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 inNovember 2012 . As ofMarch 31, 2021 , we owned 53,984 single-family properties in selected sub-markets of metropolitan statistical areas ("MSAs") in 22 states, including 636 properties held for sale, compared to 53,584 single-family properties in 22 states, including 711 properties held for sale, as ofDecember 31, 2020 , and 52,776 single-family properties in 22 states, including 960 properties held for sale as ofMarch 31, 2020 . As ofMarch 31, 2021 , 52,025, or 97.5%, of our total properties (excluding properties held for sale) were occupied, compared to 51,271, or 97.0%, of our total properties (excluding properties held for sale) as ofDecember 31, 2020 , and 49,029, or 94.6%, of our total properties (excluding properties held for sale) as ofMarch 31, 2020 . Also, as ofMarch 31, 2021 , the Company had an additional 1,383 properties held in unconsolidated joint ventures, compared to 1,293 properties held in unconsolidated joint ventures as ofDecember 31, 2020 , and 876 properties held in unconsolidated joint ventures as ofMarch 31, 2020 . 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 first quarter of 2021 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. Collections have continued to remain resilient throughout the pandemic with the Company recognizing bad debt on 2.5% of its first quarter 2021 rental billings. Additionally, collections ofApril 2021 rental billings continue to remain consistent with pandemic payment histories within 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 resurgences, new variants or strains, impact of government regulations, the speed and effectiveness of vaccine distribution, vaccine adoption rates 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 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" in our 2020 Annual Report. 28 --------------------------------------------------------------------------------
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 DeliveredAtlanta, GA 5,077 9.5 %$ 951.5 9.4 %$ 187,415 2,163 17.3
2015
Dallas-Fort Worth, TX 4,317 8.1 % 723.7 7.1 % 167,630 2,118 16.9 2014Charlotte, NC 3,822 7.2 % 761.2 7.5 % 199,157 2,099 16.4 2015Phoenix, AZ 3,171 5.9 % 575.4 5.7 % 181,465 1,838 17.4 2015Houston, TX 2,955 5.5 % 492.8 4.8 % 166,762 2,097 15.2 2014Nashville, TN 2,941 5.5 % 646.8 6.4 % 219,924 2,108 15.2 2015Indianapolis, IN 2,820 5.3 % 441.0 4.3 % 156,384 1,928 18.4 2013Tampa, FL 2,496 4.7 % 511.4 5.0 % 204,872 1,946 14.6 2015Jacksonville, FL 2,486 4.7 % 463.3 4.6 % 186,381 1,937 14.6 2015Raleigh, NC 2,128 4.0 % 400.3 3.9 % 188,121 1,878 15.6 2015Columbus, OH 2,067 3.9 % 364.8 3.6 % 176,505 1,870 19.1 2015Cincinnati, OH 1,998 3.7 % 357.3 3.5 % 178,816 1,851 18.6 2014Orlando, FL 1,769 3.3 % 333.4 3.3 % 188,449 1,904 18.4 2015Greater Chicago area, IL and IN 1,727 3.2 % 318.9 3.1 % 184,667 1,869 19.6 2013Salt Lake City, UT 1,610 3.0 % 422.1 4.2 % 262,185 2,182 17.0 2015Charleston, SC 1,270 2.4 % 262.3 2.6 % 206,515 1,975 12.3 2016Las Vegas, NV 1,187 2.2 % 233.1 2.3 % 196,363 1,858 16.0 2014Austin, TX 967 1.8 % 192.9 1.9 % 199,476 1,891 11.2 2015San Antonio, TX 946 1.8 % 156.0 1.5 % 164,931 2,024 16.6 2014 Savannah/Hilton Head, SC 917 1.7 % 168.9 1.7 % 184,219 1,871 13.1 2016 All Other (2) 6,677 12.6 % 1,385.6 13.6 % 207,515 1,901 16.9 2015 Total/Average 53,348 100.0 %$ 10,162.7 100.0 %$ 190,498 1,987 16.6 2015
(1)Excludes 636 single-family properties held for sale as of
29 -------------------------------------------------------------------------------- The following table summarizes certain key leasing metrics as ofMarch 31, 2021 :Total Single-Family Properties (1) Avg. Monthly Avg. Original Avg. Remaining Avg. Blended Avg. Occupied Days Realized Rent per Lease Term Lease Term Change in Market Percentage (2) property (3) (months) (4) (months) (4) Rent (5) Atlanta, GA 97.3 %$ 1,714 12.0 5.7 7.8 % Dallas-Fort Worth, TX 97.1 % 1,837 12.1 6.0 5.6 % Charlotte, NC 97.2 % 1,692 12.4 5.8 6.5 % Phoenix, AZ 97.8 % 1,583 12.3 6.2 12.2 % Houston, TX 96.1 % 1,712 12.4 5.7 4.0 % Nashville, TN 95.7 % 1,819 12.0 6.0 5.5 % Indianapolis, IN 97.2 % 1,514 12.0 5.9 7.9 % Tampa, FL 98.1 % 1,794 12.0 5.8 6.6 % Jacksonville, FL 97.3 % 1,672 12.0 6.2 7.1 % Raleigh, NC 96.6 % 1,614 12.3 6.1 5.6 % Columbus, OH 97.8 % 1,742 12.0 6.1 7.5 % Cincinnati, OH 96.7 % 1,695 11.9 6.3 6.9 % Orlando, FL 95.9 % 1,776 12.1 6.3 5.1 % Greater Chicago area, IL and IN 97.6 % 1,955 12.3 6.2 6.6 % Salt Lake City, UT 98.0 % 1,890 12.1 6.0 7.8 % Charleston, SC 97.0 % 1,803 12.0 6.1 6.7 % Las Vegas, NV 96.8 % 1,709 12.0 6.7 8.0 % Austin, TX 96.2 % 1,745 12.1 5.9 5.8 % San Antonio, TX 96.5 % 1,608 12.1 6.3 5.1 % Savannah/Hilton Head, SC 98.6 % 1,646 12.1 5.7 6.5 % All Other (6) 97.2 % 1,776 12.1 6.1 7.1 % Total/Average 97.1 %$ 1,730 12.1 6.0 6.9 % (1)Leasing information excludes 636 single-family properties held for sale as ofMarch 31, 2021 . (2)For the three months endedMarch 31, 2021 , 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 three months endedMarch 31, 2021 , 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 endedMarch 31, 2021 , 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 13 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 30 -------------------------------------------------------------------------------- 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 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 endedMarch 31, 2021 , we developed or acquired 580 homes, including 299 newly constructed properties delivered through our AMH Development Program and 281 homes acquired through our National Builder Program and traditional acquisition channel, partially offset by 180 homes sold. Our properties held for sale were identified based on sub-market analysis, as well as individual property-level operational review. As ofMarch 31, 2021 andDecember 31, 2020 , there were 636 and 711 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 staggered to facilitate leasing absorption. 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 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 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 30 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. Typically, our tenants have household incomes ranging from$70,000 to$120,000 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 31 -------------------------------------------------------------------------------- Average Monthly Realized Rent per property was 3.3% for the three months endedMarch 31, 2021 , and we experienced turnover rates of 7.0% and 8.1% during the three months endedMarch 31, 2021 and 2020, respectively.
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$48.9 million for the three months endedMarch 31, 2021 , compared to net income of$37.5 million for the three months endedMarch 31, 2020 . This increase was primarily attributable to growth in the Company's portfolio, higher occupancy and higher rental rates, as well as an increase in gain on sale and impairment of single-family properties and other, net, partially offset by increased uncollectible rents related to the COVID-19 pandemic. EffectiveMarch 31, 2021 , the Company reclassified certain impairment charges related to homes classified as held for sale from other expenses to gain on sale and impairment of single-family properties and other, net within the condensed consolidated statements of operations. The Company also reclassified other revenues and the remaining other expenses to other income and expense, net within the condensed consolidated statements of operations. The reclassification had no impact to net income, core revenues, core property operating expenses, Core NOI, Core FFO and Adjusted FFO attributable to common share and unit holders, Adjusted EBITDAre or Fully Adjusted EBITDAre. 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 32 -------------------------------------------------------------------------------- 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 rents and other single-family property revenues, excluding expenses reimbursed by tenant charge-backs, 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) gains and losses from sales or impairments 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, and (9) other income and expense, net. 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")). 33
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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 March 31, 2021 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$ 237,554 $ 30,767 $ 268,321 Fees from single-family properties 4,424 750 5,174 Bad debt (2) (5,960) (757) (6,717) Core revenues 236,018 30,760 266,778 Property tax expense 41,864 17.8 % 5,544 18.0 % 47,408 17.8 % HOA fees, net (3) 4,327 1.8 % 640 2.1 % 4,967 1.9 % R&M and turnover costs, net (3)(4) 15,794 6.7 % 2,442 7.9 % 18,236 6.8 % Insurance 2,423 1.0 % 365 1.2 % 2,788 1.0 % Property management expenses, net (5) 18,917 8.0 % 3,283 10.7 % 22,200 8.3 % Core property operating expenses 83,325 35.3 % 12,274 