American Homes 4 Rent

NYSE:AMH

Earnings Call Analysis

AMH's Strong Performance and Positive Outlook for 2024

American Homes 4 Rent (AMH) reported robust second-quarter results, with core FFO per share growing by 8.5% year-over-year. The company increased its 2024 core FFO per share guidance to $1.76, reflecting 6% growth. This boost was driven by a rise in same-home core revenue growth (now expected to be 5%) and a reduction in core expense growth (down to 6%). AMH's capital activity included a successful $500 million unsecured bond offering, reducing debt maturities risk. The company remains on track to deliver 2,200-2,400 newly developed homes in 2024, emphasizing its ongoing commitment to expanding high-quality rental housing to meet strong market demand.

Strong Performance and Increased Guidance

The company showcased a robust second quarter performance with net income attributable to common shareholders reaching $92.1 million or $0.25 per diluted share. Core Funds From Operations (FFO) per share grew by 8.5% year-over-year, landing at $0.45. This stellar performance led the company to revise its full-year core FFO per share guidance upwards by $0.03 to $1.76, representing a 6% year-over-year growth.

Operational Highlights

During the second quarter, the company's AMH Development program delivered 671 homes, including 580 homes to their wholly-owned portfolio. However, acquisition activities remained minimal, with only 10 homes acquired during the quarter. On the disposal side, the company sold 391 properties generating approximately $125 million in net proceeds. The tight expense controls resulted in same-home core operating expense growth of 4.8%, leading to a same-home core Net Operating Income (NOI) growth of 5.9%.

Balance Sheet and Capital Activity

The company ended the quarter with net debt to adjusted EBITDA at 5.1x. They successfully completed a $500 million unsecured bond offering, which will be used to repay the 2014-SFR3 securitization. This move has effectively derisked their 2024 debt maturities. Additionally, a new $1.25 billion revolving credit facility was closed, providing further financial flexibility.

Updated 2024 Guidance

The company revised its 2024 earnings guidance positively across the board. Same-home core revenue growth expectations were increased by 25 basis points to 5%, while core expense growth expectations were reduced by the same amount to 6%. Consequently, the full-year core NOI growth was increased by 50 basis points to 4.5%. From an FFO perspective, expectations were increased by an additional $0.02 from core NOI and $0.01 from an improved outlook on interest income and G&A expenses.

Market Dynamics and Strategic Focus

The company continues to benefit from the national housing shortage, with elevated home prices and mortgage rates driving strong demand for rental homes. Their strategy includes expanding their development program, which is on track to deliver between 2,200 and 2,400 newly developed homes this year. Their land pipeline of over 11,000 lots supports this growth, reducing dependency on the resale market.

Future Outlook

Looking forward, the company expects normal seasonality in the latter half of the year. Despite a competitive market and some pressure from new supply in areas like Phoenix, the company's built-to-rent product continues to perform well, boasting occupancy rates of over 97%. The company's continued strong performance, disciplined investment approach, and enhanced financial flexibility position them well to capitalize on future opportunities and deliver consistent shareholder value.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings, and welcome to the AMH Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Nick Fromm, Director Investor Relations. Thank you, Nick. You may begin.

[Nicholas Fromm, executive]

Good morning. Thank you for joining us for our second quarter 2024 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 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, August 2, 2024. 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, executive]

Welcome, everyone, and thank you for joining us today. The power of the AMH platform continues to be on full display. We posted strong second quarter results with core FFO per share growth of 8.5% year-over-year. Our teams executed well, and rental fundamentals continue to be strong. Leading us to increase our core FFO per share outlook by $0.03 to $1.76 at the midpoint. This represents 6% growth for the full year. And was driven by increased same-home core revenue and NOI guidance. In addition, we have derisked our debt maturities through our recent 10-year unsecured bond issuance.

As demonstrated by our results this year, AMH continues to be defined by the following concepts: One, consistency and predictability on the operational front; Two, consistent and predictable growth on the AMH development front, through our patient and disciplined approach when the investments meet our corporate objectives and goals; And three, consistency and predictability with our prudent capital allocation strategy and balance sheet management.

Looking at the big picture. Housing fundamentals continue to support the single-family rental value proposition. The national housing shortage and population demographics continue to drive a housing supply and demand imbalance. This dynamic, coupled with elevated home prices and mortgage rates is resulting in high demand for rental homes from people seeking the benefits of single-family living without the cost of, or burden of homeownership.

At AMH, we are doing our part to satisfy the growing demand for high-quality single-family rental housing by providing a superior resident experience and contributing new housing stock through our development program.

