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 inNovember 2012 . As ofJune 30, 2021 , we owned 54,785 single-family properties in selected sub-markets of metropolitan statistical areas ("MSAs") in 22 states, including 589 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 53,000 single-family properties in 22 states, including 948 properties held for sale as ofJune 30, 2020 . As ofJune 30, 2021 , 52,645, or 97.1%, 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 50,170, or 96.4%, of our total properties (excluding properties held for sale) as ofJune 30, 2020 . Also, as ofJune 30, 2021 , the Company had an additional 1,530 properties held in unconsolidated joint ventures, compared to 1,293 properties held in unconsolidated joint ventures as ofDecember 31, 2020 , and 936 properties held in unconsolidated joint ventures as ofJune 30, 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 second 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 second quarter 2021 rental billings for its Same-Home portfolio. Additionally, collections ofJuly 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, such as the Delta variant, the impact of government regulations, vaccine adoption rates, the effectiveness of vaccines, 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. 29
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Key Single-Family Property and Leasing Metrics
The following table summarizes certain key single-family properties metrics as
of
Number of % of Total Gross Book Avg. Gross Book
Single-Family Single-Family Value % of Gross Book Value per Avg. Avg. Property Age Avg. Year
Market Properties (1) Properties (millions) Value Total Property Sq. Ft. (years) Purchased or Delivered
Atlanta, GA 5,238 9.7 % $ 1,008.3 9.6 % $ 192,504 2,164 17.4 2015
Dallas-Fort Worth, TX 4,311 8.0 % 724.7 6.9 % 168,101 2,116 17.2 2014Charlotte, NC 3,851 7.1 % 772.9 7.4 % 200,690 2,098 16.7 2015Phoenix, AZ 3,221 5.9 % 596.0 5.7 % 185,029 1,837 17.6 2015Houston, TX 2,946 5.4 % 493.0 4.7 % 167,347 2,097 15.5 2014Nashville, TN 2,968 5.5 % 659.3 6.3 % 222,153 2,108 15.5 2015Indianapolis, IN 2,864 5.3 % 455.1 4.4 % 158,899 1,929 18.6 2014Tampa, FL 2,555 4.7 % 530.5 5.1 % 207,635 1,943 14.7 2015Jacksonville, FL 2,542 4.7 % 481.1 4.6 % 189,267 1,937 14.7 2015Raleigh, NC 2,133 3.9 % 403.3 3.9 % 189,078 1,880 15.8 2015Columbus, OH 2,087 3.9 % 371.9 3.6 % 178,191 1,870 19.3 2015Cincinnati, OH 2,043 3.8 % 371.7 3.6 % 181,948 1,851 18.8 2014Orlando, FL 1,801 3.3 % 343.7 3.3 % 190,838 1,904 18.6 2015Greater Chicago area, IL and IN 1,725 3.2 % 319.5 3.1 % 185,239 1,870 19.8 2013Salt Lake City, UT 1,616 3.0 % 426.3 4.1 % 263,799 2,182 17.2 2015Charleston, SC 1,327 2.4 % 279.1 2.7 % 210,296 1,977 12.2 2016Las Vegas, NV 1,286 2.4 % 266.0 2.5 % 206,881 1,867 15.5 2014Austin, TX 1,024 1.9 % 207.3 2.0 % 202,463 1,889 10.9 2015San Antonio, TX 945 1.7 % 156.3 1.5 % 165,440 2,024 16.8 2014 Savannah/Hilton Head, SC 916 1.7 % 169.0 1.6 % 184,522 1,872 13.3 2016 All Other (2) 6,797 12.5 % 1,425.3 13.4 % 209,695 1,900 17.0 2015 Total/Average 54,196 100.0 %$ 10,460.3 100.0 %$ 193,009 1,987 16.7 2015
(1)Excludes 589 single-family properties held for sale as of
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The following table summarizes certain key leasing metrics as of
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 96.9 % $ 1,750 12.0 6.3 8.6 %
Dallas-Fort Worth, TX 97.5 % 1,866 12.2 6.2 7.1 %
Charlotte, NC 97.5 % 1,718 12.4 6.2 8.0 %
Phoenix, AZ 97.5 % 1,636 12.0 6.4 12.6 %
Houston, TX 95.9 % 1,737 12.4 6.0 5.8 %
Nashville, TN 97.1 % 1,849 12.0 6.4 6.7 %
Indianapolis, IN 97.1 % 1,543 12.0 6.5 8.2 %
Tampa, FL 98.0 % 1,826 12.0 6.4 8.1 %
Jacksonville, FL 97.2 % 1,708 12.0 6.7 8.5 %
Raleigh, NC 97.6 % 1,638 12.4 6.7 7.3 %
Columbus, OH 98.1 % 1,778 12.1 6.5 7.9 %
Cincinnati, OH 96.6 % 1,727 12.0 6.7 7.9 %
Orlando, FL 97.2 % 1,804 12.0 6.5 7.1 %
Greater Chicago area, IL and IN 98.4 % 1,984 12.3 6.5 7.2 %
Salt Lake City, UT 98.1 % 1,926 12.1 6.3 9.0 %
Charleston, SC 96.9 % 1,842 12.0 6.9 7.8 %
Las Vegas, NV 96.1 % 1,756 11.9 6.7 9.8 %
Austin, TX 97.5 % 1,779 12.1 6.8 7.1 %
San Antonio, TX 97.1 % 1,634 12.1 6.3 6.8 %
Savannah/Hilton Head, SC 98.9 % 1,676 12.1 6.2 8.1 %
All Other (6) 97.5 % 1,807 12.1 6.2 7.4 %
Total/Average 97.3 % $ 1,763 12.1 6.4 7.9 %
(1)Leasing information excludes 589 single-family properties held for sale as of
June 30, 2021 .
