AMERICAN HOMES 4 RENT The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
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 in November 2012 .
As of June 30, 2020 , we owned 53,000 single-family properties in selected
sub-markets of metropolitan statistical areas ("MSAs") in 22 states, including
948 properties held for sale, compared to 52,552 single-family properties in 22
states, including 1,187 properties held for sale, as of December 31, 2019 , and
52,634 single-family properties in 22 states, including 1,664 properties held
for sale as of June 30, 2019 . As of June 30, 2020 , we had commitments to acquire
an additional 72 single-family properties for an aggregate purchase price of
$20.8 million , as well as $55.6 million in purchase commitments that relate to
both third-party developer agreements and land for our AMH Development Program.
As of June 30, 2020 , 50,170, or 96.4%, 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 of December 31, 2019 ,
and 49,111, or 96.4%, of our total properties (excluding properties held for
sale) as of June 30, 2019 . Also, as of June 30, 2020 , the Company had an
additional 936 properties held in unconsolidated joint ventures, compared to 808
properties held in unconsolidated joint ventures as of December 31, 2019 , and
659 properties held in unconsolidated joint ventures as of June 30, 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
second 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 all
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. Additionally, during the second quarter
of 2020, the Company waived late fees and month-to-month lease premiums, halted
evictions for nonpayment of rent, and offered zero percent increases on newly
signed renewals for leases expiring between April and July 2020 .
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
in June and July 2020 of 96.1% and 96.4%, respectively. Additionally, as the
Company entered the third quarter of 2020, it began a socially responsible
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 with the Company recognizing
revenue on 96.5% of its second quarter 2020 rental billings, all of which has
been collected in cash through July 2020 without application of any existing
resident security deposits or adjustment for deferred payment plans. As further
second quarter 2020 collections are received, the associated revenue will be
recognized in the applicable future period.
As we pursue additional collections, we are working closely with delinquent
residents on a case-by-case basis to find the resolution that is best for the
resident and the Company. Although minimal to date, workout options may include
deferred payment plans which we began offering in June, or, where appropriate,
early lease termination.
For the month of July, collections are tracking in line with the second
quarter of 2020 as the Company collected 92% of July rents during July 2020 ,
which represents over 99% of second quarter 2020 payment history for the same
time frame.
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 potential resurgences, and the direct and indirect economic effects of
the pandemic and containment measures, among others.
For more information on risks related to COVID-19, see Part II, "Item 1A.
Risk Factors-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."
29
--------------------------------------------------------------------------------Key Single-Family Property and Leasing Metrics
The following table summarizes certain key single-family properties metrics
as of June 30, 2020 :
Number of % of Total % of Gross
Single-Family Single-Family Gross Book Value Book Value Avg. Gross Book Avg. Avg. Property Age Avg. Year
Market Properties (1) Properties (millions) Total Value per Property Sq. Ft. (years) Purchased or Delivered
Atlanta, GA 4,869 9.4 % $ 887.7 9.1 % $ 182,316 2,162 17.3 2015
Dallas-Fort Worth, TX 4,315 8.3 % 716.9 7.4 % 166,141 2,116 16.2 2014
Charlotte, NC 3,744 7.2 % 732.8 7.6 % 195,731 2,098 16.0 2015
Phoenix, AZ 3,113 6.0 % 550.1 5.7 % 176,724 1,835 16.7 2015
Houston, TX 3,008 5.8 % 496.8 5.1 % 165,154 2,094 14.5 2014
Nashville, TN 2,845 5.5 % 611.6 6.3 % 214,974 2,108 14.9 2015
Indianapolis, IN 2,802 5.4 % 432.2 4.4 % 154,248 1,930 17.7 2013
Tampa, FL 2,373 4.6 % 475.9 4.9 % 200,534 1,941 14.5 2015
Jacksonville, FL 2,314 4.4 % 415.4 4.3 % 179,500 1,939 14.7 2015
Raleigh, NC 2,078 4.0 % 385.1 4.0 % 185,344 1,878 15.2
2014
Columbus, OH 2,043 3.9 % 354.6 3.6 % 173,560 1,870 18.4
2015
Cincinnati, OH 1,969 3.8 % 346.2 3.6 % 175,806 1,851 18.0
2013
Greater Chicago area, IL and IN 1,734 3.3 % 317.3 3.3 % 183,011 1,869 18.8 2013Orlando, FL 1,724 3.3 % 316.2 3.3 % 183,406 1,899 18.2 2015Salt Lake City, UT 1,485 2.9 % 371.5 3.8 % 250,173 2,186 17.6
