American Homes 4 Rent (NYSE:AMH) Q3 2022 Results Conference Call November 4, 2022 12:00 PM ET
Company Participants
Nicholas Fromm – Senior Manager of Investor Relations
David Singelyn – Chief Executive Officer
Christopher Lau – Chief Financial Officer
Bryan Smith – Chief Operating Officer
Conference Call Participants
Nicholas Joseph – Citigroup
Juan Sanabria – BMO Capital Markets
Stephen Sakwa – Evercore ISI Institutional Equities
Adam Kramer – Morgan Stanley
Haendel St. Juste – Mizuho Securities
Bradley Heffern – RBC Capital Markets
Dennis McGill – Zelman & Associates
John Pawlowski – Green Street Advisors
Neil Malkin – Capital One Securities
Chandni Luthra – Goldman Sachs
Samuel Choe – Crédit Suisse
Linda Tsai – Jefferies
Jade Rahmani – Keefe, Bruyette, & Woods
Anthony Powell – Barclays
Austin Wurschmidt – KeyBanc Capital Markets
Operator
Greetings, and welcome to the American Homes 4 Rent Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Nick Fromm, Senior Manager of Investor Relations. Thank you, sir. You may begin.
Nicholas Fromm
Good morning. Thank you for joining us for our third quarter 2022 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, November 4, 2022. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
A reconciliation of GAAP to non-GAAP financial measures is included in our earnings press release and supplemental information package. As a note, our operating and financial results, including GAAP and non-GAAP measures, are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.americanhomes4rent.com.
With that, I will turn the call over to our CEO, David Singelyn.
David Singelyn
Welcome, everyone, and thank you for joining us today. Before we begin, I want to take a moment to thank our team members for their efforts surrounding Hurricane Ian. The safety of our residents and team members is our number one priority, and our disaster response team was in place and ready to act within a moment’s notice.
Chris will talk through the numbers later in the call, but we are fortunate with the ultimate path of the hurricane. That said, we recognize many others are suffering hardships from the storm and to help American Homes 4 Rent has donated to various Hurricane Ian relief efforts.
Our employees are also assisting their communities by working with shelters, contributing to charitable groups and providing necessary food and supplies. Our thoughts go out to everyone who has been affected as we hope for a quick recovery.
Now turning to the quarter. We delivered another round of consistent results with core FFO per share of $0.39, representing 11.6% year-over-year growth. Bryan and Chris will provide more details on our operating results in a moment.
But first, I will discuss the macro environment. This country is in an uncertain economic period. Elevated inflation has been persistent and has forced the Fed to significantly raise interest rates. Today, the housing market is showing signs of disruption like it did in the 1980s and the global financial crisis.
In this environment, the resiliency of the single-family rental asset class is on full display. Our national platform and strong balance sheet position us to capitalize on any opportunities that may arise.
Cyclical durability has been at the core of the American Homes 4 Rent thesis from day one. Housing is a bedrock need and single-family rental fundamentals are supported by favorable long-term supply and demand dynamics.
On the supply side, our country has a housing shortage. This is only getting worse as projections for single-family housing permits continue to decline. On the demand side, our business continues to benefit as the value proposition of high-quality housing without the headaches of homeownership becomes more appreciated.
Recently, this demand trend has been supplemented by the fact that renting today is significantly more affordable than homeownership. Using recent John Burns data, it is about 15% cheaper to rent versus own across our top 20 markets.
On the investment front, we continue to deliver high-quality homes from our development program. I’m excited to see the progress we have made in some of our recently opened development markets in the West. Please keep in mind that cost for initial deliveries in newly opened markets tend to be elevated, which is reflected in this quarter’s deliveries.
Overtime, our pipeline in these markets will continue to mature, and we will realize economies of scale. Also, as outlined in yesterday’s press release, our 2022 delivery guidance was slightly reduced to modest construction delays in Florida. This is purely a timing issue caused by the hurricane.
Now looking forward. Today’s uncertain housing market reminds us of 2011 when American Homes was launched and began significantly growing its portfolio. Today, we are taking a patient and disciplined approach to acquiring homes and land parcels. Price discovery continues and further adjustments are necessary before it makes sense for us to come back in a meaningful way to the open market.
With borrowing rates remaining elevated, challenging times may be ahead for private portfolios, homebuilders and landowners. This will likely result in significant opportunities for American Homes 4 Rent. Today, there is inventory of tens of thousands of builder homes and a growing backlog of homes on the MLS as days on market continue to elongate.
While the majority of these homes are in secondary and tertiary markets or do not meet our quality standards, we are beginning to see price reductions on those homes that do. Today, these homes do not fit our yield requirements.
But overtime, I believe we will see opportunities to acquire high-quality, well-located homes. While we are excited about these opportunities, our development program remains the best avenue for consistent growth.
Today, we see two encouraging signs. First, high-quality and well-located lands becoming available, including vacant developed lots that are ready for vertical building. We continue to see price adjustments and remain patient and disciplined in our land acquisition program. Second, with homebuilders slowing their development programs, we are seeing favorable price movements in construction materials and labor.
To-date, prices have declined on most early-stage homebuilding input costs through the drywall phase. As homebuilding slows, I expect we will continue to see favorable movement in our cost to build homes. This, along with favorable operating trends should result in higher yields for future development deliveries.
At quarter end, we owned our option more than 15,000 lots, representing a long runway of built-in growth. We will continue to take a prudent and disciplined approach with investments as we execute on our long-term growth plans.
On the sustainability front, we continue to make great progress. To-date, we have installed solar systems on amenity centers and begun pioneering solar build-to-rent communities. Our sustainability department remains hard at work, evaluating science-based targets focusing on energy-efficient solutions and creating action plans to achieve net zero carbon emissions overtime.