Before I turn it over to Bryan, I want to mention that our CEO transition is going smoothly. The AMH team is talented and experienced and our future is very bright. You have seen the power of our platform over the past decade. You can see it in this quarter's results, and you will see it moving forward.

Now I will turn it over for an update on our operations and investment programs.

[Bryan Smith, executive]

Thank you, Dave, and good morning, everyone. Our 2024 spring leasing results were solid, with seasonally strong operating metrics throughout the second quarter. Our teams have done a great job executing across all areas of the business, driving better-than-expected results in both top line revenue and controllable expenses.

During the second quarter, we maintained consistent same-home average occupied days of 96.6%. We accomplished this while accelerating new lease growth in each month of the quarter, up to 6.3% in June and 5.7% overall. As we discussed last quarter, we continued our balanced renewal strategy as we entered the move-out season, and posted renewal increases of 5.2% for the quarter. This resulted in blended spreads of 5.3%, driving same-home core revenue growth of 5.5% by slightly exceeding our expectations on rental rate spreads and resident collections.

On the expense front, tight expense controls across the organization largely drove same-home core operating expense growth of 4.8%, which was better than what we were expecting. All of this resulted in same-home core NOI growth of 5.9% for the quarter, demonstrating the power of the AMH platform, and our team's ability to deliver consistent and predictable results through the spring leasing season.

Looking forward, we expect to see normal seasonality in the back half of this year. The team has done a great job building momentum due to leasing season and is now shifting focus to managing our turnover inventory.

For the month of July, same-home average occupied days remained strong at 96.3%. This was in line with our expectations and reflects the impact of the start of move-out season. Leasing spreads continued to hold steady with new and renewal rate growth of 6.2% and 5%, respectively.

Our strong performance in the first half of the year, combined with our outlook for the remainder of the year has led us to increase our full year same-home core NOI growth guidance by 50 basis points to 4.5% at the midpoint. This reflects a 25 basis point increase in our full year core revenue outlook driven in part by a 50 basis point increase in our rate growth expectations for the back half of the year. In addition, the updated outlook reflects a 25 basis point reduction in our full year core expense growth.

Lastly, on the investment front, we remain patient and disciplined as we continue to invest into our vertically integrated in-house development program. We are on track to deliver between 2,200 and 2,400 newly developed homes this year at average economic yields in the high 5% area based on year-on rents, stabilized expenses, and a reserve for CapEx.

As a reminder, we fully control our land pipeline of over 11,000 lots. Not only does this fuel our growth for the next few years, but it also reduces our dependency on the resale market, or in other homebuilders for external growth. This is another example of the consistency and predictability that is at the core of the AMH strategy.

In closing, the first half of the year was characterized by great execution across the organization. Our momentum from the spring leasing season and our increased outlook represents the power of the AMH platform and the continued strength of fundamentals in the single-family rental sector.

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

[Christopher Lau, executive]

Thanks, Bryan, and good morning, everyone. I'll cover 3 areas in my comments today. First, a review of our quarterly results. Second, an update on our balance sheet and recent capital activity. And third, I'll close with commentary around our increased 2024 guidance.

Starting off with our operating results, we delivered another solid quarter of consistent operational execution with net income attributable to common shareholders of $92.1 million or $0.25 per diluted share. On an FFO share and unit basis, we generated $0.45 of core FFO, representing 8.5% year-over-year growth and $0.39 of adjusted FFO, representing 9.4% year-over-year growth.

From an investment perspective, for the second quarter, our AMH Development program delivered a total of 671 homes to our wholly-owned and joint venture portfolios. Specifically, for our wholly-owned portfolio, we delivered 580 homes for a total investment cost of approximately $224 million.

Outside of development, our acquisition programs continue to remain largely on pause as we acquired just 10 homes during the quarter. Additionally, during the quarter, we sold 391 properties generating approximately $125 million of net proceeds at an average economic disposition yield in the mid-3% area.

Next, I'd like to turn to our balance sheet and recent capital activity. At the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was down to 5.1x, our $1.25 billion revolved credit facility was fully undrawn. We had approximately 3 million shares outstanding on a forward share basis for estimated future net proceeds of $109 million and we had over $700 million of cash available on the balance sheet, which includes the proceeds from another successful and opportunistically timed unsecured bond offering during the month of June. The transaction was meaningfully oversubscribed priced with an attractive coupon of 5.5% and raised total gross proceeds of $500 million that will be used to repay our 2014-SFR3 securitization during the third quarter.

Following the June bond offering, our 2024 debt maturities are now fully derisked, which further strengthens our financial flexibility and firepower to take advantage of additional growth opportunities when they present themselves. Additionally, following the end of the quarter, we successfully closed a new $1.25 billion revolving credit facility, which proactively replaced our previous credit facility that was initially scheduled to mature in the first half of 2025. Terms of the new credit facility include a modestly improved cost of borrowing, fully extended 5-year term and enhanced sustainability feature that is now linked to the energy efficiency of our newly constructed AMH development homes.