2015
Charleston, SC 1,223 2.3 % 248.2 2.5 % 202,905 1,973 11.8
2016
Las Vegas, NV 1,039 2.0 % 187.0 1.9 % 179,964 1,845 17.1
2013
San Antonio, TX 1,061 2.0 % 173.7 1.8 % 163,696 1,996 15.4
2014
Savannah/Hilton Head, SC 901 1.7 % 164.3 1.7 % 182,386 1,866 12.5 2015Denver, CO 831 1.6 % 247.7 2.6 % 298,068 2,105 17.9 2015 All Other (2) 6,581 12.6 % 1,268.4 13.1 % 192,717 1,880 15.6 2014 Total/Average 52,052 100.0 %$ 9,699.6 100.0 %$ 186,342 1,987 16.2 2014
(1)Excludes 948 single-family properties held for sale as of
30
--------------------------------------------------------------------------------
The following table summarizes certain key leasing metrics as of June 30,
2020 :
Total Single-Family Properties (1)
Avg. Occupied Avg. Monthly Avg. Original Avg. Remaining Avg. Blended
Days Realized Rent per Lease Term Lease Term Change in
Market Percentage (2) property (3) (months) (4) (months) (4) Rent (5)
Atlanta, GA 94.7 % $ 1,664 12.0 6.7 2.9 %
Dallas-Fort Worth, TX 95.1 % 1,792 12.1 6.4 1.7 %
Charlotte, NC 95.3 % 1,639 12.4 7.0 1.9 %
Phoenix, AZ 97.1 % 1,501 12.0 6.6 4.5 %
Houston, TX 94.6 % 1,682 12.4 6.6 1.3 %
Nashville, TN 92.7 % 1,772 12.0 6.9 2.4 %
Indianapolis, IN 96.1 % 1,467 12.0 6.7 2.8 %
Tampa, FL 93.8 % 1,737 12.1 7.1 1.8 %
Jacksonville, FL 94.6 % 1,617 12.0 6.9 2.0 %
Raleigh, NC 93.3 % 1,578 12.1 7.1 1.5 %
Columbus, OH 96.7 % 1,689 12.0 6.7 3.2 %
Cincinnati, OH 96.7 % 1,653 12.0 6.3 2.9 %
Greater Chicago area, IL and IN 96.5 % 1,907 12.2 6.6 2.2 %
Orlando, FL 94.0 % 1,727 12.1 6.8 2.2 %
Salt Lake City, UT 95.8 % 1,835 12.1 7.1 3.2 %
Charleston, SC 94.1 % 1,749 12.0 7.0 2.0 %
Las Vegas, NV 94.5 % 1,626 12.0 6.7 2.8 %
San Antonio, TX 95.1 % 1,578 12.1 6.9 2.1 %
Savannah/Hilton Head, SC 94.5 % 1,599 12.1 7.0 2.0 %
Denver, CO 94.8 % 2,277 12.1 6.5 2.2 %
All Other (6) 95.5 % 1,660 12.0 6.6 2.8 %
Total/Average 95.1 % $ 1,680 12.1 6.8 2.4 %
(1)Leasing information excludes 948 single-family properties held for sale as of
June 30, 2020 .
(2)For the three months ended June 30, 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.
(3)For the three months ended June 30, 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 period, 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 three months ended June 30, 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 us 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 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
31
--------------------------------------------------------------------------------
construction channels are impacted by the availability of vacant developed lots,
development land assets and inventory of homes 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 three months ended June 30, 2020 , we developed or acquired 440 homes,
including 327 newly constructed properties delivered through our AMH Development
Program and 113 homes acquired through our National Builder Program and
traditional acquisition channel, partially offset by 216 homes sold. Although we
are currently continuing construction activity on our existing pipeline of
internally developed built-for-rental homes, subject to compliance with state
and local mandates related to COVID-19, given market uncertainties regarding
future asset values, we have temporarily suspended our acquisitions through
traditional channels and the National Builder Program.
Our properties held for sale were identified based on sub-market analysis,
as well as individual property-level operational review. As of June 30, 2020 and
December 31, 2019 , there were 948 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.
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 $350,000 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 homeowner association
("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 40 to
60 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.
32
--------------------------------------------------------------------------------
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 3.1%
for the three months ended June 30, 2020 , and we experienced turnover rates of
9.3% and 10.9% during the three months ended June 30, 2020 and 2019,
respectively. Based on our Same-Home population of properties, the
year-over-year increase in Average Monthly Realized Rent per property was 3.3%
for the six months ended June 30, 2020 , and we experienced turnover rates of
17.2% and 18.9% during the six months ended June 30, 2020 and 2019,
respectively. In response to the COVID-19 pandemic, we offered zero percent
increases on newly signed renewals for leases expiring during the three months
ended June 30, 2020 .
