American Homes 4 Rent — Q1 2019 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2019, American Homes 4 Rent (AMH), a REIT, reported results through its operating partnership, which owns and operates substantially all company assets. The portfolio comprised 52,923 single-family homes across 22 states, including 1,793 held for sale. AMH held an approximately 84.4% common partnership interest in the operating partnership.
Financial and operating metrics
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Total revenue | $279.2 million | $258.0 million; up 8.2% |
| Net income | $33.1 million | $21.5 million |
| Net income attributable to common shareholders | $16.3 million; $0.05 per diluted share | $5.8 million; $0.02 per diluted share |
| Operating cash flow | $147.9 million | $112.5 million |
| Investing cash flow | $(130.9) million | $(221.6) million |
| Financing cash flow | $120.5 million | $286.5 million |
| Core NOI, non-GAAP | $150.6 million; 63.3% of core revenue | $135.5 million; 61.9% |
| Same-Home Core NOI, non-GAAP | $121.1 million; 64.5% of core revenue | $114.9 million; 63.8% |
| Debt principal | $2.987 billion | $2.843 billion at Dec. 31, 2018 |
| Cash and cash equivalents | $154.6 million | $30.3 million at Dec. 31, 2018 |
Including restricted cash, cash, cash equivalents and restricted cash totaled $312.7 million at quarter-end. The $800 million revolving credit facility had no outstanding balance; $100 million remained outstanding under the term loan. The company reported covenant compliance. Common distributions declared were $0.05 per share for the quarter.
Material changes versus prior comparable period
- Revenue increased with higher average occupied homes (48,345 versus 46,855) and rental rates. Same-Home core revenue grew 4.2%; Same-Home average monthly realized rent rose to $1,600 from $1,550, and occupied days reached 95.5% from 94.8%.
- Property operating expense increased 5.6% to $106.7 million, while property management expense rose to $20.7 million. Higher property taxes, HOA costs, portfolio growth and leasing costs contributed; Same-Home core operating expenses as a share of core revenue improved to 35.5% from 36.2%.
- Interest expense rose to $31.9 million from $29.3 million, primarily reflecting the January 2019 issuance of $400 million of 4.90% 2029 senior notes. Proceeds were used in part to repay the revolving facility, which was fully repaid by quarter-end.
- Development activity became a significant investing use: $80.0 million of cash was spent on development, while cash paid for property acquisitions fell to $57.7 million from $149.7 million.
- AMH adopted the new lease accounting standard on January 1, 2019 without restating comparative periods. It changed revenue presentation, including classifying bad debt expense as a reduction of revenue, and recognized $4.8 million of office lease right-of-use assets and liabilities. This limits direct line-item comparability.
Outlook, risks, contingencies and unusual items
- The filing provides no numerical earnings or operating guidance. Management cited continued leasing activity, occupancy, rent growth, acquisition and development opportunities, financing access, property expenses and tenant turnover as factors affecting results. Management expects operating liquidity generally from cash on hand and operations, but notes real estate assets are illiquid and alternative financing may be needed if cash flow shortfalls arise.
- Key exposures include interest-rate movements and competition for homes. A 100-basis-point change in LIBOR was estimated to affect annual interest expense by approximately $1.0 million at March 31, 2019, based on then-current variable-rate debt.
- The company had $15.1 million of commitments for 47 property acquisitions and $50.8 million of commitments related to developer agreements and land. Sales in escrow covered approximately 279 homes at aggregate selling prices of $53.6 million.
- The SEC investigation concerning trading in Silver Bay Realty Trust stock remained ongoing. AMH said it was cooperating and did not expect a material adverse impact. The company also reported ordinary-course legal proceedings that it did not expect to have a material adverse effect.
- AMH reported no material change in risk factors from its 2018 Form 10-K and stated disclosure controls were effective. Founder and board chairman B. Wayne Hughes notified the company of his retirement from the board effective May 9, 2019.
Most important facts for investors to verify
- Whether rent growth, occupancy and Same-Home NOI trends persist, and how seasonal turnover and operating costs affect later quarters.
- Development spending, completed-home deliveries, leasing pace and returns on internally built and third-party-developed homes.
- Debt costs and refinancing needs, including variable-rate exposure, maturity schedules and the use of 2029 note proceeds.
- Cash available after restricted balances, recurring property capital expenditures, leasing costs and distributions; non-GAAP FFO and NOI are not substitutes for GAAP cash flow or liquidity.
- Progress and any material outcome of the SEC investigation, plus the effect of lease-standard presentation changes when comparing periods.