And before we open the call to your questions, I'll cover our updated 2024 earnings guidance, which was positively revised across the board in yesterday evening's earnings press release.

Starting with the Same-Home portfolio. recognizing our strong leasing spreads and improved bad debt outlook that we now expect to approximate 100 basis points on a full year basis we've increased the midpoint of our full year core revenues growth expectations by 25 basis points to 5%.

And on the expense side, factoring in our team's ongoing solid cost control execution, as well as a modestly favorable property tax information. We've also reduced the midpoint of our full year core expense growth expectations by 25 basis points to 6%. Which translates into an overall increase of 50 basis points to the midpoint of our full year core NOI growth expectations to 4.5%.

And from an FFO perspective, we now expect an additional $0.02 of FFO contribution from our increased core NOI expectations across the entire portfolio. As well as an extra $0.01 of contribution from our modestly improved full year outlook around interest income and G&A expense. And in total, we have increased the midpoint of our full year 2024 core FFO per share expectations by $0.03. Our new midpoint of $1.76 per share reflects the high end of our previous range and now represents a year-over-year growth expectation of 6%.

And as we open the call to your questions, I'd like to share a quick thank you to our team. This was a solid quarter for AMH across the board that demonstrates the total power of the AMH platform and our ability to consistently and predictably deliver shareholder value creation again and again and again.

And with that, thank you for your time, and we'll open the call to your questions. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of Juan Sanabria with BMO Capital Markets.

[Juan Sanabria, analyst]

Just curious if you could talk a little bit about the July trend. I believe you gave the new lease rate growth for July. But curious on the renewals for July and where you're sending those out. If you could just give us -- I think you mentioned you increased your blended lease rate expectations by about 1% for the second half. So if you can give any more details around that, that would also be appreciated.

[Bryan Smith, executive]

Juan. This is Bryan. July was strong. We posted new lease rate growth of 6.2%, as I said in the prepared remarks, and renewals came in at 5%, We're sending out we're mailing renewals in the low 5s. It's really a nice balanced approach to our revenue management process.

And in terms of our outlook for the second half, as I mentioned earlier, we increased our outlook by 50 basis points in terms of spreads in the back half of the year. And that bolstered by really outstanding demand across our diversified portfolio footprint, a lot of strength in certain regions like the Midwest and the Carolina's. The new lease expectations have been increased significantly. There's a little bit of a benefit, at least in our outlook to renewal rates in the back half of the year, although we're expecting those to come in both new and renewals in the high 4% range.

[Juan Sanabria, analyst]

And then just curious, one of your peers talked about some impact or negative effects from new supply starting to be felt a bit more broadly calling out. Florida as well as through price [ fatigue ]. So just curious on what your guys take is on those 2 points? Are you seeing that in any particular regions in your portfolio?

[Bryan Smith, executive]

Yes. I think, in terms of supply, the area that seems to be most effective, it's been talked about a number of residential calls is in Phoenix. Phoenix is really kind of the center point for a lot of the new built-to-rent supply that's coming on with the market. There's a couple of key points, though, that I'd like to make. One, not all built-to-rent is the same. It's not all created equal. We feel we're referring to built-to-rent supply. They're talking about townhomes and row houses and horizontal apartments. In fact, I think John Burns cited that less than 25% of the built-to-rent inventory in Arizona is single-family detatch, which is the product that we're building.

With increased built-to-rent supply and the increased multifamily supply, there is some pressure on occupancy in a market that's seen outstanding growth over the past 5 or 6 years. That's still performing well in the 95% area, but there is a little bit of pressure. Most notably though, the built-to-rent that we're bringing in the market in Phoenix, as I said, a single-family detached, very well located, and it's performing extremely well. In fact, our new built-to-rent product is in excess of 97% occupied in that particular market.

So there is some supply pressure. We believe it will be temporary. It may not necessarily be like-for-like product to ours. But Phoenix remains a very strong market. We expect that to get absorbed in the near term.

[Operator]

Our next question comes from the line of Eric Wolfe with Citibank.

[Eric Wolfe, analyst]

I think you mentioned in your remarks that your bad debt that you're expecting right now is just 1%. And I think it was 1.2% last year. So I guess I would think that would help your same-store revenue by about 20 basis points relative to your original guidance. So I was just curious, like, is the blended spread just adding another 5 bps, just trying to bridge the gap between your original guidance and your new guidance and what's contributing to the 25 bps increase?