In closing, we all need to acknowledge that we are in uncertain times. I remind you that our asset class was born out of an opportunity created by a housing disruption. While these uncertain times may lead to some short-term issues and noise, the big picture here is that long-term opportunities will present themselves and separate the players in our industry. Today, we are prepared for those opportunities, with a diversified portfolio and scalable platform supported by a strong balance sheet.
Now I will turn the call over to Bryan for an update on our operations.
Bryan Smith
Thank you, Dave. Before I discuss our operating results, I would like to join Dave in recognizing our team for the care and support they showed our residents during Hurricane Ian. Not only did they secure all the vacant properties before the storm, but they made sure operations were back online immediately after the storm had passed.
Our teams performed wellness checks in the hardest hit areas, were prepared with emergency supplies, extended around-the-clock resident support, and maintained communications with those affected by the storm. This highlights one of the major advantages of our internal services platform, which enables us to divert critical field personnel and resources to assist our residents.
Moving on to operations. Demand for single-family rentals remained strong. In the third quarter, we received nearly 250,000 inbound leasing inquiries. Website traffic was up 21% year-over-year and most importantly, our distinct showings per rent ready property remains 60% higher than pre-pandemic averages.
Same-home average occupied days was 97.1% and new renewal and blended rental rate growth was 12.5%, 8.3% and 9.5%, respectively, which drove 8.1% same-home core revenue growth for the quarter. Core operating expenses came in at 6.1% resulting in 9.3% same-home core NOI growth. We have another outstanding quarter.
But as expected, the current operating environment is showing a return of seasonality, which was a natural part of our business prior to the pandemic. For the month of October, same-home average occupied days was 96.9% and new and renewal spreads were 9.1% and 8.2%, respectively. This resulted in blended rate growth of 8.5% for the month.
More color on next year’s outlook will be provided during our fourth quarter call. But as we think about 2023, two major areas come to mind. First, on the revenue side, the combination of earn-in from leases signed this year, expected loss to lease recaptured, continued robust demand and increased deliveries from our development program set us up favorably for 2023.
Second, because inflation does not seem to be letting up in the near-term, one of our top operational priorities next year is expense mitigation through optimization of our services platform. To sum things up, this was a great operational quarter, and our outlook remains optimistic. We are looking forward to a strong finish to 2022, which will position us well for growth in 2023.
With that, I will turn the call over to Chris for the financial update.
Christopher Lau
Thanks, Brian, and good morning, everyone. I will cover three areas in my comments today. First, a brief review of our quarterly results, including a summary of our estimated financial impact from Hurricane Ian. Second, the latest updates on our balance sheet and capital plan; and third, I will wrap up with an update on our 2022 guidance and latest property tax outlook.
Starting off with our results, we reported another strong quarter with net income attributable to common shareholders of $50.7 million or $0.14 per diluted share, which included a $6.1 million estimated net loss from Hurricane Ian.
As Dave shared, we were fortunate with the ultimate path of the storm. Despite Hurricane Ian being one of the most powerful storms in recent history, our damages largely consisted of cleanup and repair costs across Florida and the Carolinas as well as our insurance deductible, primarily related to a small subset of flooded homes in the Orlando area. Please keep in mind that these amounts still represent preliminary estimates and may continue to change going forward.
Excluding the estimated net loss from Hurricane Ian, during the third quarter, we generated $0.39 of core FFO per share in unit, representing 11.6% year-over-year growth and $0.33 of adjusted FFO per share in unit, representing 9.8% year-over-year growth. Underlying our performance was another strong operational quarter, generating 9.3% same-home core NOI growth as well as continued steady deliveries from our AMH Development program.
During the quarter, we delivered 501 homes from our AMH Development program, which was in-line with our expectations. Of our total deliveries, 265 homes and 236 homes were delivered to our wholly owned and joint venture portfolios, respectively. Additionally, we continue to execute on our recently moderated acquisition plan, acquiring a total of 145 homes during the quarter.
In total, for our wholly owned portfolio, during the quarter, we added 410 homes for an estimated total investment cost of approximately $155 million. This is especially notable during the currently constrained acquisition environment, which adds extra reinforcement to the value of our AMH Development program and land pipeline of over 15,000 lots.
Not only do we have years of built-in development growth but as we have talked about many times, we also have the balance sheet and cash flow profile to fund our existing development pipeline each calendar year going forward without the need for additional equity capital. Finally, on the disposition side, we sold 164 properties during the quarter, generating total net proceeds of approximately $49 million.
Next, I would like to share a few updates around our balance sheet and recent capital activity. At the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was 5.9 times. Our $1.25 billion revolving credit facility was fully undrawn, and we had approximately $97 million of cash available on the balance sheet.
Additionally, during the quarter, we utilized $186 million of forward equity shares that were previously raised in our January equity offering. At the end of the quarter, we had approximately $300 million of remaining forward equity shares that we anticipate utilizing towards the end of this calendar year or beginning of 2023.
Finally, I will close with some additional color around our 2022 guidance, which was updated in yesterday’s press release for our latest property tax outlook and a few refinements around our moderated capital plan.
From a high level, I would like to highlight that all aspects of our full-year same-home operating outlook remain unchanged other than property taxes in the state of Texas, where we recently received some surprising and disappointing news.
As you may recall, during 2019, Texas passed the Property Tax Reform and Transparency Act, which created a 3.5% cap on overall property tax revenue growth for cities, counties and certain special districts. And since being passed in 2019, the Property Tax Reform Act has served as an important governor of property tax growth for all asset classes.
However, based on preliminary information, we recently learned that for 2022, non-owner-occupied single-family homes are expected to receive a disproportionately large year-over-year increase. And while we are still actively appealing assessed values in the state of Texas, it is likely that our 2022 Texas property taxes will now increase by over 20%.
