American Homes 4 Rent — Q3 2023 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2023. AMH is a REIT focused on acquiring, developing, renovating, leasing and managing single-family rental homes; substantially all operations and debt are held through American Homes 4 Rent, L.P. At quarter-end, the Company held 59,092 homes in 21 states, including 700 classified as held for sale; 55,949 homes outside the held-for-sale category were occupied.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Rental and other property revenue | $421.7 million | $391.6 million | $1,214.9 million | $1,109.6 million |
| Net income | $88.1 million | $61.7 million | $341.2 million | $206.2 million |
| Net income attributable to common shareholders; diluted EPS | $74.1 million; $0.20 | $50.7 million; $0.14 | $289.6 million; $0.80 | $163.2 million; $0.47 |
| Core NOI (non-GAAP) | $224.8 million | $210.8 million | $669.2 million | $613.2 million |
| Same-home Core NOI (non-GAAP) | $191.1 million | $185.2 million | $575.2 million | $550.0 million |
| Net cash provided by operating activities | Not presented by quarter | Not presented by quarter | $623.4 million | $596.8 million |
Margins and operating indicators. Q3 Core NOI margin was 63.2%, versus 64.0% a year earlier; same-home Core NOI margin was 63.2%, versus 64.8%. Same-home realized rent per property increased 6.8% year over year in Q3 to $2,086 monthly, while same-home occupied days eased to 96.4% from 97.1%. Portfolio average occupied days were 95.6% in Q3. Core NOI and FFO measures are non-GAAP; the filing cautions they are not substitutes for GAAP income or operating cash flow.
Cash flow and investment. For the first nine months, operating cash flow rose 4.5% to $623.4 million. Investing used $465.3 million, compared with $1.268 billion in 2022, reflecting sharply lower acquisition activity; development cash spending was $708.8 million. Financing used $133.4 million, versus $736.8 million provided in the prior-year period. Cash, cash equivalents and restricted cash totaled $242.6 million at September 30.
Debt and liquidity. Balance-sheet debt, net of discounts and financing costs, was $4.375 billion, compared with $4.516 billion at December 31, 2022. Principal debt was $4.433 billion, including $1.883 billion of asset-backed securitizations and $2.550 billion of unsecured senior notes. There were no revolving-credit borrowings at September 30; the $1.25 billion facility had approximately $2.7 million of letters of credit committed. The Company reported $1.25 billion of remaining facility capacity and $1.0 billion available under its new at-the-market share program. Approximately $949.5 million of principal maturities fall in 2024. Cash interest paid in the nine-month period was $102.9 million.
Material changes versus prior comparable periods
- Q3 revenue increased 7.7%; nine-month revenue increased 9.5%, supported by higher rents and, year to date, a larger average occupied portfolio.
- Q3 net income rose to $88.1 million from $61.7 million; year-to-date net income increased to $341.2 million from $206.2 million. Management attributed the gains principally to higher rental rates and property-sale gains, with more occupied homes also contributing year to date.
- Nine-month property-sale gains were $180.8 million, versus $79.1 million; the Company sold 1,305 homes versus 530 in the prior-year period. Sale gains materially contributed to reported earnings.
- Property operating expenses rose 9.8% in Q3 and 10.0% year to date, with higher property taxes, repairs and maintenance, and turnover costs. Same-home operating expenses grew faster than same-home revenues, reducing Core NOI margins.
- Nine-month interest expense increased 6.6% to $105.1 million, primarily reflecting 2022 senior-note issuances, partly offset by more capitalized development interest. Q3 interest expense declined 5.2%, primarily due to higher capitalized interest.
- Acquisition spending through traditional and third-party builder channels was strategically scaled back amid housing and capital-market conditions. Development remained active, with 615 homes delivered through the internal program in Q3 and another 99 delivered to unconsolidated joint ventures.
Outlook, commentary, risks and unusual items
- The filing provides no specific numerical earnings or operating guidance. Management said it anticipates resuming growth in traditional and builder acquisition channels when housing and capital markets stabilize, and expects to fund operations and distributions mainly from operating cash flow, supplemented as needed by debt, equity, property sales and joint ventures.
- Management cited risks from interest rates and access to capital, home prices and acquisition opportunities, property taxes, inflation in labor and materials, labor availability, occupancy and tenant turnover, rent collection, and adverse weather. Development and renovation timing and costs may also affect results.
- Q3 2022 included $6.1 million of net hurricane-related charges; no such charges were recorded in Q3 2023. This benefits the year-over-year comparison.
- The Company entered a $625 million J.P. Morgan joint venture in July 2023, holding a 20% interest and expecting development and management fees, with potential promoted interests. It also has customary non-recourse guarantees on certain joint-venture loans, which could become liabilities upon specified triggering events; none had been invoked.
- At September 30, commitments included $112.3 million for development land and $10.5 million to acquire 43 homes; surety bonds related to development contracts totaled approximately $218.2 million. Sales in escrow covered about 86 homes and 188 land lots for $57.9 million.
- The Company is cooperating with a Georgia Attorney General investigation concerning customary landlord-tenant matters and has discussed a possible negotiated resolution. Management believes other ordinary-course legal proceedings will not materially adversely affect financial position or results.
- Subsequent events: through October 27, 2023, the Company added 214 homes for approximately $74.4 million and sold 63 for approximately $18.4 million. It borrowed $50.0 million under its revolver through October 31.
Investor facts to verify
- How much of the earnings increase reflects recurring rental operations versus the substantially higher property-sale gains; review GAAP results alongside non-GAAP FFO and Core NOI.
- Whether rent growth can continue to outpace property taxes, repairs, turnover and other operating-cost inflation, particularly as same-home occupancy softened slightly.
- The Company’s funding plan for the approximately $949.5 million of 2024 debt maturities, planned development spending and distributions, including potential use of the revolver or equity program.
- Development delivery, leasing and cost performance; the filing reports substantial development investment and notes that homes require time and spending before producing rental income.
- Developments in the Georgia AG matter, joint-venture guarantees, surety bonds and purchase commitments, including any material changes after quarter-end.