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, 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 $31.8 million for the three months ended June 30, 2020 ,
compared to net income of $40.3 million for the three months ended June 30,
2019 . This decrease was primarily attributable to increased uncollectible rents
and tenant utility reimbursements related to the COVID-19 pandemic, as well as
higher property operating expenses and a reduction in gain on sale of
single-family properties and other, net. Net income totaled $69.3 million for
the six months ended June 30, 2020 , compared to net income of $73.4 million for
the six months ended June 30, 2019 . This decrease was primarily attributable to
increased uncollectible rents and tenant utility reimbursements related to the
COVID-19 pandemic, as well as higher property operating expenses and a noncash
write-down included in other expenses associated with the liquidation of legacy
joint ventures, which were acquired as part of the American Residential
Properties, Inc. ("ARPI") merger in February 2016 .
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
33
--------------------------------------------------------------------------------
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 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, (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 in the United States of America
("GAAP")).
34--------------------------------------------------------------------------------
Comparison of the Three Months 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
three months ended
For the Three Months Ended June 30, 2020
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties (2) $ 216,995 $ 33,769 $ 250,764
Fees from single-family properties
(2) 2,627 684 3,311
Bad debt (3) (7,590) (1,225) (8,815)
Core revenues 212,032 33,228 245,260
Property tax expense 38,575 18.2 % 6,574 19.8 % 45,149 18.4 %
HOA fees, net (4) 4,113 1.9 % 870 2.6 % 4,983 2.0 %
R&M and turnover costs, net (4)(5) 19,428 9.1 % 3,586 10.8 % 23,014 9.4 %
Insurance 2,020 1.0 % 400 1.2 % 2,420 1.0 %
Property management expenses, net
(6) 17,535 8.3 % 3,725 11.2 % 21,260 8.7 %
Core property operating expenses 81,671 38.5 % 15,155 45.6 % 96,826 39.5 %
Core NOI $ 130,361 61.5 % $ 18,073 54.4 % $ 148,434 60.5 %
For the Three Months Ended
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 210,577 $ 32,281 $ 242,858
Fees from single-family properties 2,922 571 3,493
Bad debt (1,513) (227) (1,740)
Core revenues 211,986 32,625 244,611
Property tax expense 36,841 17.4 % 6,632 20.3 % 43,473 17.8 %
HOA fees, net (4) 4,576 2.2 % 795 2.4 % 5,371 2.2 %
R&M and turnover costs, net (4) 16,501 7.7 % 2,901 9.0 % 19,402 7.9 %
Insurance 1,921 0.9 % 351 1.1 % 2,272 0.9 %
Property management expenses, net
(6) 17,158 8.1 % 2,916 8.9 % 20,074 8.2 %
Core property operating expenses 76,997 36.3 % 13,595 41.7 % 90,592 37.0 %
Core NOI $ 134,989 63.7 % $ 19,030 58.3 % $ 154,019 63.0 %
(1)Includes 45,075 properties that have been stabilized longer than 90 days
prior to January 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 to waive
month-to-month lease premiums and offer zero percent increases on newly signed
renewals for leases expiring throughout the second quarter of 2020. Fees from
single-family properties were also impacted as the Company waived late fees
throughout the second quarter of 2020.
(3)Includes $7.0 million and $6.0 million for the total portfolio and Same-Home
portfolio, respectively, of increased uncollectible rents related to the
COVID-19 pandemic for the second quarter of 2020.
(4)Presented net of tenant charge-backs.
(5)Includes $1.9 million and $1.8 million for the total portfolio and Same-Home
portfolio, respectively, of increased uncollectible tenant utility
reimbursements and $0.5 million and $0.4 million , respectively, of increased
costs associated with enhanced cleaning and safety protocols related to the
COVID-19 pandemic for the second quarter of 2020.
(6)Presented net of tenant charge-backs and excludes noncash share-based
compensation expense related to centralized and field property management
employees.
