost, certainly there continues to be a headwind. I know it's not a huge component of OpEx, but can you talk a bit more of what you're seeing there? And how much of your self-insurance today versus historically. And how do you potentially balance the cost savings potentially there versus potential catastrophic risk? Thanks.

[Chris Lau, CFO]

Yes. It's a good question. Insurance is something that is -- you're right, it's a small line item from an expense standpoint, but very top of mind for us as we're thinking about managing of the business. Again, our insurance renewal for this year is done. That's what we see coming through with the increase in the 20s.

As a reminder, that's pretty consistent with what we had contemplated in guidance. But more broadly, I think we touched on this a bit last quarter. I would say our increase really reflects the state of the broader property insurance market, which is in trouble after multiple years of catastrophic losses that are now rippling through rate increases across the board for everyone.

And unfortunately, it's somewhat difficult to envision a scenario where the insurance landscape looks materially better in the near future, which as we shared before, we think creates the opportunity to take more control of our insurance trajectory through creative solutions like the captive, for example, so you're exactly right.

A couple of years ago, we formed our own captive company as we knew it would be important to control more of our insurance programs over time. And our captives don't need more time to mature. Today, what we're ensuring is relatively small, a couple of million dollars of captive insurance layer on an annual basis.

But we see opportunities into the future to use it a little bit more broadly to help us control third-party insurance increases and absolute costs over time. But while doing it responsibly, that doesn't change the overall kind of risk complexion of the portfolio.

[Operator]

Our next question comes from Eric Wolfe with Citi. Please proceed with your question.

[Eric Wolfe, Citi]

Thanks. We just saw SREIT sell a smaller portfolio. Just curious whether you looked at it, if you had any opinion on the quality growth prospects of it there. And if you're also seeing other portfolio being marked as well?

[David Singelyn, CEO]

Thanks Eric, it's Dave. Yes, the portfolio that traded, we're very familiar with the portfolio. It's not the first time that this portfolio substantially this portfolio has traded. We did not bid on this portfolio when we look at this portfolio, the way we would envision is, we're looking at the quality of the assets. We're looking at the location and we're looking at the location of those assets as to whether it's an area that we want to grow at this time.

And because of our development program and the ability and the quality of those assets that I've already referred to and the yields that we get off of those assets, we have the ability to be disciplined and discerning in all of our acquisitions.

So, as I said in prepared remarks, today, the majority of what we are seeing on the MLS and portfolios as well as national builders, we're largely out of the market, but it doesn't mean that we won't get back in.

With respect to the second part of your question, Eric, on the portfolios that are out there, we do continue to see portfolios very consistent with what we talked about last quarter. Most of them are much smaller than the one that traded. And much of them don't meet our quality of assets or economic yield requirements.

[Operator]

Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question.

[Jamie Feldman, Wells Fargo]

Thank you. I guess sticking with investment opportunities, how do you think about your capital sources if you were to find larger transactions and opportunities to buy, I guess, along those lines, how big can a JPMorgan JV get? And how are you thinking about the value of your equity or other partnerships or JVs or anything along those lines?

[Chris Lau, CFO]

Morning Jamie, Chris here. Good question. As I mentioned, the totality of our partnerships with JPMorgan Asset Management right now are about $1.5 billion that could increase a little bit if we introduce debt into the most recent second joint venture.

Keep in mind that strategically, those ventures are specifically focused on development. and growing our pipeline there to capture more of that incremental opportunity as we're thinking about broader opportunities, whether that be if the MLS becomes more attractive, national builder opportunities present themselves, portfolio present themselves or opportunities to grow the development pipeline further. We look at all that opportunistically relative to the cost of capital. equity as an example, we view that as an opportunistic weapon to potentially do more than what we're doing right now.

But we look at it relative to the opportunity on hand. And then I would also add that there is capacity on the balance sheet right now as well. We ended the second quarter at 5.3 times debt including preferred to EBITDA. And we're comfortable taking that up into the six times area, which gives us a nice capacity to be opportunistic as well.

[Jamie Feldman, Wells Fargo]

Okay, that's helpful. And then I guess just going back to the Texas tax on TWISTR, can you just talk about the -- I guess, we're a little surprised that it's not a bigger benefit to you. So, can you talk more about what the true nuances are that you don't think it will be much of a help.