(2)For the three months ended June 30, 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 ended June 30, 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 ended June 30, 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. In addition, we also acquire newly constructed homes
from third-party developers through our National Builder Program. Opportunities
from these
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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 ended June 30, 2021 , we developed or acquired
898 homes, including 256 newly constructed properties delivered through our AMH
Development Program and 642 homes acquired through our National Builder Program
and traditional acquisition channel, partially offset by 97 homes sold.
Our properties held for sale were identified based on sub-market analysis, as
well as individual property-level operational review. As of June 30, 2021 and
December 31, 2020 , there were 589 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$250,000 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 50 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 Average Monthly Realized Rent per property was 4.1% for the three months endedJune 30, 2021 , and we experienced turnover rates of 8.2% and 9.4% during the three months endedJune 30, 2021 and 2020, respectively. Based on our Same-Home population of 32 -------------------------------------------------------------------------------- properties (defined below), the year-over-year increase in Average Monthly Realized Rent per property was 3.7% for the six months endedJune 30, 2021 , and we experienced turnover rates of 15.1% and 17.4% during the six months endedJune 30, 2021 and 2020, respectively. In response to the COVID-19 pandemic, we offered zero percent increases on newly signed renewals for leases expiring during the three months endedJune 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 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$51.8 million for the three months endedJune 30, 2021 , compared to net income of$31.8 million for the three months endedJune 30, 2020 . This increase was primarily attributable to growth in the Company's portfolio, higher occupancy and higher rental rates. Net income totaled$100.7 million for the six months endedJune 30, 2021 , compared to net income of$69.3 million for the six months endedJune 30, 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 33 -------------------------------------------------------------------------------- operating performance. We classify a property as Same-Home if it has been stabilized longer than 90 days prior to the beginning of the earliest period presented under comparison and if it has not been classified as held for sale or taken out of service as a result of a casualty loss, which allows the performance of these properties to be compared between periods. Single-family properties that we acquire individually (i.e., not through a bulk purchase) are classified as either stabilized or non-stabilized. A property is classified as stabilized once it has been renovated by the Company or newly constructed and then initially leased or available for rent for a period greater than 90 days. Properties acquired through a bulk purchase are first considered non-stabilized, as an entire group, until (1) we have owned them for an adequate period of time to allow for complete on-boarding to our operating platform, and (2) a substantial portion of the properties have experienced tenant turnover at least once under our ownership, providing the opportunity for renovations and improvements to meet our property standards. After such time has passed, properties acquired through a bulk 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")). 34
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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 June 30, 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 $ 242,172 $ 35,151 $ 277,323
Fees from single-family properties 4,646 880 5,526
Bad debt (6,141) (1,068) (7,209)
Core revenues 240,677 34,963 275,640
Property tax expense 42,105 17.6 % 5,875 16.8 % 47,980 17.4 %
HOA fees, net (2) 4,633 1.9 % 669 1.9 % 5,302 1.9 %
R&M and turnover costs, net (2) 19,945 8.3 % 3,058 8.7 % 23,003 8.3 %
Insurance 2,469 1.0 % 473 1.4 % 2,942 1.1 %
Property management expenses, net
(3) 17,859 7.4 % 3,295 9.4 % 21,154 7.7 %
