American Homes 4 Rent — FY 2018 Form 10-K
Reporting period: Year ended December 31, 2018. This is an annual filing, not a standalone Q4 report; quarterly figures are included where relevant. AH4R is a REIT focused on acquiring, developing, renovating, leasing and operating single-family rental homes. Its operating partnership conducts substantially all operations.
Business and operating context
At year-end, the company owned 52,783 homes across 22 states, including 1,945 classified as held for sale. Excluding held-for-sale homes, 48,206 homes were leased, a 94.8% leased rate versus 92.3% a year earlier. Average monthly realized rent was $1,567; same-home realized rent increased 3.6% year over year, and same-home occupied days were 95.0%. Management cited stronger leasing and occupancy, while expanding its built-for-rental and internal development programs.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $1,072.9 million | $960.4 million |
| Net income | $112.4 million | $76.5 million |
| Net income (loss) attributable to common shareholders | $23.5 million; $0.08 per share | $(22.1) million; $(0.08) per share |
| Net cash from operating activities | $410.9 million | $386.0 million |
| Core NOI, non-GAAP | $580.6 million; 63.7% of core revenue | $531.7 million; 64.3% |
| Same-home Core NOI after capital expenditures, non-GAAP | $412.4 million | $401.7 million |
Revenue rose 11.7%, driven by a larger leased portfolio and higher rents. Property operating expenses increased 16.3% to $412.9 million, reflecting portfolio growth, property-tax increases and elevated turnover costs early in the year. Interest expense increased to $122.9 million from $112.6 million. Management reported FY 2018 Adjusted FFO attributable to common share and unit holders of $323.1 million, up from $287.0 million; this is a non-GAAP measure and is not cash available for distributions.
Q4 context: Rent revenue was $232.4 million versus $210.8 million in Q4 2017; net income was $34.7 million versus $30.5 million. Common-shareholder income was $17.6 million versus a loss of $22.0 million, with reported Q4 EPS of $0.06 versus $(0.08).
Year-end balance sheet and liquidity: Total assets were $9.0 billion, total liabilities $3.0 billion and total equity $6.0 billion. Debt carrying value was $2.804 billion (principal outstanding $2.843 billion). Cash and cash equivalents were $30.3 million, plus $144.9 million of restricted cash. The $800 million revolving facility had $250 million drawn at year-end; the company also had $100 million outstanding on its term loan. Asset-backed securitizations had $1.993 billion principal outstanding. The company reported compliance with debt covenants. Operating cash flow was below investing cash outflow of $674.4 million, which included acquisitions, development, renovations and capital expenditures.
Changes, outlook and notable items
- Portfolio growth was accompanied by a larger disposition program: approximately 1,500 homes were identified for sale as the company planned to exit six smaller markets. Held-for-sale homes increased from 310 to 1,945; related 2018 impairment charges were $5.9 million.
- Development and land spending increased: cash paid for development activity was $215.8 million, and year-end development land and homes under development totaled $153.7 million. The company built 180 homes during 2018.
- In February 2018, the operating partnership issued $500 million of 4.25% unsecured notes due 2028. It repaid the secured note payable and paid down $100 million of term-loan principal; the $115 million exchangeable notes were settled at maturity for $135.1 million. The Series C participating preferred shares converted into 10.85 million common shares, and the company issued $115 million of Series H preferred shares.
- Common distributions remained $0.20 per share for the year. Management intends to distribute approximately 100% of REIT taxable income; a reported $275 million federal tax NOL may reduce taxable income and distributions until used. No quantified operating guidance was provided in the filing.
- In January 2019, the operating partnership issued $400 million of 4.90% notes due 2029, using proceeds in part to repay revolver borrowings. By February 22, 2019, the revolver had been fully repaid. The board declared a $0.05 quarterly common dividend payable April 1, 2019.
- Key risks include single-family rental competition, tenant turnover and defaults, property-tax and maintenance cost growth, concentrated exposure to selected markets and severe weather, development execution, access to financing and variable-rate debt. A 100-basis-point rate increase was estimated to raise annual interest expense by $3.5 million before capitalization.
- The SEC’s securitization investigation concluded without further action against the company on February 7, 2019. A separate SEC investigation concerning trading in Silver Bay Realty Trust remained ongoing; the company said it intended to cooperate and did not expect a material adverse impact. Management said ordinary-course legal matters were not expected to materially affect results.
Most important facts for investors to verify
- Whether same-home rent and occupancy gains can persist while property taxes, turnover costs and other operating expenses rise.
- Progress and realized proceeds from the 1,945 held-for-sale homes and planned exits from six markets, including any further impairments.
- Development spending, delivery pace and returns on internally built and third-party-built rental homes.
- Debt maturities, remaining revolver capacity after subsequent repayment, covenant headroom and sensitivity to LIBOR and refinancing conditions.
- Cash available for common distributions after preferred distributions, recurring capital expenditures, leasing costs and required REIT distributions.
- Developments in the remaining SEC matter and other legal contingencies. The filing text does not provide a clear estimate of potential exposure for the ongoing investigation.