AMERICAN HOMES 4 RENT The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under Part I, "Item 1A. Risk Factors" in this report. This section of this Form 10-K generally discusses the years endedDecember 31, 2020 and 2019. A discussion of the year endedDecember 31, 2018 is available at Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Overview We are a Maryland REIT focused on acquiring, developing, renovating, leasing and operating single-family homes as rental properties.The Operating Partnership is the entity through which we conduct substantially all of our business and own, directly or through subsidiaries, substantially all of our assets. We commenced operations inNovember 2012 . As ofDecember 31, 2020 , we owned 53,584 single-family properties in selected sub-markets of metropolitan statistical areas ("MSAs") in 22 states, including 711 properties held for sale, compared to 52,552 single-family properties in 22 states, including 1,187 properties held for sale, as ofDecember 31, 2019 . As ofDecember 31, 2020 , 51,271, or 97.0%, of our total properties (excluding properties held for sale) were occupied, compared to 48,767, or 94.9%, of our total properties (excluding properties held for sale) as ofDecember 31, 2019 . Also, as ofDecember 31, 2020 , the Company had an additional 1,293 properties held in unconsolidated joint ventures, compared to 808 properties held in unconsolidated joint ventures as ofDecember 31, 2019 . Our portfolio of single-family properties, including those held in our unconsolidated joint ventures, is internally managed through our proprietary property management platform.
COVID-19 Business Update
The Company has maintained continuity in business operations since the beginning of the COVID-19 pandemic and produced strong operating results in the fourth quarter of 2020 demonstrating the flexibility of its technology enabled operating platform and the resiliency of its high-quality, diversified portfolio. Comprehensive remote working policies remain in place for most corporate and field offices, and operational protocols have been tailored based on state and local mandates to ensure continuity of services, while protecting employees, residents and their families. Driven by shifting housing preferences as households migrate away from city centers and apartments, the Company is experiencing record demand levels and reported its highest ever Same-Home portfolio Average Occupied Days Percentages for the fourth quarter of 2020 andJanuary 2021 . Additionally, as the Company entered the fourth quarter of 2020, it continued its return to normal operating practices, including the assessment of late fees, in jurisdictions where allowable, and modest renewal increases on expiring leases. Collections continue to remain resilient throughout the pandemic. We have now received 96.7% of fourth quarter 2020 rental billings, which is consistent with pandemic payment histories within the same time frame. Additionally, collections ofJanuary 2021 rental billings continue to remain consistent with pandemic payment histories within the same time frame. Collections are reported without application of any existing resident security deposits or adjustment for deferred payment plans. Although the Company has produced strong operating results to date during the COVID-19 pandemic, the extent to which the pandemic will ultimately impact us and our residents will depend on future developments which are highly uncertain. These include the scope, severity and duration of the pandemic, including resurgences, impact of government regulations, the speed and effectiveness of vaccine distribution and the direct and indirect economic effects of the pandemic and containment measures, among others. 26 -------------------------------------------------------------------------------- For more information on risks related to COVID-19, see Part I, "Item 1A. Risk Factors-Risks Related to Our Business-We are subject to risks from the global pandemic associated with COVID-19 and we may in the future be subject to risks from other public health crises."
Key Single-Family Property and Leasing Metrics
The following table summarizes certain key single-family properties metrics as
of
Number of % of Total Gross Book Avg. Gross Book
Single-Family Single-Family Value % of Gross Book Value per Avg. Avg. Property Age Avg. Year
Market Properties (1) Properties (millions) Value Total Property Sq. Ft. (years) Purchased or Delivered
Atlanta, GA 4,977 9.4 % $ 922.2 9.2 % $ 185,301 2,165 17.4 2015
Dallas-Fort Worth, TX 4,313 8.2 % 720.6 7.3 % 167,085 2,117 16.7 2014
Charlotte, NC 3,811 7.2 % 756.6 7.6 % 198,541 2,100 16.2 2015
Phoenix, AZ 3,147 6.0 % 566.1 5.6 % 179,899 1,837 17.2 2015
Houston, TX 2,979 5.6 % 495.2 5.0 % 166,244 2,094 15.0 2014
Nashville, TN 2,907 5.5 % 634.2 6.3 % 218,157 2,109 15.1 2015
Indianapolis, IN 2,813 5.3 % 437.7 4.4 % 155,613 1,930 18.2 2013
Tampa, FL 2,464 4.7 % 501.8 5.0 % 203,648 1,945 14.5 2015
Jacksonville, FL 2,424 4.6 % 445.5 4.4 % 183,807 1,937 14.6 2015
Raleigh, NC 2,118 4.0 % 396.7 4.0 % 187,288 1,878 15.4 2015
Columbus, OH 2,062 3.9 % 361.8 3.6 % 175,438 1,870 18.9 2015
Cincinnati, OH 1,982 3.7 % 351.7 3.5 % 177,441 1,852 18.4 2013
Greater Chicago area, IL and IN 1,730 3.3 % 318.6 3.2 % 184,161 1,869 19.3 2013
Orlando, FL 1,743 3.3 % 324.5 3.3 % 186,200 1,903 18.4 2015
Salt Lake City, UT 1,595 3.0 % 416.2 4.0 % 260,946 2,182 16.9 2015
Charleston, SC 1,238 2.3 % 252.9 2.6 % 204,280 1,971 12.3 2016
Las Vegas, NV 1,127 2.1 % 215.1 2.0 % 190,839 1,854 16.5 2013
San Antonio, TX 938 1.8 % 153.4 1.5 % 163,531 2,023 16.6 2014
Savannah/Hilton Head, SC 917 1.7 % 168.7 1.7 % 183,967 1,871 12.8 2016
Denver, CO 831 1.6 % 249.8 2.5 % 300,562 2,103 18.3 2015
All Other (2) 6,757 12.8 % 1,310.5 13.3 % 193,950 1,876 15.8 2015
Total/Average 52,873 100.0 % $ 9,999.8 100.0 % $ 189,129 1,987 16.4 2014
(1)Excludes 711 single-family properties held for sale as of
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The following table summarizes certain key leasing metrics as of December 31,
2020 :
Total Single-Family Properties (1)
Avg. Occupied Avg. Monthly Avg. Original Avg. Remaining Avg. Blended
Days Percentage Realized Rent Lease Term Lease Term Change in Rent
Market (2) per property (3) (months) (4) (months) (4) (5)
Atlanta, GA 96.0 % $ 1,666 12.0 6.1 3.9 %
Dallas-Fort Worth, TX 95.8 % 1,796 12.2 6.4 2.8 %
Charlotte, NC 96.3 % 1,644 12.3 6.4 3.2 %
Phoenix, AZ 97.4 % 1,509 12.0 6.0 6.5 %
Houston, TX 95.2 % 1,681 12.4 6.3 2.4 %
Nashville, TN 94.5 % 1,778 12.0 6.1 3.2 %
Indianapolis, IN 96.3 % 1,471 12.0 6.0 3.7 %
Tampa, FL 95.6 % 1,743 12.0 6.3 3.2 %
Jacksonville, FL 95.6 % 1,626 12.0 6.4 3.4 %
Raleigh, NC 95.1 % 1,577 12.3 6.5 2.8 %
Columbus, OH 97.3 % 1,694 12.0 6.1 3.9 %
Cincinnati, OH 96.9 % 1,654 11.9 6.4 3.9 %
Greater Chicago area, IL and IN 96.8 % 1,907 12.3 6.5 3.0 %
Orlando, FL 95.6 % 1,727 12.1 6.4 3.2 %
Salt Lake City, UT 96.5 % 1,834 12.1 6.5 4.4 %
Charleston, SC 95.0 % 1,753 12.0 6.5 3.3 %
Las Vegas, NV 95.9 % 1,632 12.0 6.8 4.7 %
San Antonio, TX 95.0 % 1,570 12.1 6.7 2.6 %
Savannah/Hilton Head, SC 95.5 % 1,603 12.0 6.5 3.1 %
Denver, CO 95.1 % 2,277 12.1 6.3 3.4 %
All Other (6) 96.3 % 1,659 12.1 6.4 3.8 %
Total/Average 96.0 % $ 1,683 12.1 6.3 3.6 %
(1)Leasing information excludes 711 single-family properties held for sale as of
December 31, 2020 .