And then as you think about the 20% appraisal circuit breaker, is that not meaningful to you either. It just seemed like it was big news to us. We just want to make sure we understand what we're missing.

[Chris Lau, CFO]

Yes, sure. So, look, I think the notion of it being a benefit to us in general, I think that, that is right. But ultimately, what we're talking about here is timing, recognizing that even though there is a chance that this year is muted, those rate reductions are muted because of the post appeal value increases we're beginning to see.

I do believe that there is a positive read-through here to 2024 as the tax relief program is anticipated to keep rates compressed through at least next year. And so as we hopefully begin to see some assessment moderation as HPA pools, I could see this potentially setting up favorably into 2024.

[Operator]

Our next question is from Keegan Carl with Wolfe Research. Please proceed with your question.

[Keegan Carl, Wolfe Research]

Yes, thanks for the time guys. So your average recurring CapEx and average R&M turnover costs appeared materially higher year-over-year. Just curious how much of its driven by elevated turnover versus something else and are you experiencing more challenging CapEx trends, in particular in your legacy portfolio assets?

[Bryan Smith, COO]

Hi Keegan, this is Bryan. Yes, thank you for the question. Turnover does drive higher CapEx expenses in particular. We've done a really good job, I think, of managing R&M and turnover costs. Part of it is a product of our increased investment in the field.

We talked a little bit about that when we were discussing the Resident 360 program. They've done a very good job of getting these homes prepared quickly and efficiently. Some of the additional CapEx costs that we see this year can be related to inflationary pressures and also some of the delinquency resolutions that we talked about earlier in the call.

[David Singelyn, CEO]

Keegan, this is Dave. On the last part of your question about legacy properties and the channels in which we acquired the properties yes, we do see more cost to maintain in those homes that we acquired as existing hubs on the MLS. And looking at the quarterly numbers, it appears it's about $850 just for the maintenance and cost to maintain component of those legacy homes.

So, homes that we got from the national homebuilders are significantly less. It's in the low $400s. And the ones that came out of our development portfolio. These are the ones that are in same home that have got some history on about 2,000 homes, about $350. So not doing rough math, it appears about 50% cheaper for the homes that were coming out of the national builders 60% cheaper for the ones that we developed ourselves.

[Keegan Carl, Wolfe Research]

That's some great color there, Dave. And I guess shifting gears here, what are you guys currently seeing in the land market? And how is that impacting what markets you're planning future development in. And just given -- I think this is a relevant question given you have the second JV; can you just remind us how you decide what goes into the wholly-owned bucket versus your prospective JV land?

[David Singelyn, CEO]

Yes. Let me separate those two questions. Let me take the first half and I'll have Chris talk about the allocation methodology between JVs and us. But today, the land market, if you look at our second quarter supplement, you'll see that we did acquire some land, but it's very nominal.

And I would say we are kind of in the same place that we are in the development. We are seeing improvements in the marketplace and we're getting ourselves closer to where the opportunities hit our underwriting models. But as of the second quarter, we bought just a few homes.

With that said, keep in mind that we have a significant pipeline, and we are well set for the next few years with or without acquisitions. Our goal is to make sure that we replenish that for the 2026, 2027, 2028 time periods, but we're well positioned in the near-term.

So, we have the ability to be patient. We have the utility to be disciplined, and we don't need to chase opportunities just to have the opportunities. We're going to make those opportunities be the right opportunities for us. With respect to the allocation, Chris, can you go?

[Chris Lau, CFO]

Yes, Keegan, Chris here. I would say taking a little bit of a step back the nature of the projects, whether they're going into our on-balance sheet pipeline or into the JVs is indistinguishable in terms of location, quality, et cetera.

The only nuance that today, it could be a touch different is as we think about the opportunity to capture some incremental projects with a slightly lower initial yield with a great long-term growth prospects that may have a similar total return profile, just slightly lower initial yield parameters.

Those are a great fit for the joint venture context. So, that's the one piece that could be a little bit different or nuanced today. But generally speaking, the projects are very, very similar, again, like I said, in terms of quality and location.

[Operator]

Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question.

[Adam Kramer, Morgan Stanley]

Hey guys. Really good quarter there. So, congrats on the 10-year anniversary as well. I just want to ask about kind of new lease trends. Look, I think, Bryan, you gave some really good detail on the renewal in both July and then going forward. But maybe just kind of on the new lease side, where were you for July?