35
--------------------------------------------------------------------------------
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 three
months ended June 30, 2020 and 2019 (amounts in thousands):
For the Three Months Ended
June 30,
2020 2019
Core revenues and Same-Home core revenues
Total revenues $ 283,098 $ 281,860
Tenant charge-backs (35,429) (35,303)
Other revenues (2,409) (1,946)
Core revenues 245,260 244,611
Less: Non-Same-Home core revenues 33,228 32,625
Same-Home core revenues $ 212,032 $ 211,986
Core property operating expenses and Same-Home core property
operating expenses
Property operating expenses $ 110,436 $ 104,591
Property management expenses 22,260 21,650
Noncash share-based compensation - property management (441) (346)
Expenses reimbursed by tenant charge-backs (35,429) (35,303)
Core property operating expenses 96,826 90,592
Less: Non-Same-Home core property operating expenses 15,155 13,595
Same-Home core property operating expenses $
81,671
Core NOI and Same-Home Core NOI Net income $
31,807
Loss on early extinguishment of debt - 659 Gain on sale of single-family properties and other, net (10,651) (13,725) Depreciation and amortization 84,836 82,840 Acquisition and other transaction costs 1,956 970 Noncash share-based compensation - property management 441 346 Interest expense 29,558 32,571 General and administrative expense 11,493 10,486 Other expenses 1,403 1,514 Other revenues (2,409) (1,946) Core NOI 148,434 154,019 Less: Non-Same-Home Core NOI 18,073 19,030 Same-Home Core NOI$ 130,361 $ 134,989 Total Revenues Total revenues increased 0.4% to$283.1 million for the three months endedJune 30, 2020 from$281.9 million for the three months endedJune 30, 2019 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 49,600 homes for the three months endedJune 30, 2020 , compared to 48,989 homes for the three months endedJune 30, 2019 , as well as higher rental rates, offset by an increase in uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 5.6% to $110.4 million for the three
months ended June 30, 2020 from $104.6 million for the three months ended June
30, 2019 . This increase was primarily attributable to higher property tax
expense and higher repairs and maintenance and turnover costs.
Property Management Expenses
Property management expenses for the three months ended June 30, 2020 and
2019 were $22.3 million and $21.7 million , respectively, which included $0.4
million and $0.3 million , respectively, of noncash share-based compensation
expense related to
36
--------------------------------------------------------------------------------centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs.
Core Revenues from
Core revenues from Same-Home properties were $212.0 million for both the
three months ended June 30, 2020 and 2019, primarily driven by a 3.1% increase
in Average Monthly Realized Rent per property, which increased to $1,678 per
month for the three months ended June 30, 2020 compared to $1,627 per month for
the three months ended June 30, 2019 , offset by an increase in uncollectible
rents related to the COVID-19 pandemic. Additionally, during the three months
ended June 30, 2020 , core revenues from Same-Home properties were impacted by
(i) the Company's socially responsible decisions to waive month-to-month lease
premiums and offer zero percent increases on newly signed renewals for leases
expiring throughout the quarter and (ii) waived late fees throughout the
quarter.
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
6.1% to $81.7 million for the three months ended June 30, 2020 from $77.0
million for the three months ended June 30, 2019 , primarily driven by
$2.2 million of incremental costs incurred during the three months ended June
30, 2020 related to the COVID-19 pandemic including enhanced cleaning costs and
increased uncollectible tenant utility reimbursements.
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 three months ended June 30, 2020 and 2019 was $11.5 million and $10.5
million , respectively, which included $1.6 million and $0.9 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
an increase in state taxes and professional fees.
Interest Expense
Interest expense decreased 9.3% to $29.6 million for the three months ended
June 30, 2020 from $32.6 million for the three months ended June 30, 2019 . This
decrease was primarily related to additional capitalized interest during the
three months ended June 30, 2020 and the payoff of the term loan facility in
June 2019 , partially offset by draws on our revolving credit facility during the
first six months of 2020.
Acquisition and Other Transaction Costs
Acquisition and other transaction costs were $2.0 million and $1.0 million
for the three months ended June 30, 2020 and 2019, respectively, which primarily
related to 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. The planned growth in 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 30 years. Our intangible
assets are amortized on a straight-line basis over the asset's estimated
economic useful life. Depreciation and amortization expense increased 2.4% to
$84.8 million for the three months ended June 30, 2020 from $82.8 million for
the three months ended June 30, 2019 primarily due to growth in our average
number of depreciable properties.
Other Revenues
Other revenues were $2.4 million and $1.9 million for the three months ended
June 30, 2020 and 2019, respectively, which primarily related to interest
income, fees from unconsolidated joint ventures, and equity in earnings from
unconsolidated joint ventures.
37
--------------------------------------------------------------------------------Other Expenses
Other expenses were $1.4 million and $1.5 million for the three months ended
June 30, 2020 and 2019, respectively, which primarily related to impairments on
properties held for sale and expenses related to joint ventures.