(2)For the year ended December 31, 2020 , Average Occupied Days Percentage
represents the number of days a property is occupied in the period divided by
the total number of days the property is owned during the same period after
initially being placed in-service.
(3)For the year ended December 31, 2020 , Average Monthly Realized Rent is
calculated as the lease component of rents and other single-family property
revenues (i.e., rents from single-family properties) divided by the product of
(a) number of properties and (b) Average Occupied Days Percentage, divided by
the number of months. For properties partially owned during the year, this is
adjusted to reflect the number of days of ownership.
(4)Average Original Lease Term and Average Remaining Lease Term are reflected as
of period end.
(5)Represents the percentage change in rent on all non-month-to-month lease
renewals and re-leases during the year ended December 31, 2020 , compared to the
annual rent of the previously expired non-month-to-month comparable long-term
lease for each property.
(6)Represents 15 markets in 14 states.
We believe these key single-family property and leasing metrics provide useful
information to investors because they allow investors to understand the
composition and performance of our properties on a market by market basis.
Management also uses these metrics to understand the composition and performance
of our properties at the market level.
Factors That Affect Our Results of Operations and Financial Condition
Our results of operations and financial condition are affected by numerous factors, many of which are beyond our control. Currently, the most significant factor impacting our results of operations and financial condition is the effect of the COVID-19 pandemic, which is discussed above. Other key factors that impact our results of operations and financial condition include the pace at which we identify and acquire suitable land and properties, the time and cost required to renovate the acquired properties, the pace and cost of our property developments, the time to lease newly acquired or developed properties at acceptable rental rates, occupancy levels, rates of tenant turnover, the length of vacancy in properties between tenant leases, our expense ratios, our ability to raise capital and our capital structure.
Property Acquisitions, Development and Dispositions
Since our formation, we have rapidly but systematically grown our portfolio of
single-family properties. Our ability to identify and acquire homes that meet
our investment criteria is impacted by home prices in our target markets, the
inventory of properties available-for-sale through traditional acquisition
channels, competition for our target assets and our available capital. We are
increasingly focused on developing "built-for-rental" homes through our internal
AMH Development Program and acquiring newly constructed homes from third-party
developers through our National Builder Program. Opportunities from these new
construction channels are impacted by the availability of vacant developed lots,
development land assets and inventory of homes
28
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currently under construction or newly developed. Our level of investment
activity has fluctuated based on the number of suitable opportunities and the
level of capital available to invest. During the year ended December 31, 2020 ,
we developed or acquired 2,103 homes, including 1,158 newly constructed
properties delivered through our AMH Development Program and 945 homes acquired
through our National Builder Program and traditional acquisition channel,
partially offset by 1,047 homes sold and 24 homes contributed to unconsolidated
joint ventures.
Our properties held for sale were identified based on sub-market analysis, as
well as individual property-level operational review. As of December 31, 2020
and 2019, there were 711 and 1,187 properties, respectively, classified as held
for sale. We will continue to evaluate our properties for potential disposition
going forward as a normal course of business.
Property Operations
Homes added to our portfolio through new construction channels include properties developed through our internal AMH Development Program and newly constructed properties acquired from third-party developers through our National Builder Program. Rental homes developed through our AMH Development Program involve substantial up-front costs, time to acquire and develop land, time to build the rental home, and time to lease the rental home before the home generates income. This process is dependent upon the nature of each lot acquired and the timeline varies primarily due to land development requirements. Once land development requirements have been met, on average it takes approximately four to six months to complete the rental home vertical construction process. However, delivery of homes may be staged to account for delays in demand. Our internal construction program is managed by our team of development professionals that oversee the full rental home construction process including all land development and work performed by subcontractors. We typically incur costs between$200,000 and$400,000 to acquire and develop land, and build a rental home. Homes added through our AMH Development Program are available for lease immediately upon or shortly after receipt of a certificate of occupancy. Rental homes acquired from third-party developers through our National Builder Program are dependent on the inventory of newly constructed homes and homes currently under construction. Homes added to our portfolio through traditional acquisition channels require expenditures in addition to payment of the purchase price, including property inspections, closing costs, liens, title insurance, transfer taxes, recording fees, broker commissions, property taxes and HOA fees, when applicable. In addition, we typically incur costs between$15,000 and$30,000 to renovate a home acquired through traditional acquisition channels to prepare it for rental. Renovation work varies, but may include paint, flooring, cabinetry, appliances, plumbing hardware and other items required to prepare the home for rental. The time and cost involved to prepare our homes for rental can impact our financial performance and varies among properties based on several factors, including the source of acquisition channel and age and condition of the property. On average, it takes approximately 20 to 40 days to complete the renovation process. Our operating results are also impacted by the amount of time it takes to market and lease a property, which can vary greatly among properties, and is impacted by local demand, our marketing techniques and the size of our available inventory. On average, it takes approximately 20 to 40 days to lease a property after acquiring or developing a new property through our new construction channels or after completing the renovation process for a traditionally acquired property. Lastly, our operating results are impacted by the length of stay of our tenants and the amount of time it takes to prepare and re-lease a property after a tenant vacates. This process, which we refer to as "turnover," is impacted by numerous factors, including the condition of the home upon move-out of the previous tenant, and by local demand, our marketing techniques and the size of our available inventory at the time of the turnover. On average, it takes approximately 40 to 60 days to complete the turnover process.
Revenues
Our revenues are derived primarily from rents collected from tenants for our single-family properties under lease agreements which typically have a term of one year. Our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors, including market conditions, seasonality and tenant defaults, and the amount of time it takes to turn properties when tenants vacate. Additionally, our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants. On average, our tenants have household incomes ranging from$70,000 to$110,000 and primarily consist of families with approximately two adults and one or more children.
Our rents and other single-family property revenues are comprised of rental revenue from single-family properties, fees from our single-family property rentals and "tenant charge-backs," which are primarily related to cost recoveries on utilities.
Our ability to maintain and grow revenues from our existing portfolio of homes will be dependent on our ability to retain tenants and increase rental rates. Based on our Same-Home population of properties (defined below), the year-over-year increase in Average Monthly Realized Rent per property was 3.0% for the year endedDecember 31, 2020 and we experienced turnover rates of 33.1% and 36.9% for the years endedDecember 31, 2020 and 2019, respectively. In response to the COVID-19 pandemic, we waived 29 -------------------------------------------------------------------------------- month-to-month lease premiums and offered zero percent increases on newly signed renewal leases between April andJuly 2020 and then began to return to normal operating practices including modest renewal increases on expiring leases.
Expenses
We monitor the following categories of expenses that we believe most significantly affect our results of operations.
Property Operating Expenses
Once a property is available for lease for the first time, which we refer to
as "rent-ready," we incur ongoing property-related expenses which may not be
subject to our control. These include primarily property taxes, repairs and
maintenance ("R&M"), turnover costs, HOA fees (when applicable) and insurance.
