American Homes 4 Rent — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed February 23, 2018. The filing also provides fourth-quarter results. AH4R is a REIT whose operating partnership owns and operates substantially all assets. The business acquires, renovates, leases and manages single-family rental homes.
Business and operating context
At year-end, the Company owned 51,239 homes in 22 states, including 310 held for sale; 46,996 homes, or 92.3% of operating properties, were leased. The leased percentage was down from 94.7% at year-end 2016. Approximately 61% of operating homes were in Texas, North Carolina, Florida, Georgia and Ohio. Average monthly realized rent per property for 2017 was $1,519; same-home average realized rent was $1,521.
Key financial metrics
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Total revenue | $960.4 million | $878.9 million | Up 9.3% |
| Rental revenue | $824.0 million | $757.6 million | Up 8.8% |
| Net income | $76.5 million | $10.4 million | Improved from prior year |
| Net loss attributable to common shareholders | $22.1 million, or $0.08 per share | $33.5 million, or $0.14 per share | Common shareholders remained in a loss position, reflecting preferred dividends and a $42.4 million preferred-share redemption allocation in 2017 |
| Core NOI | $531.7 million; 64.3% of core revenue | $476.6 million; 62.6% | Up 11.6%; non-GAAP measure |
| Same-home Core NOI after capital expenditures | $384.1 million | $361.7 million | Up 6.2%; non-GAAP measure |
| FFO attributable to common shareholders and unit holders | $260.5 million | $253.5 million | Core FFO was $327.0 million; Adjusted FFO was $287.0 million, both non-GAAP |
| Net cash from operating activities | $386.0 million | $278.9 million | Up $107.1 million |
| Net cash used in investing activities | $837.5 million | $522.4 million | Primarily property acquisitions, renovation and capital spending |
| Cash and cash equivalents | $46.2 million | $118.8 million | Restricted cash was an additional $136.7 million |
| Debt principal | $2.52 billion | $2.98 billion | Balance-sheet debt, net of applicable discounts and financing costs, was $2.48 billion |
Same-home Core NOI rose 5.1% to $409.3 million. Same-home core revenue increased 3.0%; same-home property operating expenses fell 0.8%. Same-home rent growth was 3.1% for the year, and turnover was 39.7%, versus 41.0% in 2016. Common distributions remained $0.20 per share for 2017.
For the fourth quarter, rental revenue was $210.8 million and net income was $30.5 million. Net loss attributable to common shareholders was $22.0 million, or $0.08 per share.
Material changes and notable items
- Portfolio count grew from 48,422 homes at year-end 2016 to 51,239 at year-end 2017. During 2017, acquisitions and internal development were partly offset by sales and rescissions; leasing percentage declined as the portfolio expanded.
- Interest expense decreased to $112.6 million from $130.8 million, reflecting repayment of securitized debt and increased capitalized interest. The Company paid off the approximately $455 million AH4R 2014-SFR1 securitization and recorded a $6.6 million early-extinguishment charge.
- AH4R issued common shares and Series F and G preferred shares during 2017. Series A and B participating preferred shares converted into 12.4 million Class A common shares in October.
- Hurricanes Harvey and Irma affected Houston, Florida and Southeast properties. The Company recorded $8.0 million of net hurricane-related charges, including an $11.0 million property impairment, with $8.9 million of expected insurance recovery and $5.9 million of accrued repair and remediation costs.
- At year-end, the Company had commitments for 520 home acquisitions totaling $128.1 million and $24.0 million of land purchases. It began third-party built-for-rental acquisitions and an internal development program.
Liquidity, debt, outlook and risks
At December 31, 2017, borrowings included $140 million on an $800 million revolving facility and $200 million on a term loan. Management reported compliance with debt covenants. Variable-rate debt exposure was estimated to increase annual interest expense by $3.4 million for a 100-basis-point rate increase, before capitalization. Major scheduled obligations include $115 million of exchangeable notes due November 2018 and $48.9 million on a secured note maturing in 2019.
After year-end, the Operating Partnership issued $500 million of 4.25% unsecured notes due 2028, receiving approximately $494 million net proceeds before estimated offering costs. The filing does not provide quantified operating guidance. Management expects operating liquidity generally to come from cash and operating cash flow, while noting that real estate assets are illiquid and financing may be needed if cash flow falls short. The board declared a $0.05 quarterly common dividend in February 2018.
Principal risks include competition for homes and tenants, occupancy and rent pressure, renovation and maintenance costs, geographic concentration, interest-rate and refinancing exposure, short-term leases, natural disasters and partial self-insurance. The Company disclosed two SEC investigations and related subpoenas: one concerning single-family rental securitizations and broker price opinions, and another concerning trading in Silver Bay Realty Trust shares. The filing says the first subpoena did not allege a violation of law; management stated it intended to cooperate and did not expect either matter to have a material adverse effect. The Company reported effective disclosure controls and internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Reconcile GAAP net income with the common-shareholder loss, preferred distributions and the preferred-share conversion allocation.
- Review occupancy, same-home rent growth, turnover and leasing trends against the expanding home count.
- Assess cash generation after recurring capital expenditures, acquisitions and distributions; distinguish unrestricted from restricted cash.
- Verify debt maturities, variable-rate exposure, covenant headroom and the use of proceeds from the 2028 notes.
- Track hurricane insurance recoveries and remediation costs, and monitor outcomes of both SEC investigations.
- Evaluate acquisition and development commitments, geographic concentration, and the effect of new supply and competition on yields.