[Christopher Lau, executive]

Sure, Eric. Chris here. Thanks for the question. In terms of the guide, I would think of the increased 25 basis points is largely coming, call it, half-half, half from our increased spread outlook and half from our better-than-expected bad debt experience.

Just on the topic of collections, maybe if I can share a little bit more color. The general update is pretty consistent to our discussion last quarter. We're continuing to see strong collection trends into the second quarter. And I think what was really encouraging about what we saw is that our collection patterns were strong pretty much across most areas of the portfolio, which we view as a really positive indication with respect to the financial health of the AMH resident base.

To your point in terms of tying that into the guide. With that said, think about our outlook for the balance of this year. Look, we're very mindful of the fact that bad debt levels typically correlate higher with move-out season. And with that in mind, we've left our bad debt outlook is contemplated in guidance for the second half of the year in the low 1% area or so. Pretty consistent with the back half of last year, as you point out, bringing our full year bad debt outlook to 1% on average.

But look, I'm hopeful that we can do better than that and provide a nice update in the back half of this year. But at this point, I think it's important that we remain prudent given that the majority of move-out season is still ahead of us.

[Eric Wolfe, analyst]

Got it. And I guess, where is bad debt trending today? So I mean maybe just the last couple of months in terms of where it's been?

[Christopher Lau, executive]

Yes. Second quarter ran at 90 basis points.

[Operator]

Our next question comes from the line of Jamie Feldman with Wells Fargo.

[James Feldman, analyst]

So given some of the positive updates on expenses and property taxes in states where you have more visibility, we're wondering what your current guidance assumptions are for Florida and Georgia. And if those assumptions have changed at all? What's the right way to think about taxes in those states, because you will get your millage rate closer to November?

[Christopher Lau, executive]

Sure. Jamie, Chris here. Yes, I can get kind of a little bit more of the broader property tax update and tie in Florida and Georgia as well. Look, the general update at this point is, keep in mind, we're really only about halfway through the property tax calendar event year. At this point, we've received initial assessed values for a little over half of the portfolio overall. As we've talked about plenty of times, that then really starts the beginning of the appeals process that runs over the course of summer and into early fall. With the remainder of our values being received in the third quarter. And then as you point out, with the majority of our tax rates across the board for the most part, being received in the fourth quarter.

So, look, we're still early in the year. As I mentioned in the prepared remarks, we have seen and received some positive news out of Indiana. Indiana runs on an earlier schedule than most other states, and that is what at this point is driving the 25 basis point reduction in our guidance. Outside of Indiana, based on the rest of the information we've received to date, we're feeling pretty good about the new midpoint of 7% growth for this year on a full year basis.

Just -- the color on Georgia and Florida, in Georgia, at this point, we've received a good portion of our initial assessed values and that then, as I mentioned, kicks off appeals season. A little bit hard to say on Georgia. We've seen some values come in slightly below initial expectations. But like I said, still early, and we really don't have any visibility into rates on Georgia at this point. So, too difficult to say one way or the other. And then Florida, as we know, is really kind of a third and fourth quarter event type of state.

[James Feldman, analyst]

Okay. That's very helpful. And then I guess just shifting just to talk about the markets. Your Midwest markets have been particularly strong, as you mentioned, I was hoping to get your thoughts on why you think why -- I know there's an article in Journal today talking about Milwaukee specifically, and the challenge in buying homes there. But -- just maybe thoughts on the Midwest and then clearly, the market is pricing in lower rates ahead, which of your markets would you be concerned about most if mortgage rates do come down about being more challenged on the occupancy front or higher turnover?

[Bryan Smith, executive]

Jamie. This is Bryan. We're really pleased with the performance of the Midwest markets this year. Our homes there are really high quality and characterized by being in really good locations. And we're seeing some strong in-migration -- goes back to what we've talked about for the past couple of years, just the real appreciation of the value proposition of single-family homes. And in the Midwest, that's characterized by good neighborhoods, large yards and really high quality-of-life moves, I think. But we're really pleased with that performance. There's talk of moderation, I read the same articles as well. But our portfolio specifically is well positioned for continued success there.

And then in the event of a change in mortgage rates, it really depends on supply of new housing and our markets are characterized by pretty heavy supply constraints, especially on for sale product. Again, it's the #1 reason for move-out, but we've done well when the value proposition or the delta between cost of owning and cost of renting was a lot tighter. So we seem to be pretty durable in all cycles.

[Operator]

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

[Jeffrey Spector, analyst]

One follow-up to that, Bryan. Can you quantify that last comment because that is still one of the big concerns, right, investors have on lower mortgage rates means you'll see a flock of renters leave to go buy homes. So you commented that when things were tighter on cost to own, to rent, you had -- you were resilient. I guess, can you quantify that versus today?