Property Management Expenses
As we internally manage our portfolio of single-family properties through our proprietary property management platform, we incur costs such as salary expenses for property management personnel, lease expenses and operating costs for property management offices and technology expenses for maintaining our property management platform. As part of developing our property management platform, we have made significant investments in our infrastructure, systems and technology. We believe that these investments will enable our property management platform to become more efficient over time, especially as our portfolio grows. Also included in property management expenses is noncash share-based compensation expense related to centralized and field property management employees.
Seasonality
We believe that our business and related operating results will be impacted by seasonal factors throughout the year. We experience higher levels of tenant move-outs and move-ins during the late spring and summer months, which impacts both our rental revenues and related turnover costs. Our property operating costs are seasonally impacted in certain markets for expenses such as HVAC repairs, turn costs and landscaping expenses during the summer season. Additionally, our single-family properties are at greater risk in certain markets for adverse weather conditions such as hurricanes in the late summer months and extreme cold weather in the winter months.
General and Administrative Expense
General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees' and officers' insurance expenses, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. Also included in general and administrative expense is noncash share-based compensation expense related to corporate administrative employees.
Results of Operations
Net income totaled$154.8 million for the year endedDecember 31, 2020 , compared to$156.3 million for the year endedDecember 31, 2019 . This decrease was primarily attributable to increased uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic, as well as a noncash write-down included in other expenses associated with the liquidation of legacy joint ventures, which were acquired as part of theAmerican Residential Properties, Inc. ("ARPI") merger inFebruary 2016 . This decrease was offset in part by growth in the Company's portfolio and higher occupancy, as well as higher rental rates. As we continue to grow our portfolio with a portion of our homes still recently developed, acquired and/or renovated, we distinguish our portfolio of homes between Same-Home properties and Non-Same-Home and Other properties in evaluating our operating performance. We classify a property as Same-Home if it has been stabilized longer than 90 days prior to the beginning of the earliest period presented under comparison and if it has not been classified as held for sale or taken out of service as a result of a casualty loss, which allows the performance of these properties to be compared between periods. Single-family properties that we acquire individually (i.e., not through a bulk purchase) are classified as either stabilized or non-stabilized. A property is classified as stabilized once it has been renovated by the Company or newly constructed and then initially leased or available for rent for a period greater than 90 days. Properties acquired through a bulk purchase are first considered non-stabilized, as an entire group, until (1) we have owned them for an adequate period of time to allow for complete on-boarding to our operating platform, and (2) a substantial portion of the properties have experienced tenant turnover at least once under our ownership, providing the opportunity for renovations and improvements to meet our property standards. After such time has passed, properties acquired through a bulk 30 -------------------------------------------------------------------------------- purchase are then evaluated on an individual property basis under our standard stabilization criteria. All other properties, including those classified as held for sale or taken out of service as a result of a casualty loss, are classified as Non-Same-Home and Other. One of the primary financial measures we use in evaluating the operating performance of our single-family properties is Core Net Operating Income ("Core NOI"), which we also present separately for our Same-Home portfolio. Core NOI is a supplemental non-GAAP financial measure that we define as core revenues, which is calculated as total revenues, excluding expenses reimbursed by tenant charge-backs and other revenues, less core property operating expenses, which is calculated as property operating and property management expenses, excluding noncash share-based compensation expense and expenses reimbursed by tenant charge-backs. Core NOI also excludes (1) gain or loss on early extinguishment of debt, (2) hurricane-related charges, net, which result in material charges to the impacted single-family properties, (3) gain or loss on sales of single-family properties and other, (4) depreciation and amortization, (5) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (6) noncash share-based compensation expense, (7) interest expense, (8) general and administrative expense, (9) other expenses and (10) other revenues. We believe Core NOI provides useful information to investors about the operating performance of our single-family properties without the impact of certain operating expenses that are reimbursed through tenant charge-backs. Core NOI and Same-Home Core NOI should be considered only as supplements to net income or loss as a measure of our performance and should not be used as measures of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. Additionally, these metrics should not be used as substitutes for net income or loss or net cash flows from operating activities (as computed in accordance with accounting principles generally accepted inthe United States of America ("GAAP")). 31 --------------------------------------------------------------------------------
Comparison of the Year Ended
The following table presents a summary of Core NOI for our Same-Home
properties, Non-Same-Home and Other properties, and total properties for the
years ended
For the Year Ended December 31, 2020
Same-Home % of Non-Same-Home and % of Total % of
Properties (1) Core Revenue Other Properties Core Revenue Properties Core Revenue
Rents from single-family
properties (2) $ 867,380 $ 150,442 $ 1,017,822
Fees from single-family properties (2) 13,350 3,001 16,351 Bad debt (3) (18,709) (3,757) (22,466) Core revenues 862,021 149,686 1,011,707 Property tax expense 152,703 17.7 % 27,437 18.3 % 180,140 17.8 % HOA fees, net (4) 16,264 1.9 % 3,390 2.3 % 19,654 1.9 % R&M and turnover costs, net (4)(5) 69,429 8.0 % 13,707 9.2 % 83,136 8.2 % Insurance 7,977 0.9 % 1,715 1.1 % 9,692 1.0 % Property management expenses, net (6) 69,500 8.1 % 15,485 10.3 % 84,985 8.4 % Core property operating expenses 315,873 36.6 % 61,734 41.2 % 377,607 37.3 % Core NOI$ 546,148 63.4 % $ 87,952 58.8 %$ 634,100 62.7 % For the Year Ended December 31, 2019 Same-Home % of Non-Same-Home and % of Total % of Properties (1) Core Revenue Other Properties Core Revenue Properties Core Revenue Rents from single-family properties$ 834,267 $ 133,142 $
967,409
Fees from single-family properties 11,579 2,256 13,835 Bad debt (7,306) (1,652) (8,958) Core revenues 838,540 133,746 972,286 Property tax expense 145,946 17.3 % 26,836 20.1 % 172,782 17.8 % HOA fees, net (4) 17,232 2.0 % 3,236 2.4 % 20,468 2.1 % R&M and turnover costs, net (4) 64,481 7.8 % 12,613 9.4 % 77,094 8.0 % Insurance 7,576 0.9 % 1,447 1.1 % 9,023 0.9 % Property management expenses, net (6) 67,707 8.1 % 12,495 9.3 % 80,202 8.2 % Core property operating expenses 302,942 36.1 % 56,627 42.3 % 359,569 37.0 % Core NOI$ 535,598 63.9 % $ 77,119 57.7 %$ 612,717 63.0 % (1)Includes 44,663 properties that have been stabilized longer than 90 days prior toJanuary 1, 2019 . (2)As a result of the COVID-19 pandemic, rents from single-family properties were impacted by the Company's socially responsible decisions between April andJuly 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases. Fees from single-family properties were also impacted as the Company waived late fees between April andJuly 2020 . (3)Includes increased uncollectible rents related to the COVID-19 pandemic of$12.8 million and$11.1 million for the total portfolio and Same-Home portfolio, respectively, for the year endedDecember 31, 2020 . (4)Presented net of tenant charge-backs. (5)Includes increased uncollectible tenant utility reimbursements of$2.8 million and$2.6 million and costs associated with enhanced cleaning and safety protocols related to the COVID-19 pandemic of$0.5 million and$0.4 million for the total portfolio and Same-Home portfolio, respectively, during the year endedDecember 31, 2020 . (6)Presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees. 32 -------------------------------------------------------------------------------- The following are reconciliations of core revenues, Same-Home core revenues, core property operating expenses, Same-Home core property operating expenses, Core NOI and Same-Home Core NOI to their respective GAAP metrics for the years endedDecember 31, 2020 and 2019 (amounts in thousands): For