[Bryan Smith, COO]

Thank you, Adam. I think you asked when we for July you cut out a little bit. July for new leases, we had an 8.5% increase. So that was really strong as well. The demand, as we talked about, has been fantastic through the spring leasing season continuing into July, and we're seeing strength as we get into Q3 as well.

I'd expect a slight moderation as we get into Q3 and Q4. I'd love to be able to continue at these levels. We're going to do everything we can, but the expectations are that we'll be moderating a little bit on the new side into maybe the 7%s for the balance of Q3.

[Adam Kramer, Morgan Stanley]

Helpful. Thank you. And then just maybe a couple of short ones. Just where is the loss lease stand today? And then when you're thinking about kind of full year market rent growth, I know you provided numbers earlier in the year for kind of the full year forecast. Are those the same today? Or are you seeing potentially more margin rent growth for the full year to be kind of the success that you've had so far this year?

[Bryan Smith, COO]

Yes. To answer your first question on loss to lease, it's consistent with what we saw last quarter, around 6%. And I think there's an interesting distinction. Our market expectations, if you look at the broad markets, this still consistent with what we saw last quarter.

I think John Burns started the year in our markets at 2% to 3%, expanded that to 2% to 4%. But what we're really seeing is a testament to the quality assets and our quality locations within the markets. And that's how we're able to outperform relative to those market expectations.

[Operator]

Our next question comes from Dennis McGill with Zelman & Associates. Please proceed with your question.

[Dennis McGill, Zelman & Associates]

Hi, thanks for the time. Going back to the JV, will the new JV be seeded with land you already own or will that start from scratch?

[Chris Lau, CFO]

No, it will start from scratch, Dennis.

[Dennis McGill, Zelman & Associates]

Okay. So, setting that aside then, from the wholly-owned piece, but Chris, can you give us some context on what you would expect the pipeline can do going into next year? It sounds like you're maybe a little uncertain on what that would be, but I would think you'd have to be making decisions now, particularly for the early part of the year, and you're already on the land, it seems like it's good yield.

The market's good. Home prices are going up. Again, it seems like all the ingredients are there to push forward, but maybe have been a little bit vague on what the potential could be for next year?

[David Singelyn, CEO]

Yes, Dennis, it's Dave. On 2024 on the development side, we have that -- we're not ready to release our numbers, but as you indicated, we have the land, and we have been doing land improvements on the land that will be the product that's going to come out of the ground in 2024. So yes, we have a pretty good idea of where that's going to be. Without giving specific guidance, it will be a greater delivery number than we see in 2023.

[Operator]

Our next question comes from Alan Peterson with Green Street. Please proceed with your question.

[Alan Peterson, Green Street]

Thanks. Bryan, I was just hoping, across the portfolio, if you can give an update on where rent to income ratios are today. And given that people are spending more on housing today than in prior years, where do you see that pricing opportunity kind of capping out for yourselves or the sector from a rent to income standpoint?

[Bryan Smith, COO]

Yes, Alan, thanks for the question. A couple of interesting things that we've seen as we looked at the last few years is that the demand is so great that the applicant income is keeping pace with the increase in rents.

If you look at Q2 specifically, relative to the prior year, the stated income for our applicants went up about 8%, which is consistent with the change in rents for the homes that they were applying to.

Our income to rent ratios have maintained around five times, provides a lot of capacity and it gives us a lot of confidence in the health of the collections going forward. We're very happy. The demand is so good, the income is following appropriately. We're just not concerned about that particular aspect.

[David Singelyn, CEO]

Alan, this is Dave. Let me add a couple -- one thing, I guess, to that. Demand is very, very strong. And part of the reason it's very strong. When you talk about income levels and the cost of housing, Today, in our top 20 markets, every one of the markets is less expensive to rent one of our homes than it is to buy.

And if you look at the average of those 20 markets, it's 24.9% at June 30. If we look at it quarterly, call it, 25%. So, that is one of the things that is maintaining strong demand.

With that said, I would also remind you that demand has been strong for the last 10 years, getting stronger and stronger as the single-family rental value proposition and the quality of the assets that are available today in the locations in which they are in the school districts in which they are becoming better known. So, a very, very strong demand for single-family rentals today.

