American Homes 4 Rent — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Amounts are U.S. dollars. The company is a REIT focused on acquiring, developing, renovating, leasing and operating single-family rental homes. At quarter-end it held 53,984 homes in 22 states, including 636 classified as held for sale. AH4R owned approximately 86% of the Operating Partnership.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 / prior period |
|---|---|---|
| Rental and other property revenue | $312.6 million | $287.3 million; up 8.8% |
| Net income | $48.9 million | $37.5 million |
| Net income attributable to common shareholders | $30.2 million; $0.10 basic and $0.09 diluted per share | $20.2 million; $0.07 basic and diluted per share |
| Core NOI, non-GAAP | $171.2 million; 64.2% of core revenue | $157.0 million; 63.5% |
| Core FFO attributable to common share and unit holders, non-GAAP | $116.9 million | $103.1 million |
| Adjusted FFO attributable to common share and unit holders, non-GAAP | $106.3 million | $93.5 million |
| Cash from operations | $152.0 million | $126.5 million |
| Cash used in investing | $208.2 million | $179.2 million |
| Cash from financing | $3.3 million | $50.3 million |
| Cash, cash equivalents and restricted cash | $212.1 million at March 31 | $265.1 million at December 31, 2020 |
Revenue growth reflected a larger average occupied portfolio and higher rents, partly offset by increased uncollectible rent. Same-home core revenue rose 4.0%; average monthly realized rent for same-home properties increased 3.3% year over year to $1,722. Total portfolio occupancy was 97.5% at quarter-end, compared with 94.6% a year earlier. Bad debt was 2.5% of Q1 rental billings; management reported April collections remained consistent with pandemic-period patterns.
Core NOI and FFO measures are non-GAAP; the company cautions that they are not substitutes for GAAP net income or operating cash flow and may not be comparable across REITs.
Debt and liquidity
- Total debt principal was $2.922 billion, including $1.942 billion of asset-backed securitizations, $900 million of unsecured senior notes and $80 million drawn on the revolving facility. Debt net of discounts and financing costs was $2.893 billion on the balance sheet.
- Cash and cash equivalents were $75.2 million; the existing $800 million revolver had $80 million outstanding and approximately $1.5 million committed to letters of credit at quarter-end.
- On April 15, 2021, the company amended the revolver, increasing capacity to $1.25 billion and extending maturity to April 15, 2025, with two six-month extension options subject to conditions. It also added pricing terms tied in part to sustainability performance.
- Management reported no debt maturities other than recurring amortization and the revolver until 2024. Contractual principal maturities include $953.9 million in 2024 on a fully extended basis.
- Operating cash flow increased 20.2% year over year. Investing outflows exceeded operating cash flow, principally reflecting property investment and development. The company paid $69.1 million in cash distributions to share and unit holders during Q1.
Material changes and unusual items
- Net income increased to $48.9 million from $37.5 million, driven by portfolio growth, higher occupancy and rents, and higher gains on property sales, partly offset by pandemic-related uncollectible rent.
- Core same-home NOI increased to $152.7 million from $146.8 million. Same-home core property operating expenses rose 4.0%, primarily from property taxes and repairs and turnover costs.
- Interest expense declined 5.8% to $28.0 million, primarily because more interest was capitalized to development activity. General and administrative expense rose to $15.2 million from $11.3 million, mainly due to higher share-based compensation, including accelerated recognition for retirement-eligible employees, and higher professional fees.
- Q1 property sales were 180 homes, generating $46.0 million net proceeds and $15.4 million net gains on home sales. The prior-year quarter included 410 home sales and $81.2 million net proceeds.
- A $400 million treasury lock had a $9.2 million unrealized gain recorded in other comprehensive income at quarter-end; it is intended to hedge anticipated fixed-rate debt issuance.
- The company reclassified certain impairment and other items in the income statement presentation; it said the reclassification did not affect net income or specified non-GAAP measures.
Outlook, risks and contingencies
- No numerical earnings or operating guidance is provided in the supplied filing text. Management said it anticipates the COVID-19 pandemic will negatively affect Q2 results and likely beyond; the duration and impact remain uncertain.
- Management described Q1 operations as strong and collections as resilient, but identified pandemic developments, government actions, vaccination, tenant finances and capital-market conditions as uncertainties.
- As of March 31, the company had commitments to acquire 547 homes for $146.9 million and land purchase commitments of $90.1 million related to its development program. Development, renovation, leasing timelines and costs can affect returns and cash requirements.
- An unconsolidated joint venture had $116.7 million of debt outstanding; the company provided a customary non-recourse guarantee that could be triggered by specified events, including certain bankruptcy-related actions, fraud or material misrepresentation. It had not been invoked.
- The company is cooperating with the Georgia Attorney General’s Office regarding an investigation into customary landlord-tenant matters. Management said other incidental legal and administrative proceedings were not expected to have a material adverse effect.
- On May 6, the company announced its intent to redeem all Series D preferred shares on June 7 and all Series E preferred shares on June 30, 2021, at $25 per share plus accrued and unpaid dividends.
- Management identified REIT qualification, property-market and operating conditions, tenant collections, development and acquisition execution, interest rates, access to capital, and COVID-19 as relevant risks. It reported no material changes to risk factors from its 2020 Form 10-K.
Important facts for investors to verify
- Whether occupancy, same-home rent growth and tenant collections continued to hold up, particularly given Q1 pandemic-related bad debt of $6.7 million.
- Whether development spending and committed acquisitions convert into stabilized, income-producing homes on expected timelines and costs.
- Current revolver availability, borrowings, debt maturities and refinancing plans, especially the 2024 maturity concentration.
- Completion and funding effects of the announced Series D and E preferred redemptions.
- Any developments in the Georgia investigation or events that could trigger the joint-venture guarantee.
- How GAAP earnings and cash flow compare with non-GAAP Core NOI, Core FFO and Adjusted FFO, including the effects of recurring capital expenditures and leasing costs.