39.9 % 95,599 35.8 % Core NOI$ 152,693 64.7 %$ 18,486 60.1 %$ 171,179 64.2 % For the Three Months Ended March 31, 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$ 225,030 $ 20,300 $ 245,330 Fees from single-family properties 3,564 450 4,014 Bad debt (1,695) (320) (2,015) Core revenues 226,899 20,430 247,329 Property tax expense 40,253 17.7 % 4,715 23.1 % 44,968 18.2 % HOA fees, net (3) 3,982 1.8 % 534 2.6 % 4,516 1.8 % R&M and turnover costs, net (3) 14,941 6.6 % 2,166 10.6 % 17,107 6.9 % Insurance 2,060 0.9 % 253 1.2 % 2,313 0.9 % Property management expenses, net (5) 18,892 8.3 % 2,525 12.4 % 21,417 8.7 % Core property operating expenses 80,128 35.3 % 10,193 49.9 % 90,321 36.5 % Core NOI$ 146,771 64.7 %$ 10,237 50.1 %$ 157,008 63.5 % (1)Includes 47,258 properties that have been stabilized longer than 90 days prior toJanuary 1, 2020 . (2)Includes increased uncollectible rents related to the COVID-19 pandemic of$4.5 million and$4.2 million for the total portfolio and Same-Home portfolio, respectively, during the three months endedMarch 31, 2021 . (3)Presented net of tenant charge-backs. (4)Includes increased uncollectible tenant reimbursements of$0.4 million and$0.4 million for the total portfolio and Same-Home portfolio, respectively, during the three months endedMarch 31, 2021 . (5)Presented net of tenant charge-backs and excludes noncash share-based compensation expense related to centralized and field property management employees. 34
-------------------------------------------------------------------------------- The following are reconciliations of core revenues, Same-Home core revenues, core property operating expenses, Same-Home core property operating expenses, Core NOI and Same-Home Core NOI to their respective GAAP metrics for the three months endedMarch 31, 2021 and 2020 (amounts in thousands): For the Three Months Ended March 31, 2021 2020 Core revenues and Same-Home core revenues Rents and other single-family property revenues$ 312,573 $ 287,342 Tenant charge-backs (45,795) (40,013) Core revenues 266,778 247,329 Less: Non-Same-Home core revenues 30,760 20,430 Same-Home core revenues$ 236,018 $ 226,899 Core property operating expenses and Same-Home core property operating expenses Property operating expenses$ 118,694 $ 107,497 Property management expenses 23,699 23,276 Noncash share-based compensation - property management (999) (439) Expenses reimbursed by tenant charge-backs (45,795) (40,013) Core property operating expenses 95,599 90,321 Less: Non-Same-Home core property operating expenses 12,274 10,193 Same-Home core property operating expenses$ 83,325
Core NOI and Same-Home Core NOI Net income $
48,921
Gain on sale and impairment of single-family properties and other, net
(16,069) (6,319) Depreciation and amortization 90,071 82,821 Acquisition and other transaction costs 4,846 2,147 Noncash share-based compensation - property management 999 439 Interest expense 28,005 29,715 General and administrative expense 15,205 11,266 Other income and expense, net (799) (588) Core NOI 171,179 157,008 Less: Non-Same-Home Core NOI 18,486 10,237 Same-Home Core NOI $
152,693
Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 8.8% to$312.6 million for the three months endedMarch 31, 2021 from$287.3 million for the three months endedMarch 31, 2020 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 51,648 homes for the three months endedMarch 31, 2021 , compared to 48,898 homes for the three months endedMarch 31, 2020 , as well as higher rental rates, partially offset by increased uncollectible rents related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 10.4% to$118.7 million for the three months endedMarch 31, 2021 from$107.5 million for the three months endedMarch 31, 2020 . This increase was primarily attributable to higher property tax expense and higher R&M and turnover costs as a result of growth in our portfolio.
Property Management Expenses
Property management expenses for the three months endedMarch 31, 2021 and 2020 were$23.7 million and$23.3 million , respectively, which included$1.0 million and$0.4 million , respectively, of noncash share-based compensation expense related to centralized and field property management employees. The increase in property management expenses was primarily attributable to 35 --------------------------------------------------------------------------------
higher noncash share-based compensation expense and higher personnel costs, partially offset by lower employee travel and office costs.