Comparison of the Six Months 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 six
months ended
For the Six Months Ended June 30, 2020
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties (2) $ 431,565 $ 64,529 $ 496,094
Fees from single-family properties
(2) 5,986 1,339 7,325
Bad debt (3) (9,150) (1,680) (10,830)
Core revenues 428,401 64,188 492,589
Property tax expense 77,046 18.0 % 13,071 20.4 % 90,117 18.3 %
HOA fees, net (4) 7,874 1.8 % 1,625 2.5 % 9,499 1.9 %
R&M and turnover costs, net (4)(5) 33,792 7.9 % 6,329 9.8 % 40,121 8.1 %
Insurance 3,975 0.9 % 758 1.2 % 4,733 1.0 %
Property management expenses, net
(6) 35,554 8.3 % 7,123 11.1 % 42,677 8.7 %
Core property operating expenses 158,241 36.9 % 28,906 45.0 % 187,147 38.0 %
Core NOI $ 270,160 63.1 % $ 35,282 55.0 % $ 305,442 62.0 %
For the Six Months Ended June 30, 2019
Non-Same-
Same-Home % of Core Home and Other % of Core Total % of Core
Properties (1) Revenue Properties Revenue Properties Revenue
Rents from single-family
properties $ 417,688 $ 61,667 $ 479,355
Fees from single-family properties 5,407 1,099 6,506
Bad debt (2,967) (541) (3,508)
Core revenues 420,128 62,225 482,353
Property tax expense 72,657 17.3 % 13,187 21.2 % 85,844 17.8 %
HOA fees, net (4) 9,641 2.3 % 1,697 2.7 % 11,338 2.3 %
R&M and turnover costs, net (4) 31,063 7.4 % 5,902 9.5 % 36,965 7.7 %
Insurance 3,783 0.9 % 682 1.1 % 4,465 0.9 %
Property management expenses, net
(6) 33,492 8.0 % 5,636 9.1 % 39,128 8.1 %
Core property operating expenses 150,636 35.9 % 27,104 43.6 % 177,740 36.8 %
Core NOI $ 269,492 64.1 % $ 35,121 56.4 % $ 304,613 63.2 %
(1)Includes 45,075 properties that have been stabilized longer than 90 days
prior to January 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 to waive
month-to-month lease premiums and offer zero percent increases on newly signed
renewals for leases expiring throughout the second quarter of 2020. Fees from
single-family properties were also impacted as the Company waived late fees
throughout the second quarter of 2020.
(3)Includes $7.0 million and $6.0 million for the total portfolio and Same-Home
portfolio, respectively, of increased uncollectible rents related to the
COVID-19 pandemic for the second quarter of 2020.
(4)Presented net of tenant charge-backs.
(5)Includes $1.9 million and $1.8 million for the total portfolio and Same-Home
portfolio, respectively, of increased uncollectible tenant utility
reimbursements and $0.5 million and $0.4 million , respectively, of increased
costs associated with enhanced cleaning and safety protocols related to the
COVID-19 pandemic for the second quarter of 2020.
(6)Presented net of tenant charge-backs and excludes noncash share-based
compensation expense related to centralized and field property management
employees.
38
--------------------------------------------------------------------------------
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 six
months ended June 30, 2020 and 2019 (amounts in thousands):
For the Six Months Ended
June 30,
2020 2019
Core revenues and Same-Home core revenues
Total revenues $ 572,692 $ 561,064
Tenant charge-backs (75,442) (75,255)
Other revenues (4,661) (3,456)
Core revenues 492,589 482,353
Less: Non-Same-Home core revenues 64,188 62,225
Same-Home core revenues $ 428,401 $ 420,128 Core property operating expenses and Same-Home core property operating expenses Property operating expenses
$ 217,933 $ 211,275 Property management expenses 45,536 42,359 Noncash share-based compensation - property management (880) (639) Expenses reimbursed by tenant charge-backs (75,442) (75,255) Core property operating expenses 187,147 177,740 Less: Non-Same-Home core property operating expenses 28,906 27,104 Same-Home core property operating expenses
Core NOI and Same-Home Core NOI Net income $
69,334
Loss on early extinguishment of debt - 659 Gain on sale of single-family properties and other, net (21,416) (19,374) Depreciation and amortization 167,657 164,001 Acquisition and other transaction costs 4,103 1,804 Noncash share-based compensation - property management 880 639 Interest expense 59,273 64,486 General and administrative expense 22,759 19,921 Other expenses 7,513 2,538 Other revenues (4,661) (3,456) Core NOI 305,442 304,613 Less: Non-Same-Home Core NOI 35,282 35,121 Same-Home Core NOI$ 270,160 $ 269,492 Total Revenues Total revenues increased 2.1% to$572.7 million for the six months endedJune 30, 2020 from$561.1 million for the six months endedJune 30, 2019 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 49,322 homes for the six months endedJune 30, 2020 , compared to 48,600 homes for the six months endedJune 30, 2019 , as well as higher rental rates, offset by an increase in uncollectible rents and tenant utility reimbursements related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 3.2% to $217.9 million for the six
months ended June 30, 2020 from $211.3 million for the six months ended June 30,
2019 . This increase was primarily attributable to higher property tax expense
and higher repairs and maintenance and turnover costs.