[Alan Peterson, Green Street]

Understood. Appreciate all those comments. And maybe, Chris, just shifting over to the JV. Can you give us a sense for what the stabilized run rate on asset management, property management, development fee income could be over the next, call it, two to three years once these JVs are fully ramped?

[Chris Lau, CFO]

Yes. Sure. The right way to think about the totality of the ventures here. The fees for us, and we've shared this in the past, the fees for us are largely structured as cost recovery like enabling us to leverage our infrastructure over a larger base. There is a margin on them, but it's not a super wide profit margin on those fees. For us, the real opportunity here is growing the development program further participation in the JVs themselves.

And then the opportunity for really attractive longer-term economics via our promoted interest which as a reminder, is especially unique given the evergreen nature of our venture structures, the JPMorgan Asset Management that provides us the opportunity to earn our promoted interest after construction and initial operation of the properties, meaning we have the ability to effectively monetize a portion of the value creation process from our development program without the need to sell assets, which is really, really unique and will be powerful over time.

[Operator]

Our next question is from Brad Heffern with RBC Capital Markets. Please proceed with your question.

[Brad Heffern, RBC Capital Markets]

Yes, thanks everybody. Can you walk through where construction costs are currently year-over-year, and has there been any change to the previous view that we'll see increasing declines just given the strength in the broader housing market?

[David Singelyn, CEO]

Yes. Good question, Brad, on both parts of that. The construction costs year-over-year, we have seen significant reduction as we've talked about over the last couple of calls in the lumber and the bat material that goes into the house. That is actually a very significant reduction Today, it's in the $400, 1,000 board feet, and it used to be in the $1,600 range. So, very, very significant reduction there.

At the beginning of the year, maybe late last year, we anticipated having a little bit more reduction in some of the other input costs. With your comment about the housing market picking up, that hasn't materialized to the extent we thought it would. But one other thing has materialized. And that is we have made investments into many of our platforms. We talk about Resident 360 today.

Well, a couple of years ago, we were making investments into our development platform. And today, we're seeing benefits from that in better efficiencies in our construction cost. It's a better ability to control the inventory better ability to get the volume discounts from vendors, et cetera. So, through that process, we have seen some benefits.

And all of this is the drivers to, I think, Steve Sakwa's prior question, that leads us to seeing our rental rates significantly increasing between now and the end of the year as those lower costs and more efficiencies play out in the construction of homes third and fourth quarters and future years.

[Brad Heffern, RBC Capital Markets]

Okay, got it. Thanks for that. And then I wanted to get your thoughts on supply. Obviously, the MLS acquisitions have grown to a halt for pretty much everyone, but how do you think about build to rent supply? And is there anything that suggests that more people are renting out their homes because they have locked in low rate mortgages?

[David Singelyn, CEO]

Yes. Again, it's kind of two parts. One is on the supply for investment in acquisition and the shadow inventory of renting out the existing home to let Bryan talk about, but on the acquisition and investing side, you're 100% right. The MLS inventory is significantly reduced.

In many markets, it's 50% of what we've seen historically. Not a surprise. People are kind of trapped in their homes with favorable mortgages that they can't replace. So they can't move and that has led to a scarcity of inventory. I think it's part of the reason that the prices have remained strong recently.

With that said, what we have -- when we got into development, one of our thesis for development is we could grow in all economic cycles. And we are seeing that play out significantly today. And the benefit of that is really realized today. So we have the ability to grow.

We're going to deliver 2,200, 2,300 homes this year, very well-located homes very attractive yields when you match it to cost of capital we're using to fund them. So we have the ability to grow in all economic cycles.

And we have the ability to be disciplined and discerning and buying additional homes. It doesn't mean we won't. We just have the ability to wait until the time is right. As I indicated on land, we're seeing that land is getting closer to our buy box.

On the acquisition side, overall, probably not. We're still at the -- in the low 5s at best, some market, maybe even the 4s. But there are opportunities once in a while, and we're seeing a little bit more of them get very close to the buy box on a sharp shooting opportunity based. We continue to write thousands of homes every month.

So, we may buy one or two here and that volume may pick up. It is very, very hard to say between now and the end of the year. But if it does, we are there and we are prepared to applier homes if they are the right homes, the right locations. With respect to shadow inventory and how it impacts rental demand, Bryan, do you want to take that?

