American Homes 4 Rent — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. AH4R is a REIT operating primarily through American Homes 4 Rent, L.P. The company owned 56,077 single-family rental properties across 22 states, including 604 held for sale.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $339.6m | $307.9m | $965.8m | $876.0m |
| Net income | $48.5m | $40.2m | $149.2m | $109.5m |
| Net income attributable to common shareholders | $36.9m | $22.6m | $87.2m | $58.2m |
| Diluted earnings per share | $0.11 | $0.07 | $0.27 | $0.19 |
| Interest expense | $31.1m | $29.3m | $86.6m | $88.5m |
| Core NOI (non-GAAP) | $181.0m | $160.2m | $527.4m | $465.7m |
| Core NOI margin | 63.1% | 62.1% | 63.6% | 62.0% |
| Adjusted FFO attributable to common share and unit holders (non-GAAP) | $113.3m | $89.6m | $328.3m | $264.7m |
Revenue rose 10.3% in both the quarter and year-to-date, reflecting a larger occupied portfolio and higher rents and fees. Net income increased about 20.8% in Q3 and 36.3% year to date. Management attributed year-to-date growth to portfolio expansion, higher occupancy and rents, and higher property-sale gains, partly offset by increased uncollectible rents. Same-Home realized rent per property increased 6.2% in Q3 and 4.5% year to date. Same-Home Core NOI increased 8.2% in Q3 and 8.2% year to date.
At quarter-end, 53,133 properties, or 95.8% of properties excluding those held for sale, were occupied, compared with 97.5% a year earlier. Separately, the filing reports a 97.0% average occupied-days percentage for the quarter. Same-Home bad debt was 1.7% of Q3 rental billings; management said collections remained strong and residents had received assistance accessing nearly $14m of government rental assistance during the pandemic.
Cash flow, debt and liquidity
- Cash flow, nine months: Operating cash flow was $498.2m, up from $427.4m. Investing cash outflow was $1.191bn, versus $437.1m, largely reflecting increased property acquisitions and development. Financing cash inflow was $630.2m, versus $287.6m. Cash, cash equivalents and restricted cash ended at $202.0m, including $64.0m of unrestricted cash.
- Debt: Balance-sheet debt, net of discounts and financing costs, was $3.535bn; contractual principal was $3.580bn, compared with $2.817bn net at year-end 2020. Debt comprised $1.930bn of asset-backed securitizations and $1.650bn principal of unsecured notes. No revolving-facility borrowings were outstanding at September 30.
- Financing changes: In July, the Operating Partnership issued $450m of 2.375% notes due 2031 and $300m of 3.375% notes due 2051, receiving $731.6m net proceeds. The $1.25bn revolving facility was expanded from $800m and amended with pricing tied partly to credit ratings and sustainability performance. Management reported no debt maturities other than recurring amortization until 2024.
- Capital and distributions: The company redeemed Series D and E preferred shares for $498.8m during the first half of 2021 and issued common shares, including $399.0m net proceeds from settlement of forward-sale shares in September. The common distribution was $0.10 per share for Q3, versus $0.05 a year earlier.
Material changes, outlook and risks
- Property operating expenses rose 6.8% in Q3 and 7.5% year to date, driven chiefly by property taxes, repairs and maintenance, turnover, and portfolio growth. Depreciation increased with the larger property base. Acquisition and transaction costs also increased.
- Management reported that labor shortages and supply-chain disruption, including higher material costs, could affect development, renovations and maintenance. Renovation timelines had lengthened by about 30 days on average amid higher acquisition volumes and construction constraints.
- No specific numerical earnings or operating guidance is provided in the supplied filing text. Management said rental income, net of operating expenses and recurring capital expenditures, is generally expected to support operations and distributions, while noting real estate assets are illiquid and financing alternatives may be needed if cash flows fall short.
- COVID-19 remains an uncertain risk to collections, operating cash flows, employees and capital markets; the company cited possible resurgences and variants, government measures, vaccine issues and broader economic effects. Management also noted the possibility of increased uncollectible rents.
- Commitments at September 30 included purchases of 564 homes for $172.7m and $425.5m of land purchase commitments for the development program. An unconsolidated joint venture had $161.3m outstanding on a loan; the company provided a customary non-recourse guarantee that could be triggered by specified events. A Georgia Attorney General inquiry concerns customary landlord-tenant matters; the company said it is cooperating. Other routine proceedings were not expected by management to materially affect financial position or results.
- Subsequent to quarter-end through October 31, the company added 392 homes for approximately $138.4m, sold 48 for net proceeds of approximately $12.0m, and had $130.0m outstanding under its revolver.
Important facts for investors to verify
- Whether rent growth and occupancy can be sustained, and how collections, bad debt and rental assistance evolve as pandemic-related conditions change.
- Whether property-tax, maintenance, insurance, labor and material-cost pressures affect Core NOI margins and development returns.
- Funding requirements and execution risks associated with the $425.5m land commitments, home-purchase commitments and accelerated development activity.
- Debt costs, maturity schedule and available revolver capacity, including the effects of future variable-rate borrowing and subsequent-period draws.
- Potential dilution and proceeds from settlement of the remaining 1.845m forward-sale shares; the company estimated approximately $64.6m of proceeds if physically settled, but the agreements also permit cash or net-share settlement.
- Developments in the Georgia inquiry, joint-venture guarantee exposure and COVID-19-related risks. The filing does not quantify the potential financial impact of these contingencies.
Core NOI and FFO measures are non-GAAP supplemental metrics and should not be treated as substitutes for GAAP net income or operating cash flow.