American Homes 4 Rent: Q1 2022 Form 10-Q
Business context and reporting period
American Homes 4 Rent (AH4R), a REIT, acquires, develops, renovates, leases and operates single-family rental homes. Its Operating Partnership owns substantially all assets and conducts substantially all operations. This combined, unaudited filing covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted.
At quarter-end, the company held 57,984 homes across 22 states, including 855 classified as held for sale; 54,352 homes not held for sale were occupied. It also held 1,849 homes through unconsolidated joint ventures.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Rental and other single-family property revenue | $356.1 million | $312.6 million; up 13.9% |
| Net income | $70.0 million | $48.9 million; up 43.1% |
| Net income attributable to common shareholders | $55.9 million; $0.16 per diluted share | $30.2 million; $0.09 per diluted share |
| Core NOI, a non-GAAP measure | $197.4 million; 65.0% of core revenue | $171.2 million; 64.2% of core revenue |
| Same-Home Core NOI, a non-GAAP measure | $175.3 million | $158.2 million; up 10.8% |
| FFO attributable to common share and unit holders, non-GAAP | $138.8 million | $106.7 million |
| Operating cash flow | $158.7 million | $152.0 million |
| Cash used for investing | $512.8 million | $208.2 million |
Revenue growth reflected a larger occupied portfolio, higher rents and lower uncollectible rents. Average occupied homes increased to 53,995 from 51,648. Same-Home realized rent per property rose 7.5% to $1,856 per month, and average occupied days were 97.5%, versus 97.3%. Overall average occupied-days percentage was 96.2%; blended rent change on renewals and re-leases was 8.8%.
Expenses also rose: property operating expense increased 12.6% to $133.6 million, property management expense increased to $26.0 million, general and administrative expense to $17.3 million, and depreciation and amortization to $100.0 million. Management cited portfolio growth and inflationary costs. Interest expense was $27.6 million, down slightly from $28.0 million, largely because more interest was capitalized as development activity increased. Gain on property sales and impairment, net, was $22.0 million, versus $16.1 million.
Financial position, liquidity and capital
- Total assets were $11.44 billion at March 31, 2022, including $10.67 billion of net real estate assets. Total liabilities were $4.33 billion and total equity was $7.11 billion.
- Cash and cash equivalents were $56.6 million; restricted cash was $150.4 million. Cash, cash equivalents and restricted cash together were $207.0 million.
- Debt principal was $3.98 billion, compared with $3.92 billion at year-end 2021; balance-sheet debt, net of discounts and financing costs, was $3.94 billion. Debt consisted of $1.92 billion in asset-backed securitizations, $1.65 billion in unsecured notes at principal, and $410.0 million drawn on the revolving facility.
- The revolving facility had $1.25 billion of capacity, with approximately $2.2 million committed to letters of credit. It bore a floating rate of LIBOR plus 1.10%. A hypothetical 100-basis-point LIBOR increase was estimated to raise annual interest expense by approximately $4.1 million, assuming debt balances were unchanged.
- Investing outflows increased mainly due to property acquisitions and development. The company spent $288.7 million on single-family properties and $244.6 million on development; $158.7 million of operating cash flow was supplemented by financing, including $375.8 million of net proceeds from shares issued directly.
- The company paid $77.7 million in distributions to common shareholders, preferred shareholders and noncontrolling interests during the quarter. The common distribution was $0.18 per share/unit, up from $0.10 a year earlier.
Material changes, outlook and risks
Portfolio expansion and rental growth supported higher earnings and operating cash flow, while property, labor and materials inflation increased costs. Cash used in investing rose substantially as acquisition and development spending accelerated. The company did not provide specific numeric earnings or operating guidance in the supplied filing text; it described anticipated cash needs and its expected funding sources as including operating cash flow, borrowing, debt and equity issuance, property sales and joint ventures.
After quarter-end, the company issued $600 million of 3.625% notes due 2032 and $300 million of 4.300% notes due 2052, receiving $870.3 million of net proceeds. It reported paying down the full $410 million revolver balance by April 30, leaving no revolver borrowings then outstanding. It also redeemed all 6.2 million Series F preferred shares on May 5, 2022, at $25 per share plus accrued dividends. These are subsequent events, not quarter-end balances.
Other notable exposures include $116.3 million of commitments to acquire 343 homes, $446.1 million of land purchase commitments, and approximately $130.0 million of surety bonds. The debt maturity schedule shows $951.4 million due in 2024 on a fully extended basis. The company cites supply-chain disruption, inflation in labor and materials, labor shortages, acquisition and development execution, leasing and turnover, tenant collections, weather, financing access and broader economic conditions as factors that may affect results. It is cooperating with a Georgia Attorney General inquiry concerning customary landlord-tenant matters; management said it believes other incidental legal matters will not materially adversely affect financial position or results.
The company reported effective disclosure controls and procedures and no material changes in internal control over financial reporting during the quarter. The filing notes that Core NOI, FFO and related measures are non-GAAP supplemental measures and are not substitutes for GAAP earnings or operating cash flow.
Important facts for investors to verify
- Whether rent increases, occupancy and tenant collections continue to offset property-tax, maintenance, labor and other inflationary cost growth.
- Development and acquisition spending, delivery and lease-up pace, and the related cash flow and return on invested capital.
- Debt refinancing and interest-rate exposure, particularly the 2024 maturities and the post-quarter issuance and revolver repayment.
- Settlement of the 13 million-share forward sale agreements, estimated to provide approximately $488.6 million in net proceeds if physically settled as expected; the filing also describes possible cash or net-share settlement outcomes.
- Commitments for home and land purchases, surety bonds, the Georgia inquiry and other legal contingencies, and the effect of the Series F redemption and subsequent financing on future distributions and capital needs.