Core property operating expenses 87,011 36.2 % 13,370 38.2 % 100,381 36.4 %
Core NOI $ 153,666 63.8 % $ 21,593 61.8 % $ 175,259 63.6 %
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 $ 227,075 $ 23,689 $ 250,764
Fees from single-family properties 2,826 485 3,311
Bad debt (7,759) (1,056) (8,815)
Core revenues 222,142 23,118 245,260
Property tax expense 40,274 18.1 % 4,875 21.1 % 45,149 18.4 %
HOA fees, net (2) 4,341 2.0 % 642 2.8 % 4,983 2.0 %
R&M and turnover costs, net (2) 20,101 9.0 % 2,913 12.6 % 23,014 9.4 %
Insurance 2,120 1.0 % 300 1.3 % 2,420 1.0 %
Property management expenses, net
(3) 18,318 8.2 % 2,942 12.7 % 21,260 8.7 %
Core property operating expenses 85,154 38.3 % 11,672 50.5 % 96,826 39.5 %
Core NOI $ 136,988 61.7 % $ 11,446 49.5 % $ 148,434 60.5 %
(1)Includes 47,086 properties that have been stabilized longer than 90 days
prior to January 1, 2020 .
(2)Presented net of tenant charge-backs.
(3)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 endedJune 30, 2021 and 2020 (amounts in thousands): For the Three Months Ended June 30, 2021 2020 Core revenues and Same-Home core revenues Rents and other single-family property revenues$ 313,654 $ 280,689 Tenant charge-backs (38,014) (35,429) Core revenues 275,640 245,260 Less: Non-Same-Home core revenues 34,963 23,118 Same-Home core revenues$ 240,677 $ 222,142 Core property operating expenses and Same-Home core property operating expenses Property operating expenses$ 116,578 $ 110,436 Property management expenses 22,416 22,260 Noncash share-based compensation - property management (599) (441) Expenses reimbursed by tenant charge-backs (38,014) (35,429) Core property operating expenses 100,381 96,826 Less: Non-Same-Home core property operating expenses 13,370 11,672 Same-Home core property operating expenses$ 87,011
Core NOI and Same-Home Core NOI Net income $
51,814
Gain on sale and impairment of single-family properties and other, net
(10,760) (9,997)
Depreciation and amortization 91,117 84,836
Acquisition and other transaction costs 2,968 1,956
Noncash share-based compensation - property management 599 441
Interest expense 27,528 29,558
General and administrative expense 12,793 11,493
Other income and expense, net (800) (1,660)
Core NOI 175,259 148,434
Less: Non-Same-Home Core NOI 21,593 11,446
Same-Home Core NOI $
153,666
Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 11.7% to$313.7 million for the three months endedJune 30, 2021 from$280.7 million for the three months endedJune 30, 2020 . Revenue growth was driven by an increase in our average occupied portfolio which grew to 52,335 homes for the three months endedJune 30, 2021 , compared to 49,600 homes for the three months endedJune 30, 2020 , as well as higher rental rates, higher fees from single-family properties and lower uncollectible rents related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 5.6% to$116.6 million for the three months endedJune 30, 2021 from$110.4 million for the three months endedJune 30, 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 endedJune 30, 2021 and 2020 were$22.4 million and$22.3 million , respectively, which included$0.6 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 higher noncash share-based compensation expense. 36 --------------------------------------------------------------------------------
Core Revenues from
Core revenues from Same-Home properties increased 8.3% to$240.7 million for the three months endedJune 30, 2021 from$222.1 million for the three months endedJune 30, 2020 primarily driven by a 4.1% increase in Average Monthly Realized Rent per property, which increased to$1,752 per month for the three months endedJune 30, 2021 compared to$1,683 per month for the three months endedJune 30, 2020 , a 2.4% increase in Average Occupied Days Percentage, higher fees from single-family properties and lower 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 2.2% to$87.0 million for the three months endedJune 30, 2021 from$85.2 million for the three months endedJune 30, 2020 primarily driven by annual growth in property tax expense, partially offset by lower property management expenses, 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 endedJune 30, 2021 and 2020 was$12.8 million and$11.5 million , respectively, which included$1.8 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 personnel costs and higher professional fees.