the Years Ended
2020 2019
Core revenues and Same-Home core revenues
Total revenues $ 1,182,836 $ 1,143,378
Tenant charge-backs (160,807) (159,851)
Other revenues (10,322) (11,241)
Core revenues 1,011,707 972,286
Less: Non-Same-Home core revenues 149,686 133,746
Same-Home core revenues $ 862,021 $ 838,540
Core property operating expenses and Same-Home core property
operating expenses
Property operating expenses $ 450,267 $ 433,854
Property management expenses 89,892 86,908
Noncash share-based compensation - property management (1,745) (1,342)
Expenses reimbursed by tenant charge-backs (160,807) (159,851)
Core property operating expenses 377,607 359,569
Less: Non-Same-Home core property operating expenses 61,734 56,627
Same-Home core property operating expenses $ 315,873 Core NOI and Same-Home Core NOI Net income$ 154,829
Loss on early extinguishment of debt -
659
Gain on sale of single-family properties and other, net (44,194)
(43,873)
Depreciation and amortization 343,153
329,293
Acquisition and other transaction costs 9,298
3,224
Noncash share-based compensation - property management 1,745
1,342
Interest expense 117,038
127,114
General and administrative expense 48,517 43,206 Other expenses 14,036 6,733 Other revenues (10,322) (11,241) Core NOI 634,100 612,717 Less: Non-Same-Home Core NOI 87,952 77,119 Same-Home Core NOI$ 546,148 $ 535,598 Total Revenues Total revenues increased 3.5% to$1.18 billion for the year endedDecember 31, 2020 from$1.14 billion for the year endedDecember 31, 2019 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 50,065 homes for the year endedDecember 31, 2020 , compared to 48,687 homes for the year endedDecember 31, 2019 , as well as higher rental rates, partially offset by an increase in uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic. Property Operating Expenses Property operating expenses increased 3.8% to$450.3 million for the year endedDecember 31, 2020 from$433.9 million for the year endedDecember 31, 2019 . This increase was primarily attributable to higher property tax expense and higher repairs and maintenance and turnover costs as a result of growth in our portfolio. Property Management Expenses Property management expenses for the years endedDecember 31, 2020 and 2019 were$89.9 million and$86.9 million , respectively, which included$1.7 million and$1.3 million , respectively, of noncash share-based compensation expense related to 33 --------------------------------------------------------------------------------
centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs, partially offset by lower employee travel costs.
Core Revenues from
Core revenues from Same-Home properties increased 2.8% to$862.0 million for the year endedDecember 31, 2020 from$838.5 million for the year endedDecember 31, 2019 . This increase is primarily attributable to higher Average Monthly Realized Rent per property, which increased 3.0% to$1,680 per month for the year endedDecember 31, 2020 compared to$1,631 per month for the year endedDecember 31, 2019 , and a rise in the Average Occupied Days Percentage, which increased to 96.3% for the year endedDecember 31, 2020 compared to 95.4% for the year endedDecember 31, 2019 , partially offset by an increase in uncollectible rents related to the COVID-19 pandemic. Additionally, during the year endedDecember 31, 2020 , core revenues from Same-Home properties were impacted by (i) the Company's socially responsible decisions between April andJuly 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases and (ii) waived late fees between April andJuly 2020 .
Core Property Operating Expenses from
Core property operating expenses from Same-Home properties consist of direct property operating expenses, net of tenant charge-backs, and property management costs, net of tenant charge-backs, and excludes noncash share-based compensation expense. Core property operating expenses from Same-Home properties increased 4.3% to$315.9 million for the year endedDecember 31, 2020 from$302.9 million for the year endedDecember 31, 2019 , primarily driven by annual growth in property tax expense and higher R&M and turnover costs, net, which includes$3.0 million of incremental costs related to the COVID-19 pandemic including increased uncollectible tenant utility reimbursements and enhanced cleaning costs during the year endedDecember 31, 2020 .
General and Administrative Expense
General and administrative expense primarily consists of corporate payroll and personnel costs, federal and state taxes, trustees' and officers' insurance expense, audit and tax fees, trustee fees and other expenses associated with our corporate and administrative functions. General and administrative expense for the years endedDecember 31, 2020 and 2019 was$48.5 million and$43.2 million , respectively, which included$6.6 million and$3.5 million , respectively, of noncash share-based compensation expense related to corporate administrative employees. The increase in general and administrative expense was primarily related to higher noncash share-based compensation expense as well as higher personnel costs to support growth in our business and an increase in state taxes.
Interest Expense
Interest expense decreased 7.9% to$117.0 million for the year endedDecember 31, 2020 from$127.1 million for the year endedDecember 31, 2019 . This decrease was primarily related to additional capitalized interest during the year endedDecember 31, 2020 and the payoff of the term loan facility inJune 2019 , partially offset by the unsecured senior notes issued in lateJanuary 2019 .
Acquisition and Other Transaction Costs
Acquisition and other transaction costs were$9.3 million and$3.2 million for the years endedDecember 31, 2020 and 2019, respectively, which primarily related to overhead and other indirect costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, as well as costs associated with the disposal of certain properties or portfolios of properties. Our efforts to grow our acquisition program, including an increase in personnel, was the primary driver for the year-over-year increase.
Depreciation and Amortization
Depreciation and amortization expense consists primarily of depreciation of buildings and improvements. Depreciation of our assets is calculated over their useful lives on a straight-line basis over three to thirty years. Our intangible assets are amortized on a straight-line basis over the asset's estimated economic useful life. Depreciation and amortization expense increased 4.2% to$343.2 million for the year endedDecember 31, 2020 from$329.3 million for the year endedDecember 31, 2019 primarily due to growth in our average number of depreciable properties. 34 --------------------------------------------------------------------------------
Other Revenues
Other revenues were$10.3 million and$11.2 million for the years endedDecember 31, 2020 and 2019, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, and equity in earnings from unconsolidated joint ventures.
Other Expenses
Other expenses were$14.0 million and$6.7 million for the years endedDecember 31, 2020 and 2019, respectively, which primarily related to impairments on properties held for sale and expenses related to unconsolidated joint ventures. Also included in other expenses for the year endedDecember 31, 2020 was a$4.9 million noncash write-down associated with the liquidation of legacy joint ventures, which were acquired as part of the ARPI merger inFebruary 2016 , and a net expense of$2.9 million related to a legal matter involving a former employee.
Critical Accounting Policies and Estimates
Our discussion and analysis of our historical financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could ultimately differ from these estimates. Listed below are those policies that management believes are critical and require the use of judgment in their application. There are other items within the financial statements that require estimation, but they are not considered critical as they do not require significant judgment or are immaterial.