Core Revenues from
Core revenues from Same-Home properties increased 4.0% to$236.0 million for the three months endedMarch 31, 2021 from$226.9 million for the three months endedMarch 31, 2020 primarily driven by a 3.3% increase in Average Monthly Realized Rent per property, which increased to$1,722 per month for the three months endedMarch 31, 2021 compared to$1,667 per month for the three months endedMarch 31, 2020 , as well as a 2.1% increase in Average Occupied Days Percentage, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic.
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 4.0% to$83.3 million for the three months endedMarch 31, 2021 from$80.1 million for the three months endedMarch 31, 2020 , primarily driven by annual growth in property tax expense and higher R&M and turnover costs, net.
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 endedMarch 31, 2021 and 2020 was$15.2 million and$11.3 million , respectively, which included$4.3 million and$1.4 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 driven by retirement provisions that resulted in accelerated expense recognition for retirement eligible employees during the three months endedMarch 31, 2021 , as well as an increase in professional fees.
Interest Expense
Interest expense decreased 5.8% to$28.0 million for the three months endedMarch 31, 2021 from$29.7 million for the three months endedMarch 31, 2020 . This decrease was primarily related to additional capitalized interest during the three months endedMarch 31, 2021 related to an increase in our development activities under our AMH Development Program.
Acquisition and Other Transaction Costs
Acquisition and other transaction costs consists primarily of costs associated with purchases of single-family properties, including newly constructed properties from third-party builders, the development of single-family properties, or the disposal of certain properties or portfolios of properties which do not qualify for capitalization. Acquisition and other transaction costs were$4.8 million and$2.1 million for the three months endedMarch 31, 2021 and 2020, respectively, which included$2.8 million of noncash share-based compensation expense related to employees in these functions during the three months endedMarch 31, 2021 . The increase in acquisition and other transaction costs was primarily related to higher noncash share-based compensation expense driven by retirement provisions that resulted in accelerated expense recognition for retirement eligible employees during the three months endedMarch 31, 2021 .
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 8.8% to$90.1 million for the three months endedMarch 31, 2021 from$82.8 million for the three months endedMarch 31, 2020 primarily due to growth in our average number of depreciable properties.
Gain on Sale and Impairment of
Gain on sale and impairment of single-family properties and other, net was$16.1 million and$6.3 million for the three months endedMarch 31, 2021 and 2020, respectively, which included$0.1 million and$4.4 million of impairment charges, respectively, related to homes classified as held for sale during each period. The increase was primarily related to higher net gains 36 -------------------------------------------------------------------------------- from property sales as well as lower impairment charges. During the three months endedMarch 31, 2020 , a$3.5 million noncash write-down associated with the liquidation of legacy joint ventures, which were acquired as part of theAmerican Residential Properties, Inc. merger inFebruary 2016 , was included in gain on sale and impairment of single-family properties and other, net.
Other Income and Expense, net
Other income and expense, net was$0.8 million and$0.6 million for the three months endedMarch 31, 2021 and 2020, respectively, which primarily related to interest income, fees from unconsolidated joint ventures, equity in earnings from unconsolidated joint ventures, partially offset by expenses related to unconsolidated joint ventures.
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 2020 Annual Report. There have been no changes to these
policies during the three months ended
Income Taxes
AH4R has elected to be taxed as a REIT forU.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 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 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 taxable REIT subsidiaries 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 its 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 . 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 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 ofMarch 31, 2021 , 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. 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. As ofDecember 31 , 37 -------------------------------------------------------------------------------- 2020, AH4R had a net operating loss ("NOL") forU.S. federal income tax purposes of an estimated$60.2 million . We intend to use our NOL (to the extent available) to reduce our REIT taxable income to the extent that REIT taxable income is not reduced by our 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, if any.
Liquidity and Capital Resources
Our liquidity and capital resources as ofMarch 31, 2021 included cash and cash equivalents of$75.2 million . Additionally, as ofMarch 31, 2021 , we had$80.0 million of 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. As further described in Note 16. Subsequent Events, the Company closed a$1.25 billion revolving credit facility onApril 15, 2021 , amending its existing$800 million revolving credit facility. We have no debt maturities, other than recurring principal amortization and our revolving credit facility which was amended subsequent to quarter end, 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 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 theOperating Partnership's cash flows for the three months endedMarch 31, 2021 and 2020 (in thousands): For the Three Months Ended March 31, 2021 2020 Change
Net cash provided by operating activities
(208,230) (179,214) (29,016) Net cash provided by financing activities 3,260 50,328 (47,068) Net decrease in cash, cash equivalents and restricted cash$ (52,973) $ (2,390) $ (50,583)
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 38 -------------------------------------------------------------------------------- operating activities increased$25.5 million , or 20.2%, from$126.5 million for the three months endedMarch 31, 2020 to$152.0 million for the three months endedMarch 31, 2021 , 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 associated with the COVID-19 pandemic.