Interest Expense
Interest expense decreased 6.9% to$27.5 million for the three months endedJune 30, 2021 from$29.6 million for the three months endedJune 30, 2020 . This decrease was primarily related to additional capitalized interest during the three months endedJune 30, 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$3.0 million and$2.0 million for the three months endedJune 30, 2021 and 2020, respectively, which included$0.7 million of noncash share-based compensation expense related to employees in these functions during the three months endedJune 30, 2021 . The increase in acquisition and other transaction costs was primarily related to higher noncash share-based compensation expense.
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 7.4% to$91.1 million for the three months endedJune 30, 2021 from$84.8 million for the three months endedJune 30, 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$10.8 million and$10.0 million for the three months endedJune 30, 2021 and 2020, respectively, which included$0.2 million and$0.7 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 from property sales as well as lower impairment charges. 37
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Other Income and Expense, net
Other income and expense, net was$0.8 million and$1.7 million for the three months endedJune 30, 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.
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, 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 $ 478,910 $ 66,734 $ 545,644
Fees from single-family properties 9,049 1,651 10,700
Bad debt (12,004) (1,922) (13,926)
Core revenues 475,955 66,463 542,418
Property tax expense 83,814 17.6 % 11,574 17.4 % 95,388 17.5 %
HOA fees, net (2) 8,948 1.9 % 1,321 2.0 % 10,269 1.9 %
R&M and turnover costs, net (2) 35,634 7.5 % 5,605 8.4 % 41,239 7.6 %
Insurance 4,882 1.0 % 848 1.3 % 5,730 1.1 %
Property management expenses, net
(3) 36,707 7.7 % 6,647 10.0 % 43,354 8.0 %
Core property operating expenses 169,985 35.7 % 25,995 39.1 % 195,980 36.1 %
Core NOI $ 305,970 64.3 % $ 40,468 60.9 % $ 346,438 63.9 %
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 $ 451,285 $ 44,809 $ 496,094
Fees from single-family properties 6,375 950 7,325
Bad debt (9,442) (1,388) (10,830)
Core revenues 448,218 44,371 492,589
Property tax expense 80,383 17.9 % 9,734 21.9 % 90,117 18.3 %
HOA fees, net (2) 8,310 1.9 % 1,189 2.7 % 9,499 1.9 %
R&M and turnover costs, net (2) 34,975 7.8 % 5,146 11.6 % 40,121 8.1 %
Insurance 4,172 0.9 % 561 1.3 % 4,733 1.0 %
Property management expenses, net
(3) 37,141 8.3 % 5,536 12.5 % 42,677 8.7 %
Core property operating expenses 164,981 36.8 % 22,166 50.0 % 187,147 38.0 %
Core NOI $ 283,237 63.2 % $ 22,205 50.0 % $ 305,442 62.0 %
(1)Includes 47,086 properties that have been stabilized longer than 90 days
prior to January 1, 2020 .
(2)Presented net of tenant charge-backs.
(3)Presented net of tenant charge-backs and excludes noncash share-based
compensation expense related to centralized and field property management
employees.