Consolidation and Investments in
The consolidated financial statements of the Company include the accounts of AH4R, theOperating Partnership and their consolidated subsidiaries. The consolidated financial statements of theOperating Partnership include the accounts of theOperating Partnership and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. The Company consolidates real estate partnerships and other entities that are not variable interest entities ("VIEs") when it owns, directly or indirectly, a majority interest in the entity or is otherwise able to control the entity. The ownership interest in a consolidated subsidiary of the Company held by outside parties, which was liquidated during the second quarter of 2018, is included in noncontrolling interest within the consolidated financial statements. The Company consolidates VIEs in accordance with Accounting Standards Codification ("ASC") No. 810, Consolidation, if it is the primary beneficiary of the VIE as determined by its power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. Entities for which the Company owns an interest, but does not consolidate, are accounted for under the equity method of accounting as an investment in unconsolidated entity, such as our investments in unconsolidated joint ventures. Investments in unconsolidated joint ventures are recorded initially at cost, and subsequently adjusted for equity in earnings and cash contributions and distributions. Under the equity method of accounting, our net equity investment is included in investments in unconsolidated joint ventures within the consolidated balance sheets, and our share of net income or loss from the joint ventures is included within other revenues in the consolidated statements of operations. Our recognition of joint venture income or loss is generally based on ownership percentages, which may change upon the achievement of certain investment return thresholds. The ultimate realization of the investment in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. Our investments in unconsolidated joint ventures are reviewed for impairment periodically and we will record an impairment charge when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than-temporary. During the year endedDecember 31, 2020 , the Company recognized a$4.9 million impairment charge in other expenses within the consolidated statements of operations associated with the liquidation of legacy joint ventures, which were acquired as part of the ARPI merger inFebruary 2016 .
Investments in Real Estate
Purchases of single-family properties are treated as asset acquisitions and,
as such, are recorded at their purchase price, including acquisition costs,
which is allocated to land and building based upon their relative fair values at
the date of acquisition. Fair value is determined in accordance with ASC 820,
Fair Value Measurements and Disclosures, and is primarily based on unobservable
data inputs. In making estimates of fair values for purposes of allocating the
purchase price of individually acquired properties subject to an existing lease,
the Company utilizes its own market knowledge obtained from historical
transactions, its AMH Development Program and published market data. In this
regard, the Company also utilizes information obtained from county tax
assessment
35
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records to assist in the determination of the fair value of the land and
building. The allocation of the consideration to the various components of
properties acquired during the year can have an effect on our net income due to
the useful depreciable and amortizable lives applicable to each component and
the recognition of the related depreciation and amortization expense. For the
year ended December 31, 2020 , the Company purchased 1,019 single-family
properties treated as asset acquisitions for accounting purposes for a total
purchase price of $266.4 million , which was included in cash paid for
single-family properties within the consolidated statement of cash flows.
The nature of our business requires that in certain circumstances we acquire
single-family properties subject to existing liens. Liens that we expect to be
extinguished in cash are estimated and accrued for on the date of acquisition
and recorded as a cost of the property.
We incur costs to prepare properties acquired through our traditional
acquisition channels for rental. These costs, along with related holding costs,
are capitalized to the cost of the property during the period the property is
undergoing activities to prepare it for its intended use. We capitalize interest
costs as a cost of the property only during the period for which activities
necessary to prepare an asset for its intended use are ongoing, provided that
expenditures for the asset have been made and interest costs have been incurred.
Upon completion of the renovation of our properties, all costs of operations,
including repairs and maintenance, are expensed as incurred.
Land and construction in progress for our AMH Development Program are presented separately in single-family properties under development and development land within the consolidated balance sheets. Our capitalization policy on development properties follows the guidance in ASC 835-20, Capitalization of Interest, and ASC 970, Real Estate-General. Costs directly related to the development of properties are capitalized and the costs of land and buildings under development include specifically identifiable costs. We also capitalize interest, real estate taxes, insurance, utilities, and payroll costs for land and construction in progress under active development once the applicable GAAP criteria have been met. Determination of when a development project commences and capitalization begins, and when a development project is substantially complete and held available for occupancy and capitalization must cease, involves a degree of judgment.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for impairment periodically or whenever events or circumstances indicate that their carrying amount may not be recoverable. Significant indicators of impairment may include, but are not limited to, declines in home values, rental rates and occupancy percentages, as well as significant changes in the economy. If an impairment indicator exists, we compare the expected future undiscounted cash flows against the net carrying amount. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding anticipated hold periods, future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. If the sum of the estimated undiscounted cash flows is less than the net carrying amount, we record an impairment loss for the difference between the estimated fair value of the individual property and the carrying amount of the property at that date. Because cash flows on properties considered to be long-lived assets to be held and used are considered on an undiscounted basis to determine whether an asset has been impaired, our established strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. No significant impairments on operating properties were recorded during the years endedDecember 31, 2020 , 2019 and 2018. We use the held for sale impairment model for our properties classified as held for sale. The held for sale impairment model is different from the held and used impairment model. Under the held for sale impairment model, an impairment loss is recognized if the carrying amount of the long-lived asset classified as held for sale exceeds its fair value less cost to sell. Because of these two different models, it is possible for a long-lived asset previously classified as held and used to require the recognition of an impairment charge upon classification as held for sale. As ofDecember 31, 2020 and 2019, the Company had 711 and 1,187 single-family properties, respectively, classified as held for sale, and recorded$2.0 million ,$3.7 million and$5.9 million of impairment on single-family properties held for sale for the years endedDecember 31, 2020 , 2019 and 2018, respectively, which was included in other expenses within the consolidated statements of operations.
Goodwill represents the fair value in excess of the tangible and separately identifiable intangible assets that were acquired in connection with the internalization of the Company's management function inJune 2013 , including all administrative, financial, property management, marketing and leasing personnel, including executive management.Goodwill has an indefinite life and is therefore not amortized. The Company analyzes goodwill for impairment on an annual basis pursuant to ASC 350, Intangibles-Goodwill and Other, which permits us to assess qualitative factors to determine whether it is more likely than not that the fair value of 36 -------------------------------------------------------------------------------- the reporting unit is less than the carrying amount as a basis to determine whether an impairment test is necessary. Under the provision of ASC 280, Segment Reporting, the Company has determined that it has one reportable segment with activities related to acquiring, renovating, developing, leasing and operating single-family homes as rental properties. The qualitative assessment requires judgment to be applied in evaluating the effects of multiple factors, including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other relevant entity-specific events, events affecting the reporting unit, and whether or not there has been a sustained decrease in the Company's stock price. We also have the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the goodwill impairment test. The impairment test compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds the fair value, the impairment loss is determined as the excess of the carrying amount of the goodwill reporting unit over the fair value of that goodwill, not to exceed the carrying amount. Impairment charges, if any, are recognized in operating results. Based on our assessment of qualitative factors onDecember 31, 2020 , we concluded it was more likely than not that the Company's recorded goodwill balance of$120.3 million was not impaired and did not perform the quantitative test. No goodwill impairment was recorded during the years endedDecember 31, 2020 , 2019 and 2018.
Revenue and Expense Recognition
We lease single-family properties that we own directly to tenants who occupy
the properties under operating leases, generally, with a term of one year. As a
result of the adoption of ASU No. 2016-02, Leases (Topic 842) ("ASC 842") on
January 1, 2019 , the Company classifies our single-family property leases as
operating leases and elects to not separate the lease component, comprised of
rents from single-family properties, from the associated non-lease component,
comprised of fees from single-family properties and tenant charge-backs. The
combined component is accounted for under the new lease accounting standard
while certain tenant charge-backs are accounted for as variable payments under
the revenue accounting guidance. Rental revenue, net of any concessions, is
recognized on a straight-line basis over the term of the lease, which is not
materially different than if it were recorded when due from tenants and
recognized monthly as it is earned. Tenant charge-backs, which are primarily
related to cost recoveries on utilities, are recognized as revenue on a gross
basis in the period during which the expenses are incurred.
Upon adoption of ASC 842, we no longer have an allowance for doubtful
accounts. When collectability is not deemed probable, we write-off the tenant's
receivables and limit lease income to cash received. Prior to January 1, 2019 ,
we maintained an allowance for doubtful accounts for estimated losses that may
have resulted from the inability of tenants to make required rent or other
payments. This allowance was estimated based on, among other considerations,
payment histories, overall delinquencies and available security deposits.