[Bryan Smith, executive]

Yes. Again, as I mentioned in the last question. It's still the top reason for move out. We do have residents that are going to transition into ownership. But the business held up very well during periods of time with low mortgage rates and a lot of supply on new builds. We're obviously not immune to the effect of a major change there. But I think the effect won't be as dramatic as some might be thinking.

Again, you've got to get back to the basis though, that we are supply constrained for high-quality housing across the board in our markets. And I think that will provide a lot of support for our occupancy and rate.

[David Singelyn, executive]

Jeff, it's Dave. I think that last point is the key point. We're undersupplied in housing throughout this country. But more importantly, we're very undersupplied where migration is moving to, and that's the markets that we're in. So we need more housing if rates come down and some people can buy houses all the better. But it's not going to solve the housing problem. And demand is going to remain very strong. Two other points to it. One is, there still remains a very, very large delta between cost of ownership and renting.

And the last point is, if you go back before the interest rates moved up, demand was getting stronger each and every period without the delta. That was due to the lack of housing, especially in migration markets. So we're going to continue to see very, very strong demand in all economic cycles.

[Jeffrey Spector, analyst]

And then the follow-up question I have on development -- the development yield you're earning. You talked about in your opening remarks, I think you did say that construction costs are trending down. Is that helping the yield that you think you can earn in year 1 or year 2?

[David Singelyn, executive]

Yes. No, I don't know that development costs are trending down. The growth in the speed at which they were going up is definitely declining. It used to be a very, very red hot market still competitive, whether you're talking about land or for trades.

What we are going to be delivering through the balance of this year, I think I've had in prepared remarks, it will continue to be in the high 5s. We are buying -- we are seeing some land opportunities. That's a new ability for us to start buying a little bit of land, and I use the word little and underlying it. But we're seeing some sharp shooting opportunities in really all of our markets. And we're going to probably have about $50 million of new land this year.

We'll have a little bit more that we were putting under contract right now for next year. Some of this land will take a little longer to close because the sellers that we require to get it fully entitled for us. And the yields on that are going to be in the low 6s%. It will be above 6%. So you're seeing some improvement as we move forward.

[Operator]

Our next question comes from the line of Linda Tsai with Jefferies.

[Linda Yu Tsai, analyst]

The 391 homes, $125 million in net proceeds and a yield of mid-3%. Would you expect the mid-3% yield to stay stable? And how much visibility do you have on dispositions?

[Christopher Lau, executive]

Sure. Linda, Chris here. Look, I think that mid-3s%, it's pretty representative of what we're seeing in the marketplace right now, mid- to high 3s% or so, and we've been pretty consistent in that area for the last several quarters at least.

Overall, I would say we're continuing to see really solid traction through the disposition program. First half of this year that the teams did a great job capturing the spring and the summer selling season. As you point out, selling 391 homes in the quarter, bringing our year-to-date disposition activity to a total of 862 properties, which is slightly better than about half of our full year expectations, which is great from a capital recycling perspective, helping to contribute to interest income in the meantime. While really getting attractively redeployed into our growth programs.

So just tying that into the full year outlook, recognizing that home sales in activity typically slows down in the back half of the year. It feels like we're still right on track for our full year expectations of around 1,500 dispositions and something in the 3s% from a disposition cap rate perspective feels right.

[Linda Yu Tsai, analyst]

Would you continue to expect to lean into dispositions more as you head into next year?

[Christopher Lau, executive]

We would. And like we've talked about many times before, One of the great aspects of our asset class is its granularity and our ability to really make smart asset management decisions down to the unit level. Refining the portfolio and finding attractive opportunities to really, attractively, recycle that capital into our growth programs.

The other catalyst, I would say, to disposition opportunities is the collateral that is currently being freed up from our remaining securitizations that are coming off of the balance sheet. If you recall, we had 2 securitizations that were maturing this year, the first of which was already paid off in the first quarter. The second of which we mentioned this -- I mentioned this in prepared remarks, after the successful June bond offering will be paid off in the third quarter. The 2 of those securitizations will release about 9,000 homes or so. And then we have 2 more securitizations that become repayable in 2025.

Game plan, as we've talked about, is to refinance those on an unsecured basis. moving the balance sheet to a 100% unencumbered balance sheet, also freeing up probably 8,000 to 9,000 homes that will be essentially the next leg of opportunity from a disposition and asset management perspective.

[Operator]

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

[John Pawlowski, analyst]

Chris, just a few quick questions on expenses. I know it's too early to talk specific numbers, but just in terms of directional moves, do you expect any expense line items to reaccelerate next year?