Property Management Expenses
Property management expenses for the six months ended June 30, 2020 and 2019
were $45.5 million and $42.4 million , respectively, which included $0.9 million
and $0.6 million , respectively, of noncash share-based compensation expense
related to
39
--------------------------------------------------------------------------------centralized and field property management employees. The increase in property management expenses was primarily attributable to higher personnel costs.
Core Revenues from
Core revenues from Same-Home properties increased 2.0% to $428.4 million for
the six months ended June 30, 2020 from $420.1 million for the six months ended
June 30, 2019 , primarily driven by a 3.3% increase in Average Monthly Realized
Rent per property, which increased to $1,671 per month for the six months ended
June 30, 2020 compared to $1,617 per month for the six months ended June 30,
2019 , partially offset by an increase in uncollectible rents related to the
COVID-19 pandemic. Additionally, during the six months ended June 30, 2020 , core
revenues from Same-Home properties were impacted by (i) the Company's socially
responsible decisions to waive month-to-month lease premiums and offer zero
percent increases on newly signed renewals for leases expiring throughout the
second quarter of 2020 and (ii) waived late fees throughout the second quarter
of 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
5.0% to $158.2 million for the six months ended June 30, 2020 from $150.6
million for the six months ended June 30, 2019 , primarily driven by higher
property tax expense and $2.2 million of incremental costs incurred during the
three months ended June 30, 2020 related to the COVID-19 pandemic including
enhanced cleaning costs and increased uncollectible tenant utility
reimbursements.
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 six months ended June 30, 2020 and 2019 was $22.8 million and $19.9 million ,
respectively, which included $3.0 million and $1.6 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 and an increase in state taxes.
Interest Expense
Interest expense decreased 8.1% to $59.3 million for the six months ended
June 30, 2020 from $64.5 million for the six months ended June 30, 2019 . This
decrease was primarily related to additional capitalized interest during the six
months ended June 30, 2020 and the payoff of the term loan facility in June
2019 , partially offset by the unsecured senior notes issued in late January 2019
and draws on our revolving credit facility during the first six months of 2020.
Acquisition and Other Transaction Costs
Acquisition and other transaction costs were $4.1 million and $1.8 million
for the six months ended June 30, 2020 and 2019, respectively, which primarily
related to 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. The planned growth in 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 30 years. Our intangible
assets are amortized on a straight-line basis over the asset's estimated
economic useful life. Depreciation and amortization expense increased 2.2% to
$167.7 million for the six months ended June 30, 2020 from $164.0 million for
the six months ended June 30, 2019 primarily due to growth in our average number
of depreciable properties.
Other Revenues
Other revenues were $4.7 million and $3.5 million for the six months ended
June 30, 2020 and 2019, respectively, which primarily related to interest
income, fees from unconsolidated joint ventures, and equity in earnings from
unconsolidated joint ventures.
40
--------------------------------------------------------------------------------Other Expenses
Other expenses were $7.5 million and $2.5 million for the six months ended
June 30, 2020 and 2019, respectively, which primarily related to impairments on
properties held for sale and expenses related to joint ventures. Also included
in other expenses for the six months ended June 30, 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 in February 2016 .
Critical Accounting Policies and Estimates
Our critical accounting policies are included in Part II, "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," of our Annual Report on Form 10-K for the year ended December 31,
2019 (the "2019 Annual Report"). There have been no changes to these policies
during the six months ended June 30, 2020 .
Income Taxes
AH4R has elected to be taxed as a REIT for U.S. federal income tax purposes
under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with our taxable year ended December 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
excluding any net capital gains), we generally will not be subject to U.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 to U.S. federal income tax and state income tax
on our taxable income at regular corporate tax 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 and U.S. federal income and excise taxes on our
undistributed REIT taxable income, if any. Certain of our subsidiaries are
subject to taxation by U.S. federal, state and local authorities for the periods
presented. We made joint elections to treat certain subsidiaries as taxable REIT
subsidiaries which are subject to U.S. federal, state and local taxes on their
income at regular corporate rates. The tax years from 2015 to present generally
remain open to examination by the taxing jurisdictions to which the Company is
subject.
We believe that our Operating Partnership is properly treated as a
partnership for U.S. federal income tax purposes. As a partnership, the
Operating Partnership is not subject to U.S. federal income tax on its income.