We accrue for property taxes and HOA assessments based on amounts billed, and,
in some circumstances, estimates and historical trends when bills or assessments
are not available. The actual assessment may differ from the estimates,
resulting in a change in estimate in a subsequent period.
Gains or losses on sales of properties and upon contributions to our
unconsolidated joint ventures are recognized pursuant to the provisions included
in ASC 610-20, Other Income. Under ASC 610-20, we must first determine whether
the transaction is a sale to a customer or non-customer. We typically sell
properties on a selective basis and not within the ordinary course of our
operating business and therefore expect that our sale transactions will not be
contracts with customers. We next determine whether we have a controlling
financial interest in the property after the sale, consistent with the
consolidation model in ASC 810, Consolidation. If we determine that we do not
have a controlling financial interest in the real estate, we evaluate whether a
contract exists under ASC 606, Revenue from Contracts with Customers, and
whether the buyer has obtained control of the asset that was sold. We recognize
a full gain or loss on sale, which is presented in gain on sale of single-family
properties and other, net within the consolidated statements of operations, when
the derecognition criteria under ASC 610-20 have been met.
Income Taxes
AH4R has elected to be taxed as a REIT forU.S. federal income tax purposes under Sections 856 to 860 of the Code, commencing with our taxable year endedDecember 31, 2012 . We believe that we have operated, and continue to operate, in such a manner as to satisfy the requirements for qualification as a REIT. Provided that we qualify as a REIT and our distributions to our shareholders equal or exceed our REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains), we generally will not be subject toU.S. federal income tax. Qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, including tests related to the percentage of income that we earn from specified sources and the percentage of our earnings that we distribute to our shareholders. Accordingly, no assurance can be given that we will continue to be organized or be able to operate in a manner so as to remain qualified as a REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we would be subject toU.S. federal income tax and state income tax on our taxable income at regular corporate tax 37 --------------------------------------------------------------------------------
rates, and we would likely be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we fail to qualify.
Even if we qualify as a REIT, we may be subject to certain state or local income and capital taxes andU.S. federal income and excise taxes on our undistributed REIT taxable income, if any. Certain of our subsidiaries are subject to taxation byU.S. federal, state and local authorities for the periods presented. We made joint elections to treat certain subsidiaries as TRS which are subject toU.S. federal, state and local taxes on their income at regular corporate rates. The tax years from 2016 to present generally remain open to examination by the taxing jurisdictions to which the Company is subject. We believe that ourOperating Partnership is properly treated as a partnership forU.S. federal income tax purposes. As a partnership, theOperating Partnership is not subject toU.S. federal income tax on our income. Instead, each of theOperating Partnership's partners, including AH4R, is allocated, and may be required to pay tax with respect to, its share of theOperating Partnership's income. As such, no provision forU.S. federal income taxes has been included for theOperating Partnership . ASC 740-10, Income Taxes, requires recognition of deferred tax assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize tax benefits of uncertain tax positions only if it is more likely than not that the tax position will be sustained, based solely on its technical merits, with the taxing authority having full knowledge of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the more likely than not threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information. As ofDecember 31, 2020 , there were no deferred tax assets and liabilities or unrecognized tax benefits recorded by the Company. We do not anticipate a significant change in unrecognized tax benefits within the next 12 months.
Recent Accounting Pronouncements
See Note 2. Significant Accounting Policies to our consolidated financial statements included as a separate section in Part IV, "Item 15. Exhibit and Financial Statement Schedules" of this Annual Report on Form 10-K for a discussion of the adoption and potential impact of recently issued accounting standards.
Liquidity and Capital Resources
Our liquidity and capital resources as ofDecember 31, 2020 included cash and cash equivalents of$137.1 million . Additionally, as ofDecember 31, 2020 , we had no outstanding borrowings under our revolving credit facility, which provides for maximum borrowings of up to$800.0 million , of which$1.5 million was committed to outstanding letters of credit. We have no debt maturities, other than recurring principal amortization, until 2024. Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make distributions to our shareholders and OP unitholders, including AH4R, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors beyond our control. Our liquidity requirements consist primarily of funds necessary to pay for the acquisition, development, renovation and maintenance of our properties, HOA fees (as applicable), real estate taxes, non-recurring capital expenditures, interest and principal payments on our indebtedness, general and administrative expenses, payment of quarterly dividends on our preferred shares and units, and payment of distributions to our common shareholders and unitholders. We seek to satisfy our liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, issuances of debt and equity securities (including OP units), asset-backed securitizations, property dispositions and joint venture transactions. We have financed our operations, acquisitions and development expenditures to date through the issuance of equity securities, borrowings under our credit facilities, asset-backed securitizations and unsecured senior notes, and proceeds from the sale of single-family properties. Going forward, we expect to meet our operating liquidity requirements generally through cash on hand and cash provided by operations. We believe our rental income, net of operating expenses and recurring capital expenditures, will generally provide cash flow sufficient to fund our operations and dividend distributions. However, our real estate assets are illiquid in nature. A timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing alternatives including drawing on our revolving credit facility. As discussed above under "COVID-19 Business Update," the COVID-19 pandemic has had an adverse impact on the economy and our operating cash flows. Since we do not know the ultimate severity and length of the COVID-19 pandemic, and thus 38 --------------------------------------------------------------------------------
cannot predict the impact it will have on our tenants and on the debt and equity capital markets, we cannot estimate the ultimate impact it will have on our liquidity and capital resources.
Cash Flows
The following table summarizes the Company's and the
For the Years Ended
2020 2019 Change
Net cash provided by operating activities $ 474,100 $ 457,887 $ 16,213
Net cash used for investing activities (642,925) (376,866) (266,059)
Net cash provided by (used for) financing activities 269,783 (92,116) 361,899
Net increase (decrease) in cash, cash equivalents and
restricted cash $ 100,958 $ (11,095) $ 112,053
Operating Activities
Our cash flows provided by operating activities, which is our principal source
of cash flows, depend on numerous factors, including the occupancy level of our
properties, the rental rates achieved on our leases, the collection of rent from
our tenants and the level of property operating expenses, property management
expenses and general and administrative expenses. Net cash provided by operating
activities increased $16.2 million , or 3.5%, from $457.9 million during the year
ended December 31, 2019 to $474.1 million during the year ended December 31,
2020 primarily as a result of increased cash flows generated from a larger
number of occupied properties and increases in rental rates on lease renewals
and re-leasing of our single-family properties, partially offset by a decrease
in collections on rent and tenant utility reimbursements associated with the
COVID-19 pandemic.