Investing Activities
Net cash used for investing activities increased$29.0 million , or 16.2%, from$179.2 million for the three months endedMarch 31, 2020 to$208.2 million for the three months endedMarch 31, 2021 , primarily driven by a decrease in net proceeds received from sales of single-family properties and other. Our investing activities are most significantly impacted 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. Net cash used for investing activities also increased due to higher recurring and other capital expenditures for single-family properties and renovations to single-family properties 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 partially offset by additional distributions from unconsolidated joint ventures in respect of contributions of land and in-process development projects.
Financing Activities
Net cash provided by financing activities decreased$47.0 million from$50.3 million for the three months endedMarch 31, 2020 to$3.3 million for the three months endedMarch 31, 2021 , primarily driven by$20.0 million of increased distributions to share and unit holders and$25.0 million less in borrowings on our revolving credit facility. The Company distributed$69.1 million on a cash basis to share and unit holders during the three months endedMarch 31, 2021 compared to$49.1 million during the three months endedMarch 31, 2020 . The Company borrowed$80.0 million on its revolving credit facility during the three months endedMarch 31, 2021 compared to$105.0 million during the three months endedMarch 31, 2020 .
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 it 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 At-the-Market Program may be suspended or terminated by the Company at any time. During the three months endedMarch 31, 2021 , no shares were issued under the At-the-Market Program. As ofMarch 31, 2021 , 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 for 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 three months endedMarch 31, 2021 and 2020, we did not repurchase and retire any of our shares. As ofMarch 31, 2021 , 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 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. As ofDecember 31 , 39 -------------------------------------------------------------------------------- 2020, AH4R had an NOL forU.S. federal income tax purposes of an estimated$60.2 million . We intend to use our NOL (to the extent available) to reduce our REIT taxable income to the extent that REIT taxable income is not reduced by our deduction for dividends paid.
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 ofMarch 31, 2021 , the joint venture's loan had a$116.7 million outstanding principal balance. The Company has 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 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.
As further described in Note 16. Subsequent Events, the Company closed a
Except as described in Note 15. Commitments and Contingencies to our condensed consolidated financial statements in this report, as ofMarch 31, 2021 , 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 2020 Annual Report.
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 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 40 -------------------------------------------------------------------------------- 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. 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 months endedMarch 31, 2021 and 2020 (in thousands): For the Three Months Ended March 31, 2021 2020 Net income attributable to common shareholders$ 30,214 $ 20,244 Adjustments: Noncontrolling interests in the Operating Partnership 4,925 3,501
Gain on sale and impairment of single-family properties and other, net
(16,069) (6,319) Adjustments for unconsolidated joint ventures 382 238 Depreciation and amortization 90,071 82,821 Less: depreciation and amortization of non-real estate assets (2,788) (2,064) FFO attributable to common share and unit holders$ 106,735 $ 98,421 Adjustments: Acquisition, other transaction costs and other 4,846 2,852 Noncash share-based compensation - general and administrative 4,342 1,369 Noncash share-based compensation - property management 999 439 Core FFO attributable to common share and unit holders (1)$ 116,922 $ 103,081 Recurring Capital Expenditures (9,651) (8,711) Leasing costs (975) (910)
Adjusted FFO attributable to common share and unit holders (1) $
106,296
(1)Core FFO and Adjusted FFO attributable to common share and unit holders
include
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 gains and losses from sales or impairments of single-family properties 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 is a supplemental non-GAAP financial measure calculated by adjusting Adjusted EBITDAre for (1) Recurring Capital Expenditures and (2) leasing costs. 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 actualRecurring 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 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. 41 -------------------------------------------------------------------------------- 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 months endedMarch 31, 2021 and 2020 (in thousands): For the Three Months Ended March 31, 2021 2020 Net income$ 48,921 $ 37,527 Interest expense 28,005 29,715 Depreciation and amortization 90,071 82,821 EBITDA $
166,997
Gain on sale and impairment of single-family properties and other, net
(16,069) (6,319) Adjustments for unconsolidated joint ventures 382 238 EBITDAre $
151,310
Noncash share-based compensation - general and administrative 4,342 1,369 Noncash share-based compensation - property management 999 439 Acquisition, other transaction costs and other 4,846 2,852 Adjusted EBITDAre$ 161,497 $ 148,642 Recurring Capital Expenditures (9,651) (8,711) Leasing costs (975) (910) Fully Adjusted EBITDAre$ 150,871 $ 139,021
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