Instead, each of the Operating Partnership's partners, including AH4R, is
allocated, and may be required to pay tax with respect to, its share of the
Operating Partnership's income. As such, no provision for U.S. federal income
taxes has been included for the Operating Partnership .
Accounting Standards Codification 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 authority 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 of June 30, 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.
41
--------------------------------------------------------------------------------
As a REIT, we 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 excluding 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. The Operating Partnership funds the payment of
distributions. We expect to use our net operating loss carryforward ("NOL") to
reduce our REIT taxable income in the current and future years. As of
December 31, 2019 , AH4R had an NOL for U.S. federal income tax purposes of an
estimated $188.8 million . Once our NOL is fully used, we would be required to
increase AH4R's distributions to comply with REIT distribution requirements and
our current policy of distributing approximately all of our REIT taxable income
(determined without regard to the deduction for dividends paid).
Recent Accounting Pronouncements
See Note 2. Significant Accounting Policies to our condensed consolidated financial statements in this report for a discussion of the adoption and potential impact of recently issued accounting standards.
Liquidity and Capital Resources
Our liquidity and capital resources as of June 30, 2020 included cash and
cash equivalents of $32.0 million . Additionally, as of June 30, 2020 , we had
$130.0 million of outstanding borrowings under our revolving credit facility,
which provides for maximum borrowings of up to $800.0 million , of which $3.7
million was committed to outstanding letters of credit. We have no debt
maturities, other than recurring principal amortization, until 2022.
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 financial markets and may adversely impact our
operating cash flows. Since we do not know the ultimate severity and length of
the COVID-19 pandemic, and thus 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.
As of July 31, 2020 , the Company had cash and cash equivalents of
$55.7 million and $105.0 million of outstanding borrowings on its revolving
credit facility, with no other changes to total outstanding debt since June 30,
2020 . During July 2020 , the Company sold an additional 91 properties generating
$20.1 million of net proceeds.
42
--------------------------------------------------------------------------------Cash Flows
The following table summarizes the Company's and the
For the Six Months Ended
June 30,
2020 2019 Change
Net cash provided by operating activities $ 279,204 $ 287,492 $ (8,288)
Net cash used for investing activities (322,466) (170,033) (152,433)
Net cash provided by (used for) financing
activities 40,388 (7,763) 48,151
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (2,874)
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 decreased $8.3 million , or 2.9%, from $287.5 million for
the six months ended June 30, 2019 to $279.2 million for the six months ended
June 30, 2020 , primarily as a result of changes in operating assets and
liabilities, including a decrease in collections on rent and tenant utility
reimbursements associated with the COVID-19 pandemic, partially offset by 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.
Investing Activities
Net cash used for investing activities increased $152.4 million , or 89.6%,
from $170.0 million for the six months ended June 30, 2019 to $322.5 million for
the six months ended June 30, 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 using cash generated
from operating and financing activities and by recycling capital through the
sale of single-family properties. However, as a result of the COVID-19 pandemic
and given the market uncertainty regarding future asset values, the Company has
temporarily suspended its acquisitions through traditional channels and the
National Builder Program. The Company plans to continue construction activity,
while in compliance with state and local mandates, 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.
Financing Activities
Net cash provided by or used for financing activities increased
$48.2 million from $7.8 million of net cash outflows for the six months ended
June 30, 2019 to $40.4 million of net cash inflows for the six months ended June
30, 2020 , driven by $81.0 million of increased borrowing activity, net of
repayments, partially offset by a $31.6 million increase in cash paid for
distributions. The Company received $130.0 million of proceeds from its
revolving credit facility, offset by $11.8 million of payments on its
asset-backed securitizations, during the six months ended June 30, 2020 ,
compared to $397.9 million of proceeds from unsecured senior notes, net of
discount, offset by $350.0 million of payments on its revolving credit and term
loan facilities and $10.7 million of payments on its asset-backed
securitizations, during the six months ended June 30, 2019 . The Company
distributed $80.6 million on a cash basis to share and unit holders during the
six months ended June 30, 2020 , compared to $49.0 million during the six months
ended June 30, 2019 , as a result of timing differences in distributions
year-over-year.
At-the-Market Common Share Offering Program
In June 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
43
--------------------------------------------------------------------------------
securities, acquisitions of additional properties, capital expenditures and the
expansion, redevelopment and/or improvement of properties in the Company's
portfolio. The At-the-Market Program may be suspended or terminated by the
Company at any time. As of June 30, 2020 , no shares have been issued under the
At-the-Market Program and $500.0 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 six months ended
June 30, 2020 and 2019, we did not repurchase and retire any of our shares. As
of June 30, 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.