Outside of Texas, however, the remainder of our 2022 property tax estimates, which contemplated elevated increases in Florida and Georgia continue to track in-line with our previous expectations.
As I mentioned, please keep in mind that our estimates are still based on preliminary information and that a full-year 2022 Texas property tax true-up will be reflected in our fourth quarter earnings when actual property tax bills are received.
However, taking our latest estimates into account, we have increased the midpoint of our full-year 2022 same-home core operating expense growth expectations by 200 basis points to 7.75%. At the midpoint, this translates into a revised, full-year same-home core NOI growth expectation of 9% and full-year core FFO per share of $1.54, which still represents FFO industry-leading growth of 13.2%.
And before we open the call to your questions, I would like to leave you with three key takeaways from our comments this morning. First, Dave is right. These are uncertain economic times. But remember that our business is built on the fundamental need of housing, which continues to be in short supply with growing demand across our diversified footprint.
Second, our operating platform is efficient, scalable and ready to stand up to the test of today’s inflationary environment. And third, our growth programs, supported by our investment-grade balance sheet are unparalleled in their ability to consistently deliver inventory from the backbone of our development program, while our nimble acquisition channels stand ready to create unique shareholder value from the likely growth opportunities ahead.
And with that, we will open the call to your questions. Operator.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Nicholas Joseph
Thank you. I appreciate the early 2023 building blocks, but I was hoping you could quantify the expected earnings for next year and then the loss to lease both currently and then what you would expect it to be at the end of this year based off of 2022 guidance and rent trends?
Bryan Smith
Thanks, Nick. This is Bryan. Yes, the earn-in that we are expecting from this year is in the 4% to 5% for 2023. That reflects our in-place leases. In terms of the loss to lease, we are estimating it to be in the high-single digits at this point.
And our expectations for the balance of this year on rate growth, if you look at the re-leasing side, continuing in the 8% range, with renewals consistent with what we posted in October for November and December.
Nicholas Joseph
And then just on real estate taxes, I understand the impact of Texas. But as you look to 2023, are there other states that could be at risk of elevated merger or real estate taxes broadly and then could you see additional kind of separation between owner-occupied versus owner consideration on the tax front?
Christopher Lau
Thanks, Nick. It is Chris here. Great question, and I appreciate you connecting the dots to other states, which I think is really important. Look, on the topic of property taxes overall, I would start by saying that our Property Tax team did a really, really good job this year outside of the Texas curve ball, which by the way, I mentioned this in my prepared remarks, really surprised the entire property tax consulting industry.
But outside of that, our overall property taxes this year are landing pretty in-line with our 5% growth expectations from the start of this year, which as I mentioned, contemplated some pretty hefty increases in states like Florida and Georgia, which are in part being offset by other states that have caps in place and then the portfolio diversification benefit from other multi-year revaluation states that did not revalue this year.
So at this point, we still have some moving pieces. But for the most part, we have nearly all of our assessed values in hand at this point. Our teams have a good feel for where appeals are likely going to land. And we are just waiting now for our remaining tax rates to be published towards the balance of or the end of this year.
And overall, as I mentioned, excluding the curve ball in Texas, our remaining states are shaping up pretty much largely as expected. And then to your point about 2023, look, it is a little bit too early to speculate with numbers, especially given the moving pieces in Texas. But as we have talked about many times before, overtime, we generally expect property taxes to trend directionally with HPA, oftentimes on a partially lagged basis.
But as home price appreciation has clearly hit an inflection point, we think it is reasonable to assume that property tax growth has an inflection point on the horizon at some point as well. But with that said, it is just a little bit too early for us to comment on whether or not we think we will see that inflection point in 2023 versus later. But we definitely know it is out there on the horizon.
David Singelyn
And Nick, this is Dave. Let me tackle your second part of that question about whether this is a precursor to other states. The answer is, I don’t know. To-date, what we have seen is that there is symmetry between homeownership and rental rates.
What we can tell you is this is very new news, and we are looking into it, and we have a government affairs department, and we are having discussions with those individuals. But too early to report back on what we are finding there.
One thing I will tell you is we have seen in other forms where there is either rent control measures or other ways that impact housing, in the long-term, those provisions get reviewed in many cases, adjusted or repealed. The most recent one we can look at is November of 2021, very recent St. Paul, Minnesota, passed a rent control measure limiting rents to 3%, 8% on re-leasing.
And today, they are seeing their housing stock and their ability to grow their economy being impacted. That provision is being reviewed today. And so these type of actions do have a negative impact in the long-term. We are working through our channels to have discussions with the appropriate people. But I would tell you, it is too early to have a firm answer.
Operator
Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
Juan Sanabria
Just hoping to talk a little bit about the developer market for sale and kind of the impact of rising mortgage rates that they have had on their business and whether as a result of softening in for-sale market, you are seeing any dislocation if they convert some of those for-sale houses to rentals and whether there is a dislocation in occupancy or leasing transfer for new homes or what have you?
David Singelyn
Yes. There is a lot to unpack in your comment. The first thing I will tell you is that we look forward, look and see tremendous opportunities in growth. And what you are talking about not only impacts our ability or gives us opportunities to buy from the building. It first and foremost, has a very positive impact on our development program.
As the builders slow down their development which they are doing today, they are still building and completing their inventory that they started. But as they slow it down, we are seeing benefits in our development program and the reduced cost of being able to build homes, all the way from land all the way through the vertical construction cost. If you look at the construction cost benefits to-date, I would call them about 10%. But where we see them coming out is much greater than that.
Turning to your direct question about builder inventories and are they available to acquire. There is significant builder inventories in the marketplace. They are in the tens of thousands of homes that we have seen. To-date, the majority of them don’t meet our location or quality requirements. But many of them do. But those today are not priced at a point that we believe are attractive prices for us to be acquiring those homes.