38
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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, 2021 and 2020 (amounts in thousands):
For the Six Months
Ended
June 30,
2021 2020
Core revenues and Same-Home core revenues
Rents and other single-family property revenues $ 626,227 $ 568,031
Tenant charge-backs (83,809) (75,442)
Core revenues 542,418 492,589
Less: Non-Same-Home core revenues 66,463 44,371
Same-Home core revenues Core property operating expenses and Same-Home core property operating expenses Property operating expenses
$ 235,272 $ 217,933 Property management expenses 46,115 45,536 Noncash share-based compensation - property management (1,598) (880) Expenses reimbursed by tenant charge-backs (83,809) (75,442) Core property operating expenses 195,980 187,147 Less: Non-Same-Home core property operating expenses 25,995 22,166 Same-Home core property operating expenses
Core NOI and Same-Home Core NOI Net income
Gain on sale and impairment of single-family properties and other, net
(26,829) (16,316)
Depreciation and amortization 181,188 167,657
Acquisition and other transaction costs 7,814 4,103
Noncash share-based compensation - property management 1,598 880
Interest expense 55,533 59,273
General and administrative expense 27,998 22,759
Other income and expense, net (1,599) (2,248)
Core NOI 346,438 305,442
Less: Non-Same-Home Core NOI 40,468 22,205
Same-Home Core NOI $ 305,970 $ 283,237 Rents and Other Single-Family Property Revenues
Rents and other single-family property revenues increased 10.2% to$626.2 million for the six months endedJune 30, 2021 from$568.0 million for the six months endedJune 30, 2020 . Revenue growth was primarily driven by an increase in our average occupied portfolio which grew to 51,980 homes for the six months endedJune 30, 2021 , compared to 49,322 homes for the six months endedJune 30, 2020 , as well as higher rental rates and higher fees from single-family properties, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic.
Property Operating Expenses
Property operating expenses increased 8.0% to$235.3 million for the six months endedJune 30, 2021 from$217.9 million for the six months endedJune 30, 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 six months endedJune 30, 2021 and 2020 were$46.1 million and$45.5 million , respectively, which included$1.6 million and$0.9 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 higher noncash share-based compensation expense and higher personnel costs, partially offset by lower employee travel and office costs and lower recoverable expenses for tenant utilities. 39 --------------------------------------------------------------------------------
Core Revenues from
Core revenues from Same-Home properties increased 6.2% to$476.0 million for the six months endedJune 30, 2021 from$448.2 million for the six months endedJune 30, 2020 primarily driven by a 3.7% increase in Average Monthly Realized Rent per property, which increased to$1,737 per month for the six months endedJune 30, 2021 compared to$1,675 per month for the six months endedJune 30, 2020 , a 2.2% increase in Average Occupied Days Percentage and higher fees from single-family properties, partially offset by an increase in uncollectible rents related to the COVID-19 pandemic.
Core Property Operating Expenses from
Core property operating expenses 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 3.0% to$170.0 million for the six months endedJune 30, 2021 from$165.0 million for the six months endedJune 30, 2020 primarily driven by annual growth in property tax expense.
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 endedJune 30, 2021 and 2020 was$28.0 million and$22.8 million , respectively, which included$6.2 million and$3.0 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 six months endedJune 30, 2021 , as well as higher personnel costs and higher professional fees.
Interest Expense
Interest expense decreased 6.3% to$55.5 million for the six months endedJune 30, 2021 from$59.3 million for the six months endedJune 30, 2020 . This decrease was primarily related to additional capitalized interest during the six months endedJune 30, 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$7.8 million and$4.1 million for the six months endedJune 30, 2021 and 2020, respectively, which included$3.5 million of noncash share-based compensation expense related to employees in these functions during the six months endedJune 30, 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 six months endedJune 30, 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 8.1% to$181.2 million for the six months endedJune 30, 2021 from$167.7 million for the six months endedJune 30, 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$26.8 million and$16.3 million for the six months endedJune 30, 2021 and 2020, respectively, which included$0.2 million and$5.1 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 from property sales and lower impairment charges. During the six months endedJune 30, 2020 , a$3.5 million noncash write-down 40 -------------------------------------------------------------------------------- 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$1.6 million and$2.2 million for the six months endedJune 30, 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 six 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 ofJune 30, 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, 2020 , AH4R had a net operating loss ("NOL") forU.S. federal income tax purposes of an estimated$60.2 million . We intend to use 41