[Christopher Lau, executive]

John, next year, well, look, I would say -- this year, in particular, as we're thinking about momentum and execution from the team, we're feeling really good about things across the board. We talked about property taxes coming down 25 basis points at the midpoint on a full year basis.

And then importantly, outside of property taxes, look, the teams are doing a really good job doing what we call, controlling the controllables and executing really well across the portfolio. Driving the revised outlook on nonproperty tax expenses, down by 25 basis points to 5% at the midpoint.

So I agree with your statement, it's probably a little bit early to be talking about numbers for next year. But from a controllables perspective, like I said, the team is doing a great job. We're really seeing the benefits from many of our investments like Resident 360. And I would expect all of those programs and the team's execution to continue into next year as well.

And then from a property tax perspective, again, can't talk to numbers, no crystal ball here, but like we've also talked about many times. Property taxes in part, are a function of property values. And our expectation for some time now has been, now that rate of home price appreciation hit the high water mark in, call it, 22 or so. On a lag basis, our expectation is that property taxes should be coming off of the peak and moderating over time. I think that we're seeing that this year.

Again, I can't crystal ball it yet, but it wouldn't surprise me if hopefully, property taxes continue as rate of moderation into next year. Can't quantify it, but we feel good from a directional perspective.

[John Pawlowski, analyst]

Okay. One last follow-up on repair and maintenance and turnover costs, just given the increasing length of stay, you turn some of these homes that really haven't turned into post-COVID environments and kind of evictions and bad debt fully normalize. Do you think we'll see a temporary period of above-average R&M and turnover costs because of deferred spend.

[David Singelyn, executive]

Yes. John, it's Dave. I would reiterate a couple of things that Chris said, and I'll then tie it into the question. And that is, we invested in our teams, our field teams 2 years ago in this Resident 360. And we have a lot more visibility and a lot more discipline in the field around our repair and maintenance.

The second thing is that the seasonality of this business, and it is a seasonal business, has largely returned. And so the comparisons on a period-to-period basis, on a year-over-year basis are going to be much better than they have been -- in the last couple of years as we were going from pandemic patterns back to regular seasonality patterns.

And the third area that I would talk about that gives us confidence in our repairs and maintenance is the fact that we continue to add a lot of new homes to our portfolio that are purpose built-for-rental by us with materials and in a manner that has long-term maintenance in mind.

So the average age of our homes is remaining consistent and the portfolio as a whole is not aging significantly. But more importantly, the age of the home is one piece, the quality of the home, the higher-end plumbing fixtures. The way the flooring is built, the decking is built is keeping today and will keep in the future our maintenance cost much more under control than if we didn't do that.

[Operator]

Our next question comes from the line of Daniel Tricarico with Scotiabank.

[Daniel Tricarico, analyst]

Chris, you noted the collateral from the securitization. Could you give us a sense on the magnitude of those disposition opportunities from those assets? And could it be large enough of the source of funds that would lead you to ramp up the development pipeline a little more?

[Christopher Lau, executive]

Sure. Daniel. Yes, in terms of framing the collateral magnitude. Each one of our securitizations, these are average numbers, each one of our securitizations is collateralized by, call it, 4,500 properties or so. So the 2 securitizations, either paid off or being paid off this year, will free up about 9,000 homes. And then as we refinance, as I mentioned, our 2 opportunities next year on an unsecured basis. That will free up another 9,000 homes. Which really, as I mentioned, creates a great opportunity to fine-tune the existing portfolio and really attractively recycle that capital.

The one thing that I would point out, though, just in terms of timeline to recycle that capital, I wouldn't think of it as a flipping of the switch overnight on the recycling of that capital in large part because of the channel through which we are selling those homes, right? Pretty much all of our dispositions these days are being sold through the MLS to end-user homeowner buyers. Which means that we need to have vacant units to be able to put on to the MLS.

And as we think about having vacant units to sell, it's a good problem to have, but 96% plus of our homes are not vacant. And so we need to let leases roll. After leases roll, residents move out when homes are identified for disposition. We'll spend a short amount of time prepping those homes for sale and then putting them on to the market after that.

So big opportunity ahead of us, and I would think of it more of a kind of a gradual runway of opportunity to refine fine-tune the portfolio and attractively recycle capital for years to come, especially as this collateral is being released.

[Daniel Tricarico, analyst]

Chris, I guess I'll keep you here. You gave the guidance change breakdown. Nothing specific on occupancy. So the low 96% expectation you had initially unchanged and I guess, just, with the strength in demand you're seeing, is that keeping you more towards a rate focused strategy at this time of the year?