Today, the builders are continuing to protect their backlog. And when that backlog is resolved, then they will be lowering prices. That could be later this year; it could be early next year. And we will be prepared to take advantage of those opportunities when they do come about.
Juan Sanabria
Sorry, Dave. The question was more meant around whether that inventory that is now being delivered that they are not being able to sell to homebuilders, whether that is affecting the rental market and any impact to your kind of core business at development business in terms of what you are able to lease up and/or charge the tenants?
David Singelyn
Yes. Sorry, if I misunderstood. But on that point, you are correct. A number of the homes that builders have, they are looking at alternative ways of resolving their backlog and they are turning some of them into rentals. I remind you that the majority of these homes are in secondary and tertiary markets, not located where our homes are located. So they are not direct competitors to us.
I would also remind you that over the last 10-years, we have seen single-family rental inventory increase by four million homes from 13 million to 17 million homes. That is 400,000 homes on average per year. And the backlog we are looking at is 20,000 to 30, 000 homes.
Those homes that 400,000 per year were absorbed well. Occupancies remain very, very strong. Demand for single-family rentals is higher today than we have ever seen. So while they may have a very short-term impact on absorption they will be absorbed and they will not have an impact to the long-term viability of single-family rentals.
Juan Sanabria
Great. And then with regards to the development platform as a whole, just curious on the yield expectations there. Are those keeping up with significantly higher capital cost given the move we have seen in rates or how do you think about putting incremental dollars to work on a pipeline in the face of higher capital cost today?
David Singelyn
Yes. Juan, you are correct. I mean, you got to look at the capital that you are raising and the investment opportunities and you have to match them. And if capital is more expensive, your yield opportunities need to be better.
What we are seeing in development is significant reductions in the cost to build homes. As I indicated, as the homebuilders slow their production, we are seeing land that was previously not available, including very important land. We call them VDLs, vacant developed lots.
This is land that we can acquire and immediately go vertical, don’t have to do any land infrastructure. We are seeing these land opportunities today being offered at discounts to what we saw six-months ago. And they range from small discounts all the way up to 40% discounts.
And as time goes on, we expect those to get even more attractive and come more in-line to what we historically saw before the pandemic. On the construction cost, same thing, If you look at the pre-pandemic trends we are moving back towards those trends.
A couple of cases in point, lumber has come down from $1,600 a 1,000 board feet to $500. That is a two-third decline. That is more than a $20,000 savings in building a home. We have also seen it in the trades, all through drywall.
So we have seen it in the products and the trades in the framing, in the electrical, et cetera. Post drywall, we expect to see it. We haven’t seen it yet. The homebuilders are still finishing up the homes that they are building, and then they are going to slow the post drywall phase down as well.
So we expect that we are going to see 20% to 25% reductions in input costs. The yields are still very, very strong. No change to the yield. All of that results in significant increases to the ultimate yield for our invested dollar.
So I just go back, our development program I see tremendous opportunities. And this is the benefit of having a diversified portfolio where we can build in many places, but also have the multiple channels that we can acquire. So yes, the development program is very, very healthy to-date, the existing program as well as opportunities on the horizon.
Operator
Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Stephen Sakwa
Dave, I realize that Texas thing is kind of new, and you don’t really know where it all settles out. But to the extent that it seems like the state sort of has a target on the SFR back, would that, I guess, ultimately get you to rethink your long-term commitment to owning in Texas?
David Singelyn
Yes. Steve, I think that is a little early to draw any conclusion. So we haven’t had discussions with the taxing authorities, our government affairs department will. I think part of it is also education of many parties maybe us, but definitely the state parties as well and kind of show them what has happened in other instances where there is been regulations that have been adverse to rentals and what the long-term impact is. So I’m not here willing to say that we are adjusting any programs at this stage. I think it is just way too early to make those calls.
Stephen Sakwa
Got it. And Chris, could you just remind us sort of what is embedded in Q4 guidance for bad debt? And just remind us overall what the, I guess, the net bad debt figure is for 2022 and maybe how you see that trend playing into 2023.
Christopher Lau
Great question, Steve. Look, on collections, more broadly, I would say collection trends have continued to hold strong with third quarter bad debt, as you saw, landing in the low 1% area, which was pretty consistent with our expectations. And just unpacking that a bit, as expected, we have continued to see a reduction in rental assistance payments and that has been paralleled by improving collections more broadly.
And another piece of information in there, I would say, the overall bad debt picture is supported by the fact that for any remaining households that we may have that have been impacted by COVID that are continuing to work their way through the process, if you recall, we took a very conservative and prudent stance to how we accrued for our bad debt in earlier stages of the pandemic.
And so those types of households have largely been provided for previously in our prior period bad debt. And so as we head into fourth quarter at this point, still very consistent with our prior expectations. We see collections continuing to remain strong and expect that, that debt will likely continue to run in the low 1% area, which is what we have contemplated in guidance.
Stephen Sakwa
Sorry. So where does that bring you sort of for the full-year on 2022, if you kind of were to just wrap up kind of the gross, the net, the rental assistance bad debt will be what for the year?
Christopher Lau
About 1% to low 1% area. It is difficult to unpack the pieces because there are so many different moving layers at this point but 1% to low 1% on a full-year basis.
Stephen Sakwa
And would you broadly see that being kind of consistent or do you think that without rental assistance, given the state of the economy, does that number maybe go up next year or do you think there is a possibility that could go down and be a tailwind?
Christopher Lau
Look, at this point, rental assistance has done its job. Rental assistance has been very successful in helping to bridge households in need. But it is been winding down for some time now, just to give you some context. In the third quarter of this year, rental assistance was down in the $3 million area. And if you recall, that compares to $7 million to $9 million per quarter towards the second half of 2021.