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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 ofJune 30, 2021 included cash and cash equivalents of$40.6 million . Additionally, as ofJune 30, 2021 , we had$620.0 million of outstanding borrowings under our revolving credit facility, which provides for maximum borrowings of up to$1.25 billion , of which$1.2 million was committed to outstanding letters of credit. As described in Note 16. Subsequent Events to our condensed consolidated financial statements in this report, inJuly 2021 , the Company issued$450.0 million of 2.375% unsecured senior notes due 2031 and$300.0 million of 3.375% unsecured senior notes due 2051 raising net proceeds of$731.6 million and as described below, we also have estimated net proceeds of$467.3 million available from future settlement of theMay 2021 Forward Sale Agreements. We have no debt maturities, other than recurring principal amortization, until 2024. Liquidity is a measure of our ability to meet potential cash requirements, maintain our assets, fund our operations, make distributions to our shareholders and OP unitholders, including AH4R, and meet other general requirements of our business. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other factors beyond our control. Our liquidity requirements consist primarily of funds necessary to pay for the acquisition, development, renovation and maintenance of our properties, HOA fees (as applicable), real estate taxes, non-recurring capital expenditures, interest and principal payments on our indebtedness, general and administrative expenses, payment of quarterly dividends on our preferred shares and units, and payment of distributions to our common shareholders and unitholders. We seek to satisfy our liquidity needs through cash provided by operations, long-term secured and unsecured borrowings, issuances of debt and equity securities (including OP units), asset-backed securitizations, property dispositions and joint venture transactions. We have financed our operations, acquisitions and development expenditures to date through the issuance of equity securities, borrowings under our credit facilities, asset-backed securitizations and unsecured senior notes, and proceeds from the sale of single-family properties. Going forward, we expect to meet our operating liquidity requirements generally through cash on hand and cash provided by operations. We believe our rental income, net of operating expenses and recurring capital expenditures, will generally provide cash flow sufficient to fund our operations and dividend distributions. However, our real estate assets are illiquid in nature. A timely liquidation of assets might not be a viable source of short-term liquidity should a cash flow shortfall arise, and we may need to source liquidity from other financing alternatives including drawing on our revolving credit facility. As discussed above under "COVID-19 Business Update," the COVID-19 pandemic could adversely impact our future 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 the
For the Six Months Ended
June 30,
2021 2020 Change
Net cash provided by operating activities $ 331,787 $ 279,204 $ 52,583
Net cash used for investing activities (585,158) (322,466) (262,692)
Net cash provided by financing activities 171,830 40,388 131,442
Net decrease in cash, cash equivalents and
restricted cash $ (81,541) $ (2,874) $ (78,667)
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
42
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operating activities increased $52.6 million , or 18.8%, from $279.2 million for
the six months ended June 30, 2020 to $331.8 million for the six months ended
June 30, 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$262.7 million , or 81.5%, from$322.5 million for the six months endedJune 30, 2020 to$585.2 million for the six months endedJune 30, 2021 . 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 the acquisition of newly built properties through our National Builder Program. Cash outflows for the addition of single-family properties to our portfolio through these channels increased$192.8 million during the six months endedJune 30, 2021 . 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 proceeds received from sales of single-family properties and other decreased$54.4 million during the six months endedJune 30, 2021 driven by a decrease in homes sold as our held for sale portfolio has declined. Net cash used for investing activities also includes recurring and other capital expenditures for single-family properties and renovations to single-family properties, which increased$15.4 million during the six months endedJune 30, 2021 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. Net cash used for investing activities also increased as a result of a$4.1 million increase in purchases of other productive assets during the six months endedJune 30, 2021 and nonrecurring proceeds of$3.7 million from hurricane-related insurance claims during the six months endedJune 30, 2020 . These increases in net cash used for investing activities were partially offset by a$7.7 million increase in distributions, net of investments, from our unconsolidated joint ventures.
Financing Activities
Net cash provided by financing activities increased$131.4 million from$40.4 million for the six months endedJune 30, 2020 to$171.8 million for the six months endedJune 30, 2021 primarily driven by$193.8 million in net proceeds from the issuance of Class A common shares and a$490.0 million increase in net borrowings on our revolving credit facility during the six months endedJune 30, 2021 . These increases in cash inflows were partially offset by the$498.8 million of cash outflows for the redemption of our Series D and E perpetual preferred shares primarily funded by the draws on our revolving credit facility,$38.6 million of increased distributions to share and unit holders and$11.2 million of deferred financing costs paid for the amendment of our revolving credit facility during the six months endedJune 30, 2021 .