Distributions
As a REIT, we 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 excluding 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. The Operating Partnership funds the payment of
distributions. We expect to use our NOL to reduce our REIT taxable income in the
current and future years. As of December 31, 2019 , AH4R had an NOL for U.S.
federal income tax purposes of an estimated $188.8 million . Once our NOL is
fully used, we would be required to increase AH4R's distributions to comply with
REIT distribution requirements and our current policy of distributing
approximately all of our REIT taxable income (determined without regard to the
deduction for dividends paid).
Off-Balance Sheet Arrangements
We have no material obligations, assets or liabilities that would be considered off-balance sheet arrangements.
Contractual Obligations and Commitments
Material changes to our aggregate indebtedness, if any, are described in Note 8. Debt to our condensed consolidated financial statements in this report.
Except as described in Note 15. Commitments and Contingencies to our
condensed consolidated financial statements in this report, as of June 30, 2020 ,
there have been no other material changes outside of the ordinary course of
business to our other known contractual obligations, which are set forth in the
table included in Part II, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our 2019 Annual Report.
44
--------------------------------------------------------------------------------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 the
National 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
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, (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 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.
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.
45
--------------------------------------------------------------------------------
The following is a reconciliation of the Company's net income 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
three and six months ended June 30, 2020 and 2019 (in thousands):
For the Six Months
For the Three Months Ended Ended
June 30, June 30,
2020 2019 2020 2019
Net income attributable to common shareholders $ 15,369 $ 22,518 $ 35,613 $ 38,801
Adjustments:
Noncontrolling interests in the Operating
Partnership 2,656 4,004 6,157 7,030
Net (gain) on sale / impairment of single-family
properties and other (10,293) (12,796) (15,907) (17,941)
Adjustments for unconsolidated joint ventures 388 747 626 1,301
Depreciation and amortization 84,836 82,840 167,657 164,001
Less: depreciation and amortization of non-real
estate assets (2,192) (1,971) (4,256) (3,911)
FFO attributable to common share and unit holders $ 90,764 $ 95,342 $ 189,890 $ 189,281
Adjustments:
Acquisition and other transaction costs 1,956 970 4,103 1,804
Noncash share-based compensation - general and
administrative 1,649 923 3,018 1,582
Noncash share-based compensation - property
management 441 346 880 639
Loss on early extinguishment of debt - 659 - 659
Core FFO attributable to common share and unit
holders (1) $ 94,810 $ 98,240 $ 197,891 $ 193,965
Recurring capital expenditures (2) (12,184) (10,330) (20,895) (18,190)
Leasing costs (992) (1,130) (1,902) (2,129)
Adjusted FFO attributable to common share and unit holders (1)
$ 81,634
(1)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 to waive month-to-month lease premiums and offer zero percent increases on newly signed renewals for leases expiring throughout the second quarter of 2020, (ii) waived late fees throughout the second quarter of 2020, and (iii)$9.4 million of other negative financial impacts from the COVID-19 pandemic including$7.0 million of increased uncollectible rents,$1.9 million of increased uncollectible tenant utility reimbursements and$0.5 million of increased costs associated with enhanced cleaning and safety protocols. Additionally, due to stay-at-home orders during the COVID-19 pandemic, Adjusted FFO attributable to common share and unit holders includes above average levels of HVAC system replacements resulting in$1.3 million of incremental HVAC capital expenditures within the second quarter of 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.
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, (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.
46
--------------------------------------------------------------------------------
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 three and six months ended June 30, 2020 and 2019 (in thousands):
For the Six Months
For the Three Months Ended Ended
June 30, June 30,
2020 2019 2020 2019
Net income $ 31,807 $ 40,304 $ 69,334 $ 73,395
Interest expense 29,558 32,571 59,273 64,486
Depreciation and amortization 84,836 82,840 167,657 164,001
EBITDA $ 146,201 $ 155,715 $ 296,264 $ 301,882
Net (gain) on sale / impairment of
single-family properties and other (10,293) (12,796) (15,907) (17,941)
Adjustments for unconsolidated joint ventures 388 747 626 1,301
EBITDAre $ 136,296 Noncash share-based compensation - general and administrative 1,649 923 3,018 1,582 Noncash share-based compensation - property management 441 346 880 639 Acquisition and other transaction costs 1,956 970 4,103 1,804 Loss on early extinguishment of debt - 659 - 659 Adjusted EBITDAre$ 140,342
Recurring capital expenditures (1) (12,184) (10,330) (20,895) (18,190) Leasing costs (992) (1,130) (1,902) (2,129) Fully Adjusted EBITDAre$ 127,166
(1)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.
© Edgar Online, source