So we have already seen that winding down. We have already seen that, again, paralleled by improving collections more broadly. It is too early for me to comment specifically on the shape of all of that into 2023. But so far, we have felt and seen – we have seen positive information, felt good about the improving collections situation alongside rental assistance tapering off.
Stephen Sakwa
Okay. And one last question for Bryan. Just if you kind of parse through the data in terms of showings or collection issues, ability to push rents or renewals. Is there anything that you can discern from the demographics of the renter base in terms of average income or types of jobs. I guess I’m just looking for anything anecdotal that might suggest something kind of regional or by consumer type that might be helpful.
Bryan Smith
Yes. Thanks, Steve. There are a number of different data points that I want to bring up. We talked about the rent coverage, the income rent coverage that our resident base has in the 5x range and the fact that the average household has multiple earners, gives us a lot of confidence going into these kind of uncertain times.
In terms of where our residents are employed and the industries that they work in, first of all, it is generally characterized by knowledge of professional industries. Our surveys show that close to 90% of our residents have college degrees.
They are employed in essential industries, healthcare, education, government, military with functions on the professional side, like tech support, as an example. So we feel like they are in a really good position.
In the event that there is any economic pressures for individual cases, we are still very happy about the demand backdrop. So we are able to turn homes quickly if there was any sort of stress on our resident base. But in terms of their industries, where they work, their existing in-place income and kind of excess capacity, we feel like they are in a really good position.
Operator
Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.
Adam Kramer
Just to follow up a little bit on Steve’s question. And it is really good color on kind of the really in bad debt. But just to confirm kind of that 1% figure, I think, that you have cited for bad debt that is net of the rental assistance, I think you kind of said $3 million of rental assistance?
Christopher Lau
That is correct. That is bad debt recorded to the P&L which is net of that. And again, there are a lot of moving pieces to it but that is 1 component.
Adam Kramer
Got it. That makes total sense. And just thinking about some of the expense line items recognized property tax kind of focus for people when we kind of think about 4Q in 2023. But just thinking of some of the other property tax line or some of the other expense lines any, I guess, kind of puts and takes to whether it is potentially turnover increasing and kind of how that might shape through kind of through the P&L.
Are there other inflationary impacts certainly and recognizing that you guys are certainly doing stuff to mitigate costs via technology improvements, the intensification in the portfolio. But I just would love to kind of hear maybe some puts and takes to some of the other expense lines?
Christopher Lau
Yes. Sure. Adam, Chris here again. Let me walk you through the fourth quarter and what is contemplated in guidance. And then I’m sure Bryan would love to talk about some of the great initiatives we have going on from an efficiency standpoint.
But if you do the math on it, the midpoint of guidance actually implies a deceleration in our fourth quarter non-property tax expense growth, which is largely a function of the timing of where some of our prior year quarterly comps fell.
If you recall, towards the tail end of 2021, we began to see some of the current period inflationary pressures. And then you may also recall that we made the decision to accelerate the timing of some of our calendar year-end salary increases to bolster talent retention coming into the fourth quarter of last year.
So the combination of all that created an easier, non-property tax expense comp in the fourth quarter of 2021, which is what we are seeing contemplated in guidance. So I just wanted to unpack that for you, and I’m sure Bryan will love to talk about all the good stuff we have going on from an efficiency initiative standpoint.
Bryan Smith
Yes, Adam, I think the best place to start on that side would be on repairs and maintenance. You can see the increases are well below the inflationary expectations. And our team has just done a wonderful job of increasing self performance.
There are certain areas that we can control and certainly mitigate inflation, and that is by doing more work internally by preparing early for supply chain issues that we might have seen this year and really taking an active approach of doing self-performance work. So you are seeing that reflected in the R&M line.
On the property management side, the changes there reflect the fact that we are fully staffed. We are in a really, really good position from a personnel perspective to finish this year strong and be prepared for a strong 2023.
Adam Kramer
Great. And just a last one, a quick one here. Just on the Florida, Georgia. I know, Chris, you kind of cited them earlier that kind of the initial guide included hefty increases there. Just wanted to, and again to the further you can comment, just kind of confirm that, I guess, there is a sentiment have already coming for you guys. In other words, you have kind of seen the final product in terms of kind of the increases there, and that is kind of what was baked in?
Christopher Lau
That is correct. I think your line might have broken up for a second. But I think the question was Florida and Georgia fully contemplated and what we were expecting previously. And the answer is yes. And both of those, we have seen some pretty heavy increases to where market values have gone in the 20% to 30% area for those two states. But the simple answer is, yes, those were contemplated in our expectations previously.
Operator
Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Haendel St. Juste
Dave, I wanted to go back and clarify your comments on development a bit the cost and yields. I was curious how does the yields on homes being started today compared to the 6% you have seen historically. And when do you expect the lower input costs you outlined to benefit those yields, are we thinking that is more of a 2024, 2025 I’m just trying to get a sense for how yield could be looking over the next couple of years. Thanks.
David Singelyn
Yes. Good question, Haendel. And when you look at development, we talk about development being in cycles. And so the homes that we would acquire today, we would get the benefit of the land, and we would get the future benefit of the reductions in the cost of the commodities and the input costs.
For homes that we delivered this period, those that we will be delivering next quarter. Those homes were not only started earlier this year when the pricing of those commodities were at their peak.
A lot of the commodities were contracted a few months before that. And so the home center being delivered in the third quarter, fourth quarter, maybe even the very first quarters of next year are going to be with the commodity costs that are incurred in the early part of 2022. So they are going to be more elevated the yields are going to be in the fives that we underwrote them on.