[Bryan Smith, executive]

Jesse (sic) [ Daniel ] This is Bryan. We're not focused on any one component of revenue. Our objective is really just to consistently maximize revenue and revenue growth over time. So the 96% that you're seeing, it is consistent with our expectations at the beginning of the year and our increased rate outlook is us being able to capitalize on that increased demand. But we're not focused on any one metric in isolation.

[Operator]

Our next question comes from the line of Jesse Lederman with Zelman & Associates.

[Jesse Lederman, analyst]

Looks like you reached a single-digit rate of inflation on insurance expense for the first time since late 2020. Can you give us an update on what you're seeing on the insurance side of the business, please?

[Christopher Lau, executive]

Sure. Jesse, Chris here. Yes, I would say from an insurance standpoint, that's an actual renewal number at this point. If you recall, our renewal falls during the first quarter. And so our renewal was done. We knew the actual number and contemplated it in guidance this year. What we saw in the second quarter, I think, is a little bit of a function of where some of the prior year quarterly comps fell on a full year basis, as we talked about at the start of the year and as contemplated in guidance, we would expect insurance to land in the high single digits from a full year perspective. And I think it really reflects 2 things. One, as I'm sure you've heard from elsewhere the insurance landscape overall has been improving this year, which is great from an insurance and broader industry perspective. And I think it's also a reflection of the favorable risk profile associated with dispersed single-family assets.

And then in particular, the AMH risk profile, especially in and around weather events, in large part, thanks to our team's really mature disaster preparedness and response programs, which has differentiated the AMH risk profile, which you can see reflected into our insurance renewals.

[Jesse Lederman, analyst]

Great. That's helpful. Shifting gears to the development pipeline. It looks like you'll have a high exposure going forward to markets that are already burdened by increased supply. So if I look at Phoenix and Vegas, in particular, it looks like 30% of your future lots will come from those 2 markets. And of course, this reflects investments made a couple of years ago and fundamentals in those markets were particularly strong. But is there any concern that such a large percentage of development conceivably will come from areas where more supply is and will be coming online?

[David Singelyn, executive]

Yes. This is Dave. The answer is no. I don't have a concern. Let me give you -- I think Bryan mentioned some of this. Our built-to-rent is not the same as the built-to-rent that is coming in. And we're seeing very, very high demand for our built-to-rent. We talked about location is important and where our homes that we are delivering are in those infill locations. And that's right next to where the homebuilders are building for retail sale. It's not where they're building their built-to-rent.

When you look at the type of home that -- or residents that we're building. Bryan mentioned this already. We're building detached homes. Again, closer to the employment areas of the city because of their location. And we're not building the attached homes. If you look at what is going on today in the built-to-rent deliveries, the built-to-rent deliveries 21%, 22% of them are -- this is nationwide are detached. The attached homes are on market much longer, and they are having concessions being offered in order to rent them.

Our homes with no concessions, all of our built-to-rent product that we have that we are delivering is 97% occupied today, high, high demand for our built-to-rent products. So I see it as being a higher quality product and higher demand than other built-to-rent. And I don't have concerns about the occupancy of our built-to-rent deliveries in the future.

[Operator]

Our next question comes from the line of Adam Kramer with Morgan Stanley.

[Adam Kramer, analyst]

Congrats on a really strong quarter in guide raise. I wanted to ask about kind of how you view your cost of capital today? I guess, specifically, your equity cost of capital looks like active on the ATM a little bit. Last year and a little bit earlier this year, but not in the second quarter, it looks like the stock price today is a little bit higher than where you were issuing in the first quarter.

So -- just again, maybe specifically with your equity cost of capital but even just generically across all the different forms of capital, how you think about kind of cost of capital today?

[Christopher Lau, executive]

Sure. Adam, Chris here. Look, I think things are moved -- moving up and down, moving in the right direction. Clearly, we'd still like to see more from an equity cost of capital perspective. What I would remind you of in terms of where we were active earlier this year. Small opportunities, small equity raise earlier this year, fully on a forward basis. And if you recall, that was actually event-driven on the back of our S&P Index inclusion, where we had an opportunity to top up the tank in a small way north of $37 totally on a forward that we will use opportunistically going forward.

But I think that that's the keyword as we think about cost of -- and use of capital, opportunistic, right? It's all relative to the opportunity set and finding the right places and opportunities to use our cost of capital attractively relative to the opportunity set. And the important thing to keep in mind is how we have sized the capital plan, and in particular, the development program, right?

We've talked about it a lot of times but we've been very thoughtful about sizing the development program so that in any given year, our land pipeline and our development program can be constructed and built without the need for equity in any one given year, right? The development program on a calendar basis is fundable through a combination of retained cash flow from the business. Some level of recycled capital from dispositions and then leverage capacity off of the balance sheet, which then means equity can become an opportunistic weapon to look for incremental opportunities. Maybe it's a little bit more development. Maybe it is MLS or national builder opportunities in the future when they start to make sense or portfolio opportunities as we look for those types of opportunities down the road that we've talked a lot about, right? We're really optimistic on the portfolio front down the road.