Revolving Credit Facility
InApril 2021 , the Company closed a$1.25 billion revolving credit facility, amending its existing$800 million revolving credit facility. The amended revolving credit facility provides for expanded borrowing capacity, reflects a more favorable pricing grid based on current market conditions, and includes a sustainability component based upon third-party performance measures through which overall pricing can further improve if the Company meets certain targets. The interest rate on the amended revolving credit facility is at either LIBOR plus a margin ranging from 0.725% to 1.45% or a base rate (determined according to the greater of a prime rate, federal funds rate plus 0.5% or daily LIBOR rate plus 1.0%) plus a margin ranging from 0.00% to 0.45%. In each case the actual margin is determined based on the Company's credit ratings in effect from time to time. The amended revolving credit facility matures onApril 15, 2025 , with two six-month extension options at the Company's election if certain conditions are met.
Class A Common Share / Unit Offering
InMay 2021 , the Company completed an underwritten public offering for 18,745,000 of its Class A common shares of beneficial interest,$0.01 par value per share, of which 5,500,000 shares were issued directly by the Company, and 13,245,000 shares were offered on a forward basis at the request of the Company by the forward sellers. In connection with this offering, the Company entered into forward sale agreements with the forward purchasers (the "May 2021 Forward Sale Agreements") for these 13,245,000 shares which are accounted for in equity. The Company expects to physically settle theMay 2021 Forward Sale Agreements by the delivery of the Class A common shares and receive proceeds byMay 21, 2022 , although the Company has the right to elect settlement prior to that time subject to certain conditions. Although the Company expects to physically settle, theMay 2021 Forward Sale Agreements allow the Company to cash or net-share settle all or a portion of its obligations. If the Company elects to cash or net share settle theMay 2021 Forward Sale Agreements, the Company may not receive any proceeds, and may owe cash or Class A common shares to the forward purchasers in certain circumstances. TheMay 2021 Forward Sale Agreements are subject to early termination or settlement under certain circumstances. 43 -------------------------------------------------------------------------------- The Company received net proceeds of$194.0 million from the 5,500,000 Class A common shares issued directly by the Company after deducting underwriting discounts and before offering costs of approximately$0.2 million .The Operating Partnership issued an equivalent number of corresponding Class A units to AH4R in exchange for the net proceeds from the issuance. The Company used the net proceeds to repay indebtedness under its revolving credit facility, to partially fund the redemption of its Series D and Series E perpetual preferred shares discussed below and for general corporate purposes. The Company did not initially receive proceeds from the sale of the Class A common shares offered on a forward basis but estimates that net proceeds will be approximately$467.3 million after deducting underwriting discounts. The Company expects to use these net proceeds for general corporate purposes including, without limitation, property acquisitions and developments.
Redemptions of Perpetual Preferred Shares
InJune 2021 , the Company redeemed all 10,750,000 shares of the outstanding 6.500% Series D perpetual preferred shares,$0.01 par value per share, for cash at a liquidation preference of$25.00 per share plus any accrued and unpaid dividends in accordance with the terms of such shares.The Operating Partnership also redeemed its corresponding Series D perpetual preferred units. As a result of the redemption, the Company recorded an$8.5 million allocation of income to the Series D perpetual preferred shareholders within the condensed consolidated statements of operations in the second quarter of 2021, which represents the initial liquidation value of the Series D perpetual preferred shares in excess of its carrying value as of the redemption date. InJune 2021 , the Company redeemed all 9,200,000 shares of the outstanding 6.350% Series E perpetual preferred shares,$0.01 par value per share, for cash at a liquidation preference of$25.00 per share plus accrued and unpaid dividends in accordance with the terms of such shares.The Operating Partnership also redeemed its corresponding Series E perpetual preferred units. As a result of the redemption, the Company recorded a$7.4 million allocation of income to the Series E perpetual preferred shareholders within the condensed consolidated statements of operations in the second quarter of 2021, which represents the initial liquidation value of the Series E perpetual preferred shares in excess of its carrying value as of the redemption date.