And the capital that is being utilized for those was raised early in 2022. And those acquisitions, even though in the fives, if you match it to the capital that is being utilized, remain to be accretive. But there is a time lag between the time that the commodity prices change and the time that those deliveries occur that benefit from those commodities.
Haendel St. Juste
Maybe a follow-up on development, just thinking about proportionally the stuff near-term. Just curious if we should expect to see more starts being done via the JV versus on balance sheet and then would you – or should we expect incrementally better yield on that given the opportunity for fees there?
Christopher Lau
Sure. Haendel, Chris here. I can start with where we see starts shaking out and Dave can jump back in on the second part of that. But generally speaking, and we have talked about this before, as our development program continues to grow, we would expect a larger and larger proportion of those to be started on balance sheet.
At this point, our JVs are still very active and going very well. They are about 60% or so developed and deployed on their capital and probably have another 12 to 24-months to finish off. But as the program continues to grow and we expand starts and deliveries, the expectation is that a larger and larger proportion of those will be on balance sheet.
Operator
Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.
Bradley Heffern
For the acquisitions that made it over the finish line this quarter, can you give the cap rate and then was there anything unique about them, were there opportunities that just happen to be priced more appropriately at a higher cap rate, was there a greater proportion of new homes or anything like that?
David Singelyn
Brad, it is Dave. The acquisitions that we reported in the third quarter were contracted really in the second quarter of this year. They closed in the early part of the third quarter. Those acquisitions are in the fives. But again, they were contracted at a little bit different time.
We continue to look at all of the acquisition and growth opportunities. For the most part on the sidelines right now as pricing is – we are going through price discovery and where you are looking for where those new prices are going to bottom out, at least get to a place where they match fund with our capital.
So we haven’t put anything into the growth program on MLS in the last couple of months. What we closed were 20- second quarter contracts that closed early in the third quarter.
Bradley Heffern
And then going back to the Texas property taxes. I guess I’m a little surprised to hear that there is a differentiation forming between renter-occupied, single-family homes and owner-occupied, especially just given things tend to be controlled at the local level. So is this formalized in some way at the regulatory level and I guess, will higher valuations specifically for renter-occupied homes hold up to appeal?
Christopher Lau
Sure. Brad, look, we were surprised as well as was the industry. But I would also say it is a little bit more than just owner-occupied versus non-owner-occupied and how all of it works within the 3.5% cap set by the Texas Property Tax Reform and Transparency Act. You need to mix in commercial as well.
And so what we really saw this year is just an unprecedented disproportionate treatment across all of the asset classes with our understanding that commercial is landing very low, if not flat in certain cases. And then owner-occupied homes are in or around 10%.
And then that means that the balance or the resulting large increases to non-owner-occupied single-family which allows overall property tax revenues to remain within the 3.5% cap anchored by commercial and owner-occupied homes.
And just again, for context, that is pretty inconsistent with the historical treatment out of Texas, which has never seen that level of disparate treatment between the asset classes.
Operator
Thank you. Our next question comes from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.
Dennis McGill
Chris, I had to hit you with another one on property taxes, but I just want to clarify a couple of numbers. You said I think that you had already been contemplating in the accruals of Florida and Georgia being up in the neighborhood of 20% plus. And I guess if Texas joins that and that is 40% of the assets across those three, I think it implies that there is not any increases anywhere else. So I just wanted to make sure I’m triangulating those comments correctly.
Christopher Lau
So a couple of different things in there. Florida and Georgia, what I was commenting on is the market component of where those values float to. Georgia was in the 20% area. Florida has a couple of different components, and we are getting pretty granular here. But there is two pieces.
There is a market floating component and then they call it a cap-assessed value component that caps out at a 10% increase represented about 60% of property taxes in Florida and then the balance or 40% is what floats to market, and that is what went up about 30%. So the net to Florida is a little bit lower. I think it is high teens or so. And then everything else – it isn’t flat.
But keep in mind, there are a number of other states that have caps in place and then also there are jurisdictions across our portfolio given the broad diversification that only revalues on a multiyear basis. And there were a good number of those that did not revalue this year, bringing everything down to 5% outside of Texas.
Dennis McGill
Okay. That is helpful. And then also just following up on a comment, Dave, I think you made on construction costs. I didn’t catch it exactly. Did you say that you are starting to see outright declines in construction costs, and I would maybe exclude lumber for that. We know that, that will be a pass-through. But in non-lumber categories, are you already seeing either labor and/or construction bids come down on current phases or future
David Singelyn
Yes, we are, Dennis. But it is in the construction phases that are up through the drywall phase. We haven’t seen it in the post drywall, the finished trades, the cabinetry, et cetera. And there is still a significant demand for those trades by the builders. But the pre-drywall trades, we are getting inbound calls from vendors looking for work.
And we now have the ability to be bidding multiple vendors or more vendors against one another, and it is benefiting in reductions. So anywhere from single digits to low double digits at this point.
But I do expect it will continue to go up. And if you go back to historical trend lines and trend it and take out the pandemic aberration, there is 20%, 25% reductions to get back to the trend line of what construction has historically been.
Operator
Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
John Pawlowski
Chris O’Brien, could you give us a sense of what is driving the 24% year-to-date increase in recurring CapEx per home?
Bryan Smith
John, this is Bryan. Yes, there are a couple of different factors in there, some that we anticipated at the beginning of the year. We talked about the workout of some of the distressed COVID residents. So it is a little bit attributed to that. .
But more importantly, it is just inflationary increases centered around kind of third-party work and materials that we have less control over – less of an opportunity to mitigate. It really provides a contrast between the CapEx spend and the way that we are managing the R&M line.
So we are just more susceptible to third-party increases, especially in the case of HVAC as an example where owner-occupied home, we need to get that done quickly. And we are just more vulnerable as you have seen in Q3 numbers.