As we know, there are a lot of assemble portfolios out there that have been on the IRR clock now for a number of years that are going to need to find liquidity especially in today's cost of debt environment. And those are fantastic opportunities for us, especially as you think about the value that we can create and unlock in those smaller and medium-sized portfolios by bringing on to our platform and bringing up to our operating standards. And something like that on a relative basis, could make a ton of sense relative to cost of capital.

But like I said, they need to be the right opportunities and because of the built-in growth from our development program, we don't need to stretch ourselves. And like you always hear from us, we are unwavering on our commitment to the buy box around location, quality and price.

[Adam Kramer, analyst]

Chris. That was really helpful. Just on a little bit of different note. Just wondering on some of the comments around kind of the renewal rate and where you're going out with renewals today. Maybe just quantifying kind of what the take rate is on renewals either today or maybe your expectations for the second half of the year kind of take rate on renewals? And then how does that compare to history? Just kind of rule of thumb in terms of kind of take rate on renewals?

[Bryan Smith, executive]

Yes, Adam. This is Bryan. As I talked about a little bit earlier, the 70% retention rate is kind of the expectation going forward. And if you look at that in a historical context of a pre-COVID context, it's a pretty significant improvement over to what our run rate was back then for a couple of reasons. One, we've talked about the supply dynamics. But we've also really improved the offering. And I think the residents are appreciating the power of the maintenance platform and the services platform. So 70% is right what we're targeting. And again, really nice improvement over the past 5 or 6 years.

[Operator]

Our next question comes from the line of Brad Heffern with RBC Capital Markets.

[Brad Heffern, analyst]

For-sale housing supply has picked up in a lot of your markets, and I think pricing is looking a little weaker in a few places. Obviously, rent just continue to go up as well. So I'm curious if you're closer to a place where you might want to acquire in a more active way or if the economics are still quite far from what development gives you?

[Bryan Smith, executive]

Yes, Brad. This is Bryan. In terms of national builder activity, we continue to review tens of thousands of homes. We're active in reviewing really across the portfolio. And if you look at our specific buy box and the bid ask spread, it's consistent with what we talked about last quarter, somewhere in the 15% to 20% range before they start to make a lot of sense for us in today's current environment. So we aren't seeing any significant movement. But when it happens, we'll be ready to take advantage of it.

[Brad Heffern, analyst]

Okay. Got it. And then, Chris, I think in the second quarter, there was a bigger sequential jump in FFO than what you would typically have. I'm just curious, is that just shifting timing? Was there maybe anything onetime in the quarter? Any color there would be great.

[Christopher Lau, executive]

Sure. No, nothing -- definitely nothing -- one tiny. I think it's largely a function of timing of prior year quarterly comps as well. And you can see it in the same-store pool a little bit. If you look at property taxes, for example, that ran sub-5% relative to the full year expectation at 7%. And that really has to do with timing of where some of the things fell on a quarterly basis last year.

[Operator]

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

[John Pawlowski, analyst]

Bryan, I have a kind of a broader question about how you think through your geographic footprint today. So you're in, call it, 35 markets, and there's plenty of diversification within submarkets within every one of those markets. So curious how you think through potential merits of concentrating your capital in a shorter list of markets to drive better density and perhaps better efficiency at the corporate level or the property level rather?

[Bryan Smith, executive]

Yes. Thanks, John. This is Bryan. We're very pleased with our diversified footprint. We have proven -- we built an operating model that allows us to be very efficient in some of the satellite markets where we may not have a huge presence, but the efficiencies are still there. I've talked about it in the past, we manage a lot of these markets through kind of a hub-and-spoke system, and it's proven to be a really good way to allow us to have that expansive footprint.

In terms of concentration on select markets, I think you can see it in where we're targeting our development program and the growth there. We're not developing in every market across the United States. Although we're very pleased with our portfolio footprint, we're more excited about growth in the development markets. I think we're in 16 markets still right now. And that's the area that we're concentrating on growth. And really laying into -- and it ties right into your question, too, because remember, in most cases, we're delivering communities which have a lot more density, obviously, and potential for increased efficiencies on repairs and maintenance and operating side.

[Operator]

There are no further questions at this time. I'd like to turn the call back over to management for closing comments.

[David Singelyn, executive]

Thank you, operator, and thank you to all of you for your time today. Have a great weekend, and we will speak with you next quarter.

[Operator]

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