[Bryan Smith, COO]

Sure. Brad, I'm going to start with -- I think your question included that whether we're seeing a lot of extra supply from build to rent. Build-to-rent inventory is actually down in most of the markets. We track that very closely. We are seeing supply pressures in a couple of our smaller markets. It's part of the reason why the San Antonio occupancy tends to lag the rest of the portfolio.

Keep in mind, it's still strong in the 96% area. But the reason for that change year-over-year is that we have seen an increase in supply in San Antonio and Las Vegas, to name a couple.

[David Singelyn, CEO]

Let me add back on the build to rent. I was a miss. I forgot that piece of the question. Build-to-rent, definitely, we're seeing less come to the finish line. We're actually seeing opportunities to take some developed land that is in process that they haven't started vertical to acquire. We, again, will be discerning as to the location of these and whether they are a good fit for the portfolio. But we have an opportunity to look at a few of those today.

[Operator]

Our next question comes from Daniel Tricarico with Scotiabank. Please proceed with your question.

[Daniel Tricarico, Scotiabank]

Thank you. First question on occupancy. Curious if you thought about where occupancy would be of relative affordability, the picture there wasn't as strong as it is today. Just thinking about the longer term run rate healthy occupancies for the business.

And also the 96%, the high 96% range now in the full year guidance, which would be about, I don't know, 25 to 50 basis points drop in average for the rest of the year. wonder if you could like quantify or put a range around the impact on occupancy from replacing those non-paying tenants.

[Bryan Smith, COO]

Yes. Thank you, Daniel. I'm going to start with talking about the relative strength of occupancy in relationship to the -- being less expensive to rent than it is to own. If you look historically in our business, we've performed very well when that dynamic was slipped and it was actually more expensive to rent than to own, not to say that we're not capitalizing on the economics today, but our business holds up very well in both environments. I think it really would affect probably rate growth more so than occupancy.

We're very pleased with the gains that we've made in occupancy over the past few years, seeing a peak during COVID, maybe a little bit of an artificial peak in the 97, but we're settling into the 96s and we expect the back half of this year to be around 96, which we think is very helpful healthy going forward.

[Daniel Tricarico, Scotiabank]

Any way you could quantify the impact from replacing those non-paying tenants?

[Bryan Smith, COO]

It's difficult to quantify that because I don't know the exact speed of the court system and some of the regulatory -- the backlog and some of the procedural challenges make it difficult for me to predict that for the balance of the year.

[Daniel Tricarico, Scotiabank]

And Dave, just quickly, where you pay cap rates today? You've been asked spread on the MLS one-off. And maybe what markets have you been the most efficient in selling these homes?

[David Singelyn, CEO]

Well, the market today, as I indicated, it's in the low 5s on average. There are some markets that may not even be to a 5 in the MLS. As I indicated in the prepared remarks and I think earlier, we were largely on the sideline, I mean on the MLS, we're entirely on the sideline as of right now. Where do you see opportunities, there are such sharp shooting opportunities?

They're not necessarily a market trend item. They're just unique opportunities. And they're throughout, but they're not necessary -- they're not in volume, let's make sure that we clarify that they're not in volume.

[Operator]

Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

[Austin Wurschmidt, KeyBanc Capital Markets]

Great. Thank you. So, based on the 6% loss to lease you have and the implied lease rate growth for the back half of the year, should you finish the year with roughly a 3% loss to lease in a 2024 earn-in that's roughly around the same level or maybe even a little bit better. Am I thinking about that correctly?

[Bryan Smith, COO]

Yes, Austin, this is Bryan. I think you are in terms of the loss to lease prediction, we have to wait and see on that a little bit. But in terms of the earn-in commentary, I think you're right on.

[Austin Wurschmidt, KeyBanc Capital Markets]

Thanks. And then just separately, I'm just -- the dispositions year-to-date have exceeded the high end of that $200 million to $300 million disposition target you previously spoke about.

What's the appetite to continue selling either build capacity if those -- more attractive acquisition opportunities materialize or just in order to prefund the funding needs for 2024?