Investing Activities
For the Years Ended December 31,
2020 2019 ChangeSources of cash from investing activities: Net proceeds received from sales of single-family properties and other
$ 228,566 $ 221,930 $ 6,636
Distributions from joint ventures 129,007 22,561 106,446
Proceeds received from hurricane-related insurance claims 3,705 2,171 1,534
$ 361,278 $ 246,662 $ 114,616
Uses of cash for investing activities:
Cash paid for development activity $ (564,241) $ (383,271) $ (180,970)
Cash paid for single-family properties (269,273) (120,487) (148,786)
Recurring and other capital expenditures for single-family properties
(104,819) (71,481) (33,338)
Investment in unconsolidated joint ventures (29,834) (13,114) (16,720)
Renovations to single-family properties (16,968) (21,883) 4,915
Other purchases of productive assets (18,694) (6,121) (12,573)
Change in escrow deposits for purchase of single-family
properties (374) (7,171) 6,797
$ (1,004,203) $ (623,528) $ (380,675)
Net cash used for investing activities $
(642,925)
Net cash used for investing activities increased$266.1 million , or 70.6%, from$376.9 million during the year endedDecember 31, 2019 to$642.9 million during the year endedDecember 31, 2020 , primarily driven by the strategic expansion of our portfolio through traditional acquisition channels, the development of "built-for-rental" homes through our AMH Development Program, and acquiring newly built properties through our National Builder Program. We use cash generated from operating and financing activities and by recycling capital through the sale of single-family properties to invest in this strategic expansion. The Company has continued construction activity, while in compliance with state and local mandates related to COVID-19, on its existing pipeline of "built-for-rental" homes through our AMH Development Program. Recurring and other capital expenditures for single-family properties increased as a result of investments in properties to increase future revenues or reduce maintenance expenditures. The development of "built-for-rental" homes and our property-enhancing capital expenditures may reduce recurring and other capital expenditures on an average per home basis in the future. These increased cash outflows were offset by additional distributions from unconsolidated joint ventures in respect of contributions of land and in-process development projects and additional net proceeds from sales of single-family properties and other. 39 --------------------------------------------------------------------------------
Financing Activities
Net cash provided by or used for financing activities increased$361.9 million from$92.1 million of net cash outflows during the year endedDecember 31, 2019 to$269.8 million of net cash inflows during the year endedDecember 31, 2020 primarily due to the debt and equity activity described below.
Debt
As of
During the year endedDecember 31, 2020 , the Company borrowed and fully repaid$130.0 million on its revolving credit facility and repaid$22.5 million on its asset-backed securitizations. During the year endedDecember 31, 2019 , the Company issued$400.0 million of unsecured senior notes and received$397.9 million in proceeds, net of a discount, paid off the outstanding amounts on the term loan facility and revolving credit facility of$100.0 million and$250.0 million , respectively, and repaid$21.5 million on its asset-backed securitizations. For additional information regarding the Company's debt issuances, see Note 7. Debt to our consolidated financial statements included as a separate section in Part IV, "Item 15. Exhibit and Financial Statement Schedules" of this Annual Report on Form 10-K.
Class A Common Share Offering
During the third quarter of 2020, the Company issued 14,950,000 Class A common shares of beneficial interest,$0.01 par value per share, in an underwritten public offering, raising net proceeds of$411.7 million after deducting underwriting discounts and before offering costs of approximately$0.2 million . The Company used the net proceeds from this offering (i) to repay indebtedness the Company had incurred under its revolving credit facility (ii) to develop new single-family properties and communities, (iii) to acquire and renovate single-family properties and for related activities in accordance with its business strategy and (iv) for general corporate purposes.The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance.
At-the-Market Common Share Offering Program
During the second quarter of 2020, the Company extended its at-the-market common share offering program under which we can issue Class A common shares from time to time through various sales agents up to an aggregate gross sales offering price of$500.0 million (the "At-the-Market Program"). The At-the-Market Program also provides that we may enter into forward contracts for our Class A common shares with forward sellers and forward purchasers. The Company intends to use any net proceeds from the At-the-Market Program (i) to repay indebtedness the Company has incurred or expects to incur under its revolving credit facility, (ii) to develop new single-family properties and communities, (iii) to acquire and renovate single-family properties and for related activities in accordance with the Company's business strategy and (iv) for working capital and general corporate purposes, including repurchases of the Company's securities, acquisitions of additional properties, capital expenditures and the expansion, redevelopment and/or improvement of properties in the Company's portfolio. The Company may suspend or terminate the At-the-Market Program at any time. During the year endedDecember 31, 2020 , the Company issued 86,130 Class A common shares under the At-the-Market Program, raising$2.4 million in gross proceeds before commissions and other expenses of approximately$0.4 million . As ofDecember 31, 2020 , 86,130 shares have been issued under the At-the-Market Program and$497.6 million remained available for future share issuances. Share Repurchase Program The Company's board of trustees authorized the establishment of our share repurchase program, authorizing the repurchase of up to$300.0 million of our outstanding Class A common shares and up to$250.0 million of our outstanding preferred shares from time to time in the open market or in privately negotiated transactions. The program does not have an expiration date, but may be suspended or discontinued at any time without notice. All repurchased shares are constructively retired and returned to an authorized and unissued status.The Operating Partnership funds the repurchases and constructively retires an equivalent number of corresponding Class A units. During the years endedDecember 31, 2020 and 2019, we did not repurchase and retire any of our shares. As ofDecember 31, 2020 , we had a remaining repurchase authorization of up to$265.1 million of our outstanding Class A common shares and up to$250.0 million of our outstanding preferred shares under the program. 40 --------------------------------------------------------------------------------
Distributions
As a REIT, we generally are required to distribute annually to our shareholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and any net capital gains) and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains).The Operating Partnership funds the payment of distributions. AH4R had an NOL forU.S. federal income tax purposes of an estimated$60.2 million as ofDecember 31, 2020 and approximately$189.1 million as ofDecember 31, 2019 . We intend to use our NOL (to the extent available) to reduce our REIT taxable income and will distribute approximately all of our remaining REIT taxable income (determined without regard to the deduction for dividends paid and including any net capital gains).
During the years ended
Off-Balance Sheet Arrangements
During the third quarter of 2020, one of our unconsolidated joint ventures entered into a loan agreement to borrow up to a$201.0 million aggregate commitment. During the initial two-year term, the loan bears interest at LIBOR plus a 3.50% margin and matures onAugust 11, 2022 . The loan agreement provides for three one-year extension options that include additional fees and interest. As ofDecember 31, 2020 , the joint venture's loan had an$85.2 million outstanding principal balance. The Company provided a customary non-recourse guarantee that may become a liability for us upon a voluntary bankruptcy filing by the joint venture or occurrence of other actions such as fraud or a material misrepresentation by us or the joint venture. To date, the guarantee has not been invoked and we believe that the actions that would trigger a guarantee would generally be disadvantageous to the joint venture and us, and therefore are unlikely to occur. However, there can be no assurances that actions that could trigger the guarantee will not occur.
We have no other material obligations, assets or liabilities that would be considered off-balance sheet arrangements.
Contractual Obligations
Contractual obligations as ofDecember 31, 2020 consisted of the following (in thousands): Payments by Period Less than 1 Total year 1-3 years 3-5 years After 5 years Revolving credit facility (1)$ 3,000 $ 2,000 $ 1,000 $ - $ - Asset-backed securitizations (2) 1,948,492 20,714 41,428 964,741 921,609 Unsecured senior notes (2) 900,000 - - - 900,000 Interest on debt obligations (3) 662,489 125,718 249,095 181,270 106,406 Operating lease obligations 21,940 2,104 5,395 4,552 9,889 Purchase obligations (4) 153,982 153,982 - - - Total$ 3,689,903 $ 304,518 $ 296,918 $ 1,150,563 $ 1,937,904 (1)Includes the 0.25% annual commitment fee on the principal amount of the commitments of$800.0 million . (2)Amounts represent principal amounts due and exclude unamortized discounts and deferred financing costs. (3)Represents estimated future interest payments on our debt instruments based on applicable interest rates as ofDecember 31, 2020 and assumes the repayment of the AMH 2015-1 and 2015-2 securitizations on their anticipated repayment dates in 2025. The fully extended maturity dates for the AMH 2015-1 and 2015-2 securitizations are in 2045 and the interest rates increase on the anticipated repayment dates in 2025. If the AMH 2015-1 and 2015-2 securitizations are not repaid on the anticipated repayment dates in 2025, our interest on debt obligations above would increase. (4)Represents commitments to acquire 323 single-family properties for an aggregate purchase price of$81.7 million , as well as$72.3 million in land purchase commitments that relate to both third-party developer agreements and land for our AMH Development Program.