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 six months endedJune 30, 2021 and 2020, no shares were issued under the At-the-Market Program. As ofJune 30, 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 six months endedJune 30, 2021 and 2020, we did not repurchase and retire any of our shares. As ofJune 30, 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, 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 44
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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 ofJune 30, 2021 , the joint venture's loan had a$139.7 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 to our condensed
consolidated financial statements in this report, in
Except as described in Note 15. Commitments and Contingencies to our condensed consolidated financial statements in this report, as ofJune 30, 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, (4) gain or loss on early extinguishment of debt and (5) the allocation of income to our perpetual preferred shares in connection with their redemption. Adjusted FFO attributable to common share and unit holders is a non-GAAP financial measure that we use as a supplemental measure of our performance. We compute this metric by adjusting Core FFO attributable to common share and unit holders for (1) Recurring Capital Expenditures that are necessary to help preserve the value and maintain functionality of our properties and (2) capitalized leasing costs incurred during the period. As a portion of our homes are recently developed, acquired and/or renovated, we estimateRecurring Capital Expenditures for our entire portfolio by multiplying (a) current period actual Recurring Capital Expenditures per Same-Home Property by (b) our total number of properties, excluding newly acquired non-stabilized properties and properties classified as held for sale. We present FFO attributable to common share and unit holders because we consider this metric to be an important measure of the performance of real estate companies, as do many investors and analysts in evaluating the Company. We believe that FFO attributable to common share and unit holders provides useful information to investors because this metric excludes depreciation, which is included in computing net income and assumes the value of real estate diminishes predictably over time. We believe that real estate values fluctuate due to market conditions and in response to inflation. We also believe that Core FFO and Adjusted FFO 45 -------------------------------------------------------------------------------- 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 and six months endedJune 30, 2021 and 2020 (in thousands): For the Three Months Ended For the Six Months Ended June 30, June 30, 2021 2020 2021 2020
Net income attributable to common shareholders
$ 15,369 $ 50,316 $ 35,613
Adjustments:
Noncontrolling interests in the Operating Partnership 3,218 2,656 8,143 6,157 Gain on sale and impairment of single-family properties and other, net (10,760) (9,997) (26,829) (16,316) Adjustments for unconsolidated joint ventures 449 388 831 626 Depreciation and amortization 91,117 84,836 181,188 167,657 Less: depreciation and amortization of non-real estate assets (2,605) (2,192) (5,393) (4,256)
FFO attributable to common share and unit holders
$ 91,060 $ 208,256 $ 189,481
Adjustments:
Acquisition, other transaction costs and other 2,968 1,660 7,814 4,512 Noncash share-based compensation - general and administrative 1,823 1,649 6,165 3,018 Noncash share-based compensation - property management 599 441 1,598 880 Redemption of perpetual preferred shares 15,879 - 15,879 - Core FFO attributable to common share and unit holders$ 122,790 $ 94,810 $ 239,712 $ 197,891 Recurring Capital Expenditures (13,217) (12,184) (22,868) (20,895) Leasing costs (905) (992) (1,880) (1,902) Adjusted FFO attributable to common share and unit holders$ 108,668 $ 81,634 $ 214,964 $ 175,094
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. 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 endedJune 30, 2021 and 2020 (in thousands): For the Three Months Ended For the Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net income$ 51,814 $ 31,807 $ 100,735 $ 69,334 Interest expense 27,528 29,558 55,533 59,273 Depreciation and amortization 91,117 84,836 181,188 167,657 EBITDA$ 170,459 $ 146,201 $ 337,456 $ 296,264 Gain on sale and impairment of single-family properties and other, net (10,760) (9,997) (26,829) (16,316) Adjustments for unconsolidated joint ventures 449 388 831 626 EBITDAre$ 160,148 $ 136,592 $ 311,458 $ 280,574 Noncash share-based compensation - general and administrative 1,823 1,649 6,165 3,018 Noncash share-based compensation - property management 599 441 1,598 880 Acquisition, other transaction costs and other 2,968 1,660 7,814 4,512 Adjusted EBITDAre$ 165,538 $ 140,342 $ 327,035 $ 288,984 Recurring Capital Expenditures (13,217) (12,184) (22,868) (20,895) Leasing costs (905) (992) (1,880) (1,902) Fully Adjusted EBITDAre$ 151,416 $ 127,166 $ 302,287 $ 266,187
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