John Pawlowski
Okay. Could you give us a sense what you think a normalized total cost to maintain is right now? I mean turnover has gone down the last several years, but CapEx and R&M and turnover costs are going up. And so it feels like if turnover stabilized or even increase, these numbers would look a lot worse.
So is a $3,000 type total cost to maintain a reasonable run rate going forward, and we just kind of grow off that at whatever CPI is or just any sense for what a real normalized cost figure any comments there would be great.
Bryan Smith
Yes. Thanks, John. I’m not ready to concede that retention is going to do anything but improve. But for an estimate for longer-term run rate, I think you are pretty close. My expectation to be a little bit lower than that. But over the long-term, we would expect that line item to probably increase the inflationary levels.
Operator
Thank you. Our next question comes from the line of Neil Malkin with Capital One Securities. Please proceed with your question.
Neil Malkin
First one, David talked about on the call, a fair amount about more opportunities, land, builder inventories. Maybe can you just talk a little bit about the land bank owners. I think you made a reference to that last call that some of the major players have seen really well-located deals come back to them or fall out, just given the rise in borrowing costs.
Can you give us an update there, can you talk about what you see in terms of land bank opportunities and then is it does it vary regionally for example, Phoenix or Florida, whatever, certain markets that may have more upside, more things that look priced well that are more attractive to you at present.
David Singelyn
Yes, in the last few weeks, we have seen a number of properties come back to land bankers. If you cover the homebuilders, you have heard a number of the large national homebuilders talk about returning large numbers of homes to the land bankers.
To-date, the bid-ask spread is very, very wide. So there is really no activity, no trading occurring at this point. The homes, the more attractive opportunities as of today, and this is very dynamic and very – it is changing daily here.
But the biggest opportunities are all out West. So it is all of the Western markets. It is the Northwest, it is down in the Phoenix, Las Vegas areas, it is Denver. Those are where we are seeing the majority of the opportunities today. The Southeast, while there are some opportunities, not as plentiful as what we are seeing in the West.
But the other thing that I mentioned in the prepared remarks or at least maybe a prior question here is for the first time in a number of years, we are seeing vacant developed land that is land that if we can acquire, we can turn into homes much quicker than the raw land that we have built this business on.
So the opportunities are showing up still a little bit of a gap on the bid-ask to where we want to be trading. There is really nothing trading at all. There is nobody hitting the ask and it is just a little bit more price discovery needs to occur.
Neil Malkin
Okay. Just a follow-up on that. To be clear, when you referenced the homebuilders giving back or inventory sitting out there in the tens of thousands. You are talking about in terms of the inventory in tens of thousands, actually homes versus when people you are talking about the homebuilders giving back, you are talking about the actual lots, correct. Just to be clear, those are not homes.
David Singelyn
That is correct, Neil. With the land bankers, they have auctioned land, homebuilders have auctioned land with these land banking firms. And those options are being canceled, the deposits forfeited and the land bankers now control the land. That is the land I’m talking about.
Operator
Thank you. Our next question comes from the line of Chandni Luthra with Goldman Sachs. Please proceed with your question.
Chandni Luthra
Guys, I wanted to ask about supply. What are you seeing on the M&S channel? Are you seeing more homes being positioned for rent now especially now that home buying has become very prohibitive for a lot of people and is that driving any pressure on pricing from your standpoint?
Bryan Smith
Chandni, this is Bryan. Thanks for the question. We are seeing some supply pressure in some of our MSAs, but it is really not direct competition for our homes. Our homes generally are in superior locations and in some cases, with the newer builds really superior assets. It is a case of not all rental houses are the same.
The effect that this supply, it is really been minimal on our occupancy and on our rate growth. We are still maintaining very high levels of occupancy, healthy rate growth. And one thing I want to point out, we are able to do this without the use of any concessions. Concessions are being used in some of our areas but not by us. I want to make that clear.
Chandni Luthra
Got it. That is helpful. And just on the flip side of that question, how are move-outs to purchase homes tracking, how much have they come down from the beginning of this year and what are you seeing from that standpoint?
Bryan Smith
Yes, they have come down slightly. There is a little bit of a lag. I expect them to continue to come down. We saw a decrease off of August into the last couple of months but it is probably a similar proportion to the decrease in overall home sales in the low double digits.
Operator
Thank you. Our next question comes from the line of Sam Choe with Credit Suisse. Please proceed with your question.
Samuel Choe
Just going back to your comment about not using a lot of concessions, Bryan. I guess I understand that. I mean your – regions are 250,000. But I guess just in general, if the macro backdrop worsens, like what is your guys’ view on kind of using that lever for your overall rental strategy?
Bryan Smith
Yes thanks Sam. It is a tool. We have used it in the past, not for a number of years. But at this point, the demand is so healthy for our specific product. And I think it has to do with a number of different things.
Our homes are very, very well located in growing markets in good neighborhoods, and we have an efficient leasing platform that is able to capture this demand and utilize the demand across the entire marketplace to benefit our portfolio.
The number of inbounding inquiries is one piece. Website traffic is up year-over-year off of record levels from last year. Our distinct showings per rent ready properties continue to be way above the pre-pandemic averages. So the demand side for our specific product is extremely high. At this point, we just don’t see the need to change anything on the concession policy.
Samuel Choe
Got it. And one quick one. On the ancillary revenue side, anything that you are rolling out in the near-term or is it just, I mean, business as usual with what you guys have right now?
Bryan Smith
Yes. I think I would probably consider it business as usual. We are continuing the rollout of our pet programs, as we have talked about before, but really no major changes to announce at this point.
Operator
Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Linda Tsai
Are you still seeing the benefits of in-migration to your markets? Or is that trend slowing at all?