As a condition for entering into some of its development contracts, the
Company had
Additional Non-GAAP Measures
Funds from Operations ("FFO") / Core FFO / Adjusted FFO attributable to common share and unit holders
FFO attributable to common share and unit holders is a non-GAAP financial measure that we calculate in accordance with the definition approved by theNational Association of Real Estate Investment Trusts ("NAREIT"), which defines FFO as net income or loss calculated in accordance with GAAP, excluding gains and losses from sales or impairment of real estate, plus real estate-related 41 --------------------------------------------------------------------------------
depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustments for unconsolidated partnerships and joint ventures to reflect FFO on the same basis.
Core FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting FFO attributable to common share and unit holders for (1) acquisition and other transaction costs incurred with business combinations and the acquisition or disposition of properties as well as nonrecurring items unrelated to ongoing operations, (2) noncash share-based compensation expense, (3) hurricane-related charges, net, which result in material charges to the impacted single-family properties, and (4) gain or loss on early extinguishment of debt. Adjusted FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting Core FFO attributable to common share and unit holders for (1) Recurring Capital Expenditures that are necessary to help preserve the value and maintain functionality of our properties and (2) capitalized leasing costs incurred during the period. As a portion of our homes are recently developed, acquired and/or renovated, we estimateRecurring Capital Expenditures for our entire portfolio by multiplying (a) current period actual Recurring Capital Expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. We present FFO attributable to common share and unit holders because we consider this metric to be an important measure of the performance of real estate companies, as do many investors and analysts in evaluating the Company. We believe that FFO attributable to common share and unit holders provides useful information to investors because this metric excludes depreciation, which is included in computing net income and assumes the value of real estate diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and in response to inflation. We also believe that Core FFO and Adjusted FFO attributable to common share and unit holders provide useful information to investors because they allow investors to compare our operating performance to prior reporting periods without the effect of certain items that, by nature, are not comparable from period to period. FFO, Core FFO and Adjusted FFO attributable to common share and unit holders are not a substitute for net income or net cash provided by operating activities, each as determined in accordance with GAAP, as a measure of our operating performance, liquidity or ability to pay dividends. These metrics also are not necessarily indicative of cash available to fund future cash needs. Because other REITs may not compute these measures in the same manner, they may not be comparable among REITs. 42 -------------------------------------------------------------------------------- The following is a reconciliation of the Company's net income or loss attributable to common shareholders, determined in accordance with GAAP, to FFO attributable to common share and unit holders, Core FFO attributable to common share and unit holders and Adjusted FFO attributable to common share and unit holders for the years endedDecember 31, 2020 and 2019 (in thousands): For the
Years Ended
2020 2019
Net income attributable to common shareholders $ 85,246 $ 85,911
Adjustments:
Noncontrolling interests in the Operating Partnership 14,455 15,221
Net (gain) on sale / impairment of single-family properties and other
(38,107) (40,210)
Adjustments for unconsolidated joint ventures 1,352 1,797
Depreciation and amortization 343,153 329,293
Less: depreciation and amortization of non-real estate assets (9,016)
(7,933)
FFO attributable to common share and unit holders $ 397,083 $ 384,079
Adjustments:
Acquisition, other transaction costs and other (1) 12,223 3,224
Noncash share-based compensation - general and administrative 6,573
3,466
Noncash share-based compensation - property management 1,745 1,342
Loss on early extinguishment of debt - 659
Core FFO attributable to common share and unit holders (2)
(46,048) (39,997)
Leasing costs (4,070) (4,095)
Adjusted FFO attributable to common share and unit holders (2)
(1)Included in acquisition, other transaction costs and other is a net$2.9 million nonrecurring expense related to a legal matter involving a former employee during the year endedDecember 31, 2020 . (2)Core FFO and Adjusted FFO attributable to common share and unit holders include negative financial impacts associated with the COVID-19 pandemic that relate to (i) the Company's socially responsible decisions between April andJuly 2020 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewal leases, (ii) waived late fees between April andJuly 2020 , and (iii)$16.1 million of other negative financial impacts from the COVID-19 pandemic including$12.8 million of increased uncollectible rents,$2.8 million of increased uncollectible tenant utility reimbursements and$0.5 million of increased costs associated with enhanced cleaning and safety protocols during the year endedDecember 31, 2020 . Additionally, due primarily to abnormally high home system usage during stay-at-home orders, we incurred approximately$3.4 million of incremental capital expenditures within Adjusted FFO attributable to common share and unit holders that primarily related to HVAC and home system replacements during the year endedDecember 31, 2020 . (3)As a portion of our homes are recently developed, acquired and/or renovated, we estimate recurring capital expenditures for our entire portfolio by multiplying (a) current period actual recurring capital expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale.
EBITDA / EBITDAre / Adjusted EBITDAre / Fully Adjusted EBITDAre
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is a non-GAAP financial measure and is used by us and
others as a supplemental measure of performance. EBITDAre is a supplemental
non-GAAP financial measure, which we calculate in accordance with the definition
approved by NAREIT by adjusting EBITDA for the net gain or loss on sales /
impairment of single-family properties and other and adjusting for
unconsolidated partnerships and joint ventures on the same basis. Adjusted
EBITDAre is a supplemental non-GAAP financial measure calculated by adjusting
EBITDAre for (1) acquisition and other transaction costs incurred with business
combinations and the acquisition or disposition of properties as well as
nonrecurring items unrelated to ongoing operations, (2) noncash share-based
compensation expense, (3) hurricane-related charges, net, which result in
material charges to the impacted single-family properties, and (4) gain or loss
on early extinguishment of debt. Fully Adjusted EBITDAre (formerly known as
Adjusted EBITDAre after Capex and Leasing Costs) is a supplemental non-GAAP
financial measure calculated by adjusting Adjusted EBITDAre for (1) Recurring
Capital Expenditures and (2) leasing costs. We believe these metrics provide
useful information to investors because they exclude the impact of various
income and expense items that are not indicative of operating performance.
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The following is a reconciliation of net income, as determined in accordance
with GAAP, to EBITDA, EBITDAre, Adjusted EBITDAre and Fully Adjusted EBITDAre
for the years ended December 31, 2020 and 2019 (in thousands):
For the Years Ended December 31,
2020 2019
Net income $ 154,829 $ 156,260
Interest expense 117,038 127,114
Depreciation and amortization 343,153 329,293
EBITDA $ 615,020 $ 612,667 Net (gain) on sale / impairment of single-family properties and other
(38,107) (40,210)
Adjustments for unconsolidated joint ventures 1,352 1,797
EBITDAre $
578,265
Noncash share-based compensation - general and administrative 6,573
3,466
Noncash share-based compensation - property management 1,745 1,342
Acquisition, other transaction costs and other (1) 12,223 3,224
Loss on early extinguishment of debt - 659
Adjusted EBITDAre $
598,806
Recurring capital expenditures (2) (46,048) (39,997) Leasing costs (4,070) (4,095) Fully Adjusted EBITDAre$ 548,688 $ 538,853 (1)Included in acquisition, other transaction costs and other is a net$2.9 million nonrecurring expense related to a legal matter involving a former employee during the year endedDecember 31, 2020 . (2)As a portion of our homes are recently developed, acquired and/or renovated, we estimate recurring capital expenditures for our entire portfolio by multiplying (a) current period actual recurring capital expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. 44
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