American Homes 4 Rent — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; financial statements are unaudited. AMH is a REIT focused on owning, developing, renovating, leasing and managing single-family rental homes. At quarter-end, it held 58,693 homes in 21 states, including 648 classified as held for sale, and had 2,846 homes in unconsolidated joint ventures.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $395.5 million | $361.9 million | +9.3% |
| Net income | $115.4 million | $74.6 million | +54.8% |
| Net income attributable to common shareholders | $98.0 million | $56.6 million | +73.2% |
| Diluted earnings per share | $0.27 | $0.16 | Up $0.11 |
| Core NOI (non-GAAP) | $223.5 million | $205.0 million | +9.0% |
| Same-Home Core NOI (non-GAAP) | $193.0 million | $184.2 million | +4.8% |
Core NOI margin was 63.9%, versus 64.3% a year earlier; Same-Home Core NOI margin was 64.1%, versus 65.2%. Same-Home realized rent per property rose 7.2% year over year, while occupied days eased to 97.0% from 97.3%. Company-wide average occupancy was 96.2% for the quarter.
Net income growth was aided substantially by gains on property sales: the Q2 gain was $62.8 million, compared with $32.8 million in Q2 2022. The company sold 415 homes in the quarter versus 197 a year earlier. Property operating expense rose 10.3% to $142.6 million, primarily reflecting property taxes and inflation in repair, maintenance and turnover costs. Depreciation and amortization increased 8.4% to $113.2 million. Interest expense was essentially flat at $34.8 million.
Six-month results and cash flow
- Revenue was $793.3 million, up 10.5% from $718.0 million; net income was $253.1 million versus $144.6 million.
- Net cash from operations was $415.7 million, up 9.7% from $379.0 million.
- Investing cash outflow was $237.8 million, compared with $953.5 million in the prior-year period. Lower property acquisition activity was partly offset by development spending; net sale proceeds rose to $311.9 million.
- Financing cash outflow was $34.0 million, versus $604.9 million of inflow in 2022, when the company issued senior notes and raised equity. Cash, cash equivalents and restricted cash increased $143.8 million to $361.8 million.
- Adjusted FFO attributable to common share and unit holders, a non-GAAP measure, was $148.8 million for Q2 and $302.3 million for the six months, compared with $136.6 million and $274.7 million, respectively.
Debt, liquidity and capital
At June 30, total debt principal was $4.44 billion ($4.38 billion net of discounts and financing costs), down from $4.58 billion at year-end 2022. Debt comprised approximately $1.89 billion of asset-backed securitizations and $2.50 billion of unsecured senior notes. There were no revolving-credit borrowings; the $1.25 billion facility had approximately $4.0 million committed to letters of credit and about $1.25 billion of remaining capacity. The company reported no outstanding variable-rate borrowings at quarter-end. Contractual debt maturities include $949.8 million in 2024. Cash and cash equivalents were $199.6 million; restricted cash was $162.2 million.
In June, AMH established a new at-the-market share program of up to $1.0 billion; no shares had been issued under it by quarter-end. The common distribution was $0.22 per share for each of Q1 and Q2 2023, up from $0.18 in 2022. The company reported investment-grade credit ratings.
Outlook, risks and notable items
- Management said it had strategically scaled back traditional and third-party-builder acquisitions as housing and capital markets adjust, and expects to resume growth in those channels when markets stabilize. No quantified earnings or operating guidance is provided in the supplied filing text.
- Development remains a key growth channel. In Q2, AMH delivered 468 homes through its development program and one through its National Builder Program; it also delivered 166 homes to unconsolidated joint ventures.
- In July 2023, the company entered a $625 million second strategic joint venture with J.P. Morgan-advised investors, with a 20% ownership interest and potential development, management and promoted-interest fees. This is a subsequent event, not a Q2-end balance-sheet asset.
- Management cited property-tax increases, inflation in labor and materials, labor availability, housing-market conditions, leasing and turnover, and seasonal weather as factors that could affect results. A new risk disclosure notes that banking-system disruption could impair access to capital or raise its cost.
- Commitments at June 30 included $163.1 million for development land and $8.7 million to acquire 37 homes; surety bonds for development contracts totaled approximately $200.7 million. Sales in escrow covered about 101 homes and 265 land lots for aggregate selling prices of $67.0 million.
- The company continued cooperating with the Georgia Attorney General’s Office regarding an investigation into customary landlord-tenant matters and had discussed a possible negotiated resolution. Management said other routine legal matters were not expected to materially affect financial position or results.
Important facts for investors to verify
- How much of reported earnings and year-over-year growth depends on property-sale gains, and whether recurring rental operations sustain the trend.
- Whether same-home NOI margins recover as property taxes, repairs, maintenance and turnover costs rise faster than same-home revenue.
- The timing and funding of the approximately $950 million of 2024 debt maturities, and the implications of interest rates for refinancing and the revolving facility.
- Development delivery, leasing absorption and returns on the new $625 million joint venture, including any related-party fees or contingent promoted interests.
- Potential share dilution if AMH uses its $1.0 billion ATM program, alongside its distribution and development funding needs.
- Developments in the Georgia AG matter, purchase commitments, surety-bond exposure and the banking-sector risk described in the filing.