Bryan Smith
Yes. Thank you, Linda. This is Bryan. No, we are continuing to see it. I mean specifically, one of the major drivers, migration into our portfolio is out of California. And even on a year-over-year comparative basis, it is still up 30%. So that has not stopped. It is not slowed down at all.
And it has a big impact on our Western markets. So that is continuing. And then if you look at another metric that we follow closely, and that is the number of residents that are moving from out of state into our homes. And that is still way up both year-over-year and to pre-pandemic levels. So it is still a significant part of our application volume.
Linda Tsai
And then on the flip side, to the extent move-outs are occurring, what are the reasons being listed?
Bryan Smith
The reasons are consistent with what they have been in the past, maybe the proportions have changed slightly. Move out to buy is still the number one reason. The rest of them are smaller in nature life changes and so forth. We are increasing renewal rates a little bit. So that reason has gone up, too.
But really no major change on the move-out reasons percentage. We are just really happy that the retention continues to improve, and I think it is a testament to the overall value proposition of our platform.
Operator
Thank you. Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.
Jade Rahmani
I had a question maybe for Bryan on the demand side. How do you view single-family rental with respect to multifamily, is it a substitution product. In other words, are the incremental tenants coming from apartments generally and choosing to form household in single-family rental house or they would be homeowners choosing single-family rental as an alternative. Can you just give some color on maybe the majority of the tenants that you are seeing?
Bryan Smith
Sure. Yes. Thanks for the question, Jade. Multifamily is a valuable source of our residents. We track, we survey where they are coming from. We haven’t seen a huge change. If you remember at the beginning of the pandemic, there was a big spike on applications from multifamily. But it is normalized back down to near pre-pandemic levels. And I would think of it in the low 20% range.
So it is a valuable component, but it is not the majority. I would think of it more in terms of as the residents mature, they get married, they start families, it is a natural progression to move it into single-family homes. It is not necessarily directly out of multifamily. Most of our residents are coming from single family, whether they owned or rented prior.
Jade Rahmani
and in terms of slowing new lease demand that we are seeing playing out in multifamily, what do you think is driving that and do you expect that to eventually affect the single-family for rent market?
Bryan Smith
Yes, I think there is a difference between the types of residents, the difference in the demographic. Our demographic has been pretty consistent for a long time now. Average age in the 37-year range, high levels of income, people who are choosing kind of higher quality of life. I think some of the migration would point to that. And we have a different product than multi-family.
Single-family homes offer yards and space, excellent neighborhoods. We are adding Class A multifamily type amenities into our communities. So we are adding a bunch of really, really nice features. But I don’t think existed in the past, certainly not on the rental side.
And you couple that with our services platform, so I think people are really starting to understand the value proposition that we are offering. And I think that is going to be the main driver.
Operator
Thank you. Our next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell
I just want to ask the supply question in a different way. The concern that we hear from investors is that if rates are going to be higher for longer, meaning mortgage rates that people that need to sell their home for whatever reason, will opt to choose to rent their home out instead, including in some of the higher-quality neighborhoods that you mentioned. So that could lead to maybe higher supply for the next couple of years. Is that something that you worry about or track? And what is your view of that potential risk?
Bryan Smith
Anthony, yes, it is something that we are monitoring. We are monitoring supply on a daily basis in our marketplace. It is possible that, that scenario plays out. We are not seeing it to a great extent yet.
But I want to remind you, too, that there is a difference between the mom-and-pop product and our homes, both on the services platform, the improvements that we are making to these homes on the turns.
So there is a differentiation in the product that I think puts us in a good position and a competitive advantage. But to-date, we are not seeing a ton of pressure from owner homes that are being flipped to red.
Anthony Powell
Maybe one more on Phoenix. It is a market that is always highlighted as seeing some pretty sharp declines in home values, yet your lease spreads there are very, very strong. What is your view on the Phoenix market overall and can the divergence of home price acceleration and your strong rents continue?
Bryan Smith
Yes, Phoenix has always been one of our favorite and top-performing markets. It is fantastic from a number of different areas. You have seen the occupancy levels. You have seen the rate growth. It is also really strong on the collection side as well. So we are really, really happy with that marketplace.
It is benefited from the California migration, as I have spoken to on prior calls. It is also a market that has a lot of investment activity. And it is one that the markets – the MSAs that I referenced earlier where we have seen an increase in supply. But I want to remind you that the supply increases that we are seeing in Phoenix are with product that is not in direct competition with ours.
These are homes that aren’t – good at locations. In many cases, we talked about the horizontal apartment boom that you saw in Phoenix. So our product is differentiated there. But Phoenix remains one of our top markets, and we are continuing to see strength.
Operator
Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.
Austin Wurschmidt
Dave, just going back to your comment about the inventory of homes on the market that meet your quality and kind of location parameters but aren’t quite there on price can you quantify how far that bid-ask spread is and how long you think owners can hold on to them before maybe needing to move on?
David Singelyn
Yes. First, the area that we were talking about, I believe, on that discussion was the national builder inventory. And today, we have seen a little bit of price movement, maybe 5%. We are going to need to see another 15%, 20% movement.
Austin Wurschmidt
Got it. And then just kind of when you pair that with development, can you remind us what that spread is between those market cap rates or where you think values need to be and what you guys target on development is?
David Singelyn
Well, the spread between acquisitions and development has historically been about 100 basis points in yield and we are still in that same ZIP code when we analyze opportunities today.
Operator
Thank you. We have reached the end of the question-and-answer session. Mr. Singelyn, I would now like to turn the floor back over to you for closing comments.
David Singelyn
Thank you, operator and in closing, let me just reiterate that today, the SFR industry is proving to be very resilient. We are set up very, very well for 2023 and are seeing the early signs of very attractive incremental development opportunities as well as acquisition opportunities.
So thank you very much for your interest this quarter. We look forward to speaking with you next quarter. Have a good day.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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