American Homes 4 Rent (NYSE:AMH) Q4 2022 Earnings Call Transcript

Page 6 of 15

Bryan Smith: Thanks Steve. I’ll start on the rate side. Our expectations for the full year are for re-leasing and renewal spreads to grow in the 5% to 6% range pretty close to being in step. We had an excellent start to January, where we’ve exceeded that. The guide contemplates a little bit of a slowdown as we proceed through the year. We’re going to continue to push those rates as much as we can, but we’re also being conservative in light of the current economic environment. So, 5% to 6% for the year, blended with new and renewals being consistent.

David Singelyn: Yes. And Steve, to your second question on the Resident 360 program and margins and cost pressures. It — based on what we saw in the pilot program, it takes about one year to get the program rolled out, get the individuals trained, get some of the redundancies that do occur when you roll out initiatives like this behind you. So, I would expect that we will start seeing benefits maybe in the fourth quarter, but we would see benefits in 2024. I don’t expect we would see any material incremental cost from this program in 2024, maybe a little bit of trailing cost at the beginning of the year, depending on how fast it gets rolled out. But based on what we saw in the pilot program, it took us about one year to start enjoying or seeing the benefits of the initiative.

Steve Sakwa: Okay. And just one other question on CapEx, Chris, I don’t know if maybe I missed it, but did you talk about just what maintenance CapEx would be? I mean I know that, that’s kind of been trending up for you and some of your peers. And I’m just wondering what your expectations are for maintenance CapEx in 2023.

Christopher Lau: Yes. Good question, Steve. I can share thoughts and if Bryan wants to add any color. We didn’t comment on it — in guidance. But generally speaking, the primary driver to CapEx is the inflationary environment. And as we’ve talked about before, the highest and best use for our internal labor is more on the maintenance and turn side, not the full system replacement type of work, which is more represented in CapEx, which means that line item is a little bit more susceptible to third-party labor and full material inflationary pressures, which is why we saw it in the 20% area in 2022. We’ll probably see something like that again in 2023, given that we continue to expect another year of strong inflationary pressures in terms of third-party labor and materials.

But we’re doing everything we can to maintain it and mitigate it. And Bryan can comment as well as Resident 360 continues to roll out, expanding focus on maintenance delivery capabilities and bandwidth. One of the areas of potential benefit there is being able to do more on the CapEx side as well.

David Singelyn: Steve, this is Dave. Let me add a couple of things. One is our asset management program, which includes our development deliveries. And as you saw, we sold about 1,000 homes this year. The whole thing focuses on many, many variables. But one of the variables that you get through your development program is keeping the average age of your portfolio to be younger. And that has a benefit on maintaining expenses and capital expenditures as well. And if you look back over the last five years or so, I think our AFFO as a percent of FFO has been 88%, 89%, very consistent year in and year out. And I would expect that to be materially the same this year with inflationary impacts impacting our CapEx.

Operator: Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

Page 6 of 15