[Chris Lau, CFO]

Yes. Good question, Chris here. Just in terms of this year's activity, you're exactly right. Same as last quarter. We're continuing to see great traction through the disposition program, which again, is really just driven by the sheer scarcity of housing across the country. Meaning that our disposition supply continue to be met with really strong buyer demand when we bring it to market, which has enabled us -- enabled us to achieve sales prices that are at or near asking prices and average disposition cap rates in the low to mid-3s that, as you pointed out, creates a really attractive capital recycling opportunity back into our growth programs.

With that said, look, every single home that we are selling is being identified through our rigorous asset management program in process. And yes, we are recycling the capital, but these are discrete decisions being made based on operational and asset management decisions.

And as we think about the back part of this year, look, I think that we're still going to see activity. But generally speaking, transaction volumes in the market commonly seasonally moderates in the back part of the year.

So, we could see our disposition volumes moderate in the back half of this year as well. There's a chance we could do a touch better than this. But on a full year basis, we could see this year's disposition proceeds settling in and call the $350 million to $400 million range.

[Operator]

Our next question is from Jade Rahmani with KBW. Please proceed with your question.

[Jason Sabshon, KBW]

Hi. This is Jason Sabshon on for Jade. Congrats on a nice quarter and for entering into the joint venture with JPMorgan. On that note, do you have a target for JV equity capital under management? And how much do you plan to emphasize growing the asset management platform moving forward?

[Chris Lau, CFO]

Sure. This is Chris, I can start with that. There's no hard and fast target. But I would go back to some of our prior comments that for the right opportunities at the right level of return profile relative to on balance sheet cost of capital. Priority number 1 is to capture those on balance sheet, but cost of capital considerations come into play.

And then the other consideration here is that as we think about capturing that development opportunity that we've been talking about, it's really mission critical to us that we have the capital confidence to continue to fund our development program without built-in reliance on common equity capital.

And in terms of metrics here, it is very important that we keep our wholly owned pipeline assets prudently below 10% of total gross assets, and that's exactly where the joint venture capital strategically comes into play as the perfect solution to enable us to accomplish all of those goals.

[Jason Sabshon, KBW]

Great. Thank you.

[Operator]

Our next question is from Linda Tsai with Jefferies. Please proceed with your question.

[Linda Tsai, Jefferies]

Hi. As you look at the 30-plus markets over which your portfolio is spread, which markets do you see as having the most opportunity to expand versus trim over the next few years?

[David Singelyn, CEO]

Yes. Linda, it's Dave. I think without talking about the specifics, I think an easy way to evaluate how we look at it is look at the markets that we are building in. Those are the markets that we see today that have the greatest long-term runway. You have to make a long-term commitment when you do development.

So, we're not in all 30 markets, but we're in a significant majority of them and that's where I would say that we see the greatest opportunity. On the disposition side, I think Chris touched upon this a little bit. I think Bryan did, too. We have an asset management process that we look at properties and markets. We look at the markets detail every quarter on properties pretty much every month.

And with that, we have pared back a little bit in a couple of markets, not that we want to get out of them, but we may have felt that we're a little bit overweight and Chicago comes to mind there.

[Linda Tsai, Jefferies]

And then is the cost of insurance or the ability to ensure shifting your decision to expand or leave certain markets? Or is maturing your captive insurance program the way to reduce risk.

[David Singelyn, CEO]

Yes. So on the insurance aspect, I think the insurance aspect is probably -- should be looked at even in a little bit greater context. And that is where is the cost of maintaining a home from a repair standpoint to the weather standpoint, the insurance standpoint, how does that correlate with where the demand is and where the opportunities are. We have been -- we have looked at this very closely for a number of years.

And you can see that -- if you go back and you look at our history on some of the weather-related issues, go back to Tampa last year. Tampa was a major event. There's no doubt about it, but the hurricane there. our impact in Tampa was pretty minor compared to what we understand others experience.

And so there's a little bit of -- there's a greater analysis than just insurance in that equation. And so but we also have to look at where the demand is and where the potential rental rate increases are as well. So, it's a very large holistic bottom line approach to evaluating markets.

[Operator]

We have reached the end of the question-and-answer session. I would now like to turn the call back over to David Singelyn for closing comments.

[David Singelyn, CEO]

Thank you, operator. Thank you to all of you as well. We'll talk to you again on next quarter's call. Have a good day.

[Operator]

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