American Homes 4 Rent — Q3 2017 Form 10-Q
Business and period: The company is a REIT focused on acquiring, renovating, leasing and operating single-family rental homes. This filing covers the quarter and nine months ended September 30, 2017; comparisons are with the same 2016 periods. At quarter-end, it owned 50,015 homes across 22 states, including 469 held for sale. Management reported 92.9% leased and 92.2% occupied, excluding held-for-sale properties.
Financial and operating highlights
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $246.8 million | $236.1 million | $717.6 million | $651.3 million |
| Net income (loss) | $19.1 million | $(0.2) million | $46.0 million | $1.1 million |
| Net income (loss) attributable to common shareholders | $1.5 million | $(21.2) million | $(0.1) million | $(35.9) million |
| Net cash from operating activities | Not separately presented for the quarter | $349.4 million | $255.0 million | |
| Core NOI (non-GAAP) | $131.5 million | $120.4 million | $394.9 million | $347.5 million |
- Revenue increased 4.6% in Q3 and 10.2% for the nine-month period. Rental revenue was $207.5 million in Q3 and $613.2 million year to date.
- Core NOI margin was 63.2% in Q3 versus 61.0% a year earlier. Same-home Core NOI rose 5.0% in Q3 and 6.4% for the nine months; same-home rental revenue grew 2.5% and 3.2%, respectively.
- Same-home average monthly rent was $1,535 at quarter-end, up from $1,490 a year earlier. Q3 blended rent change on renewals and re-leases was 4.1%.
- GAAP net income improved, but common-shareholder results remained close to breakeven for the nine months after preferred dividends. Q3 results included an $8.4 million gain from remeasurement of participating preferred shares.
- For the nine months, investing cash outflow was $486.9 million and financing cash inflow was $250.4 million. Cash, cash equivalents and restricted cash increased $112.9 million to $363.1 million, including $243.5 million of unrestricted cash.
- At September 30, principal debt was approximately $2.38 billion; balance-sheet debt, net of discounts and financing costs, was $2.34 billion. Debt included $2.02 billion of asset-backed securitizations, $200 million of term loans, $115 million of exchangeable notes and $49.1 million of secured notes. The $800 million revolving facility was undrawn; the company reported compliance with debt covenants.
- Common dividends declared were $0.05 per share for Q3, unchanged year over year. Core FFO and Adjusted FFO are supplemental non-GAAP measures; Adjusted FFO was $65.8 million for Q3 and $205.1 million for the nine months.
Changes, outlook and risks
- During 2017, the company issued common shares and preferred shares to fund growth and repay debt. It paid off a securitization with approximately $455 million principal, reducing total debt; nine-month interest expense fell to $86.9 million from $99.3 million.
- Harvey and Irma affected Houston, Florida and Southeast properties. About 140 homes sustained major damage and nearly 3,400 minor damage. The company recorded $10.1 million of net hurricane charges, including a $12.6 million impairment and $8.5 million of accrued repair and related costs; it estimated $11.0 million of insurance recovery, subject to policy limits and deductibles.
- The SEC subpoenaed the company in September in an investigation concerning certain single-family rental securitizations and broker price opinions. The letter did not allege a violation; the company said it was cooperating and did not expect a material adverse impact.
- At quarter-end, the company had commitments to acquire 511 homes for $122.6 million plus $13.7 million of land commitments. It reported no material changes to previously disclosed risk factors and provided no specific earnings or operating guidance in this filing.
- Management cited interest-rate exposure, acquisition costs and competition, occupancy and tenant turnover, renovation timelines, and the illiquid nature of real estate as factors that can affect results. A 100-basis-point increase in LIBOR was estimated to add $2.0 million to annual interest expense on existing variable-rate debt.
- After quarter-end, Series A and B participating preferred shares converted into 12.4 million Class A shares on October 3. The company also acquired 471 properties for about $106.1 million from October 1 through October 31.
Investor verification priorities
- Verify the drivers and sustainability of rental growth, occupancy and Core NOI gains, including the effects of property acquisitions and tenant charge-backs.
- Track hurricane repair spending, insurance claim collections and any further property impairments.
- Review debt maturities, securitization repayment terms, variable-rate exposure and remaining capacity under the revolver and equity issuance programs.
- Assess dilution and distribution obligations following common and preferred equity issuance and the Series A/B conversion.
- Monitor developments in the SEC subpoena matter and the company’s acquisition commitments and subsequent purchases.